UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 0-22955
BAY BANKS OF VIRGINIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA | 54-1838100 | |
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NO.) |
1801 BAYBERRY COURT, SUITE 101
RICHMOND, VIRGINIA 23226
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(804) 435-1171
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
100 SOUTH MAIN STREET
KILMARNOCK, VIRGINIA 22482
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
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 ☐ no
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ yes ☐ no
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | 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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
9,400,638 shares of common stock on July 31, 2017
FORM 10-Q
For the interim period ending June 30, 2017
2
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
BAY BANKS OF VIRGINIA, INC.
June 30, 2017 | December 31, 2016 (1) | |||||||
(Dollars in thousands) | (unaudited) | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 7,454 | $ | 4,851 | ||||
Interest-bearing deposits |
26,998 | 7,945 | ||||||
Certificates of deposit |
3,224 | 4,216 | ||||||
Federal funds sold |
6,559 | 1,906 | ||||||
Securities available-for-sale, at fair value |
54,448 | 51,173 | ||||||
Restricted securities |
4,662 | 2,649 | ||||||
Loans receivable, net of allowance for loan losses of $4,241 and $3,863 |
645,701 | 381,537 | ||||||
Loans held for sale |
55,620 | 276 | ||||||
Premises and equipment, net |
17,070 | 10,844 | ||||||
Accrued interest receivable |
2,624 | 1,372 | ||||||
Other real estate owned, net |
5,360 | 2,494 | ||||||
Bank owned life insurance |
18,508 | 9,869 | ||||||
Goodwill |
8,966 | 2,808 | ||||||
Mortgage servicing rights |
989 | 671 | ||||||
Core deposit intangible |
3,436 | | ||||||
Other assets |
5,773 | 4,099 | ||||||
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Total assets |
$ | 867,392 | $ | 486,710 | ||||
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LIABILITIES |
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Noninterest-bearing deposits |
$ | 97,299 | $ | 74,799 | ||||
Savings and interest-bearing demand deposits |
282,056 | 178,869 | ||||||
Time deposits |
309,619 | 128,050 | ||||||
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Total deposits |
688,974 | 381,718 | ||||||
Securities sold under repurchase agreements |
10,786 | 18,310 | ||||||
Federal Home Loan Bank advances |
70,000 | 35,000 | ||||||
Subordinated debt, net of issuance costs |
6,868 | 6,860 | ||||||
Other liabilities |
6,286 | 3,117 | ||||||
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Total liabilities |
782,914 | 445,005 | ||||||
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SHAREHOLDERS EQUITY |
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Common stock ($5 par value; authorized - 30,000,000 shares; outstanding - 9,399,138 and 4,774,856 shares, respectively) |
46,996 | 23,874 | ||||||
Additional paid-in capital |
23,111 | 2,872 | ||||||
Unearned employee stock ownership plan shares |
(911 | ) | | |||||
Retained earnings |
16,197 | 16,194 | ||||||
Accumulated other comprehensive loss, net |
(915 | ) | (1,235 | ) | ||||
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Total shareholders equity |
84,478 | 41,705 | ||||||
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Total liabilities and shareholders equity |
$ | 867,392 | $ | 486,710 | ||||
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(1) | Derived from the audited December 31, 2016 Consolidated Financial Statements |
See Notes to Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the three months ended | For the six months ended | |||||||||||||||
(Dollars in thousands except per share amounts) | June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||||||
INTEREST INCOME |
||||||||||||||||
Loans, including fees |
$ | 8,326 | $ | 4,013 | $ | 12,714 | $ | 7,987 | ||||||||
Securities: |
||||||||||||||||
Taxable |
348 | 211 | 617 | 418 | ||||||||||||
Tax-exempt |
114 | 135 | 228 | 271 | ||||||||||||
Federal funds sold |
33 | 1 | 34 | 1 | ||||||||||||
Interest-bearing deposit accounts |
53 | 12 | 60 | 27 | ||||||||||||
Certificates of deposit |
18 | 20 | 37 | 42 | ||||||||||||
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Total interest income |
8,892 | 4,392 | 13,690 | 8,746 | ||||||||||||
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INTEREST EXPENSE |
||||||||||||||||
Deposits |
1,077 | 641 | 1,707 | 1,286 | ||||||||||||
Federal funds purchased |
| 1 | 10 | 1 | ||||||||||||
Securities sold under repurchase agreements |
4 | 4 | 7 | 6 | ||||||||||||
Subordinated debt |
119 | 118 | 236 | 236 | ||||||||||||
FHLB advances |
248 | 117 | 402 | 242 | ||||||||||||
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Total interest expense |
1,448 | 881 | 2,362 | 1,771 | ||||||||||||
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Net interest income |
7,444 | 3,511 | 11,328 | 6,975 | ||||||||||||
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Provision for loan losses |
568 | 183 | 758 | 148 | ||||||||||||
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Net interest income after provision for loan losses |
6,876 | 3,328 | 10,570 | 6,827 | ||||||||||||
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NON-INTEREST INCOME |
||||||||||||||||
Income from fiduciary activities |
229 | 236 | 474 | 443 | ||||||||||||
Service charges and fees on deposit accounts |
246 | 228 | 458 | 455 | ||||||||||||
VISA-related fees |
49 | 59 | 48 | 105 | ||||||||||||
Non-deposit product income |
115 | 74 | 195 | 180 | ||||||||||||
Other service charges and fees |
184 | 149 | 355 | 297 | ||||||||||||
Secondary market lending income |
86 | 223 | 201 | 300 | ||||||||||||
Increase in cash surrender value of life insurance |
133 | 61 | 208 | 124 | ||||||||||||
Net gains on sale of securities available for sale |
7 | 104 | 2 | 110 | ||||||||||||
Other real estate gains (losses) |
3 | (53 | ) | (93 | ) | (88 | ) | |||||||||
Other income |
91 | 3 | 152 | 16 | ||||||||||||
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Total non-interest income |
1,143 | 1,084 | 2,000 | 1,942 | ||||||||||||
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NON-INTEREST EXPENSES |
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Salaries and employee benefits |
3,321 | 1,815 | 6,145 | 3,870 | ||||||||||||
Occupancy expense |
693 | 451 | 1,132 | 899 | ||||||||||||
Software maintenance |
394 | 181 | 598 | 342 | ||||||||||||
Bank franchise tax |
142 | 61 | 218 | 121 | ||||||||||||
VISA expense |
15 | 22 | 35 | 61 | ||||||||||||
Telephone expense |
76 | 35 | 104 | 66 | ||||||||||||
FDIC assessments |
111 | 103 | 196 | 184 | ||||||||||||
Foreclosure property expense |
59 | 17 | 69 | 29 | ||||||||||||
Consulting expense |
97 | 74 | 151 | 129 | ||||||||||||
Advertising and marketing |
54 | 59 | 127 | 101 | ||||||||||||
Directors fees |
209 | 65 | 331 | 144 | ||||||||||||
Audit and accounting fees |
217 | 56 | 245 | 157 | ||||||||||||
Merger expense |
685 | | 985 | | ||||||||||||
Intangible amortization |
234 | | 234 | | ||||||||||||
Other expense |
901 | 697 | 1,487 | 1,213 | ||||||||||||
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Total non-interest expenses |
7,208 | 3,636 | 12,057 | 7,316 | ||||||||||||
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Net income before income taxes |
811 | 776 | 513 | 1,453 | ||||||||||||
Income tax expense |
254 | 190 | 133 | 343 | ||||||||||||
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Net income |
$ | 557 | $ | 586 | $ | 380 | $ | 1,110 | ||||||||
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Basic Earnings Per Share |
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Average basic shares outstanding |
9,233,615 | 4,774,856 | 7,017,907 | 4,774,856 | ||||||||||||
Earnings per share, basic |
$ | 0.06 | $ | 0.12 | $ | 0.05 | $ | 0.23 | ||||||||
Diluted Earnings Per Share |
||||||||||||||||
Average diluted shares outstanding |
9,304,796 | 4,794,783 | 7,084,430 | 4,792,574 | ||||||||||||
Earnings per share, diluted |
$ | 0.06 | $ | 0.12 | $ | 0.05 | $ | 0.23 |
See Notes to Consolidated Financial Statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the three months ended | For the six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income |
$ | 557 | $ | 586 | $ | 380 | $ | 1,110 | ||||||||
Other comprehensive income: |
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Unrealized gains on securities: |
||||||||||||||||
Unrealized holding gains arising during the period |
445 | 385 | 485 | 893 | ||||||||||||
Deferred tax expense |
(150 | ) | (130 | ) | (164 | ) | (303 | ) | ||||||||
Reclassification of net securities gains recognized in net income |
(7 | ) | (104 | ) | (2 | ) | (110 | ) | ||||||||
Deferred tax expense |
2 | 35 | 1 | 37 | ||||||||||||
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Unrealized gains adjustment, net of tax |
290 | 186 | 320 | 517 | ||||||||||||
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Total other comprehensive income |
290 | 186 | 320 | 517 | ||||||||||||
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Comprehensive income |
$ | 847 | $ | 772 | $ | 700 | $ | 1,627 | ||||||||
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See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(unaudited)
Unearned | ||||||||||||||||||||||||||||
Employee Stock | Accumulated | |||||||||||||||||||||||||||
Shares of | Additional | Ownership | Other | Total | ||||||||||||||||||||||||
(Dollars in thousands, except | Common | Common | Paid-in | Plan | Retained | Comprehensive | Shareholders | |||||||||||||||||||||
share data or amounts) | Stock | Stock | Capital | Shares | Earnings | Loss | Equity | |||||||||||||||||||||
Six Months ended June 30, 2017 |
||||||||||||||||||||||||||||
Balance at beginning of period |
4,774,856 | $ | 23,874 | $ | 2,872 | $ | | $ | 16,194 | $ | (1,235 | ) | $ | 41,705 | ||||||||||||||
Net income |
| | | | 380 | | 380 | |||||||||||||||||||||
Dividends declared of $0.04 per share |
| | | | (377 | ) | | (377 | ) | |||||||||||||||||||
Other comprehensive income |
| | | | | 320 | 320 | |||||||||||||||||||||
Issuance of common stock in connection with Virginia BanCorp acquisition |
4,586,221 | 22,931 | 20,225 | (911 | ) | | | 42,245 | ||||||||||||||||||||
Stock options exercised |
24,061 | 121 | 17 | | | | 138 | |||||||||||||||||||||
Restricted shares granted |
14,000 | 70 | (70 | ) | | | | | ||||||||||||||||||||
Stock-based compensation expense |
| | 67 | | | | 67 | |||||||||||||||||||||
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Balance at end of period |
9,399,138 | $ | 46,996 | $ | 23,111 | $ | (911 | ) | $ | 16,197 | $ | (915 | ) | $ | 84,478 | |||||||||||||
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See Notes to Consolidated Financial Statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended | ||||||||
June 30, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Cash Flows From Operating Activities |
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Net income |
$ | 380 | $ | 1,110 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
639 | 528 | ||||||
Net premium amortization and discount accretion of securities |
183 | 217 | ||||||
Amortization of core deposit intangible |
234 | | ||||||
Accretion of time deposits |
(117 | ) | | |||||
Amortization of subordinated debt issuance costs |
8 | 8 | ||||||
Accretion of loan discount |
(451 | ) | | |||||
Provision for loan losses |
758 | 148 | ||||||
Stock compensation expense |
67 | 16 | ||||||
Deferred tax benefit |
(8 | ) | (6 | ) | ||||
(Gains) on securities available-for-sale |
(2 | ) | (110 | ) | ||||
Increase in OREO valuation allowance |
109 | 53 | ||||||
(Gain) loss on sale of other real estate |
(16 | ) | 35 | |||||
Decrease in mortgage servicing rights |
6 | 38 | ||||||
Loan originations for sale |
(5,719 | ) | (9,035 | ) | ||||
Loan sales |
5,788 | 8,274 | ||||||
Gain on sold loans |
(51 | ) | (221 | ) | ||||
Increase in cash surrender value of life insurance |
(208 | ) | (124 | ) | ||||
Decrease in accrued income and other assets |
312 | 227 | ||||||
Increase in other liabilities |
297 | 202 | ||||||
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Net cash provided by operating activities |
2,209 | 1,360 | ||||||
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Cash Flows From Investing Activities |
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Proceeds from maturities and principal paydowns of available-for-sale securities |
2,198 | 1,683 | ||||||
Proceeds from sales and calls of available-for-sale securities |
17,662 | 9,097 | ||||||
Maturities of certificates of deposit |
992 | 248 | ||||||
Purchases of available-for-sale securities and certificates of deposit |
(743 | ) | (9,995 | ) | ||||
(Purchases) sales of restricted securities |
(470 | ) | 309 | |||||
Loan (originations) and principal collections, net |
(52,157 | ) | (6,840 | ) | ||||
Principal payments on loans held for sale |
279 | | ||||||
Cash acquired in the merger with Virginia Commonwealth |
14,698 | | ||||||
Proceeds from sale of other real estate |
412 | 227 | ||||||
Proceeds from sale of equipment |
6 | | ||||||
Purchases of premises and equipment |
(836 | ) | (114 | ) | ||||
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Net cash used in investing activities |
(17,959 | ) | (5,385 | ) | ||||
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Cash Flows From Financing Activities |
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Net (decrease) increase in demand, savings, and other interest-bearing deposits |
(20,071 | ) | 18,762 | |||||
Net increase in time deposits |
59,516 | 409 | ||||||
Stock options exercised |
138 | | ||||||
Net (decrease) increase in securities sold under repurchase agreements |
(7,524 | ) | 1,021 | |||||
Increase (decrease) in Federal Home Loan Bank advances |
10,000 | (10,000 | ) | |||||
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Net cash provided by financing activities |
42,059 | 10,192 | ||||||
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Net increase in cash and due from banks |
26,309 | 6,167 | ||||||
Cash and cash equivalents (including interest-earning deposits) at beginning of period |
14,702 | 20,570 | ||||||
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Cash and cash equivalents (including interest-earning deposits) at end of period |
$ | 41,011 | $ | 26,737 | ||||
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Supplemental Schedule of Cash Flow Information |
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Cash paid for: |
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Interest |
$ | 2,181 | $ | 1,758 | ||||
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Income taxes |
550 | 70 | ||||||
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Non-cash investing and financing: |
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Unrealized gain on investment securities |
483 | 783 | ||||||
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Loans transferred to other real estate owned |
259 | 1,203 | ||||||
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Loans originated to facilitate sale of OREO |
190 | 116 | ||||||
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Changes in deferred taxes resulting from OCI transactions |
163 | 266 | ||||||
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Transfer of loans to held for sale |
| 1,173 | ||||||
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Business combination: |
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Assets acquired, net of cash acquired |
315,845 | | ||||||
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Liabilities assumed |
294,454 | | ||||||
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Net assets acquired, net of cash acquired |
21,391 | | ||||||
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Dividends declared |
377 | | ||||||
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See Notes to Consolidated Financial Statements.
6
Notes to Consolidated Financial Statements (Unaudited)
Note 1: | General |
Bay Banks of Virginia, Inc. (the Company) owns 100% of Virginia Commonwealth Bank, formerly named Bank of Lancaster (refer to Note 2) (the Bank), 100% of VCB Financial Group, Inc., formerly known as Bay Trust (the VCBFG) and 100% of Steptoes Holdings, LLC (Steptoes Holdings). The consolidated financial statements include the accounts of the Bank, VCBFG, Steptoes Holdings and Bay Banks of Virginia, Inc. These June 30, 2017 consolidated financial statements reflect combined operations of the business combination of the Company and Virginia BanCorp Inc. effective April 1, 2017, and described further in Note 2.
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and to the general practices within the banking industry. In managements opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the consolidated financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or for any other interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2016.
Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations. The reclassifications had no effect on net income, net income per share or shareholders equity as previously reported.
Note 2: | Business Combination |
On April 1, 2017, the Company and Virginia BanCorp Inc. (Virginia BanCorp), a bank holding company conducting substantially all of its operations through its subsidiary Virginia Commonwealth Bank, completed a merger pursuant to the Agreement and Plan of Merger, dated as of November 2, 2016, by and between the Company and Virginia BanCorp. The Company is the surviving corporation in the merger and the former shareholders of Virginia BanCorp received 1.178 shares of the Companys common stock for each share of Virginia BanCorp common stock they owned immediately prior to the merger, for a total issuance of 4,586,221 shares of the Companys common stock valued at approximately $42.2 million. As of the completion of the merger, the Companys legacy shareholders owned approximately 51% of the outstanding common stock of the Company and Virginia BanCorps former shareholders owned approximately 49% of the outstanding common stock of the Company. After the merger of Virginia BanCorp with and into the Company, Virginia BanCorps subsidiary bank was merged with and into Bank of Lancaster, and immediately thereafter Bank of Lancaster changed its name to Virginia Commonwealth Bank. Bank operating systems are being consolidated and are expected to be completed during the fourth quarter of 2017.
The acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations. Under this method, the assets and liabilities of Virginia BanCorp were recorded at their respective fair values as of April 1, 2017. Determining the fair value of assets and liabilities, particularly to the loan portfolio, is a complex process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date, as additional information relative to the acquisition date fair values becomes available. The Company recognized goodwill of $6.2 million in connection with the acquisition, none of which is deductible for income tax purposes.
The following table details the total consideration paid by the Company on April 1, 2017 in connection with the acquisition of Virginia BanCorp, the fair value of the assets acquired and liabilities assumed, and the resulting goodwill.
7
(Dollars in thousands) | As Recorded by VCB |
Fair Value Adjustments |
As Recorded by the Company |
|||||||||
Consideration paid: |
||||||||||||
Bay Banks of Virginia, Inc. common stock |
$ | 42,247 | ||||||||||
Identifiable assets acquired: |
||||||||||||
Cash and due from banks |
$ | 2,356 | $ | | $ | 2,356 | ||||||
Interest-bearing deposits |
12,342 | | 12,342 | |||||||||
Securities available-for-sale |
22,088 | | 22,088 | |||||||||
Restricted securities |
1,543 | | 1,543 | |||||||||
Loans receivable |
216,831 | (4,259 | ) | 212,572 | ||||||||
Loans held for sale |
55,648 | | 55,648 | |||||||||
Deferred income taxes |
1,325 | (500 | ) | 825 | ||||||||
Premises and equipment |
3,333 | 2,703 | 6,036 | |||||||||
Accrued interest receivable |
1,253 | (24 | ) | 1,229 | ||||||||
Other real estate owned |
3,113 | | 3,113 | |||||||||
Core deposit intangible |
| 3,670 | 3,670 | |||||||||
Bank owned life insurance |
8,430 | | 8,430 | |||||||||
Mortgage servicing rights |
324 | | 324 | |||||||||
Other assets |
367 | | 367 | |||||||||
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Total identified assets acquired |
328,953 | 1,590 | 330,543 | |||||||||
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Identifiable liabilities assumed: |
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Noninterest-bearing deposits |
21,119 | | 21,119 | |||||||||
Savings and interest-bearing demand deposits |
124,640 | | 124,640 | |||||||||
Time deposits |
121,437 | 733 | 122,170 | |||||||||
Federal Home Loan Bank advances |
25,000 | | 25,000 | |||||||||
Other liabilities |
1,525 | | 1,525 | |||||||||
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|||||||
Total identifiable liabilities assumed |
293,721 | 733 | 294,454 | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable assets assumed |
$ | 35,232 | $ | 857 | $ | 36,089 | ||||||
|
|
|
|
|
|
|||||||
Goodwill resulting from acquisition |
$ | 6,158 | ||||||||||
|
|
Fair value of the major categories of assets acquired and liabilities assumed were determined as follows:
Loans
The acquired loans were recorded at fair value at the acquisition date of $268.2 million without carryover of Virginia BanCorps allowance for loan losses. Where loans exhibited characteristics of performance, fair value was determined based on a discounted cash flow analysis which included default estimates; loans without such characteristics, fair value was determined based on the estimated values of the underlying collateral. While estimating the amount and timing of both principal and interest cash flows expected to be collected, a market-based discount rate was applied. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type and purpose, industry segment and loan structure. Credit risk characteristics included risk rating groups pass, special mention, substandard, and doubtful and lien position. For valuation purposes, these pools were further disaggregated by maturity and pricing characteristics (e.g., fixed-rate, adjustable-rate, balloon maturities).
At April 1, 2017, the gross contractual amounts of receivable and the fair value for the purchased credit impaired loans (PCI) were $8.3 million, while the estimated cash flows not expected to be collected were approximately $7.4 million. Information about the PCI loan portfolio at April 1, 2017 is as follows:
(Dollars in thousands) | April 1, 2017 | |||
Contractual principal and interest due |
$ | 8,303 | ||
Nonaccretable difference |
869 | |||
|
|
|||
Expected cash flows |
7,434 | |||
Accretable yield |
1,354 | |||
|
|
|||
Purchase credit impaired loans - estimated fair value |
$ | 6,080 | ||
|
|
8
Loans which totaled approximately $55.4 million which were acquired are held for sale. These loans are under a pending contract to be sold to a third party and have been adjusted to the contract price adjusted for principal repayments.
Premises and Equipment
The fair value of Virginia BanCorp premises, including land, buildings and improvements, was determined based upon appraisal by licensed appraisers. These appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised. The fair value of premises and equipment resulted in a $2.7 million fair value adjustment. Land is not depreciated.
Core Deposit Intangible
The fair value of the core deposit intangible (CDI) was determined based on a combined discounted economic benefit and market approach. The economic benefit was calculated as the cost savings between maintaining the core deposit base and using an alternate funding source, such as Federal Home Loan Bank of Atlanta (FHLB) advances. The life of the deposit base and projected deposit attrition rates was determined using Virginia BanCorps historical deposit data. The CDI fair value was estimated at $3.7 million or 2.52% of acquired deposits, excluding time deposits. The CDI is being amortized over a weighted average life of 92 months using a sum-of-the-months method.
Time Deposits
The fair value adjustment of time deposits represents a premium over the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar term certificates of deposit. The resulting estimated fair value adjustment of certificates of deposit ranging in maturity from one month to five years is a $733 thousand premium and is being amortized into income on a level-yield basis over the weighted average remaining life.
FHLB Advances
The fair value of FHLB advances was considered to be equivalent to Virginia BanCorps recorded book balance as the advances matured in April 30, 2017.
Deferred Tax Assets and Liabilities
Certain deferred tax assets and liabilities were carried over to the Company from Virginia BanCorp based on the Companys ability to utilize them in the future. Additionally, deferred tax assets and liabilities were established for acquisition accounting fair value adjustments as the future amortization/accretion of these adjustments represent temporary differences between book income and taxable income.
Pro Forma Financial Information
The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2016. The unaudited combined pro forma revenue and net income combines the historical results of Virginia BanCorp with the Companys consolidated statements of income for the period listed below, and while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition related expenses of $685 thousand and $985 thousand were included in the Companys actual consolidated statements of income for the three and six months ended June 30, 2017, respectively, but were excluded from the unaudited pro forma information listed below. Legacy Virginia BanCorp incurred $174 thousand of merger related expenses during the first three months of 2017 which was also excluded from the unaudited pro forma information below. Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below:
Unaudited Pro Forma For the Three Months Ended |
Unaudited Pro Forma For the Six Months Ended |
|||||||||||||||
(Dollars in thousand) | June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||||||
Net interest income |
$ | 7,719 | $ | 6,564 | $ | 11,845 | $ | 12,954 | ||||||||
Net income |
870 | 1,223 | 1,464 | 2,371 |
Impact of Certain Acquisition Accounting Adjustments
The net effect of the amortization and accretion of premiums and discounts associated with the Companys acquisition accounting adjustments to assets acquired and liabilities assumed from Virginia BanCorp had the following impact on the consolidated statements of income for the three and six months ended June 30, 2017.
9
(Dollars in thousands) | Three Months Ended June 30, 2017 |
Six Months Ended June 30, 2017 |
||||||
Loans1 |
$ | 451 | $ | 451 | ||||
Core deposit intangible2 |
(234 | ) | (234 | ) | ||||
Time deposits3 |
117 | 117 | ||||||
Depreciation4 |
(10 | ) | (10 | ) | ||||
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|
|
|
|||||
Net impact to income before income taxes |
$ | 324 | $ | 324 | ||||
|
|
|
|
1 | Loan discount accretion is included in the Loans, including fees section of Interest Income in the consolidated statements of income. |
2 | Core deposit intangible premium amortization is included in Other expense section of Non-Interest Expenses in the consolidated statements of income. |
3 | Time deposit premium amortization is included in the Deposits section of Interest Expense in the consolidated statements of income. |
4 | Depreciation on the fair value mark up of fixed assets is included in Occupancy expense section of Non-Interest Expense in the consolidated statements of income. |
Note 3: | Significant Accounting Policies |
Loans
The Company grants mortgage loans on real estate, commercial and industrial loans, and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Companys debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Companys market areas.
Loans are reported at their recorded investment, which is the outstanding principal balance net of any unearned income, such as deferred fees and costs, charge-offs and discounts on acquired loans. Interest on loans is recognized over the term of the loan and is calculated using the interest method on principal amounts outstanding. Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield over the contractual term of the loan, adjusted for early pay-offs, where applicable.
The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans with the exception of PCI loans whose discount is being accreted to interest income.
All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any subsequent interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection.
Charge-off of Uncollectible Loans
As soon as any loan becomes uncollectible, the loan will be charged down or charged off as follows:
| If unsecured, the loan must be charged off in full. |
| If secured, the outstanding principal balance of the loan should be charged down to the net realizable value of the collateral. |
Loans should be considered uncollectible when:
| No regularly scheduled payment has been made within four months, or |
| The loan is unsecured, the borrower files for bankruptcy protection and there is no other (guarantor, etc.) support from an entity outside of the bankruptcy proceedings. |
Allowance for loan losses (ALL)
The ALL reflects managements judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each homogenous segment and class of the portfolio, plus any loans analyzed individually for impairment. Depending on the nature of each segment and class, considerations include historical loss experience, adverse situations that may affect a borrowers ability to repay, credit scores, past due history, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as conditions change.
10
Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. All loans acquired in the merger and all loans originated since the merger are risk rated. Legacy loans originated prior to the merger that were assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures (TDRs). The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status.
Risk rating categories are as follows:
Pass Borrower is strong or sound and collateral securing the loan, if any, is adequate.
Watch Borrower exhibits some signs of financial stress but is generally believed to be a satisfactory customer and collateral, if any, may be in excess of 90% of the loan balance.
Special Mention Adverse trends in the borrowers financial position are evident and warrant managements close attention. Any collateral may not be fully adequate to secure the loan balance.
Substandard A loan in this category has a well-defined weakness in the primary repayment source that jeopardizes the timely collection of the debt. There is a distinct possibility that a loss may result if the weakness is not corrected.
Doubtful Default has already occurred and it is likely that foreclosure or repossession procedures have begun or will begin in the near future. Weaknesses make collection or liquidation in full, based on currently existing information, highly questionable and improbable.
Loss Uncollectible and of such little value that continuance as a bankable asset is not warranted.
The ALL consists of specific and general components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include (1) all loans risk rated Special Mention or worse with balances of $400 thousand or more or where the borrower has filed for bankruptcy; and (2) all loans classified as a TDR . A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates any loans not identified as impaired, which are typically smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in local and national economic indicators, such as unemployment rates, interest rates, gross domestic product growth and real estate market trends; the level of past due and nonaccrual loans; risk ratings on individual loans; strength of credit policies and procedures; loan officer experience; borrower credit scores; and other intrinsic risks related to the types and geographic locations of loans. These qualitative adjustments reflect managements judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect managements estimate of probable losses. Changes in the allowance for loan losses and the related provision expense can materially affect net income.
The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.
The general component of the ALL calculation collectively evaluates groups of loans in segments and classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 20 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class.
11
Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans have historically included credit cards, which are unsecured. The credit card portfolio was sold to an unaffiliated third party in the third quarter of 2016.
The summation of the specific and general components results in the total estimated ALL. This estimate is inherently subjective and actual losses could be greater or less than the estimates.
An ALL calculation is also performed on purchased performing loans. A comparison is then made to the remaining unaccreted discount associated with the purchase of those loans. If the ALL related to these loans exceeds the remaining unaccreted discount, that difference is added to the ALL that applies to non-purchased loans. See below for more information related to Loans Purchased in a Business Combination.
Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans.
Loans Acquired in a Business Combination
The Company accounts for loans acquired in a business combination in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations. Accordingly, acquired loans are segregated between PCI loans and purchased performing loans (PPL) and are recorded at fair value on the date of acquisition without the carryover of the related allowance for loan losses.
PCI loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. When determining fair market value, PCI loans were aggregated into pools of loans based on common characteristics as of the date of acquisition such as loan type, date of origination, and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loans or pools contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.
Loans not designated PCI loans as of the acquisition date are designated purchased performing loans. The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing or PCI loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition.
Employee Stock Ownership Plan (ESOP)
The Company currently has two ESOPs for the benefit of all eligible employees. Shares held by the legacy ESOP of the former Bank of Lancaster employees are considered outstanding for purposes of computing earnings per share as they are fully allocated. Unearned ESOP shares in the ESOP acquired in the merger (new ESOP), are shown as a reduction of shareholders equity. The unearned ESOP shares are not included in basic or diluted earnings per share calculation as discussed in Note 9.
The use of dividends paid on allocated ESOP shares are at the discretion of the Company. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The Company recognizes a tax deduction equal to the cost of shares released. The unearned ESOP shares are pledged to a third party to collateralize a direct loan to the ESOP. The loan is guaranteed by the Company and is recorded on the Companys consolidated balance sheets.
It is anticipated that the Company will make contributions to the new ESOP in amounts necessary to amortize the third-party loans over a nine year period. See note 12.
Note 4: | Amendments to the Accounting Standards Codification |
In March 2017, the FASB issued Accounting Update Standard (ASU) No. 2017-08, ReceivablesNonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization
12
period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017-08 will have on its consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This ASU requires Securities and Exchange Commission (SEC) registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standards impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Companys financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326), which is new guidance for the accounting for credit losses on instruments within its scope. It introduces a new model for current expected credit losses (CECL) which will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This will include loans, held-to-maturity debt securities, loan commitments, financial guarantees, net investments in leases, reinsurance and trade receivables. The CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. In addition, ASU 2016-13 replaces the current available-for-sale debt securities other-than-temporary impairment model with an estimate of expected credit losses only when the fair value falls below the amortized cost of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the securitys amortized cost basis and its fair value. The available-for-sale debt security model will also require the use of an allowance to record estimated credit losses and subsequent recoveries. The ASU also addresses purchased financial assets with credit deterioration. Disclosure requirements are expanded regarding an entitys assumptions, models and methods for estimating the ALL. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is evaluating the impact that ASU 2016-13 will have on its consolidated financial statements. Periodic historical loan data is being accumulated which will allow for migration analysis of risk ratings, past due and non-accrual status, plus other various individual loan characteristics.
In March 2016, the FASB issued ASU 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting. The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (1) income tax consequences; (2) classification of awards as either equity or liabilities; (3) diluted earnings per share; and (4) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2016-09 did not have a material impact on the Companys consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. ASU 2016-02 will be effective for the Company for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02 in the first quarter of 2019. The Company is evaluating the impact of the standard and expects a minimal increase in assets and liabilities; however, the Company does not expect the guidance to have a material effect on its financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (Subtopic 825-10) which requires equity investments, other than those accounted for using the equity method, to be measured at fair value through earnings. There will no longer be an available-for-sale classification measured (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The cost method is also eliminated for equity instruments without a readily determinable fair value. For these investments, companies can elect to record the investment at cost, less impairment, plus or minus subsequent adjustments for observable price changes. This election only applies to equity investments that do not qualify for the net asset value practical expedient. Public companies will be required to use the exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. In addition, the ASU requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The classification and measurement guidance is effective for periods beginning after December 15, 2017. The Companys primary available-for sale investments are debt securities and are therefore not included in the scope of ASU 2016-01. The Company is continuing to evaluate the impact that ASU 2016-01 will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this ASU modify the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations. In August 2015, the FASB issued ASU 2014-09 changing the effective date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017 from December 15, 2016. The Companys primary source of revenue is interest income from loans and their fees and investments. As
13
these items are outside the scope of the guidance, this income is not expected to be impacted by implementation of ASU 2014-09. The Company is still reviewing other sources of income such as fiduciary fees, secondary market lending fees and other deposit account fees to evaluate the impact of ASU 2014-09. The Company continues to evaluate the impact that ASU 2014-09 will have on its consolidated financial statements.
Note 5: Securities
The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:
(Dollars in thousands) | Gross | Gross | ||||||||||||||
Available-for-sale securities | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
June 30, 2017 |
Cost | Gains | (Losses) | Value | ||||||||||||
Corporate bonds |
$ | 6,696 | $ | 20 | $ | (1 | ) | $ | 6,715 | |||||||
U.S. Government agencies |
27,319 | 123 | (386 | ) | 27,056 | |||||||||||
State and municipal obligations |
20,703 | 198 | (224 | ) | 20,677 | |||||||||||
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$ | 54,718 | $ | 341 | $ | (611 | ) | $ | 54,448 | ||||||||
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Gross | Gross | |||||||||||||||
Available-for-sale securities | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 31, 2016 |
Cost | Gains | (Losses) | Value | ||||||||||||
Corporate bonds |
$ | 7,695 | $ | 14 | $ | (5 | ) | $ | 7,704 | |||||||
U.S. Government agencies |
25,668 | 53 | (408 | ) | 25,313 | |||||||||||
State and municipal obligations |
18,566 | 49 | (459 | ) | 18,156 | |||||||||||
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|
|||||||||
$ | 51,929 | $ | 116 | $ | (872 | ) | $ | 51,173 | ||||||||
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|
Gross realized gains and gross realized losses on sales and calls of securities were as follows:
For the three months ended | For the six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross realized gains |
$ | 7 | $ | 105 | $ | 7 | $ | 120 | ||||||||
Gross realized losses |
| (1 | ) | (5 | ) | (10 | ) | |||||||||
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|
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Net realized gains |
$ | 7 | $ | 104 | $ | 2 | $ | 110 | ||||||||
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Aggregate proceeds |
$ | 16,667 | $ | 6,395 | $ | 17,662 | $ | 9,097 | ||||||||
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Average yields (taxable equivalent) on securities were 3.09% and 3.08% for the three months ended June 30, 2017 and 2016, respectively, and 3.11% and 3.06% for the six months ended June 30, 2017 and 2016, respectively.
Securities with a market value of $14.7 million and $19.1 million were pledged as collateral for repurchase agreements and for other purposes as required by law as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, all the securities pledged to repurchase agreements were state and municipal obligations. All the repurchase agreements had remaining contractual maturities that were overnight and continuous. Securities sold under repurchase agreements were $10.8 million and $18.3 million as of June 30, 2017 and December 31, 2016, respectively, and included in liabilities on the consolidated balance sheets. The securities pledged to each agreement are reviewed daily and can be changed at the option of the Bank with minimal risk of loss due to fair value.
Securities in an unrealized loss position at June 30, 2017 and December 31, 2016, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All agency securities, and states and municipal securities, are investment grade or better and their losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. Furthermore, all amortized cost bases are expected to be recovered. Bonds with unrealized loss positions at June 30, 2017 included 40 federal agencies, one corporate bond and 23 municipals. Bonds with unrealized loss positions at December 31, 2016 included 37 federal agencies, one corporate bond and 39 municipals. The tables are shown below.
14
(Dollars in thousands) | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
June 30, 2017 |
Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
Corporate bonds |
$ | 500 | $ | (1 | ) | $ | | $ | | $ | 500 | $ | (1 | ) | ||||||||||
U.S. Government agencies |
18,052 | (298 | ) | 4,792 | (88 | ) | 22,844 | (386 | ) | |||||||||||||||
States and municipal obligations |
7,207 | (179 | ) | 953 | (45 | ) | 8,160 | (224 | ) | |||||||||||||||
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Total temporarily impaired securities |
$ | 25,759 | $ | (478 | ) | $ | 5,745 | $ | (133 | ) | $ | 31,504 | $ | (611 | ) | |||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2016 |
Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
Corporate bonds |
$ | 995 | $ | (5 | ) | $ | | $ | | $ | 995 | $ | (5 | ) | ||||||||||
U.S. Government agencies |
20,933 | (396 | ) | 1,308 | (12 | ) | 22,241 | (408 | ) | |||||||||||||||
States and municipal obligations |
12,888 | (459 | ) | | | 12,888 | (459 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities |
$ | 34,816 | $ | (860 | ) | $ | 1,308 | $ | (12 | ) | $ | 36,124 | $ | (872 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment in FHLB stock totaled $3.7 million and $1.9 million at June 30, 2017 and December 31, 2016, respectively. The Company also had an investment in Federal Reserve Bank of Richmond (FRB) stock which totaled $745 thousand and $580 thousand at June 30, 2017 and December 31, 2016, respectively. The investments in both FHLB and FRB stock are required investments related to the Banks membership with the FHLB and FRB. These securities do not have a readily determinable fair value as their ownership is restricted, and they lack an active market for trading. Additionally, per charter provisions related to the FHLB and FRB stock, all repurchase transactions of such stock must occur at par. Accordingly, these securities are carried at cost, and are periodically evaluated for impairment. The Companys determination as to whether its investment in FHLB and FRB stock is impaired is based on managements assessment of the ultimate recoverability of its par value rather than recognizing temporary declines in its value. The determination of whether the decline affects the ultimate recoverability of the investments is influenced by available information regarding various factors. These factors include, among others, the significance of the decline in net assets of the issuing banks as compared to the capital stock amount reported by these banks, and the length of time a decline has persisted; commitments by such banks to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuing bank; and the overall liquidity position of the issuing bank. Based on its most recent analysis of publicly available information regarding the financial condition of the issuing banks, management concluded that no impairment existed in the carrying value of FHLB and FRB stock.
Note 6: | Low Income Housing Tax Credits |
The Company had investments in three separate housing equity funds at June 30, 2017. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver federal low income housing tax credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the consolidated balance sheets and were $1.5 million as of June 30, 2017. These investments and related tax benefits have expected terms through 2029. Tax credits and other tax benefits recognized related to these investments during the three and six months ended June 30, 2017 was $19 thousand and $45 thousand, respectively. Total projected tax credits to be received for 2017 are $89 thousand, which are based on the most recent quarterly estimates received from the funds. Additional capital calls expected for the funds totaled $1.5 million at June 30, 2017 and are included in other liabilities on the consolidated balance sheets.
Note 7: | Loans |
The following is a summary of the balances of loans:
(Dollars in thousands) | June 30, 2017 | December 31, 2016 | ||||||
Mortgage loans on real estate: |
||||||||
Construction, Land and Land Development |
$ | 57,891 | $ | 39,818 | ||||
Farmland |
966 | 1,023 | ||||||
Commercial Mortgages (Non-Owner Occupied) |
80,240 | 35,343 | ||||||
Commercial Mortgages (Owner Occupied) |
73,981 | 41,825 | ||||||
Residential First Mortgages |
260,074 | 194,007 | ||||||
Residential Revolving and Junior Mortgages |
49,306 | 26,425 | ||||||
Commercial and Industrial loans |
85,939 | 43,024 | ||||||
Consumer loans |
41,229 | 3,544 | ||||||
|
|
|
|
|||||
Total loans |
649,626 | 385,009 | ||||||
Net unamortized deferred loan costs |
316 | 391 | ||||||
Allowance for loan losses |
(4,241 | ) | (3,863 | ) | ||||
|
|
|
|
|||||
Loans, net |
$ | 645,701 | $ | 381,537 | ||||
|
|
|
|
15
The recorded investment in past due and non-accruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection. PCI loans are included in the aging schedule as current because they are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
(Dollars in thousands) June 30, 2017 |
30-89 Days Past Due |
90 Days or More Past Due and Still Accruing |
Nonaccruals | Total Past Due and Nonaccruals |
Current | Total Loans |
||||||||||||||||||
Mortgage Loans on Real Estate: |
||||||||||||||||||||||||
Construction, Land and Land Development |
$ | 93 | $ | | $ | 542 | $ | 635 | $ | 57,256 | $ | 57,891 | ||||||||||||
Farmland |
| | | | 966 | 966 | ||||||||||||||||||
Commercial Mortgages (Non-Owner Occupied) |
454 | | | 454 | 79,786 | 80,240 | ||||||||||||||||||
Commercial Mortgages (Owner Occupied) |
| | 1,747 | 1,747 | 72,234 | 73,981 | ||||||||||||||||||
Residential First Mortgages |
236 | | 1,941 | 2,177 | 257,897 | 260,074 | ||||||||||||||||||
Residential Revolving and Junior Mortgages |
43 | | 956 | 999 | 48,307 | 49,306 | ||||||||||||||||||
Commercial and Industrial |
| | 110 | 110 | 85,829 | 85,939 | ||||||||||||||||||
Consumer loans |
436 | | 66 | 502 | 40,727 | 41,229 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,262 | $ | | $ | 5,362 | $ | 6,624 | $ | 643,002 | $ | 649,626 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2016 |
30-89 Days Past Due |
90 Days or More Past Due and Still Accruing |
Nonaccruals | Total Past Due and Nonaccruals |
Current | Total Loans |
||||||||||||||||||
Mortgage Loans on Real Estate: |
||||||||||||||||||||||||
Construction, Land and Land Development |
$ | | $ | | $ | 623 | $ | 623 | $ | 39,195 | $ | 39,818 | ||||||||||||
Farmland |
57 | | | 57 | 966 | 1,023 | ||||||||||||||||||
Commercial Mortgages (Non-Owner Occupied) |
| | | | 35,343 | 35,343 | ||||||||||||||||||
Commercial Mortgages (Owner Occupied) |
188 | | 2,270 | 2,458 | 39,367 | 41,825 | ||||||||||||||||||
Residential First Mortgages |
1,546 | | 2,155 | 3,701 | 190,306 | 194,007 | ||||||||||||||||||
Residential Revolving and Junior Mortgages |
480 | | 160 | 640 | 25,785 | 26,425 | ||||||||||||||||||
Commercial and Industrial |
408 | | 92 | 500 | 42,524 | 43,024 | ||||||||||||||||||
Consumer loans |
| | | | 3,544 | 3,544 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,679 | $ | | $ | 5,300 | $ | 7,979 | $ | 377,030 | $ | 385,009 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table includes an aging analysis, based upon contractual terms, of the recorded investment of PCI loans as of June 30, 2017, included in the table above.
(Dollars in thousands) June 30, 2017 |
30-89 Days Past Due |
90 Days or More Past Due and Still Accruing |
Nonaccruals | Total Past Due and Nonaccruals |
Current | Total PCI Loans |
||||||||||||||||||
Mortgage Loans on Real Estate: |
||||||||||||||||||||||||
Construction, Land and Land Development |
$ | | $ | | $ | | $ | | $ | 1,421 | $ | 1,421 | ||||||||||||
Commercial Mortgages (Non-Owner Occupied) |
| | | | 187 | 187 | ||||||||||||||||||
Commercial Mortgages (Owner Occupied) |
| 182 | | 182 | 173 | 355 | ||||||||||||||||||
Residential First Mortgages |
24 | 206 | | 230 | 3,665 | 3,895 | ||||||||||||||||||
Residential Revolving and Junior Mortgages |
| 20 | | 20 | 34 | 54 | ||||||||||||||||||
Consumer loans |
5 | | | 5 | 73 | 78 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 29 | $ | 408 | $ | | $ | 437 | $ | 5,553 | $ | 5,990 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
16
Note 8: | Allowance for Loan Losses |
Loans Evaluated for Impairment
Loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
(Dollars in thousands) As of June 30, 2017 |
Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer and Other Loans |
Total | ||||||||||||
Loans individually evaluated for impairment |
$ | 9,511 | $ | 92 | $ | | $ | 9,603 | ||||||||
Loans collectively evaluated for impairment |
507,035 | 85,847 | 41,151 | 634,033 | ||||||||||||
Loans acquired with deteriorated credit quality |
5,912 | | 78 | 5,990 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Gross Loans |
$ | 522,458 | $ | 85,939 | $ | 41,229 | $ | 649,626 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2016 |
||||||||||||||||
Loans individually evaluated for impairment |
$ | 10,323 | $ | 92 | $ | | $ | 10,415 | ||||||||
Loans collectively evaluated for impairment |
328,118 | 42,932 | 3,544 | 374,594 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Gross Loans |
$ | 338,441 | $ | 43,024 | $ | 3,544 | $ | 385,009 | ||||||||
|
|
|
|
|
|
|
|
Allowance for Loan Losses
The allowance for loan losses disaggregated based on loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
(Dollars in thousands) As of June 30, 2017 |
Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | ||||||||||||
Loans individually evaluated for impairment |
$ | 851 | $ | 92 | $ | | $ | 943 | ||||||||
Loans collectively evaluated for impairment |
2,835 | 364 | 99 | 3,298 | ||||||||||||
Loans acquired with deteriorated credit quality |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total allowance for loan losses |
$ | 3,686 | $ | 456 | $ | 99 | $ | 4,241 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2016 |
Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | ||||||||||||
Loans individually evaluated for impairment |
$ | 803 | $ | 92 | $ | | $ | 895 | ||||||||
Loans collectively evaluated for impairment |
2,515 | 401 | 52 | 2,968 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total allowance for loan losses |
$ | 3,318 | $ | 493 | $ | 52 | $ | 3,863 | ||||||||
|
|
|
|
|
|
|
|
17
A disaggregation and an analysis of the change in the allowance for loan losses by segment is shown below.
(Dollars in thousands) | Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | ||||||||||||
For the Three Months Ended June 30, 2017 |
||||||||||||||||
ALLOWANCE FOR LOAN LOSSES: |
||||||||||||||||
Beginning Balance |
$ | 3,421 | $ | 528 | $ | 44 | $ | 3,993 | ||||||||
(Charge-offs) |
(141 | ) | | (193 | ) | (334 | ) | |||||||||
Recoveries |
10 | 1 | 3 | 14 | ||||||||||||
Provision (recovery) |
396 | (73 | ) | 245 | 568 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 3,686 | $ | 456 | $ | 99 | $ | 4,241 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | |||||||||||||
For the Three Months Ended June 30, 2016 |
||||||||||||||||
ALLOWANCE FOR LOAN LOSSES: |
||||||||||||||||
Beginning Balance |
$ | 3,410 | $ | 579 | $ | 118 | $ | 4,107 | ||||||||
(Charge-offs) |
(573 | ) | (158 | ) | (20 | ) | (751 | ) | ||||||||
Recoveries |
4 | | 4 | 8 | ||||||||||||
Provision |
154 | 14 | 15 | 183 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 2,995 | $ | 435 | $ | 117 | $ | 3,547 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(Dollars in thousands) | Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | ||||||||||||
For the Six Months Ended June 30, 2017 |
||||||||||||||||
ALLOWANCE FOR LOAN LOSSES: |
||||||||||||||||
Beginning Balance |
$ | 3,318 | $ | 493 | $ | 52 | $ | 3,863 | ||||||||
(Charge-offs) |
(273 | ) | | (201 | ) | (474 | ) | |||||||||
Recoveries |
88 | 1 | 5 | 94 | ||||||||||||
Provision (recovery) |
553 | (38 | ) | 243 | 758 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 3,686 | $ | 456 | $ | 99 | $ | 4,241 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Mortgage Loans on Real Estate |
Commercial and Industrial |
Consumer Loans |
Total | |||||||||||||
For the Six Months Ended June 30, 2016 |
||||||||||||||||
ALLOWANCE FOR LOAN LOSSES: |
||||||||||||||||
Beginning Balance |
$ | 3,502 | $ | 599 | $ | 122 | $ | 4,223 | ||||||||
(Charge-offs) |
(656 | ) | (158 | ) | (31 | ) | (845 | ) | ||||||||
Recoveries |
10 | 5 | 6 | 21 | ||||||||||||
Provision (recovery) |
139 | (11 | ) | 20 | 148 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 2,995 | $ | 435 | $ | 117 | $ | 3,547 | ||||||||
|
|
|
|
|
|
|
|
Purchased Impaired Loans
The following table presents the changes in the accretable yield for purchased impaired loans (refer to Note 3) since acquisition on April 1, 2017 through June 30, 2017 (in thousands):
June 30, 2017 |
||||
Balance at acquisition, April 1, 2017 |
$ | 1,354 | ||
Accretion |
(90 | ) | ||
Reclassifications from nonaccretable balance, net |
| |||
Other changes, net |
| |||
|
|
|||
Balance as of June 30, 2017 |
$ | 1,264 | ||
|
|
18
Internal Risk Rating Grades
Internal risk rating grades are generally assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250,000 with chronic delinquency, and TDRs, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades (refer to Note 3) are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All loan portfolios acquired in the merger are risk graded using loan risk grading software that employs a variety of algorithms based on detailed account characteristics to include borrowers payment history on a total relationship basis as well as loan to value exposure. For non-homogenous loans, management reviews these resulting grade assignments and makes adjustments to the final grade where appropriate based on an assessment of additional external information that may affect a particular loan. The Bank is in the process of adopting the new risk grading system over its entire loan portfolio including the Banks legacy loans and expects to fully utilize it after core system conversion.
(Dollars in thousands) | Construction, Land and Land |
Residential First |
Residential Revolving and Junior |
Commercial Mortgages (Non-Owner |
Commercial Mortgages (Owner |
Commercial and |
||||||||||||||||||||||||||||||
As of June 30, 2017 | Development | Farmland | Mortgage | Mortgage | Occupied) | Occupied) | Industrial | Consumer | Total | |||||||||||||||||||||||||||
Grade: |
||||||||||||||||||||||||||||||||||||
Pass |
$ | 46,344 | $ | 966 | $ | 42,984 | $ | 22,924 | $ | 75,168 | $ | 60,261 | $ | 84,483 | $ | 37,698 | $ | 370,828 | ||||||||||||||||||
Watch |
7,958 | | 1,252 | 33 | 4,345 | 11,058 | 1,230 | 77 | 25,953 | |||||||||||||||||||||||||||
Special mention |
270 | | | | 269 | 254 | 40 | | 833 | |||||||||||||||||||||||||||
Substandard |
3,319 | | 1,482 | 50 | 458 | 2,408 | 186 | 165 | 8,068 | |||||||||||||||||||||||||||
Doubtful |
| | | | | | | | | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 57,891 | $ | 966 | $ | 45,718 | $ | 23,007 | $ | 80,240 | $ | 73,981 | $ | 85,939 | $ | 37,940 | $ | 405,682 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 | Construction, Land and Land Development |
Farmland | Commercial Mortgages (Non-Owner Occupied) |
Commercial Mortgages (Owner Occupied) |
Commercial and Industrial |
Total | ||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
$ | 32,009 | $ | 1,023 | $ | 30,639 | $ | 31,191 | $ | 40,841 | $ | 135,703 | ||||||||||||
Watch |
5,795 | | 4,184 | 6,652 | 1,891 | 18,522 | ||||||||||||||||||
Special mention |
180 | | 272 | 1,453 | 125 | 2,030 | ||||||||||||||||||
Substandard |
1,834 | | 248 | 2,529 | 167 | 4,778 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 39,818 | $ | 1,023 | $ | 35,343 | $ | 41,825 | $ | 43,024 | $ | 161,033 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Loans not assigned internal risk rating grades are comprised of smaller residential mortgages and smaller consumer loans in the surviving banks legacy portfolios. Payment activity of these loans is reviewed monthly by management. However, some of these loans are graded when the borrowers total exposure to the Bank exceeds the limits noted above. Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.
(Dollars in thousands) | Residential | Residential Revolving |
||||||||||||||
As of June 30, 2017 | First | and Junior | Consumer | |||||||||||||
PAYMENT ACTIVITY STATUS |
Mortgages (1) | Mortgages (2) | Loans (3) | Total | ||||||||||||
Performing |
$ | 212,467 | $ | 25,342 | $ | 3,289 | $ | 241,098 | ||||||||
Nonperforming |
1,889 | 957 | | 2,846 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 214,356 | $ | 26,299 | $ | 3,289 | $ | 243,944 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Residential | Residential Revolving |
|||||||||||||||
As of December 31, 2016 | First | and Junior | Consumer | |||||||||||||
PAYMENT ACTIVITY STATUS | Mortgages (4) | Mortgages (5) | Loans (6) | Total | ||||||||||||
Performing |
$ | 191,852 | $ | 26,265 | $ | 3,544 | $ | 221,661 | ||||||||
Nonperforming |
2,155 | 160 | | 2,315 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 194,007 | $ | 26,425 | $ | 3,544 | $ | 223,976 | ||||||||
|
|
|
|
|
|
|
|
(1) | Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.3 million as of June 30, 2017. |
(2) | Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $1.0 million as of June 30, 2017. |
(3) | Consumer Loans had been assigned a risk rating grade of Substandard as of June 30, 2017 totaled $85 thousand as of June 30, 2017. |
(4) | Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $3.3 million as of December 31, 2016. |
(5) | Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $1.1 million as of December 31, 2016. |
(6) | No Consumer Loans had been assigned a risk rating grade of Substandard as of December 31, 2016. |
19
Impaired Loans
The following tables show the Companys recorded investment and the customers unpaid principal balances for impaired loans, excluding purchased impaired loans, with the associated allowance amount, if applicable, as of June 30, 2017 and December 31, 2016, along with the average recorded investment and interest income recognized for the three and six months ended June 30, 2017 and 2016, respectively.
(Dollars in thousands) | As of June 30, 2017 | As of December 31, 2016 | ||||||||||||||||||||||
IMPAIRED LOANS |
Recorded Investment |
Customers Unpaid Principal Balance |
Related Allowance |
Recorded Investment |
Customers Unpaid Principal Balance |
Related Allowance |
||||||||||||||||||
With no related allowance: |
||||||||||||||||||||||||
Construction, Land and Land Development |
$ | 1,451 | $ | 1,532 | $ | | $ | 1,531 | $ | 1,539 | $ | | ||||||||||||
Residential First Mortgages |
1,765 | 1,836 | | 2,112 | 2,176 | | ||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
160 | 166 | | 995 | 999 | | ||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
248 | 248 | | 248 | 248 | | ||||||||||||||||||
Commercial Mortgages (Owner occupied) |
1,682 | 1,997 | | 1,860 | 2,178 | | ||||||||||||||||||
Commercial and Industrial |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,306 | 5,779 | | 6,746 | 7,140 | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
With an allowance recorded: |
||||||||||||||||||||||||
Construction, Land and Land Development |
233 | 283 | 142 | 243 | 286 | 145 | ||||||||||||||||||
Residential First Mortgages |
1,934 | 1,934 | 408 | 1,951 | 1,951 | 367 | ||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
1,299 | 1,302 | 159 | 544 | 546 | 199 | ||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
| | | | | | ||||||||||||||||||
Commercial Mortgages (Owner occupied) |
739 | 764 | 142 | 839 | 854 | 92 | ||||||||||||||||||
Commercial and Industrial |
92 | 101 | 92 | 92 | 101 | 92 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
4,297 | 4,384 | 943 | 3,669 | 3,738 | 895 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Impaired Loans: |
||||||||||||||||||||||||
Construction, Land and Land Development |
1,684 | 1,815 | 142 | 1,774 | 1,825 | 145 | ||||||||||||||||||
Residential First Mortgages |
3,699 | 3,770 | 408 | 4,063 | 4,127 | 367 | ||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
1,459 | 1,468 | 159 | 1,539 | 1,545 | 199 | ||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
248 | 248 | | 248 | 248 | | ||||||||||||||||||
Commercial Mortgages (Owner occupied) |
2,421 | 2,761 | 142 | 2,699 | 3,032 | 92 | ||||||||||||||||||
Commercial and Industrial |
92 | 101 | 92 | 92 | 101 | 92 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 9,603 | $ | 10,163 | $ | 943 | $ | 10,415 | $ | 10,878 | $ | 895 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(1) | Junior mortgages include equity lines. |
20
For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||
June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Average Recorded Investment |
Interest Income Recognized |
Average Recorded Investment |
Interest Income Recognized |
Average Recorded Investment |
Interest Income Recognized |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||||||||||
With no related allowance: |
||||||||||||||||||||||||||||||||
Construction, land and land development |
$ | 1,453 | $ | 14 | $ | 1,535 | $ | 14 | $ | 1,479 | $ | 27 | $ | 1,172 | $ | 27 | ||||||||||||||||
Residential First Mortgages |
1,769 | 2 | 2,728 | (2 | ) | 1,774 | 7 | 2,231 | 14 | |||||||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
162 | | 988 | 8 | 162 | 1 | 675 | 19 | ||||||||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
247 | 5 | 248 | 4 | 248 | 8 | 253 | 8 | ||||||||||||||||||||||||
Commercial Mortgages (Owner occupied) |
1,689 | 4 | 1,393 | 1 | 1,777 | 11 | 1,190 | 17 | ||||||||||||||||||||||||
Commercial and Industrial |
| | | | | | | | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
5,320 | 25 | 6,892 | 25 | 5,440 | 54 | 5,521 | 85 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
With an allowance recorded: |
||||||||||||||||||||||||||||||||
Construction, land and land development |
236 | 1 | 255 | 1 | 238 | 2 | 257 | 2 | ||||||||||||||||||||||||
Residential First Mortgages |
1,938 | 23 | 2,370 | 21 | 1,942 | 47 | 2,416 | 42 | ||||||||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
1,300 | 5 | 196 | 2 | 1,301 | 18 | 195 | 4 | ||||||||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
| | | | | | | | ||||||||||||||||||||||||
Commercial Mortgages (Owner occupied) |
737 | | 1,460 | 6 | 739 | | 1,462 | 11 | ||||||||||||||||||||||||
Commercial and Industrial |
92 | | 105 | 1 | 92 | | 109 | 1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
4,303 | 29 | 4,386 | 31 | 4,312 | 67 | 4,439 | 60 | |||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
||||||||||||||||||||||||||||||||
Construction, land and land development |
1,689 | 15 | 1,790 | 15 | 1,717 | 29 | 1,429 | 29 | ||||||||||||||||||||||||
Residential First Mortgages |
3,707 | 25 | 5,098 | 19 | 3,716 | 54 | 4,647 | 56 | ||||||||||||||||||||||||
Residential Revolving and Junior Mortgages (1) |
1,462 | 5 | 1,184 | 10 | 1,463 | 19 | 870 | 23 | ||||||||||||||||||||||||
Commercial Mortgages (Non-owner occupied) |
247 | 5 | 248 | 4 | 248 | 8 | 253 | 8 | ||||||||||||||||||||||||
Commercial Mortgages (Owner occupied) |
2,426 | 4 | 2,853 | 7 | 2,516 | 11 | 2,652 | 28 | ||||||||||||||||||||||||
Commercial and Industrial |
92 | | 105 | 1 | 92 | | 109 | 1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 9,623 | $ | 54 | $ | 11,278 | $ | 56 | $ | 9,752 | $ | 121 | $ | 9,960 | $ | 145 | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Junior mortgages include equity lines. |
Smaller non-accruing loans and non-accruing loans that are not graded because they are included in homogenous pools generally do not meet the criteria for impairment testing, and are therefore excluded from impaired loan disclosures. At June 30, 2017 and December 31, 2016, non-accruing loans excluded from impaired loan disclosure totaled $760 thousand and $465 thousand, respectively. If interest on these non-accruing loans had been accrued, such income would have totaled $6 thousand and $3 thousand during the three months ended June 30, 2017 and 2016, respectively, and $9 thousand and $3 thousand during the six months ended June 30, 2017 and 2016, respectively.
Loan Modifications
Loans modified as TDRs are considered impaired and are individually evaluated for the amount of impairment in the ALL. No TDRs subsequently defaulted in the first six months 2017 or the first six months of 2016. The following table presents, by segments of loans, information related to loans modified as TDRs.
For the three months ended | For the three months ended | |||||||||||||||||||||||
June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) TROUBLED DEBT RESTRUCTURINGS |
Number of Loans |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
Number of Loans |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||||||||||
Residential first mortgages (1) |
| $ | | $ | | 1 | $ | 244 | $ | 244 |
(1) | Modification was a capitalization of interest. |
For the six months ended | For the six months ended | |||||||||||||||||||||||
June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) TROUBLED DEBT RESTRUCTURINGS |
Number of Loans |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
Number of Loans |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
||||||||||||||||||
Residential first mortgages (1) |
| $ | | $ | | 1 | $ | 244 | $ | 244 |
(1) | Modification was a capitalization of interest. |
21
Other Real Estate Owned
The table below details the properties included in other real estate owned (OREO) as of June 30, 2017 and December 31, 2016. There were two collateralized consumer residential mortgage loans from two borrowers valued at $127 thousand in the process of foreclosure as of June 30, 2017.
As of June 30, 2017 | As of December 31, 2016 | |||||||||||||||
(Dollars in thousands) | No. of Properties |
Carrying Value |
No. of Properties |
Carrying Value |
||||||||||||
Residential |
5 | $ | 979 | 2 | $ | 891 | ||||||||||
Land lots |
18 | 3,196 | 7 | 547 | ||||||||||||
Convenience store |
1 | 59 | 1 | 59 | ||||||||||||
Restaurant |
1 | 55 | 1 | 55 | ||||||||||||
Commerical properties |
5 | 1,071 | 3 | 942 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
30 | $ | 5,360 | 14 | $ | 2,494 | ||||||||||
|
|
|
|
|
|
|
|
Included in other assets as of June 30, 2017 and December 31, 2016, is one residential property purchased in 2013 from a related party with a value of $708 thousand and a former branch, which was closed April 30, 2015, with a value of $403 thousand.
Note 9: | Earnings per share |
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Basic earnings per share amounts are computed by dividing the net income (the numerator) by the weighted average number of common shares outstanding (the denominator). Diluted earnings per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce the loss or increase the income per common share from continuing operations. For both computations, the weighted average number of unearned ESOP shares purchased by the ESOP, which have not been allocated to participant accounts, are not assumed to be outstanding. The weighted average unearned ESOP shares which were excluded from the computation were 140,542 and 70,267 for the three and six months ended June 30, 2017, respectively. All ESOP shares were allocated for periods prior to April 1, 2017.
For the three months ended | For the six months ended | |||||||||||||||||||||||||||||||
June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||||||||||||||||||
Average Shares |
Per share Amount |
Average Shares |
Per share Amount |
Average Shares |
Per share Amount |
Average Shares |
Per share Amount |
|||||||||||||||||||||||||
Basic earnings per share |
9,233,615 | $ | 0.06 | 4,774,856 | $ | 0.12 | 7,017,907 | $ | 0.05 | 4,774,856 | $ | 0.23 | ||||||||||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||||||||||
Stock options |
71,181 | 19,927 | 66,523 | 17,718 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Diluted earnings per share |
9,304,796 | $ | 0.06 | 4,794,783 | $ | 0.12 | 7,084,430 | $ | 0.05 | 4,792,574 | $ | 0.23 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
For the three months ended June 30, 2017 and 2016, options on 15,758 and 46,135 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive. For the six months ended June 30, 2017 and 2016, options on 22,758 and 53,635 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive.
Note 10: | Stock-Based Compensation |
On June 28, 2013, the Company registered with the SEC a stock-based compensation plan, which superseded all other plans. There are 311,209 shares available for grant under this plan at June 30, 2017.
Stock-based compensation expense related to stock option awards for the three months ended June 30, 2017 and 2016 was $8 thousand and zero, respectively. For the six months ended June 30, 2017 and 2016, stock-based compensation expense related to stock option awards was $24 thousand and $16 thousand, respectively. Compensation expense for stock options is the estimated fair value of options on the date granted using the Black-Scholes Model amortized on a straight-line basis over the vesting period of the award. There was no unrecognized compensation expense related to stock options as of June 30, 2017.
The variables used in these calculations of the fair value of the options are as follows:
For the six months ended June 30, | ||||
2017 | 2016 | |||
Risk free interest rate (5 year Treasury) |
1.78% - 1.93% | 1.49% | ||
Expected dividend yield |
0% | 0% | ||
Expected term (years) |
5 | 5 | ||
Expected volatility |
17.2% - 21.7% | 40.1% |
22
Stock option activity for the six months ended June 30, 2017 is summarized below:
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value (1) |
|||||||||||||
Options outstanding, January 1, 2017 |
218,300 | $ | 6.35 | 5.9 | ||||||||||||
Granted |
13,000 | 8.54 | ||||||||||||||
Forfeited |
(1,195 | ) | 8.43 | |||||||||||||
Exercised |
(24,061 | ) | 5.69 | |||||||||||||
Expired |
(9,625 | ) | 13.96 | |||||||||||||
|
|
|||||||||||||||
Options outstanding and exercisable, June 30, 2017 |
196,419 | $ | 6.20 | 5.9 | $ | 629,496 | ||||||||||
|
|
|
|
|
|
(1) | The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2017. This amount changes based on changes in the market value of the Companys common stock. |
In the first six months of 2017, 14,000 shares of restricted stock were granted to three executives. Total unvested restricted shares were 9,000 as of June 30, 2017 and zero as of December 31, 2016. Stock based compensation related to restricted stock awards was $43 thousand and zero as of the six months ended June 30, 2017 and 2016, respectively.
Note 11: | Employee Benefit Plans |
The Company has a non-contributory, defined benefit pension plan for full-time employees who were over 21 years of age and vested in the plan as of December 31, 2012, when the plan was frozen. Each participants account balance grows based on monthly interest credits. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.
The Company sponsors a post-retirement benefit plan covering current and future retirees who acquire age 55 and 10 years of service or age 65 and 5 years of service. The post-retirement benefit plan provides coverage toward a retirees eligible medical and life insurance benefits expenses. The plan is unfunded and funded as benefits are due.
Components of Net Periodic (Benefit) Cost
(Dollars in thousands) | Pension Benefits | Post-Retirement Benefits | ||||||||||||||
Six months ended June 30, |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost |
$ | | $ | | $ | 10 | $ | 11 | ||||||||
Interest cost |
62 | 69 | 10 | 14 | ||||||||||||
Expected return on plan assets |
(90 | ) | (96 | ) | | | ||||||||||
Settlement loss |
26 | | | | ||||||||||||
Amortization of net gain |
| | (4 | ) | | |||||||||||
Recognized net actuarial loss |
38 | 39 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic cost |
$ | 36 | $ | 12 | $ | 16 | $ | 25 | ||||||||
|
|
|
|
|
|
|
|
The Company expects to make no contribution to its pension plan and $3 thousand to its post-retirement benefit plan during the remainder of 2017. The Company has contributed $3 thousand towards the post-retirement plan during the first six months of 2017.
Note 12: | Long Term Debt |
FHLB Debt
As of June 30, 2017, the Bank had $70.0 million of outstanding FHLB debt, consisting of six advances. As of December 31, 2016, five advances totaling $35.0 million were outstanding. The $40.0 million advance that matured on July 3, 2017 and the $5.0 million daily rate credit that was to mature on May 30, 2018 were replaced with a $50.0 million fixed rate advance with an interest rate of 1.14% maturing on August 2, 2017. This advance was then rolled over at an interest rate of 1.16% maturing on September 1, 2017.
23
The six advances are shown in the following table.
Description |
Balance (000s) | Originated | Current Interest Rate |
Maturity Date | ||||||||||||
Adjustable Rate Hybrid |
$ | 10,000 | 4/12/2013 | 3.53511 | 4/13/2020 | |||||||||||
Fixed Rate Credit |
5,000 | 12/22/2015 | 1.08000 | 9/15/2017 | ||||||||||||
Fixed Rate Credit |
5,000 | 1/17/2017 | 0.91000 | 10/17/2017 | ||||||||||||
Fixed Rate Credit |
5,000 | 1/20/2017 | 0.99500 | 12/20/2017 | ||||||||||||
Daily Rate Credit |
5,000 | 5/30/2017 | 1.32000 | 5/30/2018 | ||||||||||||
Fixed Rate Credit |
40,000 | 6/2/2017 | 1.04000 | 7/3/2017 | ||||||||||||
|
|
|||||||||||||||
$ | 70,000 | |||||||||||||||
|
|
Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Immediate available credit, as of June 30, 2017, was $44.3 million against a total line of credit of $125.3 million.
As of June 30, 2017 and December 31, 2016, the Company had $70.0 million and $35.0 million, respectively, in FHLB debt outstanding with a weighted average interest rate of 1.41% and 1.49%, respectively.
Subordinated Debt
On May 28, 2015, the Company issued an aggregate of $7,000,000 of subordinated notes (the Notes). The Notes have a maturity date of May 28, 2025. The Notes bear interest, payable on the 1st of March and September of each year, commencing September 1, 2015, at a fixed interest rate of 6.50% per year. The Notes are not convertible into common stock or preferred stock, and are not callable by the holders. The Company has the right to redeem the Notes, in whole or in part, without premium or penalty, at any interest payment date on or after May 28, 2020 and prior to the maturity date, but in all cases in a principal amount with integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default occurs, such as the bankruptcy of the Company, the holder of a Note may declare the principal amount of the Note to be due and immediately payable. The Notes are unsecured, subordinated obligations of the Company and will rank junior in right of payment to the Companys existing and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory reporting.
(Dollars in thousands) | Balance as of June 30, 2017 |
|||
6.5% Subordinated Debt |
$ | 7,000 | ||
Less: Issuance costs |
(132 | ) | ||
|
|
|||
$ | 6,868 | |||
|
|
ESOP Debt
Acquired in the merger was $911 thousand of debt secured by unissued shares of stock in the Companys ESOP plan. The four fixed rate amortizing notes each carry an interest rate of 3.25% with maturity dates ranging from March 1, 2019 to November 1, 2026.
Note 13: | Fair Value Measurements |
The Company uses fair value to record certain assets and liabilities and to determine fair value disclosures. Authoritative accounting guidance clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Authoritative accounting guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:
Level 1 Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available-for-sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
24
Defined benefit plan assets: Defined benefit plan assets are recorded at fair value on an annual basis at year end.
Mortgage servicing rights (MSR): The Bank currently owns MSRs from two portfolios, one serviced for Fannie Mae (FNMA) and one serviced for Freddie Mac (FHLMC).
The MSR for the portfolio serviced for FNMA is recorded at fair value on a recurring basis, with changes in fair value recorded in the results of operations. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each pool. Loans are segregated into 14 pools based on each loans term and seasoning (age). All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Monthly service costs were assumed to be $6.33 per loan as of June 30, 2017 and $6.00 per loan as of December 31, 2016. Prepayment speeds are determined primarily based on the average interest rate of the loans in each pool. The prepayment scale used is the Public Securities Association (PSA) model, where 100% PSA means prepayments are zero in the first month, then increase by 0.2% of the loan balance each month until reaching 6.0% in month 30. Thereafter, the 100% PSA model assumes an annual prepayment of 6.0% of the remaining loan balance. The average PSA speed assumption in the fair value model is 147% and 150% as of June 30, 2017 and December 31, 2016, respectively. A discount rate of 14.0% was then applied to each pool both as of June 30, 2017 and December 31, 2016. This discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. This MSR is classified as Level 3.
Similarly, the MSR for the portfolio serviced for FHLMC is recorded at fair value on a recurring basis, with changes in fair value recorded in the results of operations. This MSR was acquired by the Bank as part of the merger with Virginia BanCorp effective April 1, 2017. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each. Loans are segregated into five pools based on each loans term and coupon strata. All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Monthly service costs were assumed to be $7.67 per loan as of June 30, 2017. Prepayment speeds are determined primarily based on the average interest rate and seasoning of the loans in each pool. The prepayment scale used is the PSA model as described above. The average PSA speed assumption in the fair value model is 195% as of June 30, 2017. The PSA speeds are converted to a constant prepayment rate (CPR) and then adjusted by applying betas in order to reflect the prepayment speeds of the portfolio based on historical payment behavior. As of June 30, 2017, an average CPR of 7.51% was applied based on the prior two years of history. Utilizing observed market prices in the secondary market, an average price of 102.84% was effectively applied in determining the market discount rate to be applied to the portfolios servicing cash flows. This rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. This MSR is classified as Level 3.
25
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of
June 30, 2017 and December 31, 2016:
(Dollars in thousands) | Fair Value Measurements at June 30, 2017 Using | |||||||||||||||
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Securities available-for-sale: |
||||||||||||||||
Corporate bonds |
$ | 6,715 | $ | | $ | | $ | 6,715 | ||||||||
U. S. Government agencies |
27,056 | | 27,056 | | ||||||||||||
State and municipal obligations |
20,677 | | 20,677 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available-for-sale: |
$ | 54,448 | $ | | $ | 47,733 | $ | 6,715 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Mortgage servicing rights |
$ | 989 | $ | | $ | | $ | 989 | ||||||||
Defined benefit plan assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 21 | $ | 21 | $ | | $ | | ||||||||
Mutual funds - fixed income |
1,016 | 1,016 | | | ||||||||||||
Mutual funds - equity |
1,524 | 1,524 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total defined benefit plan assets |
$ | 2,561 | $ | 2,561 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair Value Measurements at December 31, 2016 Using | ||||||||||||||||
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Securities available-for-sale: |
||||||||||||||||
Corporate bonds |
$ | 7,704 | $ | | $ | | $ | 7,704 | ||||||||
U. S. Government agencies |
25,313 | | 25,313 | | ||||||||||||
State and municipal obligations |
18,156 | | 18,156 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available-for-sale: |
$ | 51,173 | $ | | $ | 43,469 | $ | 7,704 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Mortgage servicing rights |
$ | 671 | $ | | $ | | $ | 671 | ||||||||
Defined benefit plan assets: |
||||||||||||||||
Mutual funds - fixed income |
$ | 1,041 | $ | 1,041 | $ | | $ | | ||||||||
Mutual funds - equity |
1,649 | 1,649 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total defined benefit plan assets |
$ | 2,690 | $ | 2,690 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
The reconciliation of items using Level 3 inputs is as follows:
Corporate | ||||||||
(Dollars in thousands) | MSRs | Bonds | ||||||
Balance, January 1, 2017 |
$ | 671 | $ | 7,704 | ||||
Purchases |
| | ||||||
Acquired in merger |
324 | | ||||||
Impairments |
| | ||||||
Fair value adjustments |
(6 | ) | 11 | |||||
Sales |
| (1,000 | ) | |||||
|
|
|
|
|||||
Balance, June 30, 2017 |
$ | 989 | $ | 6,715 | ||||
|
|
|
|
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:
Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any given loan may have multiple types of collateral. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside
26
appraisal if deemed significant, or the net book value on the applicable business financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.
Other Real Estate Owned: OREO is measured at fair value less estimated costs to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. The initial fair value of OREO is based on an appraisal done at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest income on the Consolidated Statements of Income.
The following table summarizes the Companys assets that were measured at fair value on a nonrecurring basis at the end of the respective period.
Fair Value Measurements at June 30, 2017 Using | ||||||||||||||||
(Dollars in thousands) Description |
Balance as of June 30, 2017 |
Level 1 | Level 2 | Level 3 | ||||||||||||
Impaired Loans, net |
$ | 3,354 | $ | | $ | | $ | 3,354 | ||||||||
Other real estate owned, net |
5,360 | | | 5,360 | ||||||||||||
Fair Value Measurements at December 31, 2016 Using | ||||||||||||||||
Description |
Balance as of December 31, 2016 |
Level 1 | Level 2 | Level 3 | ||||||||||||
Impaired Loans, net |
$ | 2,774 | $ | | $ | | $ | 2,774 | ||||||||
Other real estate owned, net |
2,494 | | | 2,494 |
The following table displays quantitative information about Level 3 Fair Value Measurements as of June 30, 2017:
(Dollars in thousands) | Balance as of June 30, 2017 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
||||||||||||
Impaired Loans, net |
$ | 3,354 | Discounted appraised value | Selling Cost | 15% (15%) | |||||||||||
Other real estate owned, net |
5,360 | Discounted appraised value | Selling Cost | 0% - 100% (5%) | ||||||||||||
Lack of Marketability | 10% -20% (11%) |
The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2016:
(Dollars in thousands) | Balance as of December 31, 2016 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) |
||||||||||
Impaired Loans, net |
$ | 2,774 | Discounted appraised value | Selling Cost | 10% -20% (16%) | |||||||||
Lack of Marketability | 50% (50%) | |||||||||||||
Other real estate owned, net |
2,494 | Discounted appraised value | Selling Cost | 3% - 13% (5%) | ||||||||||
Lack of Marketability | 10% -20% (11%) |
27
The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.
Fair Value Measurements at June 30, 2017 Using | ||||||||||||||||||||
(Dollars in thousands) | Balance as of | Fair Value as of | ||||||||||||||||||
Description |
June 30, 2017 | June 30, 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 7,454 | $ | 7,454 | $ | 7,454 | $ | | $ | | ||||||||||
Interest-bearing deposits |
26,998 | 26,998 | 26,998 | | | |||||||||||||||
Certificates of deposit |
3,224 | 3,224 | | 3,224 | | |||||||||||||||
Federal funds sold |
6,559 | 6,559 | 6,559 | | | |||||||||||||||
Securities available-for-sale |
54,448 | 54,448 | | 47,733 | 6,715 | |||||||||||||||
Restricted securities |
4,662 | 4,662 | | | 4,662 | |||||||||||||||
Loans, net |
645,701 | 654,263 | | | 654,263 | |||||||||||||||
Loans held for sale |
55,620 | 55,620 | | | 55,620 | |||||||||||||||
Accrued interest receivable |
2,624 | 2,624 | | 2,624 | | |||||||||||||||
Bank owned life insurance |
18,508 | 18,508 | 18,508 | | | |||||||||||||||
Mortgage servicing rights |
989 | 989 | | | 989 | |||||||||||||||
Financial Liabilities: |
||||||||||||||||||||
Non-interest-bearing liabilities |
$ | 97,299 | $ | 97,299 | $ | 97,299 | $ | | $ | | ||||||||||
Savings and other interest-bearing deposits |
282,056 | 282,056 | | 282,056 | | |||||||||||||||
Time deposits |
309,619 | 308,952 | | | 308,952 | |||||||||||||||
Securities sold under repurchase agreements |
10,786 | 10,786 | | 10,786 | | |||||||||||||||
FHLB advances |
70,000 | 70,591 | | 70,591 | | |||||||||||||||
Subordinated debt |
6,868 | 7,000 | | | 7,000 | |||||||||||||||
Accrued interest payable |
395 | 395 | | 395 | | |||||||||||||||
Fair Value Measurements at December 31, 2016 Using | ||||||||||||||||||||
(Dollars in thousands) | Balance as of | Fair Value as of | ||||||||||||||||||
Description |
December 31, 2016 | December 31, 2016 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 4,851 | $ | 4,851 | $ | 4,851 | $ | | $ | | ||||||||||
Interest-bearing deposits |
7,945 | 7,945 | 7,945 | | | |||||||||||||||
Certificates of deposit |
4,216 | 4,216 | | 4,216 | | |||||||||||||||
Federal funds sold |
1,906 | 1,906 | 1,906 | | | |||||||||||||||
Securities available-for-sale |
51,173 | 51,173 | | 43,469 | 7,704 | |||||||||||||||
Restricted securities |
2,649 | 2,649 | | | 2,649 | |||||||||||||||
Loans, net |
381,537 | 384,468 | | | 384,468 | |||||||||||||||
Loans held for sale |
276 | 276 | | | 276 | |||||||||||||||
Accrued interest receivable |
1,372 | 1,372 | | 1,372 | | |||||||||||||||
Bank owned life insurance |
9,869 | 9,869 | 9,869 | | | |||||||||||||||
Mortgage servicing rights |
671 | 671 | | | 671 | |||||||||||||||
Financial Liabilities: |
||||||||||||||||||||
Non-interest-bearing liabilities |
$ | 74,799 | $ | 74,799 | $ | 74,799 | $ | | $ | | ||||||||||
Savings and other interest-bearing deposits |
178,869 | 178,869 | | 178,869 | | |||||||||||||||
Time deposits |
128,050 | 127,497 | | | 127,497 | |||||||||||||||
Securities sold under repurchase agreements |
18,310 | 18,310 | | 18,310 | | |||||||||||||||
FHLB advances |
35,000 | 35,668 | | 35,668 | | |||||||||||||||
Subordinated debt |
6,860 | 7,000 | | | 7,000 | |||||||||||||||
Accrued interest payable |
331 | 331 | | 331 | |
The carrying amounts of cash and due from banks, interest-bearing deposits, federal funds sold or purchased, accrued interest receivable, loans held for sale and non-interest-bearing deposits, are payable on demand, or are of such short duration that carrying value approximates market value.
Securities available-for-sale are carried at quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
The carrying value of restricted securities approximates fair value based on the redemption provisions of the issuer.
The fair value of loans held for sale is based upon their contracted sales price.
28
Bank owned life insurance is carried at its cash surrender value.
MSRs are carried at fair value. As described above, a valuation model is used to determine fair value. This model utilizes a discounted cash flow analysis with servicing costs and prepayment assumptions based on comparable instruments and a discount rate.
The fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar remaining maturities. This calculation ignores loan fees and certain factors affecting the interest rates charged on various loans such as the borrowers creditworthiness and compensating balances and dissimilar types of real estate held as collateral. The fair value of impaired loans is measured as described within the Impaired Loans section of this note. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation.
Time deposits are presented at estimated fair value by discounting the future cash flows using interest rates offered for deposits of similar remaining maturities.
The fair value of the Companys subordinated debt is estimated by utilizing observable market prices for comparable securities. Qualitative factors like asset quality, market factors and liquidity are also considered.
The fair value of the FHLB advances is estimated by discounting the future cash flows using the current interest rates offered for similar advances.
The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date. At June 30, 2017 and December 31, 2016, the fair value of loan commitments and standby letters of credit was immaterial and therefore, they are not included in the table above.
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair value of the Companys financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Companys overall interest rate risk.
Note 14: | Changes in Accumulated Other Comprehensive Income (Loss) |
The balances in accumulated other comprehensive income (loss) are shown in the following tables:
For the Three Months Ended June 30, 2017 | ||||||||||||
(Dollars in thousands) | Net Unrealized Gains (Losses) on Securities |
Pension and Post-retirement Benefit Plans |
Accumulated Other Comprehensive Income (Loss) |
|||||||||
Balance April 1, 2017 |
$ | (490 | ) | $ | (715 | ) | $ | (1,205 | ) | |||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $150 |
295 | | 295 | |||||||||
Reclassification for previously unrealized net losses recognized in income, net of tax expense of $2 |
(5 | ) | | (5 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2017 |
$ | (200 | ) | $ | (715 | ) | $ | (915 | ) | |||
|
|
|
|
|
|
For the Three Months Ended June 30, 2016 | ||||||||||||
(Dollars in thousands) | Net Unrealized Gains (Losses) on Securities |
Pension and Post-retirement Benefit Plans |
Accumulated Other Comprehensive Income (Loss) |
|||||||||
Balance April 1, 2016 |
$ | 438 | $ | (883 | ) | $ | (445 | ) | ||||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $130 |
255 | | 255 | |||||||||
Reclassification for previously unrealized net gains recognized in income, net of tax expense of $35 |
(69 | ) | | (69 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2016 |
$ | 624 | $ | (883 | ) | $ | (259 | ) | ||||
|
|
|
|
|
|
29
For the Six Months Ended June 30, 2017 | ||||||||||||
(Dollars in thousands) | Net Unrealized Gains (Losses) on Securities |
Pension and Post-retirement Benefit Plans |
Accumulated Other Comprehensive Income (Loss) |
|||||||||
Balance January 1, 2017 |
$ | (520 | ) | $ | (715 | ) | $ | (1,235 | ) | |||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $164 |
321 | | 321 | |||||||||
Reclassification for previously unrealized net losses recognized in income, net of tax expense of $1 |
(1 | ) | | (1 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2017 |
$ | (200 | ) | $ | (715 | ) | $ | (915 | ) | |||
|
|
|
|
|
|
|||||||
For the Six Months Ended June 30, 2016 | ||||||||||||
(Dollars in thousands) | Net Unrealized Gains (Losses) on Securities |
Pension and Post-retirement Benefit Plans |
Accumulated Other Comprehensive Income (Loss) |
|||||||||
Balance January 1, 2016 |
$ | 107 | $ | (883 | ) | $ | (776 | ) | ||||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $303 |
590 | | 590 | |||||||||
Reclassification for previously unrealized net losses recognized in income, net of tax benefit of $37 |
(73 | ) | | (73 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance June 30, 2016 |
$ | 624 | $ | (883 | ) | $ | (259 | ) | ||||
|
|
|
|
|
|
Reclassification for previously unrealized gains (losses) and impairments on securities are reported in the Consolidated Statements of Income as follows. No unrealized gains (losses) on pension and post-employment related costs were reclassified to the Consolidated Statements of Income in the three and six months ended June 30, 2017 and 2016.
Accumulated Other Comprehensive Income (Loss) Reclassification for the Three Months Ended Holding (Losses) Gains on Securities |
||||||||
(Dollars in thousands) | June 30, 2017 | June 30, 2016 | ||||||
Net gains on sale of securities available-for-securities |
$ | 7 | $ | 104 | ||||
Tax expense |
(2 | ) | (35 | ) | ||||
|
|
|
|
|||||
Impact on net income |
$ | 5 | $ | 69 | ||||
|
|
|
|
Accumulated Other Comprehensive Income (Loss) Reclassification for the Six Months Ended Holding (Losses) Gains on Securities |
||||||||
(Dollars in thousands) | June 30, 2017 | June 30, 2016 | ||||||
Net gains on sale of securities available-for-securities |
$ | 2 | $ | 110 | ||||
Tax expense |
(1 | ) | (37 | ) | ||||
|
|
|
|
|||||
Impact on net income |
$ | 1 | $ | 73 | ||||
|
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|
|
30
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the results of operations and the financial condition of Bay Banks of Virginia, Inc. This discussion should be read in conjunction with the above consolidated financial statements and the notes thereto.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements concerning the Companys expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute forward-looking statements as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. These forward-looking statements include statements about the benefits of the merger between the Company and Virginia BanCorp, the Companys plans, obligations, expectations and intentions and other statements that are not historical facts. Words such as anticipates, believes, intends, should, expects, will, and variations of similar expressions are intended to identify forward-looking statements. Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, disruptions to customer and employee relationships and business operations caused by the merger; the ability to implement integration plans associated with the transaction in which integration may be more difficult, time-consuming or costly than expected; the ability to achieve the cost savings and synergies contemplated by the merger within the expected timeframe, or at all; changes in interest rates, general economic conditions, the legislative/regulatory climate, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; expansion activities; demand for financial services in the Companys market area, accounting principles, policies and guidelines and the other factors detailed in Bay Bankss publicly filed documents, including its Annual Report on Form 10-K for the year ended December 31, 2016. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made.
EXECUTIVE SUMMARY
MERGER WITH VIRGINIA BANCORP
On April 1, 2017, the Company and Virginia BanCorp, a bank holding company conducting substantially all of its operations through its subsidiary Virginia Commonwealth Bank, completed a merger pursuant to the Agreement and Plan of Merger, dated as of November 2, 2016, by and between the Company and Virginia BanCorp. The Company is the surviving corporation in the merger, and the former shareholders of Virginia BanCorp received 1.178 shares of the Companys common stock for each share of Virginia BanCorp common stock they owned immediately prior to the merger, for a total issuance of 4,586,221 shares of the Companys common stock valued at approximately $43.2 million, before the application of unearned ESOP shares. As of the completion of the merger, the Companys legacy shareholders owned approximately 51% of the outstanding common stock of the Company and Virginia BanCorps former shareholders owned approximately 49% of the outstanding common stock of the Company.
After the merger of Virginia BanCorp with and into the Company, Virginia BanCorps subsidiary bank was merged with and into Bank of Lancaster, and immediately thereafter Bank of Lancaster changed its name to Virginia Commonwealth Bank. Bank operating systems are currently being consolidated, which is expected to be completed during the fourth quarter of 2017.
Pursuant to the merger, on April 1, 2017, the Company acquired approximately $330.5 million in assets including $268.2 million of loans, and assumed approximately $294.5 million in liabilities, including $25.0 million of debt. Merger-related costs during the first half of 2017 were $985 thousand, and accumulated merger-related costs including the fourth quarter of 2016 were $1.6 million. Annual cost savings of the combined companies are anticipated to be approximately 14% from combined 2016 levels.
GENERAL
Net earnings for the six months ended June 30, 2017 and 2016 were $380 thousand and $1.1 million, respectively. This is a decrease of $730 thousand, or 65.8%, year over year. Net interest income grew by $4.4 million, non-interest income was unchanged and provision for loan losses increased by $610 thousand primarily as a result of organic loan portfolio growth. Non-interest expenses increased by $4.7 million or 64.8% driven primarily by merger-related costs and increased operating expenses resulting from the Virginia BanCorp merger at the beginning of the second quarter of 2017, as well as strategic staffing and infrastructure investments in the Richmond market. Return on average assets decreased to 0.26% from 0.49% for the comparable prior-year period, and return on average equity decreased to 2.65% from 5.54%.
The loan portfolio grew by $264.6 million, or 68.7%, during the first six months of 2017, inclusive of loans acquired in the merger amounting to $212.6 million. The portfolio of loans serviced for FNMA and FHLMC totaled $104.9 million as of June 30, 2017 (inclusive of $23.4 million acquired in the merger) compared to $82.3 million as of December 31, 2016 and $74.0 million as of June 30, 2016.
The net interest margin improved to 3.68% for the first six months of 2017 compared to 3.37% for the same period in 2016 as overall loan and investment yields remained stable complemented by a robust core deposit base. Loan growth was funded primarily by retail deposit growth and tactical FHLB advances.
31
Loans past due or non-accruing have increased by $62 thousand to $5.4 million in the six months ended June 30, 2017. Asset quality remains stable with non-performing assets at 1.2% of total assets at June 30, 2017 compared to 1.6% at December 31, 2016.
Finally, the Companys core capital levels and regulatory ratios remain well above what is considered well capitalized by the Companys regulators.
For more information, visit the Companys website at www.baybanks.com. Information contained on the Companys website is not a part of or incorporated into this report.
EARNINGS SUMMATION
For the three months ended June 30, 2017 and 2016, net income was $557 thousand and $586 thousand, respectively, a decrease of $29 thousand or 4.9%. Diluted earnings per average share for the three months ended June 30, 2017 and 2016 were $0.06 and $0.12, respectively. The primary factors contributing to the earnings profile during the quarter were as follows:
| Net interest income related to the portfolios of the acquired bank of approximately $2.7 million; |
| Non-interest expense related to the operations of the acquired bank of approximately $2.1 million; |
| $685 thousand of merger-related expenses; and |
| $497 thousand of salaries and wages related to severance costs and new hires associated with the merger and growth into the Richmond market. |
Annualized return on average assets was 0.26% for the second quarter of 2017 compared to 0.51% for the second quarter of 2016. Annualized return on average equity was 2.65% and 5.74% for the three months ended June 30, 2017 and 2016, respectively.
For the six months ended June 30, 2017 and 2016, net income was $380 thousand and $1.1 million, respectively, a decrease of $730 thousand or 65.8%. Diluted earnings per average share for the six months ended June 30, 2017 and 2016 were $0.05 and $0.23, respectively. The primary factors contributing to the earnings profile during the first six months of 2017 were as follows:
| Net interest income related to the portfolios of the acquired bank of approximately $2.7 million; |
| Net non-interest expense related to the operations of the acquired bank of approximately $1.9 million; |
| $985 thousand of merger related expenses; and |
| $1.3 million of salaries and wages related to severance costs and new hires associated with the merger and growth into the Richmond market. |
Annualized return on average assets was 0.12% for the first six months of 2017 compared to 0.49% for the same period of 2016. Annualized return on average equity was 1.21% and 5.54% for the first half of 2017 and 2016, respectively.
RESULTS OF OPERATIONS
The principal source of earnings for the Company is net interest income. Net interest income is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of assets which earn interest. Changes in the volume and mix of assets which earn interest and liabilities that bear interest, the associated yields and rates, and the volume of non-performing assets have an effect on net interest income, the net interest margin, and net income.
32
FOR THE THREE MONTHS ENDED JUNE 30, 2017 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2016
NET INTEREST INCOME
Net Interest Income Analysis | Average Balances, Income and Expense, Yields and Rates | |||||||||||||||||||||||
(Fully taxable equivalent basis) | Three months ended 6/30/2017 | Three months ended 6/30/2016 | ||||||||||||||||||||||
(Dollars in Thousands) | Average Balance |
Income/ Expense |
Yield/ Cost | Average Balance |
Income/ Expense |
Yield/ Cost | ||||||||||||||||||
INTEREST EARNING ASSETS: |
||||||||||||||||||||||||
Taxable investments |
$ | 44,390 | $ | 348 | 3.13 | % | $ | 30,240 | $ | 211 | 2.79 | % | ||||||||||||
Tax-exempt investments (1) |
19,235 | 173 | 3.60 | % | 23,728 | 205 | 3.46 | % | ||||||||||||||||
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|
|
|
|
|
|
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Total investments |
63,625 | 521 | 3.27 | % | 53,968 | 416 | 3.08 | % | ||||||||||||||||
Gross loans (2) |
684,629 | 8,326 | 4.86 | % | 351,765 | 4,013 | 4.57 | % | ||||||||||||||||
Interest-bearing deposits and federal funds sold |
38,393 | 86 | 0.90 | % | 12,522 | 13 | 0.40 | % | ||||||||||||||||
Certificates of deposits |
3,426 | 18 | 2.09 | % | 5,456 | 20 | 1.47 | % | ||||||||||||||||
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|
|
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|
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Total Interest Earning Assets |
$ | 790,073 | $ | 8,951 | 4.53 | % | $ | 423,711 | $ | 4,462 | 4.21 | % | ||||||||||||
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INTEREST-BEARING LIABILITIES: |
||||||||||||||||||||||||
Savings deposits |
$ | 65,835 | $ | 33 | 0.20 | % | $ | 42,926 | $ | 22 | 0.21 | % | ||||||||||||
NOW deposits |
91,919 | 40 | 0.17 | % | 39,988 | 15 | 0.15 | % | ||||||||||||||||
Time deposits |
288,324 | 813 | 1.13 | % | 128,298 | 441 | 1.38 | % | ||||||||||||||||
Money market deposit accounts |
128,640 | 191 | 0.59 | % | 85,247 | 163 | 0.77 | % | ||||||||||||||||
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|
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Total Deposits |
574,718 | 1,077 | 0.75 | % | 296,459 | 641 | 0.87 | % | ||||||||||||||||
Federal funds purchased |
| | 0.00 | % | 609 | 1 | 1.11 | % | ||||||||||||||||
Securities sold under repurchase agreements |
9,520 | 4 | 0.17 | % | 6,708 | 4 | 0.20 | % | ||||||||||||||||
Subordinated debt |
6,867 | 119 | 6.95 | % | 6,850 | 118 | 6.92 | % | ||||||||||||||||
FHLB advances |
76,630 | 248 | 1.29 | % | 31,056 | 117 | 1.51 | % | ||||||||||||||||
|
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|
|
|
|
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|
|||||||||||||||||
Total Interest-Bearing Liabilities |
$ | 667,735 | $ | 1,448 | 0.87 | % | $ | 341,682 | $ | 881 | 1.03 | % | ||||||||||||
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Net interest income and net interest margin |
$ | 7,503 | 3.80 | % | $ | 3,581 | 3.37 | % | ||||||||||||||||
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Non-interest-bearing deposits |
$ | 95,264 | | 0.00 | % | $ | 69,951 | | 0.00 | % | ||||||||||||||
Total Cost of funds |
0.76 | % | 0.86 | % | ||||||||||||||||||||
Net interest rate spread |
3.77 | % | 3.35 | % |
Notes:
(1) | Income and yield assumes a federal tax rate of 34%. |
(2) | Includes loan fees and nonaccrual loans. |
Interest income for the three months ended June 30, 2017, on a tax-equivalent basis, was $9.0 million, an increase of $4.5 million from the second quarter of 2016 driven primarily by loan growth from both a merger and organic standpoint. Interest expense for the three months ended June 30, 2017 was $1.4 million, an increase of $567 thousand from the second quarter of 2016 due to an increase in retail deposits organically and arising from the merger, complemented by tactical use of FHLB advances, all of which supported loan growth. As a result, net interest income for the three months ended June 30, 2017, on a tax-equivalent basis, was $7.5 million, an increase of $3.9 million from the second quarter of 2016.
The annualized net interest margin was 3.80% and 3.37% for the three months ended June 30, 2017 and 2016, respectively. This increase is due primarily to a higher earning asset yield of 4.53% in the second quarter of 2017 compared to 4.21% in the second quarter of 2016, complimented by decreased overall costs of funds. The cost of funds was 0.76% for the second quarter of 2017 and 0.86% for the second quarter of 2016, a result of a stable core retail funding base supported by low marginal cost FHLB advances.
The net interest spread, which is the difference between the annualized yield on earning assets and the total cost of funds, increased to 3.77% for the three months ended June 30, 2017, compared to 3.35% for the three months ended June 30, 2016.
NON-INTEREST INCOME
Non-interest income was $1.1 million compared to $1.1 million for both the second quarter of 2017 and 2016. Primary changes in non-interest income were as follows:
| $177 thousand increase related to the operations of the acquired bank; and |
| $153 thousand decrease in secondary market lending fees. |
33
NON-INTEREST EXPENSE
For the three months ended June 30, 2017 and 2016, non-interest expenses totaled $7.2 million and $3.6 million, respectively. Contributing to the increase in non-interest expense was:
| Non-interest expense related to the operations of the acquired bank of approximately $2.1 million; |
| $685 thousand in other one-time merger-related expenses; and |
| $497 thousand of salaries and wages related to severance costs and new hires associated with the merger and growth into the Richmond market. |
FOR THE SIX MONTHS ENDED JUNE 30, 2017 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2016
NET INTEREST INCOME
Net Interest Income Analysis | Average Balances, Income and Expense, Yields and Rates | |||||||||||||||||||||||
(Fully taxable equivalent basis) | ||||||||||||||||||||||||
(Dollars in Thousands) | Six months ended 6/30/2017 | Six months ended 6/30/2016 | ||||||||||||||||||||||
Average Balance |
Income/ Expense |
Yield/ Cost | Average Balance |
Income/ Expense |
Yield/ Cost | |||||||||||||||||||
INTEREST EARNING ASSETS: |
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Taxable investments |
$ | 36,096 | $ | 617 | 3.42 | % | $ | 30,196 | $ | 418 | 2.77 | % | ||||||||||||
Tax-exempt investments (1) |
19,196 | 345 | 3.60 | % | 24,043 | 411 | 3.42 | % | ||||||||||||||||
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Total investments |
55,292 | 962 | 3.48 | % | 54,239 | 829 | 3.06 | % | ||||||||||||||||
Gross loans (2) |
539,156 | 12,714 | 4.72 | % | 349,831 | 7,987 | 4.57 | % | ||||||||||||||||
Interest-bearing deposits and federal funds sold |
23,294 | 94 | 0.81 | % | 13,143 | 28 | 0.42 | % | ||||||||||||||||
Certificates of deposits |
3,744 | 37 | 1.96 | % | 5,497 | 42 | 1.53 | % | ||||||||||||||||
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Total Interest Earning Assets |
$ | 621,486 | $ | 13,807 | 4.44 | % | $ | 422,710 | $ | 8,886 | 4.20 | % | ||||||||||||
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INTEREST-BEARING LIABILITIES: |
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Savings deposits |
$ | 55,136 | $ | 58 | 0.21 | % | $ | 42,444 | $ | 42 | 0.20 | % | ||||||||||||
NOW deposits |
68,343 | 63 | 0.18 | % | 39,611 | 30 | 0.15 | % | ||||||||||||||||
Time deposits |
209,401 | 1,251 | 1.19 | % | 129,316 | 892 | 1.39 | % | ||||||||||||||||
Money market deposit accounts |
109,098 | 335 | 0.61 | % | 84,225 | 322 | 0.77 | % | ||||||||||||||||
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Total Deposits |
441,978 | 1,707 | 0.77 | % | 295,596 | 1,286 | 0.88 | % | ||||||||||||||||
Federal funds purchased |
1,339 | 10 | 1.54 | % | 304 | 1 | 1.11 | % | ||||||||||||||||
Securities sold under repurchase agreements |
8,876 | 7 | 0.16 | % | 6,269 | 6 | 0.19 | % | ||||||||||||||||
Subordinated debt |
6,865 | 236 | 6.86 | % | 6,848 | 236 | 6.92 | % | ||||||||||||||||
FHLB advances |
59,542 | 402 | 1.35 | % | 34,465 | 242 | 1.41 | % | ||||||||||||||||
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Total Interest-Bearing Liabilities |
$ | 518,600 | $ | 2,362 | 0.91 | % | $ | 343,482 | $ | 1,771 | 1.04 | % | ||||||||||||
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Net interest income and net interest margin |
$ | 11,445 | 3.68 | % | $ | 7,115 | 3.37 | % | ||||||||||||||||
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Non-interest-bearing deposits |
$ | 83,510 | | 0.00 | % | $ | 66,738 | | 0.00 | % | ||||||||||||||
Total Cost of funds |
0.78 | % | 0.87 | % | ||||||||||||||||||||
Net interest rate spread |
3.66 | % | 3.33 | % |
Notes:
(1) | Income and yield assumes a federal tax rate of 34%. |
(2) | Includes loan fees and nonaccrual loans. |
Interest income for the six months ended June 30, 2017, on a tax-equivalent basis, was $13.8 million, an increase of $4.9 million from the first six months of 2016 driven primarily by loan growth from both a merger and organic standpoint. Interest expense for the six months ended June 30, 2017 was $2.4 million, an increase of $591 thousand from the first six months of 2016 due to an increase in deposits organically and arising from the merger, complemented by tactical use of FHLB advances all of which supported loan growth. As a result, net interest income for the six months ended June 30, 2017, on a tax-equivalent basis, was $11.4 million, an increase of $4.3 million from the first six months of 2016.
The annualized net interest margin was 3.68% and 3.37% for the six months ended June 30, 2017 and 2016, respectively. This increase is due primarily to higher earning asset yields of 4.44% in the first half of 2017 compared to 4.20% in the first half of 2016, complimented by decreased overall costs of funds. The cost of funds were 0.78% for the first half of 2017 and 0.87% for the first half of 2016, a result of a stable core retail funding base supported by low marginal cost FHLB advances.
34
The net interest spread, which is the difference between the annualized yield on earning assets and the total cost of funds, increased to 3.66% for the six months ended June 30, 2017, compared to 3.33% for the six months ended June 30, 2016.
NON-INTEREST INCOME
Non-interest income for the first half of 2017 was $2.0 million compared to $1.9 million for the first half of 2016. Primary changes in non-interest income were as follows:
| $177 thousand increase related to the operations of the acquired bank; and |
| $108 thousand decrease in gain on the sale of investment securities. |
NON-INTEREST EXPENSE
For the six months ended June 30, 2017 and 2016, non-interest expenses totaled $12.1 million and $7.3 million, respectively. Contributing to the increase in non-interest expense was:
| Non-interest expense related to the operations of the acquired bank of approximately $2.1 million; |
| $985 thousand in other one-time merger related expenses; and |
| $1.3 million of salaries and wages related to severance costs and new hires associated with the merger and growth into the Richmond market. |
AVERAGE INTEREST-EARNING ASSETS AND AVERAGE INTEREST-BEARING LIABILITIES
Average interest-earning assets increased 47.0% to $621.2 million for the six months ended June 30, 2017, as compared to $422.7 million for the six months ended June 30, 2016, due mainly the assets acquired in the merger and loan growth. Average interest-earning assets as a percent of total average assets were 92.8% for the six months ended June 30, 2017 as compared to 92.8% for the same period in 2016. The loan portfolio, with $538.9 million in average balances as of June 30, 2017, is the largest category of interest-earning assets.
Average interest-bearing liabilities increased 51.2% to $519.3 million for the six months ended June 30, 2017, as compared to $343.5 million for the six months ended June 30, 2017. In the merger, the Company acquired $122.2 million in time deposits, $124.6 million in savings and interest-bearing demand deposits and $21.9 million in noninterest-bearing deposits.
ASSET QUALITY
Asset quality remains stable. Loans charged off during the first six months of 2017, net of recoveries, totaled $380 thousand compared to $824 thousand for the first six months of 2016. This represents a decrease in the annualized net charge-off ratio to 0.20% for the first six months of 2017 compared to 0.47% for the first six months of 2016. Management believes it is maintaining an adequate level of the ALL at 0.65% of total loans at June 30, 2017 (inclusive of loans acquired in the merger which have been marked to fair value) and 1.00% at December 31, 2016.
Non-performing assets (NPAs), were $10.7 million, or 1.2% of total assets as of June 30, 2017 compared to $7.8 million, or 1.7% of total assets, as of December 31, 2016. NPAs as of June 30, 2017 include $5.4 million of other real estate owned (including $3.1 million acquired in the merger), up from $2.5 million as of December 31, 2016. Non accrual loans were $5.4 million as of June 30, 2017, or 0.83% of total loans, compared to $5.3 million, or 1.39% of total loans as of December 31, 2016.
Non-Performing Assets
(Dollars in Thousands) | June 30, 2017 | December 31, 2016 | ||||||
Loans past due 90 days or more and still accruing |
$ | | $ | | ||||
Non-accruing loans |
5,362 | 5,300 | ||||||
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Total non-performing loans |
5,362 | 5,300 | ||||||
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Other real estate owned |
5,360 | 2,494 | ||||||
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Total non-performing assets |
$ | 10,722 | $ | 7,794 | ||||
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Allowance for loan losses |
$ | 4,241 | $ | 3,863 | ||||
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Allowance to non-performing loans |
79.1 | % | 72.9 | % | ||||
Non-performing assets to total assets |
1.2 | % | 1.6 | % |
Classified assets, which include loans with risk rating grades of substandard, doubtful and loss, plus OREO, increased by $6.1 million during the first six months of 2017 to $13.4 million, or 15.9% of Tier 1 capital plus the allowance for loan losses. Risk rating grades are assigned conservatively, causing some homogenous loans, such as residential mortgages, to fall into the pool of adversely risk rated loans and thereby evaluated for impairment, even though they may be performing as agreed and therefore not impaired. All loan portfolios acquired in
35
the merger are risk graded using loan risk grading software that employs a variety of algorithms based on detailed account characteristics to include borrowers payment history on a total relationship basis as well as loan to value exposure. For non-homogenous loans, management reviews these resulting grade assignments and makes adjustments to the final grade where appropriate based on an assessment of additional external information that may affect a particular loan. The Bank is in the process of adopting the new risk grading system over its entire loan portfolio, including the Banks legacy loans and expects to fully utilize it after core system conversion.
As of June 30, 2017, loans valued at $9.6 million were considered impaired (excluding purchased credit impaired loans), whereas $10.4 million were considered impaired as of December 31, 2016. Including purchased credit impaired loans, impaired loans increased to $15.6 million as of June 30, 2017. Between December 31, 2016 and June 30, 2017, no new loans were identified as impaired, one loan was paid off and one was dispensed through foreclosure. Management has reviewed the impaired credits and the underlying collateral and the current losses have been specifically reserved.
FINANCIAL CONDITION
Total assets increased to $867.4 million as of June 30, 2017 compared to $486.7 million as of December 31, 2016, primarily as a result of assets acquired in the merger with Virginia BanCorp. Cash and due from banks was $7.5 million and $4.9 million as of June 30, 2017 and December 31, 2016, respectively. Interest-bearing deposits at other banks, which is mainly the Banks cash on deposit at the Federal Reserve Bank of Richmond, has increased by $19.1 million to $27.0 million since year end 2016. Assets acquired in the merger with Virginia BanCorp included $14.7 million of cash and interest-bearing deposits, $268.2 million of loans acquired at their fair value and $3.1 million of OREO.
During the six months ended June 30, 2017, gross loans, excluding acquired loans, increased by $51.4 million. The largest components of this increase were $9.4 million related to construction and land, $22.0 million related to residential mortgages, $12.7 million related to non-residential mortgages and $5.5 million related to commercial and industrial loans.
The Bank had $5.4 million and $2.5 million of OREO at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, OREO consists of five residences, 18 lots, one former convenience store, a former restaurant and five commercial business properties. During the first six months of 2017, three properties with a book value of $259 thousand from three borrowers were added through foreclosure, 17 properties with a fair market value of $3.1 million were acquired in the merger, and five properties with a total book value of $397 thousand were sold. There was $109 thousand in write-downs of OREO properties during the first six months of 2017, compared to $53 thousand in the same period in 2016. All properties maintained as OREO are valued at the lesser of cost or fair value less estimated costs to sell and are actively marketed.
As of June 30, 2017, securities available-for-sale at fair value totaled $54.4 million as compared to $51.2 million on December 31, 2016. This represents an increase of $3.2 million or 6.4% for the six months ended June 30, 2017. As of June 30, 2017, available-for-sale securities represented 6.3% of total assets and 7.6% of earning assets. All securities in the Companys investment portfolio are classified as available-for-sale and marked to market on a monthly basis. Unrealized gains or losses, net of tax, are booked as an adjustment to shareholders equity, and are not realized as an adjustment to earnings until the securities are actually sold or other than temporary impairment occurs.
The bank owned life insurances cash surrender value as of June 30, 2017 was $18.5 million. The insurances purpose is to offset the cost of employee benefits.
As of June 30, 2017, total deposits were $689.0 million compared to $381.7 million at year-end 2016. Excluding deposits acquired in the merger, this represents an increase in balances of $38.2 million or 10.0% during the first six months of 2017. The increase was driven by increases of $181.6 million in time deposits, $22.5 million in noninterest-bearing deposits and $103.2 million in savings and interest-bearing deposits.
FHLB advances have increased by $35.0 million since December 31, 2016, to $70.0 million as of June 30, 2017 as a tactical funding source in order to support loan growth.
In 2015, the Company issued an aggregate of $7,000,000 of subordinated notes to the accredited investors. The Notes have a maturity date of May 28, 2025. The Notes bear interest, payable on the 1st of March and September of each year, commencing September 1, 2015, at a fixed interest rate of 6.50% per year. The Notes are not convertible into common stock or preferred stock, and are not callable by the holders. The Company has the right to redeem the Notes, in whole or in part, without premium or penalty, on any interest payment date on or after May 28, 2020 and prior to the maturity date, but in all cases in a principal amount with integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default occurs, such as the bankruptcy of the Company, the holder of a Note may declare the principal amount of the Note to be due and immediately payable. The Notes are unsecured, subordinated obligations of the Company and will rank junior in right of payment to the Companys existing and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory reporting.
As of June 30, 2017, securities sold under repurchase agreements decreased by $7.5 million to $10.8 million from $18.3 million at December 31, 2016.
36
LIQUIDITY
Liquidity represents an institutions ability to meet present and future financial obligations (such as commitments to fund loans) through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with other banks, federal funds sold and investments and loans maturing within one year. The Companys ability to obtain deposits and purchase funds at favorable rates are major factors for liquidity. Management believes that the Company maintains overall liquidity that is sufficient to satisfy its depositors requirements and to meet its customers credit needs.
At June 30, 2017, cash totaled $7.5 million, federal funds sold totaled $6.6 million, interest-bearing deposits totaled $27.0 million, securities and certificates of deposit maturing in one year or less totaled $4.9 million and loans maturing in one year or less totaled $40.1 million. This results in a liquidity ratio as of June 30, 2017 of 9.8% as compared to 8.3% as of December 31, 2016. The Company determines this ratio by dividing the sum of cash and cash equivalents, investment securities maturing in one year or less, loans maturing in one year or less and federal funds sold, by total assets. The Bank has a formal liquidity management policy and contingency plan, which includes periodic evaluation of cash flow projections.
In addition, the Company has a line of credit with the FHLB of $125.3 million, with $44.3 million available, plus federal funds lines of credit with correspondent banks totaling $15.0 million.
As of June 30, 2017, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on liquidity.
CAPITAL RESOURCES
Capital resources represent funds, earned or obtained, over which a financial institution can exercise greater long-term control in comparison with deposits and borrowed funds. The adequacy of the Companys capital is reviewed by management on an ongoing basis with reference to size, composition and quality of the Companys resources, and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allows management to effectively leverage its capital to maximize return to shareholders. The Companys capital, also known as shareholders equity, is comprised mainly of outstanding common stock and retained earnings. Capital can be increased with securities offerings or through earnings.
Several factors impact shareholders equity, including net income and regulatory capital requirements. The Companys capital resources are also impacted by net unrealized gains or losses on securities. The available-for-sale securities portfolio is marked to market monthly and unrealized gains or losses, net of taxes, are recognized as accumulated other comprehensive income (loss) on the balance sheets and statement of changes in shareholders equity. Another factor affecting accumulated other comprehensive income (loss) is changes in the market value of the Companys pension and post-retirement benefit plans and changes in the plan obligations. The Companys shareholders equity before accumulated other comprehensive loss was $85.4 million as of June 30, 2017 compared to $42.9 million as of December 31, 2016. Accumulated other comprehensive loss decreased by $320 thousand between December 31, 2016 and June 30, 2017, primarily as a result of decreases in unrealized net losses in the investment portfolio.
Book value per share, before accumulated other comprehensive loss, as of June 30, 2017, compared to December 31, 2016, increased to $9.09 from $8.99. Book value per share, including accumulated other comprehensive loss, increased to $8.99 as of June 30, 2017 from $8.73 as of December 31, 2016. On June 30, 2017, the Board of Directors declared a quarterly cash dividend to shareholders of $0.04 per common share, payable July 24, 2017, to shareholders of record July 11, 2017.
The parent company has no substantial operations of its own, so its primary sources of liquidity are fees received from the Bank, interest on investments and borrowings. The parent companys liquid assets consisted of cash and investment securities totaling $1.7 million as of June 30, 2017. The parent company has sufficient liquidity to meet its obligations and provide a source of capital for the Bank.
The Bank is subject to minimum regulatory capital ratios as defined by the Board of Governors of the Federal Reserve System (the Federal Reserve). As of June 30, 2017, the Banks capital ratios continue to be well in excess of regulatory minimums.
In July 2013, the Federal Reserve issued final rules that made changes to its capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Bank to comply with the following minimum capital ratios: (i) a new Common Equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). The following additional capital requirements related to the capital conservation buffer are being phased in over a four year period, which began on January 1, 2016. When fully phased in on January 1, 2019, the rules will require the Bank to maintain (i) a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the 4.5% Common Equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5%
37
capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets. The capital conservation buffer requirement is being phased in as of January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. As of June 30, 2017, the Bank maintained Common Equity Tier 1 capital of $79.9 million, Tier 1 capital of $79.9 million, risk weighted assets of $610.3 million, and total regulatory capital of $84.2 million. As of June 30, 2017, all ratios were in excess of the fully phased-in requirements, with the Common Equity Tier 1 ratio at 13.10% of risk-weighted assets, the Tier 1 capital ratio at 13.10% of risk-weighted assets, the total capital ratio at 13.79% of risk-weighted assets, and the Tier 1 leverage ratio at 9.48% of total assets.
OFF BALANCE SHEET COMMITMENTS
In the normal course of business, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments may involve elements of liquidity, credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby-letters of credit is represented by the contractual amount of these instruments. Subject to its normal credit standards and risk monitoring procedures, the Company makes contractual commitments to extend credit. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Conditional commitments are issued by the Company in the form of performance stand-by letters of credit, which guarantee the performance of a customer to a third-party. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Off Balance Sheet Arrangements | ||||||||
(In thousands) | June 30, 2017 | December 31, 2016 | ||||||
Total Loan Commitments Outstanding |
$ | 73,326 | $ | 38,152 | ||||
Standby-by Letters of Credit |
530 | 452 |
The Company maintains liquidity and credit facilities with non-affiliated banks in excess of the total loan commitments and stand-by letters of credit. As these commitments are earning assets only upon takedown of the instrument by the customer, thereby increasing loan balances, management expects the revenue of the Company to be enhanced as these credit facilities are utilized.
There have been no material changes to the off balance sheet items disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
CONTRACTUAL OBLIGATIONS
On April 28, 2017, the Company entered into a seven year agreement with a computer software service provider. The total data processing services payments related to this contract are expected to be approximately $8.4 million with $0.2 million to be paid in 2017. On February 28, 2017, the Company entered into a 63-month lease related to office space in Richmond, Virginia. The total lease payments are expected to be $1.3 million over the term of the lease. There have been no other material changes outside the ordinary course of business to the contractual obligations disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 4, Amendments to the Accounting Standards Codification, in the Notes to the Consolidated Financial Statements contained in Item 1 of this report, for information related to the adoption of new amendments to the Accounting Standards Codification.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required.
ITEM 4. | CONTROLS AND PROCEDURES |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period to which this report relates, the Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
38
Exchange Act of 1934. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the disclosure controls and procedures are met. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. Based upon their evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic Securities and Exchange Commission filings as of June 30, 2017.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change to the Companys internal control over financial reporting during the six months ended June 30, 2017 that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 1. | LEGAL PROCEEDINGS |
In the ordinary course of its operations, the Company is a party to various legal proceedings. Based upon information currently available, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.
ITEM 1A. | RISK FACTORS |
Not required.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None to report.
ITEM 3. | DEFAULT UPON SENIOR SECURITIES |
None to report.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None to report.
ITEM 6. | EXHIBITS |
2.1 | Agreement and Plan of Merger, dated November 2, 2016, by and between Bay Banks of Virginia, Inc. and Virginia BanCorp, Inc. (incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed on November 8, 2016). | |
31.1 | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income for the three months and six months ended June 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2017 and 2016, (iv) Consolidated Statements of Changes in Shareholders Equity for the six months ended June 30, 2017, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Bay Banks of Virginia, Inc. | ||||||
(Registrant) | ||||||
August 9, 2017 | By: | /s/ Randal R. Greene | ||||
Randal R. Greene | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
By: | /s/ James A. Wilson, Jr. | |||||
James A. Wilson, Jr. | ||||||
Executive Vice President and Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
40
Exhibit 31.1
CERTIFICATIONS
I, Randal R. Greene, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bay Banks of Virginia Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 9, 2017
/s/ Randal R. Greene |
Randal R. Greene Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, James A. Wilson, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bay Banks of Virginia, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting.
Date: August 9, 2017
/s/ James A. Wilson, Jr. |
James A. Wilson, Jr. Executive Vice president and Chief Financial Officer |
Exhibit 32.0
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2017 of Bay Banks of Virginia, Inc. (the Company), as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.
/s/ Randal R. Greene |
Randal R. Greene, President and Chief Executive Officer |
/s/ James A. Wilson, Jr. |
James A. Wilson, Jr., Executive Vice president and Chief Financial Officer |
August 9, 2017
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 31, 2017 |
|
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | BAYK | |
Entity Registrant Name | BAY BANKS OF VIRGINIA INC | |
Entity Central Index Key | 0001034594 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 9,400,638 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
[1] | ||
---|---|---|---|---|---|
Loans, allowance for loan losses | $ 4,241 | $ 3,863 | |||
Common stock, par value | $ 5 | $ 5 | |||
Common stock, authorized shares | 30,000,000 | 30,000,000 | |||
Common stock, outstanding shares | 9,399,138 | 4,774,856 | |||
|
Consolidated Statements of Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
INTEREST INCOME | ||||
Loans, including fees | $ 8,326 | $ 4,013 | $ 12,714 | $ 7,987 |
Securities: | ||||
Taxable | 348 | 211 | 617 | 418 |
Tax-exempt | 114 | 135 | 228 | 271 |
Federal funds sold | 33 | 1 | 34 | 1 |
Interest-bearing deposit accounts | 53 | 12 | 60 | 27 |
Certificates of deposit | 18 | 20 | 37 | 42 |
Total interest income | 8,892 | 4,392 | 13,690 | 8,746 |
INTEREST EXPENSE | ||||
Deposits | 1,077 | 641 | 1,707 | 1,286 |
Federal funds purchased | 1 | 10 | 1 | |
Securities sold under repurchase agreements | 4 | 4 | 7 | 6 |
Subordinated debt | 119 | 118 | 236 | 236 |
FHLB advances | 248 | 117 | 402 | 242 |
Total interest expense | 1,448 | 881 | 2,362 | 1,771 |
Net interest income | 7,444 | 3,511 | 11,328 | 6,975 |
Provision for loan losses | 568 | 183 | 758 | 148 |
Net interest income after provision for loan losses | 6,876 | 3,328 | 10,570 | 6,827 |
NON-INTEREST INCOME | ||||
Income from fiduciary activities | 229 | 236 | 474 | 443 |
Service charges and fees on deposit accounts | 246 | 228 | 458 | 455 |
VISA-related fees | 49 | 59 | 48 | 105 |
Non-deposit product income | 115 | 74 | 195 | 180 |
Other service charges and fees | 184 | 149 | 355 | 297 |
Secondary market lending income | 86 | 223 | 201 | 300 |
Increase in cash surrender value of life insurance | 133 | 61 | 208 | 124 |
Net gains on sale of securities available for sale | 7 | 104 | 2 | 110 |
Other real estate gains (losses) | 3 | (53) | (93) | (88) |
Other income | 91 | 3 | 152 | 16 |
Total non-interest income | 1,143 | 1,084 | 2,000 | 1,942 |
NON-INTEREST EXPENSES | ||||
Salaries and employee benefits | 3,321 | 1,815 | 6,145 | 3,870 |
Occupancy expense | 693 | 451 | 1,132 | 899 |
Software maintenance | 394 | 181 | 598 | 342 |
Bank franchise tax | 142 | 61 | 218 | 121 |
VISA expense | 15 | 22 | 35 | 61 |
Telephone expense | 76 | 35 | 104 | 66 |
FDIC assessments | 111 | 103 | 196 | 184 |
Foreclosure property expense | 59 | 17 | 69 | 29 |
Consulting expense | 97 | 74 | 151 | 129 |
Advertising and marketing | 54 | 59 | 127 | 101 |
Directors' fees | 209 | 65 | 331 | 144 |
Audit and accounting fees | 217 | 56 | 245 | 157 |
Merger expense | 685 | 985 | ||
Intangible amortization | 234 | 234 | ||
Other expense | 901 | 697 | 1,487 | 1,213 |
Total non-interest expenses | 7,208 | 3,636 | 12,057 | 7,316 |
Net income before income taxes | 811 | 776 | 513 | 1,453 |
Income tax expense | 254 | 190 | 133 | 343 |
Net income | $ 557 | $ 586 | $ 380 | $ 1,110 |
Basic Earnings Per Share | ||||
Average basic shares outstanding | 9,233,615 | 4,774,856 | 7,017,907 | 4,774,856 |
Earnings per share, basic | $ 0.06 | $ 0.12 | $ 0.05 | $ 0.23 |
Diluted Earnings Per Share | ||||
Average diluted shares outstanding | 9,304,796 | 4,794,783 | 7,084,430 | 4,792,574 |
Earnings per share, diluted | $ 0.06 | $ 0.12 | $ 0.05 | $ 0.23 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Net income | $ 557 | $ 586 | $ 380 | $ 1,110 |
Unrealized gains on securities: | ||||
Unrealized holding gains arising during the period | 445 | 385 | 485 | 893 |
Deferred tax expense | (150) | (130) | (164) | (303) |
Reclassification of net securities gains recognized in net income | (7) | (104) | (2) | (110) |
Deferred tax expense | 2 | 35 | 1 | 37 |
Unrealized gains adjustment, net of tax | 290 | 186 | 320 | 517 |
Total other comprehensive income | 290 | 186 | 320 | 517 |
Comprehensive income | $ 847 | $ 772 | $ 700 | $ 1,627 |
Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands |
Total |
Unearned Employee Stock Ownership Plan Shares |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
|||
---|---|---|---|---|---|---|---|---|---|
Balance at beginning of period at Dec. 31, 2015 | $ (776) | ||||||||
Net income | $ 1,110 | ||||||||
Other comprehensive income | 517 | ||||||||
Balance at end of period at Jun. 30, 2016 | (259) | ||||||||
Balance at beginning of period at Mar. 31, 2016 | (445) | ||||||||
Net income | 586 | ||||||||
Other comprehensive income | 186 | ||||||||
Balance at end of period at Jun. 30, 2016 | (259) | ||||||||
Balance at beginning of period at Dec. 31, 2016 | $ 41,705 | [1] | $ 23,874 | $ 2,872 | $ 16,194 | (1,235) | |||
Balance at beginning of period, Shares at Dec. 31, 2016 | 4,774,856 | [1] | 4,774,856 | ||||||
Net income | $ 380 | 380 | |||||||
Dividends declared | (377) | (377) | |||||||
Other comprehensive income | 320 | 320 | |||||||
Issuance of common stock in connection with Virginia BanCorp acquisition | 42,245 | $ (911) | $ 22,931 | 20,225 | |||||
Issuance of common stock in connection with Virginia BanCorp acquisition, Shares | 4,586,221 | ||||||||
Stock options exercised | $ 138 | $ 121 | 17 | ||||||
Stock options exercised, Shares | 24,061 | 24,061 | |||||||
Restricted shares granted | $ 70 | (70) | |||||||
Restricted shares granted, Shares | 14,000 | ||||||||
Stock-based compensation expense | $ 67 | 67 | |||||||
Balance at end of period at Jun. 30, 2017 | $ 84,478 | (911) | $ 46,996 | 23,111 | 16,197 | (915) | |||
Balance at end of period, Shares at Jun. 30, 2017 | 9,399,138 | 9,399,138 | |||||||
Balance at beginning of period at Mar. 31, 2017 | (1,205) | ||||||||
Net income | $ 557 | ||||||||
Other comprehensive income | 290 | ||||||||
Balance at end of period at Jun. 30, 2017 | $ 84,478 | $ (911) | $ 46,996 | $ 23,111 | $ 16,197 | $ (915) | |||
Balance at end of period, Shares at Jun. 30, 2017 | 9,399,138 | 9,399,138 | |||||||
|
Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) |
6 Months Ended |
---|---|
Jun. 30, 2017
$ / shares
| |
Dividends declared per share | $ 0.04 |
Consolidated Statements of Cash Flows - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Cash Flows From Operating Activities | ||
Net income | $ 380,000 | $ 1,110,000 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 639,000 | 528,000 |
Net premium amortization and discount accretion of securities | 183,000 | 217,000 |
Amortization of core deposit intangible | 234,000 | |
Accretion of time deposits | (117,000) | |
Amortization of subordinated debt issuance costs | 8,000 | 8,000 |
Accretion of loan discount | (451,000) | |
Provision for loan losses | 758,000 | 148,000 |
Stock compensation expense | 67,000 | 16,000 |
Deferred tax benefit | (8,000) | (6,000) |
(Gains) on securities available-for-sale | (2,000) | (110,000) |
Increase in OREO valuation allowance | 109,000 | 53,000 |
(Gain) loss on sale of other real estate | (16,000) | 35,000 |
Decrease in mortgage servicing rights | 6,000 | 38,000 |
Loan originations for sale | (5,719,000) | (9,035,000) |
Loan sales | 5,788,000 | 8,274,000 |
Gain on sold loans | (51,000) | (221,000) |
Increase in cash surrender value of life insurance | (208,000) | (124,000) |
Decrease in accrued income and other assets | 312,000 | 227,000 |
Increase in other liabilities | 297,000 | 202,000 |
Net cash provided by operating activities | 2,209,000 | 1,360,000 |
Cash Flows From Investing Activities | ||
Proceeds from maturities and principal paydowns of available-for-sale securities | 2,198,000 | 1,683,000 |
Proceeds from sales and calls of available-for-sale securities | 17,662,000 | 9,097,000 |
Maturities of certificates of deposit | 992,000 | 248,000 |
Purchases of available-for-sale securities and certificates of deposit | (743,000) | (9,995,000) |
(Purchases) sales of restricted securities | (470,000) | 309,000 |
Loan (originations) and principal collections, net | (52,157,000) | (6,840,000) |
Principal payments on loans held for sale | 279 | |
Cash acquired in the merger with Virginia Commonwealth | 14,698,000 | |
Proceeds from sale of other real estate | 412,000 | 227,000 |
Proceeds from sale of equipment | 6,000 | |
Purchases of premises and equipment | (836,000) | (114,000) |
Net cash used in investing activities | (17,959,000) | (5,385,000) |
Cash Flows From Financing Activities | ||
Net (decrease) increase in demand, savings, and other interest-bearing deposits | (20,071,000) | 18,762,000 |
Net increase in time deposits | 59,516,000 | 409,000 |
Stock options exercised | 138,000 | |
Net (decrease) increase in securities sold under repurchase agreements | (7,524,000) | 1,021,000 |
Increase (decrease) in Federal Home Loan Bank advances | 10,000,000 | (10,000,000) |
Net cash provided by financing activities | 42,059,000 | 10,192,000 |
Net increase in cash and due from banks | 26,309,000 | 6,167,000 |
Cash and cash equivalents (including interest-earning deposits) at beginning of period | 14,702,000 | 20,570,000 |
Cash and cash equivalents (including interest-earning deposits) at end of period | 41,011,000 | 26,737,000 |
Cash paid for: | ||
Interest | 2,718,000 | 1,758,000 |
Income taxes | 550,000 | 70,000 |
Non-cash investing and financing: | ||
Unrealized gain on investment securities | 483,000 | 783,000 |
Loans transferred to other real estate owned | 259,000 | 1,203,000 |
Loans originated to facilitate sale of OREO | 190,000 | 116,000 |
Changes in deferred taxes resulting from OCI transactions | 163,000 | 266,000 |
Transfer of loans to held for sale | $ 1,173,000 | |
Business combination: | ||
Assets acquired, net of cash acquired | 315,845,000 | |
Liabilities assumed | 294,454,000 | |
Net assets acquired, net of cash acquired | 21,391,000 | |
Dividends declared | $ 377,000 |
General |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2017 | |||
General |
Bay Banks of Virginia, Inc. (the “Company”) owns 100% of Virginia Commonwealth Bank, formerly named Bank of Lancaster (refer to Note 2) (the “Bank”), 100% of VCB Financial Group, Inc., formerly known as Bay Trust (the “VCBFG”) and 100% of Steptoes Holdings, LLC (“Steptoes Holdings”). The consolidated financial statements include the accounts of the Bank, VCBFG, Steptoes Holdings and Bay Banks of Virginia, Inc. These June 30, 2017 consolidated financial statements reflect combined operations of the business combination of the Company and Virginia BanCorp Inc. effective April 1, 2017, and described further in Note 2. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and to the general practices within the banking industry. In management’s opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the consolidated financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or for any other interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Certain amounts presented in the consolidated financial statements of prior periods have been reclassified to conform to current year presentations. The reclassifications had no effect on net income, net income per share or shareholders’ equity as previously reported. |
Business Combination |
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Business Combination |
On April 1, 2017, the Company and Virginia BanCorp Inc. (“Virginia BanCorp”), a bank holding company conducting substantially all of its operations through its subsidiary Virginia Commonwealth Bank, completed a merger pursuant to the Agreement and Plan of Merger, dated as of November 2, 2016, by and between the Company and Virginia BanCorp. The Company is the surviving corporation in the merger and the former shareholders of Virginia BanCorp received 1.178 shares of the Company’s common stock for each share of Virginia BanCorp common stock they owned immediately prior to the merger, for a total issuance of 4,586,221 shares of the Company’s common stock valued at approximately $42.2 million. As of the completion of the merger, the Company’s legacy shareholders owned approximately 51% of the outstanding common stock of the Company and Virginia BanCorp’s former shareholders owned approximately 49% of the outstanding common stock of the Company. After the merger of Virginia BanCorp with and into the Company, Virginia BanCorp’s subsidiary bank was merged with and into Bank of Lancaster, and immediately thereafter Bank of Lancaster changed its name to Virginia Commonwealth Bank. Bank operating systems are being consolidated and are expected to be completed during the fourth quarter of 2017. The acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations. Under this method, the assets and liabilities of Virginia BanCorp were recorded at their respective fair values as of April 1, 2017. Determining the fair value of assets and liabilities, particularly to the loan portfolio, is a complex process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values are preliminary and subject to refinement for up to one year after the acquisition date, as additional information relative to the acquisition date fair values becomes available. The Company recognized goodwill of $6.2 million in connection with the acquisition, none of which is deductible for income tax purposes. The following table details the total consideration paid by the Company on April 1, 2017 in connection with the acquisition of Virginia BanCorp, the fair value of the assets acquired and liabilities assumed, and the resulting goodwill.
Fair value of the major categories of assets acquired and liabilities assumed were determined as follows: Loans The acquired loans were recorded at fair value at the acquisition date of $268.2 million without carryover of Virginia BanCorp’s allowance for loan losses. Where loans exhibited characteristics of performance, fair value was determined based on a discounted cash flow analysis which included default estimates; loans without such characteristics, fair value was determined based on the estimated values of the underlying collateral. While estimating the amount and timing of both principal and interest cash flows expected to be collected, a market-based discount rate was applied. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type and purpose, industry segment and loan structure. Credit risk characteristics included risk rating groups pass, special mention, substandard, and doubtful and lien position. For valuation purposes, these pools were further disaggregated by maturity and pricing characteristics (e.g., fixed-rate, adjustable-rate, balloon maturities). At April 1, 2017, the gross contractual amounts of receivable and the fair value for the purchased credit impaired loans (“PCI”) were $8.3 million, while the estimated cash flows not expected to be collected were approximately $7.4 million. Information about the PCI loan portfolio at April 1, 2017 is as follows:
Loans which totaled approximately $55.4 million which were acquired are held for sale. These loans are under a pending contract to be sold to a third party and have been adjusted to the contract price adjusted for principal repayments. Premises and Equipment The fair value of Virginia BanCorp premises, including land, buildings and improvements, was determined based upon appraisal by licensed appraisers. These appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised. The fair value of premises and equipment resulted in a $2.7 million fair value adjustment. Land is not depreciated. Core Deposit Intangible The fair value of the core deposit intangible (“CDI”) was determined based on a combined discounted economic benefit and market approach. The economic benefit was calculated as the cost savings between maintaining the core deposit base and using an alternate funding source, such as Federal Home Loan Bank of Atlanta (“FHLB”) advances. The life of the deposit base and projected deposit attrition rates was determined using Virginia BanCorp’s historical deposit data. The CDI fair value was estimated at $3.7 million or 2.52% of acquired deposits, excluding time deposits. The CDI is being amortized over a weighted average life of 92 months using a sum-of-the-months method. Time Deposits The fair value adjustment of time deposits represents a premium over the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar term certificates of deposit. The resulting estimated fair value adjustment of certificates of deposit ranging in maturity from one month to five years is a $733 thousand premium and is being amortized into income on a level-yield basis over the weighted average remaining life. FHLB Advances The fair value of FHLB advances was considered to be equivalent to Virginia BanCorp’s recorded book balance as the advances matured in April 30, 2017. Deferred Tax Assets and Liabilities Certain deferred tax assets and liabilities were carried over to the Company from Virginia BanCorp based on the Company’s ability to utilize them in the future. Additionally, deferred tax assets and liabilities were established for acquisition accounting fair value adjustments as the future amortization/accretion of these adjustments represent temporary differences between book income and taxable income. Pro Forma Financial Information The table below illustrates the unaudited pro forma revenue and net income of the combined entities had the acquisition taken place on January 1, 2016. The unaudited combined pro forma revenue and net income combines the historical results of Virginia BanCorp with the Company’s consolidated statements of income for the period listed below, and while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2016. Acquisition related expenses of $685 thousand and $985 thousand were included in the Company’s actual consolidated statements of income for the three and six months ended June 30, 2017, respectively, but were excluded from the unaudited pro forma information listed below. Legacy Virginia BanCorp incurred $174 thousand of merger related expenses during the first three months of 2017 which was also excluded from the unaudited pro forma information below. Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below:
Impact of Certain Acquisition Accounting Adjustments The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments to assets acquired and liabilities assumed from Virginia BanCorp had the following impact on the consolidated statements of income for the three and six months ended June 30, 2017.
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Significant Accounting Policies |
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Significant Accounting Policies |
Loans The Company grants mortgage loans on real estate, commercial and industrial loans, and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Company’s market areas. Loans are reported at their recorded investment, which is the outstanding principal balance net of any unearned income, such as deferred fees and costs, charge-offs and discounts on acquired loans. Interest on loans is recognized over the term of the loan and is calculated using the interest method on principal amounts outstanding. Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield over the contractual term of the loan, adjusted for early pay-offs, where applicable. The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans with the exception of PCI loans whose discount is being accreted to interest income. All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any subsequent interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection. Charge-off of Uncollectible Loans As soon as any loan becomes uncollectible, the loan will be charged down or charged off as follows:
Loans should be considered uncollectible when:
Allowance for loan losses (“ALL”) The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each homogenous segment and class of the portfolio, plus any loans analyzed individually for impairment. Depending on the nature of each segment and class, considerations include historical loss experience, adverse situations that may affect a borrower’s ability to repay, credit scores, past due history, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as conditions change.
Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. All loans acquired in the merger and all loans originated since the merger are risk rated. Legacy loans originated prior to the merger that were assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures (“TDRs”). The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows: Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate. Watch – Borrower exhibits some signs of financial stress but is generally believed to be a satisfactory customer and collateral, if any, may be in excess of 90% of the loan balance. Special Mention – Adverse trends in the borrower’s financial position are evident and warrant management’s close attention. Any collateral may not be fully adequate to secure the loan balance. Substandard – A loan in this category has a well-defined weakness in the primary repayment source that jeopardizes the timely collection of the debt. There is a distinct possibility that a loss may result if the weakness is not corrected. Doubtful – Default has already occurred and it is likely that foreclosure or repossession procedures have begun or will begin in the near future. Weaknesses make collection or liquidation in full, based on currently existing information, highly questionable and improbable. Loss – Uncollectible and of such little value that continuance as a bankable asset is not warranted. The ALL consists of specific and general components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include (1) all loans risk rated Special Mention or worse with balances of $400 thousand or more or where the borrower has filed for bankruptcy; and (2) all loans classified as a TDR . A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates any loans not identified as impaired, which are typically smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in local and national economic indicators, such as unemployment rates, interest rates, gross domestic product growth and real estate market trends; the level of past due and nonaccrual loans; risk ratings on individual loans; strength of credit policies and procedures; loan officer experience; borrower credit scores; and other intrinsic risks related to the types and geographic locations of loans. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. Changes in the allowance for loan losses and the related provision expense can materially affect net income. The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement. The general component of the ALL calculation collectively evaluates groups of loans in segments and classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 20 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class. Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans have historically included credit cards, which are unsecured. The credit card portfolio was sold to an unaffiliated third party in the third quarter of 2016. The summation of the specific and general components results in the total estimated ALL. This estimate is inherently subjective and actual losses could be greater or less than the estimates. An ALL calculation is also performed on purchased performing loans. A comparison is then made to the remaining unaccreted discount associated with the purchase of those loans. If the ALL related to these loans exceeds the remaining unaccreted discount, that difference is added to the ALL that applies to non-purchased loans. See below for more information related to Loans Purchased in a Business Combination. Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans. Loans Acquired in a Business Combination The Company accounts for loans acquired in a business combination in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” Accordingly, acquired loans are segregated between PCI loans and purchased performing loans (“PPL”) and are recorded at fair value on the date of acquisition without the carryover of the related allowance for loan losses. PCI loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. When determining fair market value, PCI loans were aggregated into pools of loans based on common characteristics as of the date of acquisition such as loan type, date of origination, and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. Loans not designated PCI loans as of the acquisition date are designated purchased performing loans. The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing or PCI loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition. Employee Stock Ownership Plan (“ESOP”) The Company currently has two ESOPs for the benefit of all eligible employees. Shares held by the legacy ESOP of the former Bank of Lancaster employees are considered outstanding for purposes of computing earnings per share as they are fully allocated. Unearned ESOP shares in the ESOP acquired in the merger (“new ESOP”), are shown as a reduction of shareholders’ equity. The unearned ESOP shares are not included in basic or diluted earnings per share calculation as discussed in Note 9. The use of dividends paid on allocated ESOP shares are at the discretion of the Company. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The Company recognizes a tax deduction equal to the cost of shares released. The unearned ESOP shares are pledged to a third party to collateralize a direct loan to the ESOP. The loan is guaranteed by the Company and is recorded on the Company’s consolidated balance sheets. It is anticipated that the Company will make contributions to the new ESOP in amounts necessary to amortize the third-party loans over a nine year period. See note 12. |
Amendments to the Accounting Standards Codification |
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Amendments to the Accounting Standards Codification |
In March 2017, the FASB issued Accounting Update Standard (“ASU”) No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017-08 will have on its consolidated financial statements and disclosures. In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This ASU requires Securities and Exchange Commission (“SEC”) registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard’s impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Company’s financial statements and disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which is new guidance for the accounting for credit losses on instruments within its scope. It introduces a new model for current expected credit losses (“CECL”) which will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This will include loans, held-to-maturity debt securities, loan commitments, financial guarantees, net investments in leases, reinsurance and trade receivables. The CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. In addition, ASU 2016-13 replaces the current available-for-sale debt securities other-than-temporary impairment model with an estimate of expected credit losses only when the fair value falls below the amortized cost of the asset. Credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The available-for-sale debt security model will also require the use of an allowance to record estimated credit losses and subsequent recoveries. The ASU also addresses purchased financial assets with credit deterioration. Disclosure requirements are expanded regarding an entity’s assumptions, models and methods for estimating the ALL. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is evaluating the impact that ASU 2016-13 will have on its consolidated financial statements. Periodic historical loan data is being accumulated which will allow for migration analysis of risk ratings, past due and non-accrual status, plus other various individual loan characteristics. In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting.” The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (1) income tax consequences; (2) classification of awards as either equity or liabilities; (3) diluted earnings per share; and (4) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. ASU 2016-02will be effective for the Company for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02 in the first quarter of 2019. The Company is evaluating the impact of the standard and expects a minimal increase in assets and liabilities; however, the Company does not expect the guidance to have a material effect on its financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) which requires equity investments, other than those accounted for using the equity method, to be measured at fair value through earnings. There will no longer be an available-for-saleclassification measured (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. The cost method is also eliminated for equity instruments without a readily determinable fair value. For these investments, companies can elect to record the investment at cost, less impairment, plus or minus subsequent adjustments for observable price changes. This election only applies to equity investments that do not qualify for the net asset value practical expedient. Public companies will be required to use the exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. In addition, the ASU requires financial assets and financial liabilities to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. The classification and measurement guidance is effective for periods beginning after December 15, 2017. The Company’s primary available-for sale investments are debt securities and are therefore not included in the scope of ASU 2016-01. The Company is continuing to evaluate the impact that ASU 2016-01 will have on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this ASU modify the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations. In August 2015, the FASB issued ASU 2014-09 changing the effective date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017 from December 15, 2016. The Company’s primary source of revenue is interest income from loans and their fees and investments. As these items are outside the scope of the guidance, this income is not expected to be impacted by implementation of ASU 2014-09. The Company is still reviewing other sources of income such as fiduciary fees, secondary market lending fees and other deposit account fees to evaluate the impact of ASU 2014-09. The Company continues to evaluate the impact that ASU 2014-09 will have on its consolidated financial statements. |
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Securities | Note 5: Securities The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:
Gross realized gains and gross realized losses on sales and calls of securities were as follows:
Average yields (taxable equivalent) on securities were 3.09% and 3.08% for the three months ended June 30, 2017 and 2016, respectively, and 3.11% and 3.06% for the six months ended June 30, 2017 and 2016, respectively. Securities with a market value of $14.7 million and $19.1 million were pledged as collateral for repurchase agreements and for other purposes as required by law as of June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017 and December 31, 2016, all the securities pledged to repurchase agreements were state and municipal obligations. All the repurchase agreements had remaining contractual maturities that were overnight and continuous. Securities sold under repurchase agreements were $10.8 million and $18.3 million as of June 30, 2017 and December 31, 2016, respectively, and included in liabilities on the consolidated balance sheets. The securities pledged to each agreement are reviewed daily and can be changed at the option of the Bank with minimal risk of loss due to fair value. Securities in an unrealized loss position at June 30, 2017 and December 31, 2016, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All agency securities, and states and municipal securities, are investment grade or better and their losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. Furthermore, all amortized cost bases are expected to be recovered. Bonds with unrealized loss positions at June 30, 2017 included 40 federal agencies, one corporate bond and 23 municipals. Bonds with unrealized loss positions at December 31, 2016 included 37 federal agencies, one corporate bond and 39 municipals. The tables are shown below.
The Company’s investment in FHLB stock totaled $3.7 million and $1.9 million at June 30, 2017 and December 31, 2016, respectively. The Company also had an investment in Federal Reserve Bank of Richmond (“FRB”) stock which totaled $745 thousand and $580 thousand at June 30, 2017 and December 31, 2016, respectively. The investments in both FHLB and FRB stock are required investments related to the Bank’s membership with the FHLB and FRB. These securities do not have a readily determinable fair value as their ownership is restricted, and they lack an active market for trading. Additionally, per charter provisions related to the FHLB and FRB stock, all repurchase transactions of such stock must occur at par. Accordingly, these securities are carried at cost, and are periodically evaluated for impairment. The Company’s determination as to whether its investment in FHLB and FRB stock is impaired is based on management’s assessment of the ultimate recoverability of its par value rather than recognizing temporary declines in its value. The determination of whether the decline affects the ultimate recoverability of the investments is influenced by available information regarding various factors. These factors include, among others, the significance of the decline in net assets of the issuing banks as compared to the capital stock amount reported by these banks, and the length of time a decline has persisted; commitments by such banks to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuing bank; and the overall liquidity position of the issuing bank. Based on its most recent analysis of publicly available information regarding the financial condition of the issuing banks, management concluded that no impairment existed in the carrying value of FHLB and FRB stock. |
Low Income Housing Tax Credits |
6 Months Ended | ||
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Jun. 30, 2017 | |||
Low Income Housing Tax Credits |
The Company had investments in three separate housing equity funds at June 30, 2017. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver federal low income housing tax credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the consolidated balance sheets and were $1.5 million as of June 30, 2017. These investments and related tax benefits have expected terms through 2029. Tax credits and other tax benefits recognized related to these investments during the three and six months ended June 30, 2017 was $19 thousand and $45 thousand, respectively. Total projected tax credits to be received for 2017 are $89 thousand, which are based on the most recent quarterly estimates received from the funds. Additional capital calls expected for the funds totaled $1.5 million at June 30, 2017 and are included in other liabilities on the consolidated balance sheets. |
Loans |
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Loans |
The following is a summary of the balances of loans:
The recorded investment in past due and non-accruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection. PCI loans are included in the aging schedule as current because they are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
The following table includes an aging analysis, based upon contractual terms, of the recorded investment of PCI loans as of June 30, 2017, included in the table above.
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Allowance for Loan Losses |
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Allowance for Loan Losses |
Loans Evaluated for Impairment Loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
Allowance for Loan Losses The allowance for loan losses disaggregated based on loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
A disaggregation and an analysis of the change in the allowance for loan losses by segment is shown below.
Purchased Impaired Loans The following table presents the changes in the accretable yield for purchased impaired loans (refer to Note 3) since acquisition on April 1, 2017 through June 30, 2017 (in thousands):
Internal Risk Rating Grades Internal risk rating grades are generally assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250,000 with chronic delinquency, and TDRs, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades (refer to Note 3) are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All loan portfolios acquired in the merger are risk graded using loan risk grading software that employs a variety of algorithms based on detailed account characteristics to include borrower’s payment history on a total relationship basis as well as loan to value exposure. For non-homogenous loans, management reviews these resulting grade assignments and makes adjustments to the final grade where appropriate based on an assessment of additional external information that may affect a particular loan. The Bank is in the process of adopting the new risk grading system over its entire loan portfolio including the Bank’s legacy loans and expects to fully utilize it after core system conversion.
Loans not assigned internal risk rating grades are comprised of smaller residential mortgages and smaller consumer loans in the surviving bank’s legacy portfolios. Payment activity of these loans is reviewed monthly by management. However, some of these loans are graded when the borrower’s total exposure to the Bank exceeds the limits noted above. Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.
Impaired Loans The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, excluding purchased impaired loans, with the associated allowance amount, if applicable, as of June 30, 2017 and December 31, 2016, along with the average recorded investment and interest income recognized for the three and six months ended June 30, 2017 and 2016, respectively.
Notes:
Smaller non-accruing loans and non-accruing loans that are not graded because they are included in homogenous pools generally do not meet the criteria for impairment testing, and are therefore excluded from impaired loan disclosures. At June 30, 2017 and December 31, 2016, non-accruing loans excluded from impaired loan disclosure totaled $760 thousand and $465 thousand, respectively. If interest on these non-accruing loans had been accrued, such income would have totaled $6 thousand and $3 thousand during the three months ended June 30, 2017 and 2016, respectively, and $9 thousand and $3 thousand during the six months ended June 30, 2017 and 2016, respectively. Loan Modifications Loans modified as TDRs are considered impaired and are individually evaluated for the amount of impairment in the ALL. No TDRs subsequently defaulted in the first six months 2017 or the first six months of 2016. The following table presents, by segments of loans, information related to loans modified as TDRs.
Other Real Estate Owned The table below details the properties included in other real estate owned (“OREO”) as of June 30, 2017 and December 31, 2016. There were two collateralized consumer residential mortgage loans from two borrowers valued at $127 thousand in the process of foreclosure as of June 30, 2017.
Included in other assets as of June 30, 2017 and December 31, 2016, is one residential property purchased in 2013 from a related party with a value of $708 thousand and a former branch, which was closed April 30, 2015, with a value of $403 thousand.
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Earnings per share |
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Earnings per share |
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Basic earnings per share amounts are computed by dividing the net income (the numerator) by the weighted average number of common shares outstanding (the denominator). Diluted earnings per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce the loss or increase the income per common share from continuing operations. For both computations, the weighted average number of unearned ESOP shares purchased by the ESOP, which have not been allocated to participant accounts, are not assumed to be outstanding. The weighted average unearned ESOP shares which were excluded from the computation were 140,542 and 70,267 for the three and six months ended June 30, 2017, respectively. All ESOP shares were allocated for periods prior to April 1, 2017.
For the three months ended June 30, 2017 and 2016, options on 15,758 and 46,135 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive. For the six months ended June 30, 2017 and 2016, options on 22,758 and 53,635 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive. |
Stock-Based Compensation |
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Stock-Based Compensation |
On June 28, 2013, the Company registered with the SEC a stock-based compensation plan, which superseded all other plans. There are 311,209 shares available for grant under this plan at June 30, 2017. Stock-based compensation expense related to stock option awards for the three months ended June 30, 2017 and 2016 was $8 thousand and zero, respectively. For the six months ended June 30, 2017 and 2016, stock-based compensation expense related to stock option awards was $24 thousand and $16 thousand, respectively. Compensation expense for stock options is the estimated fair value of options on the date granted using the Black-Scholes Model amortized on a straight-line basis over the vesting period of the award. There was no unrecognized compensation expense related to stock options as of June 30, 2017.
The variables used in these calculations of the fair value of the options are as follows:
Stock option activity for the six months ended June 30, 2017 is summarized below:
In the first six months of 2017, 14,000 shares of restricted stock were granted to three executives. Total unvested restricted shares were 9,000 as of June 30, 2017 and zero as of December 31, 2016. Stock based compensation related to restricted stock awards was $43 thousand and zero as of the six months ended June 30, 2017 and 2016, respectively.
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Employee Benefit Plans |
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Employee Benefit Plans |
The Company has a non-contributory, defined benefit pension plan for full-time employees who were over 21 years of age and vested in the plan as of December 31, 2012, when the plan was frozen. Each participant’s account balance grows based on monthly interest credits. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act. The Company sponsors a post-retirement benefit plan covering current and future retirees who acquire age 55 and 10 years of service or age 65 and 5 years of service. The post-retirement benefit plan provides coverage toward a retiree’s eligible medical and life insurance benefits expenses. The plan is unfunded and funded as benefits are due. Components of Net Periodic (Benefit) Cost
The Company expects to make no contribution to its pension plan and $3 thousand to its post-retirement benefit plan during the remainder of 2017. The Company has contributed $3 thousand towards the post-retirement plan during the first six months of 2017. |
Long Term Debt |
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Long Term Debt |
FHLB Debt As of June 30, 2017, the Bank had $70.0 million of outstanding FHLB debt, consisting of six advances. As of December 31, 2016, five advances totaling $35.0 million were outstanding. The $40.0 million advance that matured on July 3, 2017 and the $5.0 million daily rate credit that was to mature on May 30, 2018 were replaced with a $50.0 million fixed rate advance with an interest rate of 1.14% maturing on August 2, 2017. This advance was then rolled over at an interest rate of 1.16% maturing on September 1, 2017.
The six advances are shown in the following table.
Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Immediate available credit, as of June 30, 2017, was $44.3 million against a total line of credit of $125.3 million. As of June 30, 2017 and December 31, 2016, the Company had $70.0 million and $35.0 million, respectively, in FHLB debt outstanding with a weighted average interest rate of 1.41% and 1.49%, respectively. Subordinated Debt On May 28, 2015, the Company issued an aggregate of $7,000,000 of subordinated notes (the “Notes”). The Notes have a maturity date of May 28, 2025. The Notes bear interest, payable on the 1st of March and September of each year, commencing September 1, 2015, at a fixed interest rate of 6.50% per year. The Notes are not convertible into common stock or preferred stock, and are not callable by the holders. The Company has the right to redeem the Notes, in whole or in part, without premium or penalty, at any interest payment date on or after May 28, 2020 and prior to the maturity date, but in all cases in a principal amount with integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default occurs, such as the bankruptcy of the Company, the holder of a Note may declare the principal amount of the Note to be due and immediately payable. The Notes are unsecured, subordinated obligations of the Company and will rank junior in right of payment to the Company’s existing and future senior indebtedness. The Notes qualify as Tier 2 capital for regulatory reporting.
ESOP Debt Acquired in the merger was $911 thousand of debt secured by unissued shares of stock in the Company’s ESOP plan. The four fixed rate amortizing notes each carry an interest rate of 3.25% with maturity dates ranging from March 1, 2019 to November 1, 2026.
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Fair Value Measurements |
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Fair Value Measurements |
The Company uses fair value to record certain assets and liabilities and to determine fair value disclosures. Authoritative accounting guidance clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Authoritative accounting guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows: Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities. Level 2 – Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market. Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements: Securities available-for-sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Defined benefit plan assets: Defined benefit plan assets are recorded at fair value on an annual basis at year end. Mortgage servicing rights “(MSR”): The Bank currently owns MSRs from two portfolios, one serviced for Fannie Mae (“FNMA”) and one serviced for Freddie Mac (“FHLMC”). The MSR for the portfolio serviced for FNMA is recorded at fair value on a recurring basis, with changes in fair value recorded in the results of operations. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each pool. Loans are segregated into 14 pools based on each loan’s term and seasoning (age). All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Monthly service costs were assumed to be $6.33 per loan as of June 30, 2017 and $6.00 per loan as of December 31, 2016. Prepayment speeds are determined primarily based on the average interest rate of the loans in each pool. The prepayment scale used is the Public Securities Association (“PSA”) model, where “100% PSA” means prepayments are zero in the first month, then increase by 0.2% of the loan balance each month until reaching 6.0% in month 30. Thereafter, the 100% PSA model assumes an annual prepayment of 6.0% of the remaining loan balance. The average PSA speed assumption in the fair value model is 147% and 150% as of June 30, 2017 and December 31, 2016, respectively. A discount rate of 14.0% was then applied to each pool both as of June 30, 2017 and December 31, 2016. This discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. This MSR is classified as Level 3. Similarly, the MSR for the portfolio serviced for FHLMC is recorded at fair value on a recurring basis, with changes in fair value recorded in the results of operations. This MSR was acquired by the Bank as part of the merger with Virginia BanCorp effective April 1, 2017. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each. Loans are segregated into five pools based on each loan’s term and coupon strata. All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Monthly service costs were assumed to be $7.67 per loan as of June 30, 2017. Prepayment speeds are determined primarily based on the average interest rate and seasoning of the loans in each pool. The prepayment scale used is the PSA model as described above. The average PSA speed assumption in the fair value model is 195% as of June 30, 2017. The PSA speeds are converted to a constant prepayment rate (CPR) and then adjusted by applying betas in order to reflect the prepayment speeds of the portfolio based on historical payment behavior. As of June 30, 2017, an average CPR of 7.51% was applied based on the prior two years of history. Utilizing observed market prices in the secondary market, an average price of 102.84% was effectively applied in determining the market discount rate to be applied to the portfolio’s servicing cash flows. This rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. This MSR is classified as Level 3.
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016:
The reconciliation of items using Level 3 inputs is as follows:
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets. The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements: Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Any given loan may have multiple types of collateral. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. Other Real Estate Owned: OREO is measured at fair value less estimated costs to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. The initial fair value of OREO is based on an appraisal done at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest income on the Consolidated Statements of Income. The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at the end of the respective period.
The following table displays quantitative information about Level 3 Fair Value Measurements as of June 30, 2017:
The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2016:
The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.
The carrying amounts of cash and due from banks, interest-bearing deposits, federal funds sold or purchased, accrued interest receivable, loans held for sale and non-interest-bearing deposits, are payable on demand, or are of such short duration that carrying value approximates market value. Securities available-for-sale are carried at quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted securities approximates fair value based on the redemption provisions of the issuer. The fair value of loans held for sale is based upon their contracted sales price.
Bank owned life insurance is carried at its cash surrender value. MSRs are carried at fair value. As described above, a valuation model is used to determine fair value. This model utilizes a discounted cash flow analysis with servicing costs and prepayment assumptions based on comparable instruments and a discount rate. The fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar remaining maturities. This calculation ignores loan fees and certain factors affecting the interest rates charged on various loans such as the borrower’s creditworthiness and compensating balances and dissimilar types of real estate held as collateral. The fair value of impaired loans is measured as described within the Impaired Loans section of this note. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation. Time deposits are presented at estimated fair value by discounting the future cash flows using interest rates offered for deposits of similar remaining maturities. The fair value of the Company’s subordinated debt is estimated by utilizing observable market prices for comparable securities. Qualitative factors like asset quality, market factors and liquidity are also considered. The fair value of the FHLB advances is estimated by discounting the future cash flows using the current interest rates offered for similar advances. The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date. At June 30, 2017 and December 31, 2016, the fair value of loan commitments and standby letters of credit was immaterial and therefore, they are not included in the table above. The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
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Changes in Accumulated Other Comprehensive Income (Loss) |
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Changes in Accumulated Other Comprehensive Income (Loss) |
The balances in accumulated other comprehensive income (loss) are shown in the following tables:
Reclassification for previously unrealized gains (losses) and impairments on securities are reported in the Consolidated Statements of Income as follows. No unrealized gains (losses) on pension and post-employment related costs were reclassified to the Consolidated Statements of Income in the three and six months ended June 30, 2017 and 2016.
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Significant Accounting Policies (Policies) |
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Loans | Loans The Company grants mortgage loans on real estate, commercial and industrial loans, and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Company’s market areas. Loans are reported at their recorded investment, which is the outstanding principal balance net of any unearned income, such as deferred fees and costs, charge-offs and discounts on acquired loans. Interest on loans is recognized over the term of the loan and is calculated using the interest method on principal amounts outstanding. Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment of the related loan yield over the contractual term of the loan, adjusted for early pay-offs, where applicable. The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans with the exception of PCI loans whose discount is being accreted to interest income. All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any subsequent interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection. |
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Charge-off of Uncollectible Loans | Charge-off of Uncollectible Loans As soon as any loan becomes uncollectible, the loan will be charged down or charged off as follows:
Loans should be considered uncollectible when:
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Allowance for loan losses ("ALL") | Allowance for loan losses (“ALL”) The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each homogenous segment and class of the portfolio, plus any loans analyzed individually for impairment. Depending on the nature of each segment and class, considerations include historical loss experience, adverse situations that may affect a borrower’s ability to repay, credit scores, past due history, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as conditions change.
Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. All loans acquired in the merger and all loans originated since the merger are risk rated. Legacy loans originated prior to the merger that were assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures (“TDRs”). The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows: Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate. Watch – Borrower exhibits some signs of financial stress but is generally believed to be a satisfactory customer and collateral, if any, may be in excess of 90% of the loan balance. Special Mention – Adverse trends in the borrower’s financial position are evident and warrant management’s close attention. Any collateral may not be fully adequate to secure the loan balance. Substandard – A loan in this category has a well-defined weakness in the primary repayment source that jeopardizes the timely collection of the debt. There is a distinct possibility that a loss may result if the weakness is not corrected. Doubtful – Default has already occurred and it is likely that foreclosure or repossession procedures have begun or will begin in the near future. Weaknesses make collection or liquidation in full, based on currently existing information, highly questionable and improbable. Loss – Uncollectible and of such little value that continuance as a bankable asset is not warranted. The ALL consists of specific and general components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include (1) all loans risk rated Special Mention or worse with balances of $400 thousand or more or where the borrower has filed for bankruptcy; and (2) all loans classified as a TDR . A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates any loans not identified as impaired, which are typically smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in local and national economic indicators, such as unemployment rates, interest rates, gross domestic product growth and real estate market trends; the level of past due and nonaccrual loans; risk ratings on individual loans; strength of credit policies and procedures; loan officer experience; borrower credit scores; and other intrinsic risks related to the types and geographic locations of loans. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. Changes in the allowance for loan losses and the related provision expense can materially affect net income. The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement. The general component of the ALL calculation collectively evaluates groups of loans in segments and classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 20 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class. Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans have historically included credit cards, which are unsecured. The credit card portfolio was sold to an unaffiliated third party in the third quarter of 2016. The summation of the specific and general components results in the total estimated ALL. This estimate is inherently subjective and actual losses could be greater or less than the estimates. An ALL calculation is also performed on purchased performing loans. A comparison is then made to the remaining unaccreted discount associated with the purchase of those loans. If the ALL related to these loans exceeds the remaining unaccreted discount, that difference is added to the ALL that applies to non-purchased loans. See below for more information related to Loans Purchased in a Business Combination. Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans. |
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Loans Acquired in a Business Combination | Loans Acquired in a Business Combination The Company accounts for loans acquired in a business combination in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” Accordingly, acquired loans are segregated between PCI loans and purchased performing loans (“PPL”) and are recorded at fair value on the date of acquisition without the carryover of the related allowance for loan losses. PCI loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. When determining fair market value, PCI loans were aggregated into pools of loans based on common characteristics as of the date of acquisition such as loan type, date of origination, and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. Loans not designated PCI loans as of the acquisition date are designated purchased performing loans. The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing or PCI loans. A provision for loan losses is recorded for any deterioration in these loans subsequent to the acquisition. |
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Employee Stock Ownership Plan ("ESOP") | Employee Stock Ownership Plan (“ESOP”) The Company currently has two ESOPs for the benefit of all eligible employees. Shares held by the legacy ESOP of the former Bank of Lancaster employees are considered outstanding for purposes of computing earnings per share as they are fully allocated. Unearned ESOP shares in the ESOP acquired in the merger (“new ESOP”), are shown as a reduction of shareholders’ equity. The unearned ESOP shares are not included in basic or diluted earnings per share calculation as discussed in Note 9. The use of dividends paid on allocated ESOP shares are at the discretion of the Company. Dividends on unallocated ESOP shares, if paid, are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. The Company recognizes a tax deduction equal to the cost of shares released. The unearned ESOP shares are pledged to a third party to collateralize a direct loan to the ESOP. The loan is guaranteed by the Company and is recorded on the Company’s consolidated balance sheets. It is anticipated that the Company will make contributions to the new ESOP in amounts necessary to amortize the third-party loans over a nine year period. See note 12. |
Business Combination (Tables) |
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Schedule of Fair Value of Assets Acquired and Liabilities Assumed | The following table details the total consideration paid by the Company on April 1, 2017 in connection with the acquisition of Virginia BanCorp, the fair value of the assets acquired and liabilities assumed, and the resulting goodwill.
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Schedule of Information about the PCI Impaired Loan | Information about the PCI loan portfolio at April 1, 2017 is as follows:
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Schedule of Unaudited Pro Forma Financial Information | Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below:
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Schedule of Impact of Certain Acquisition Accounting Adjustments | The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments to assets acquired and liabilities assumed from Virginia BanCorp had the following impact on the consolidated statements of income for the three and six months ended June 30, 2017.
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Securities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aggregate Amortized Cost and Fair Values of Available-for-Sale Securities Portfolio | The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:
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Gross Realized Gains and Gross Realized Losses on Sales of Securities | Gross realized gains and gross realized losses on sales and calls of securities were as follows:
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Unrealized Loss Positions | Bonds with unrealized loss positions at December 31, 2016 included 37 federal agencies, one corporate bond and 39 municipals. The tables are shown below.
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Loans (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Balances of Loans | The following is a summary of the balances of loans:
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Recorded Investment in Past Due and Non-accruing Loans | The recorded investment in past due and non-accruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection. PCI loans are included in the aging schedule as current because they are considered to be accruing due to the existence of the accretable yield and not based on consideration given to contractual interest payments.
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Purchased Impaired Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recorded Investment in Past Due and Non-accruing Loans | The following table includes an aging analysis, based upon contractual terms, of the recorded investment of PCI loans as of June 30, 2017, included in the table above.
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Allowance for Loan Losses (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Receivables Evaluated for Impairment Individually and Collectively by Segment | Loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
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Allowance for Loan Losses by Portfolio Segment | Allowance for Loan Losses The allowance for loan losses disaggregated based on loan receivables evaluated for impairment individually and collectively by segment as of June 30, 2017 and December 31, 2016 are as follows:
A disaggregation and an analysis of the change in the allowance for loan losses by segment is shown below.
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Schedule of Changes in Accretable Yield for Purchased Impaired Loans | The following table presents the changes in the accretable yield for purchased impaired loans (refer to Note 3) since acquisition on April 1, 2017 through June 30, 2017 (in thousands):
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Internal Risk Rating Grades | Internal Risk Rating Grades Internal risk rating grades are generally assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250,000 with chronic delinquency, and TDRs, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades (refer to Note 3) are evaluated as new information becomes available for each borrowing relationship or at least quarterly. All loan portfolios acquired in the merger are risk graded using loan risk grading software that employs a variety of algorithms based on detailed account characteristics to include borrower’s payment history on a total relationship basis as well as loan to value exposure. For non-homogenous loans, management reviews these resulting grade assignments and makes adjustments to the final grade where appropriate based on an assessment of additional external information that may affect a particular loan. The Bank is in the process of adopting the new risk grading system over its entire loan portfolio including the Bank’s legacy loans and expects to fully utilize it after core system conversion.
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Performing and Non Performing Loans | Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.
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Company's Recorded Investment and Customers Unpaid Principal Balances for Impaired Loans, with Associated Allowance Amount | The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, excluding purchased impaired loans, with the associated allowance amount, if applicable, as of June 30, 2017 and December 31, 2016, along with the average recorded investment and interest income recognized for the three and six months ended June 30, 2017 and 2016, respectively.
Notes:
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Summary of Troubled Debt Restructurings | The following table presents, by segments of loans, information related to loans modified as TDRs.
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Summary of Properties Included in Other Real Estate Owned (OREO) | The table below details the properties included in other real estate owned (“OREO”) as of June 30, 2017 and December 31, 2016. There were two collateralized consumer residential mortgage loans from two borrowers valued at $127 thousand in the process of foreclosure as of June 30, 2017.
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Earnings per share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Number of Shares Used in Computing Earnings per Share | The weighted average unearned ESOP shares which were excluded from the computation were 140,542 and 70,267 for the three and six months ended June 30, 2017, respectively. All ESOP shares were allocated for periods prior to April 1, 2017.
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Stock-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Options | The variables used in these calculations of the fair value of the options are as follows:
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Summary of Stock Option Activity | Stock option activity for the six months ended June 30, 2017 is summarized below:
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Employee Benefit Plans (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic (Benefit) Cost | Components of Net Periodic (Benefit) Cost
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Long Term Debt (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Advances of Long Term Debt | The six advances are shown in the following table.
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Subordinated Debt |
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Balances of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016:
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Reconciliation of Items Using Level Three Inputs | The reconciliation of items using Level 3 inputs is as follows:
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Summary of Assets Measured at Fair Value on Nonrecurring Basis | The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at the end of the respective period.
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Summary of Quantitative Fair Value Measurements for Level 3 | The following table displays quantitative information about Level 3 Fair Value Measurements as of June 30, 2017:
The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2016:
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Estimated Fair Values of Financial Instruments | The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.
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Changes in Accumulated Other Comprehensive Income (Loss) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances in Accumulated Other Comprehensive Income (Loss) | The balances in accumulated other comprehensive income (loss) are shown in the following tables:
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Reclassification of Unrealized Gains (Losses) and Impairments on Securities | Reclassification for previously unrealized gains (losses) and impairments on securities are reported in the Consolidated Statements of Income as follows. No unrealized gains (losses) on pension and post-employment related costs were reclassified to the Consolidated Statements of Income in the three and six months ended June 30, 2017 and 2016.
|
General - Additional Information (Detail) |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Organization Presentation And General [Line Items] | |
Business combination effective date | Apr. 01, 2017 |
Virginia Commonwealth Bank | |
Organization Presentation And General [Line Items] | |
Percent of ownership | 100.00% |
VCB Financial Group, Inc. | |
Organization Presentation And General [Line Items] | |
Percent of ownership | 100.00% |
Steptoes Holdings | |
Organization Presentation And General [Line Items] | |
Percent of ownership | 100.00% |
Business Combination - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Apr. 01, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Jun. 30, 2017 |
Dec. 31, 2016 |
[1] | |||
Business Acquisition [Line Items] | ||||||||
Goodwill during acquisition | $ 8,966 | $ 8,966 | $ 2,808 | |||||
Loans acquired held for sale | 55,620 | 55,620 | $ 276 | |||||
Acquisition related expenses | 685 | 985 | ||||||
Virginia BanCorp | ||||||||
Business Acquisition [Line Items] | ||||||||
Ownership percentage by shareholders of acquiring entity | 51.00% | |||||||
Ownership percentage by shareholders of acquired entity | 49.00% | |||||||
Common stock exchange ratio | 1.178 | |||||||
Business combination, number of shares exchanged | 4,586,221 | |||||||
Business combination, value of shares exchanged | $ 42,200 | |||||||
Goodwill during acquisition | $ 6,200 | |||||||
Fair value maximum refinement period post acquisition | 1 year | |||||||
Fair value of acquired loans not accounted for as debt securities | $ 268,200 | |||||||
Loans acquired held for sale | 55,400 | |||||||
Adjustment on Fair value of premises and equipment | $ 2,700 | |||||||
Percentage of acquired deposit, excluding time deposit | 2.52% | |||||||
Acquisition related expenses | $ 685 | $ 174 | $ 985 | |||||
Virginia BanCorp | Purchased Credit Impaired Loans | ||||||||
Business Acquisition [Line Items] | ||||||||
Gross Contractual amount | $ 8,300 | |||||||
Uncollectible receivables | $ 7,400 | |||||||
Virginia BanCorp | Federal Home Loan Bank of Atlanta | ||||||||
Business Acquisition [Line Items] | ||||||||
Maturity Date | Apr. 30, 2017 | |||||||
Virginia BanCorp | Minimum | ||||||||
Business Acquisition [Line Items] | ||||||||
Certificate of deposit maximum maturity period | 1 month | |||||||
Virginia BanCorp | Maximum | ||||||||
Business Acquisition [Line Items] | ||||||||
Certificate of deposit maximum maturity period | 5 years | |||||||
Virginia BanCorp | Certificates of Deposit | ||||||||
Business Acquisition [Line Items] | ||||||||
Adjustment on Fair value of premises and equipment | $ 733 | |||||||
Virginia BanCorp | Core Deposits | ||||||||
Business Acquisition [Line Items] | ||||||||
Core deposit intangible, fair value | $ 3,700 | |||||||
weighted average life of core deposit intangible | 92 months | |||||||
|
Business Combination - Schedule of Fair Value of Assets Acquired and Liabilities Assumed (Detail) - USD ($) $ in Thousands |
Apr. 01, 2017 |
Jun. 30, 2017 |
Dec. 31, 2016 |
[1] | ||
---|---|---|---|---|---|---|
Identifiable liabilities assumed: | ||||||
Goodwill resulting from acquisition | $ 8,966 | $ 2,808 | ||||
As Recorded by the Company | ||||||
Consideration paid: | ||||||
Bay Banks of Virginia, Inc. common stock | $ 42,247 | |||||
Identifiable assets acquired: | ||||||
Cash and due from banks | 2,356 | |||||
Interest-bearing deposits | 12,342 | |||||
Securities available-for-sale | 22,088 | |||||
Restricted securities | 1,543 | |||||
Loans receivable | 212,572 | |||||
Loans held for sale | 55,648 | |||||
Deferred income taxes | 825 | |||||
Premises and equipment | 6,036 | |||||
Accrued interest receivable | 1,229 | |||||
Other real estate owned | 3,113 | |||||
Core deposit intangible | 3,670 | |||||
Bank owned life insurance | 8,430 | |||||
Mortgage servicing rights | 324 | |||||
Other assets | 367 | |||||
Total identified assets acquired | 330,543 | |||||
Identifiable liabilities assumed: | ||||||
Noninterest-bearing deposits | 21,119 | |||||
Savings and interest-bearing demand deposits | 124,640 | |||||
Time deposits | 122,170 | |||||
Federal Home Loan Bank advances | 25,000 | |||||
Other liabilities | 1,525 | |||||
Total identifiable liabilities assumed | 294,454 | |||||
Total identifiable assets assumed | 36,089 | |||||
Goodwill resulting from acquisition | 6,158 | |||||
Fair Value Adjustment | ||||||
Identifiable assets acquired: | ||||||
Loans receivable | (4,259) | |||||
Deferred income taxes | (500) | |||||
Premises and equipment | 2,703 | |||||
Accrued interest receivable | (24) | |||||
Core deposit intangible | 3,670 | |||||
Total identified assets acquired | 1,590 | |||||
Identifiable liabilities assumed: | ||||||
Time deposits | 733 | |||||
Total identifiable liabilities assumed | 733 | |||||
Total identifiable assets assumed | 857 | |||||
Virginia Commonwealth Bank | ||||||
Identifiable assets acquired: | ||||||
Cash and due from banks | 2,356 | |||||
Interest-bearing deposits | 12,342 | |||||
Securities available-for-sale | 22,088 | |||||
Restricted securities | 1,543 | |||||
Loans receivable | 216,831 | |||||
Loans held for sale | 55,648 | |||||
Deferred income taxes | 1,325 | |||||
Premises and equipment | 3,333 | |||||
Accrued interest receivable | 1,253 | |||||
Other real estate owned | 3,113 | |||||
Bank owned life insurance | 8,430 | |||||
Mortgage servicing rights | 324 | |||||
Other assets | 367 | |||||
Total identified assets acquired | 328,953 | |||||
Identifiable liabilities assumed: | ||||||
Noninterest-bearing deposits | 21,119 | |||||
Savings and interest-bearing demand deposits | 124,640 | |||||
Time deposits | 121,437 | |||||
Federal Home Loan Bank advances | 25,000 | |||||
Other liabilities | 1,525 | |||||
Total identifiable liabilities assumed | 293,721 | |||||
Total identifiable assets assumed | $ 35,232 | |||||
|
Business Combination - Summary of Information about the PCI loan portfolio (Detail) - Virginia BanCorp $ in Thousands |
Apr. 01, 2017
USD ($)
|
---|---|
Certain Loans Acquired in Transfer Accounted for as Debt Securities Pci Loan Schedule [Line Items] | |
Purchase credit impaired loans - estimated fair value | $ 268,200 |
Purchased Credit Impaired Loans | |
Certain Loans Acquired in Transfer Accounted for as Debt Securities Pci Loan Schedule [Line Items] | |
Contractual principal and interest due | 8,303 |
Nonaccretable difference | 869 |
Expected cash flows | 7,434 |
Accretable yield | 1,354 |
Purchase credit impaired loans - estimated fair value | $ 6,080 |
Business Combination - Schedule of Pro Forma Financial Information (Detail) - Virginia Commonwealth Bank - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items] | ||||
Net interest income | $ 7,719 | $ 6,564 | $ 11,845 | $ 12,954 |
Net income | $ 870 | $ 1,223 | $ 1,464 | $ 2,371 |
Business Combination - Summary of impact of Certain Acquisition Accounting Adjustments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||||
Business Acquisition, Pro Forma Information [Line Items] | |||||||||||||
Net income before income taxes | $ 811 | $ 776 | $ 513 | $ 1,453 | |||||||||
Virginia Commonwealth Bank | |||||||||||||
Business Acquisition, Pro Forma Information [Line Items] | |||||||||||||
Loans | [1] | 451 | 451 | ||||||||||
Core deposit intangible | [2] | (234) | (234) | ||||||||||
Time deposits | [3] | 117 | 117 | ||||||||||
Depreciation | [4] | (10) | (10) | ||||||||||
Net income before income taxes | $ 324 | $ 324 | |||||||||||
|
Significant Accounting Policies - Additional Information (Detail) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|
Significant Accounting Policies [Line Items] | ||
Personal loans charged off period no later than period | 180 days | |
Percentage of excess loan balance for watch category | 90.00% | |
Impaired loans measurement | Impaired loans measured for impairment generally include (1) all loans risk rated Special Mention or worse with balances of $400 thousand or more or where the borrower has filed for bankruptcy; and (2) all loans classified as a TDR . | |
Loan Receivables | $ 405,682,000 | $ 161,033,000 |
Number of ESOP unit | 2 | |
Amortize of ESOP | 9 years | |
Special Mention | ||
Significant Accounting Policies [Line Items] | ||
Loan Receivables | $ 833,000 | $ 2,030,000 |
Residential First Mortgages | ||
Significant Accounting Policies [Line Items] | ||
Minimum balance in order to assign a risk rating grade | 1,000,000 | |
Consumer and Other Loans | ||
Significant Accounting Policies [Line Items] | ||
Minimum balance in order to assign a risk rating grade | $ 250,000 | |
Minimum | ||
Significant Accounting Policies [Line Items] | ||
Number of days past due for a loan to remain on accrual status | 90 days | |
Minimum | Special Mention | ||
Significant Accounting Policies [Line Items] | ||
Loan Receivables | $ 400,000 |
Securities - Aggregate Amortized Costs and Fair Values of Available-for-Sale Securities Portfolio (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
---|---|---|---|---|---|
Schedule of Available-for-sale Securities [Line Items] | |||||
Amortized Cost | $ 54,718 | $ 51,929 | |||
Gross Unrealized Gains | 341 | 116 | |||
Gross Unrealized (Losses) | (611) | (872) | |||
Fair Value | 54,448 | 51,173 | [1] | ||
Corporate Bonds | |||||
Schedule of Available-for-sale Securities [Line Items] | |||||
Amortized Cost | 6,696 | 7,695 | |||
Gross Unrealized Gains | 20 | 14 | |||
Gross Unrealized (Losses) | (1) | (5) | |||
Fair Value | 6,715 | 7,704 | |||
US Government Agencies | |||||
Schedule of Available-for-sale Securities [Line Items] | |||||
Amortized Cost | 27,319 | 25,668 | |||
Gross Unrealized Gains | 123 | 53 | |||
Gross Unrealized (Losses) | (386) | (408) | |||
Fair Value | 27,056 | 25,313 | |||
State and Municipal Obligations | |||||
Schedule of Available-for-sale Securities [Line Items] | |||||
Amortized Cost | 20,703 | 18,566 | |||
Gross Unrealized Gains | 198 | 49 | |||
Gross Unrealized (Losses) | (224) | (459) | |||
Fair Value | $ 20,677 | $ 18,156 | |||
|
Securities - Gross Realized Gains and Gross Realized Losses on Sales of Securities (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Schedule of Available-for-sale Securities [Line Items] | ||||
Gross realized gains | $ 7 | $ 105 | $ 7 | $ 120 |
Gross realized losses | (1) | (5) | (10) | |
Net realized gains | 7 | 104 | 2 | 110 |
Aggregate proceeds | $ 16,667 | $ 6,395 | $ 17,662 | $ 9,097 |
Securities - Additional Information (Detail) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
Bond
|
Jun. 30, 2016 |
Jun. 30, 2017
USD ($)
Bond
|
Jun. 30, 2016 |
Dec. 31, 2016
USD ($)
Bond
|
||||
Schedule of Available-for-sale Securities [Line Items] | ||||||||
Average yields (taxable equivalent) on securities | 3.09% | 3.08% | 3.11% | 3.06% | ||||
Market value of securities | $ 14,700 | $ 14,700 | $ 19,100 | |||||
Securities sold under repurchase agreements | 10,786 | 10,786 | 18,310 | [1] | ||||
Company's investment in Federal Home Loan Bank stock | 3,700 | 3,700 | 1,900 | |||||
Company's investment in Federal Reserve Bank stock | $ 745 | $ 745 | $ 580 | |||||
Municipal Securities | ||||||||
Schedule of Available-for-sale Securities [Line Items] | ||||||||
Bonds with unrealized loss positions | Bond | 23 | 23 | 39 | |||||
US Government Agencies | ||||||||
Schedule of Available-for-sale Securities [Line Items] | ||||||||
Bonds with unrealized loss positions | Bond | 40 | 40 | 37 | |||||
Corporate Bonds | ||||||||
Schedule of Available-for-sale Securities [Line Items] | ||||||||
Bonds with unrealized loss positions | Bond | 1 | 1 | 1 | |||||
|
Securities - Unrealized Loss Positions (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Schedule of Available-for-sale Securities [Line Items] | ||
Less than 12 months, Fair Value | $ 25,759 | $ 34,816 |
Less than 12 months, Unrealized Loss | (478) | (860) |
12 months or more, Fair Value | 5,745 | 1,308 |
12 months or more, Unrealized Loss | (133) | (12) |
Fair Value, Total | 31,504 | 36,124 |
Total Unrealized Loss | (611) | (872) |
Corporate Bonds | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Less than 12 months, Fair Value | 500 | 995 |
Less than 12 months, Unrealized Loss | (1) | (5) |
Fair Value, Total | 500 | 995 |
Total Unrealized Loss | (1) | (5) |
US Government Agencies | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Less than 12 months, Fair Value | 18,052 | 20,933 |
Less than 12 months, Unrealized Loss | (298) | (396) |
12 months or more, Fair Value | 4,792 | 1,308 |
12 months or more, Unrealized Loss | (88) | (12) |
Fair Value, Total | 22,844 | 22,241 |
Total Unrealized Loss | (386) | (408) |
State and Municipal Obligations | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Less than 12 months, Fair Value | 7,207 | 12,888 |
Less than 12 months, Unrealized Loss | (179) | (459) |
12 months or more, Fair Value | 953 | |
12 months or more, Unrealized Loss | (45) | |
Fair Value, Total | 8,160 | 12,888 |
Total Unrealized Loss | $ (224) | $ (459) |
Low Income Housing Tax Credits - Additional Information (Detail) - Housing Equity Funds $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2017
USD ($)
Investment
|
|
Schedule of Equity Method Investments [Line Items] | ||
Number of investments in housing equity funds | Investment | 3 | |
Affordable housing investments and related tax benefits term | 2029 | |
Tax credits and other tax benefits recognized related to investments | $ 19 | $ 45 |
Total projected tax credits to be received from investments | 89 | 89 |
Other assets | ||
Schedule of Equity Method Investments [Line Items] | ||
Investments in housing equity funds | 1,500 | 1,500 |
Other Liabilities | ||
Schedule of Equity Method Investments [Line Items] | ||
Additional capital calls expected for the fund | $ 1,500 | $ 1,500 |
Loans - Summary of Balances of Loans (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
---|---|---|---|---|---|
Summary of balances of loans | |||||
Total loans | $ 649,626 | $ 385,009 | |||
Net unamortized deferred loan costs | 316 | 391 | |||
Allowance for loan losses | (4,241) | (3,863) | [1] | ||
Loans, net | 645,701 | 381,537 | [1] | ||
Construction, Land and Land Development | |||||
Summary of balances of loans | |||||
Total loans | 57,891 | 39,818 | |||
Farmland | |||||
Summary of balances of loans | |||||
Total loans | 966 | 1,023 | |||
Commercial Mortgages (Non-Owner Occupied) | |||||
Summary of balances of loans | |||||
Total loans | 80,240 | 35,343 | |||
Commercial Mortgages (Owner Occupied) | |||||
Summary of balances of loans | |||||
Total loans | 73,981 | 41,825 | |||
Residential First Mortgages | |||||
Summary of balances of loans | |||||
Total loans | 260,074 | 194,007 | |||
Residential Revolving and Junior Mortgages | |||||
Summary of balances of loans | |||||
Total loans | 49,306 | 26,425 | |||
Commercial and Industrial | |||||
Summary of balances of loans | |||||
Total loans | 85,939 | 43,024 | |||
Allowance for loan losses | (456) | (493) | |||
Consumer and Other Loans | |||||
Summary of balances of loans | |||||
Total loans | 41,229 | 3,544 | |||
Allowance for loan losses | $ (99) | $ (52) | |||
|
Loans - Additional Information (Detail) |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Minimum | |
Accounts, Notes, Loans and Financing Receivable [Line Items] | |
Number of days past due for a loan to remain on accrual status | 90 days |
Loans - Recorded Investment in Past Due and Non-accruing Loans (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | $ 1,262 | $ 2,679 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 5,362 | 5,300 |
Total Past Due and Nonaccruals | 6,624 | 7,979 |
Current | 643,002 | 377,030 |
Total Gross Loans | 649,626 | 385,009 |
Construction, Land and Land Development | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 93 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 542 | 623 |
Total Past Due and Nonaccruals | 635 | 623 |
Current | 57,256 | 39,195 |
Total Gross Loans | 57,891 | 39,818 |
Farmland | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 57 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Total Past Due and Nonaccruals | 57 | |
Current | 966 | 966 |
Total Gross Loans | 966 | 1,023 |
Commercial Mortgages (Non-Owner Occupied) | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 454 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Total Past Due and Nonaccruals | 454 | |
Current | 79,786 | 35,343 |
Total Gross Loans | 80,240 | 35,343 |
Commercial Mortgages (Owner Occupied) | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 188 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 1,747 | 2,270 |
Total Past Due and Nonaccruals | 1,747 | 2,458 |
Current | 72,234 | 39,367 |
Total Gross Loans | 73,981 | 41,825 |
Residential First Mortgages | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 236 | 1,546 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 1,941 | 2,155 |
Total Past Due and Nonaccruals | 2,177 | 3,701 |
Current | 257,897 | 190,306 |
Total Gross Loans | 260,074 | 194,007 |
Residential Revolving and Junior Mortgages | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 43 | 480 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 956 | 160 |
Total Past Due and Nonaccruals | 999 | 640 |
Current | 48,307 | 25,785 |
Total Gross Loans | 49,306 | 26,425 |
Commercial and Industrial | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 408 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 110 | 92 |
Total Past Due and Nonaccruals | 110 | 500 |
Current | 85,829 | 42,524 |
Total Gross Loans | 85,939 | 43,024 |
Consumer and Other Loans | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
30-89 Days Past Due | 436 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 66 | |
Total Past Due and Nonaccruals | 502 | |
Current | 40,727 | 3,544 |
Total Gross Loans | $ 41,229 | $ 3,544 |
Loans - Summary of Recorded investment of purchased impaired loans (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | $ 1,262 | $ 2,679 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 5,362 | 5,300 |
Total Past Due and Nonaccruals | 6,624 | 7,979 |
Current | 643,002 | 377,030 |
Total loans | 649,626 | 385,009 |
Construction, Land and Land Development | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 93 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 542 | 623 |
Total Past Due and Nonaccruals | 635 | 623 |
Current | 57,256 | 39,195 |
Total loans | 57,891 | 39,818 |
Commercial Mortgages (Non-Owner Occupied) | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 454 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Total Past Due and Nonaccruals | 454 | |
Current | 79,786 | 35,343 |
Total loans | 80,240 | 35,343 |
Commercial Mortgages (Owner Occupied) | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 188 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 1,747 | 2,270 |
Total Past Due and Nonaccruals | 1,747 | 2,458 |
Current | 72,234 | 39,367 |
Total loans | 73,981 | 41,825 |
Residential First Mortgages | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 236 | 1,546 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 1,941 | 2,155 |
Total Past Due and Nonaccruals | 2,177 | 3,701 |
Current | 257,897 | 190,306 |
Total loans | 260,074 | 194,007 |
Residential Revolving and Junior Mortgages | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 43 | 480 |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 956 | 160 |
Total Past Due and Nonaccruals | 999 | 640 |
Current | 48,307 | 25,785 |
Total loans | 49,306 | 26,425 |
Consumer and Other Loans | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 436 | |
90 Days or More Past Due and Still Accruing | 0 | 0 |
Nonaccruals | 66 | |
Total Past Due and Nonaccruals | 502 | |
Current | 40,727 | 3,544 |
Total loans | 41,229 | $ 3,544 |
Impaired Financing Receivable | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 29 | |
90 Days or More Past Due and Still Accruing | 408 | |
Nonaccruals | 0 | |
Total Past Due and Nonaccruals | 437 | |
Current | 5,553 | |
Total loans | 5,990 | |
Impaired Financing Receivable | Construction, Land and Land Development | ||
Financing Receivable, Impaired [Line Items] | ||
Nonaccruals | 0 | |
Current | 1,421 | |
Total loans | 1,421 | |
Impaired Financing Receivable | Commercial Mortgages (Non-Owner Occupied) | ||
Financing Receivable, Impaired [Line Items] | ||
Nonaccruals | 0 | |
Current | 187 | |
Total loans | 187 | |
Impaired Financing Receivable | Commercial Mortgages (Owner Occupied) | ||
Financing Receivable, Impaired [Line Items] | ||
90 Days or More Past Due and Still Accruing | 182 | |
Nonaccruals | 0 | |
Total Past Due and Nonaccruals | 182 | |
Current | 173 | |
Total loans | 355 | |
Impaired Financing Receivable | Residential First Mortgages | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 24 | |
90 Days or More Past Due and Still Accruing | 206 | |
Nonaccruals | 0 | |
Total Past Due and Nonaccruals | 230 | |
Current | 3,665 | |
Total loans | 3,895 | |
Impaired Financing Receivable | Residential Revolving and Junior Mortgages | ||
Financing Receivable, Impaired [Line Items] | ||
90 Days or More Past Due and Still Accruing | 20 | |
Nonaccruals | 0 | |
Total Past Due and Nonaccruals | 20 | |
Current | 34 | |
Total loans | 54 | |
Impaired Financing Receivable | Consumer and Other Loans | ||
Financing Receivable, Impaired [Line Items] | ||
30-89 Days Past Due | 5 | |
Nonaccruals | 0 | |
Total Past Due and Nonaccruals | 5 | |
Current | 73 | |
Total loans | $ 78 |
Allowance for Loan Losses - Loan Receivables Evaluated for Impairment Individually and Collectively by Segment (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans individually evaluated for impairment | $ 9,603 | $ 10,415 |
Loans collectively evaluated for impairment | 634,033 | 374,594 |
Total Gross Loans | 649,626 | 385,009 |
Loans acquired with deteriorated credit quality | 405,682 | 161,033 |
Receivables Acquired with Deteriorated Credit Quality | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans acquired with deteriorated credit quality | 5,990 | |
Mortgage Loans on Real Estate | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans individually evaluated for impairment | 9,511 | 10,323 |
Loans collectively evaluated for impairment | 507,035 | 328,118 |
Total Gross Loans | 522,458 | 338,441 |
Mortgage Loans on Real Estate | Receivables Acquired with Deteriorated Credit Quality | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans acquired with deteriorated credit quality | 5,912 | |
Commercial and Industrial | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans individually evaluated for impairment | 92 | 92 |
Loans collectively evaluated for impairment | 85,847 | 42,932 |
Total Gross Loans | 85,939 | 43,024 |
Consumer and Other Loans | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans collectively evaluated for impairment | 41,151 | 3,544 |
Total Gross Loans | 41,229 | $ 3,544 |
Consumer and Other Loans | Receivables Acquired with Deteriorated Credit Quality | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Loans acquired with deteriorated credit quality | $ 78 |
Allowance for Loan Losses - Allowance for Loan Losses Disaggregated Based on Loan Receivables Evaluated for Impairment Individually and Collectively by Segment (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
|||
---|---|---|---|---|---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans individually evaluated for impairment | $ 943 | $ 895 | |||||||
Loans collectively evaluated for impairment | 3,298 | 2,968 | |||||||
Total allowance for loan losses | 4,241 | 3,863 | [1] | ||||||
Loans acquired with deteriorated credit quality | 4,241 | $ 3,993 | 3,863 | $ 3,547 | $ 4,107 | $ 4,223 | |||
Receivables Acquired with Deteriorated Credit Quality | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans acquired with deteriorated credit quality | 0 | ||||||||
Mortgage Loans on Real Estate | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans individually evaluated for impairment | 851 | 803 | |||||||
Loans collectively evaluated for impairment | 2,835 | 2,515 | |||||||
Total allowance for loan losses | 3,686 | 3,318 | |||||||
Loans acquired with deteriorated credit quality | 3,686 | 3,421 | 3,318 | 2,995 | 3,410 | 3,502 | |||
Mortgage Loans on Real Estate | Receivables Acquired with Deteriorated Credit Quality | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans acquired with deteriorated credit quality | 0 | ||||||||
Commercial and Industrial | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans individually evaluated for impairment | 92 | 92 | |||||||
Loans collectively evaluated for impairment | 364 | 401 | |||||||
Total allowance for loan losses | 456 | 493 | |||||||
Loans acquired with deteriorated credit quality | 456 | 528 | 493 | 435 | 579 | 599 | |||
Commercial and Industrial | Receivables Acquired with Deteriorated Credit Quality | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans acquired with deteriorated credit quality | 0 | ||||||||
Consumer and Other Loans | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans collectively evaluated for impairment | 99 | 52 | |||||||
Total allowance for loan losses | 99 | 52 | |||||||
Loans acquired with deteriorated credit quality | 99 | $ 44 | $ 52 | $ 117 | $ 118 | $ 122 | |||
Consumer and Other Loans | Receivables Acquired with Deteriorated Credit Quality | |||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||
Loans acquired with deteriorated credit quality | $ 0 | ||||||||
|
Allowance for Loan Losses - Allowance for Loan Losses by Portfolio Segment (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
ALLOWANCE FOR LOAN LOSSES: | ||||
Beginning Balance | $ 3,993 | $ 4,107 | $ 3,863 | $ 4,223 |
(Charge-offs) | (334) | (751) | (474) | (845) |
Recoveries | 14 | 8 | 94 | 21 |
Provision (recovery) | 568 | 183 | 758 | 148 |
Ending Balance | 4,241 | 3,547 | 4,241 | 3,547 |
Mortgage Loans on Real Estate | ||||
ALLOWANCE FOR LOAN LOSSES: | ||||
Beginning Balance | 3,421 | 3,410 | 3,318 | 3,502 |
(Charge-offs) | (141) | (573) | (273) | (656) |
Recoveries | 10 | 4 | 88 | 10 |
Provision (recovery) | 396 | 154 | 553 | 139 |
Ending Balance | 3,686 | 2,995 | 3,686 | 2,995 |
Commercial and Industrial | ||||
ALLOWANCE FOR LOAN LOSSES: | ||||
Beginning Balance | 528 | 579 | 493 | 599 |
(Charge-offs) | (158) | (158) | ||
Recoveries | 1 | 1 | 5 | |
Provision (recovery) | (73) | 14 | (38) | (11) |
Ending Balance | 456 | 435 | 456 | 435 |
Consumer and Other Loans | ||||
ALLOWANCE FOR LOAN LOSSES: | ||||
Beginning Balance | 44 | 118 | 52 | 122 |
(Charge-offs) | (193) | (20) | (201) | (31) |
Recoveries | 3 | 4 | 5 | 6 |
Provision (recovery) | 245 | 15 | 243 | 20 |
Ending Balance | $ 99 | $ 117 | $ 99 | $ 117 |
Allowance for Loan Losses - Changes in Accretable Yield for Purchased Impaired Loans (Detail) - Purchased Impaired Loans $ in Thousands |
3 Months Ended |
---|---|
Jun. 30, 2017
USD ($)
| |
Accounts, Notes, Loans and Financing Receivable [Line Items] | |
Balance Beginning | $ 1,354 |
Accretion | (90) |
Reclassifications from nonaccretable balance, net | 0 |
Other changes, net | 0 |
Balance Ending | $ 1,264 |
Allowance for Loan Losses - Additional Information (Detail) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
Property
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2017
USD ($)
Property
Person
|
Jun. 30, 2016
USD ($)
|
Dec. 31, 2016
USD ($)
Property
|
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Period of nonperforming loans | 90 days | ||||
Non-accruing loans excluded from impaired loan | $ 760,000 | $ 760,000 | $ 465,000 | ||
Non-accruing loans accrued interest | 6,000 | $ 3,000 | 9,000 | $ 3,000 | |
Loans modified as TDRs | $ 0 | $ 0 | $ 0 | $ 0 | |
No. of Properties | Property | 30 | 30 | 14 | ||
Residential | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Residential properties collateralized with loan | Property | 2 | ||||
Residential mortgage loan amount | $ 127,000 | $ 127,000 | |||
No. of Borrowers | Person | 2 | ||||
No. of Properties | Property | 5 | 5 | 2 | ||
Residential | Other assets | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Properties marketed for sale, value | $ 708,000 | $ 708,000 | |||
No. of Properties | Property | 1 | 1 | |||
Branch Office | Other assets | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Properties marketed for sale, value | $ 403,000 | ||||
No. of Properties | Property | 1 | ||||
Residential First Mortgages | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Minimum balance in order to assign a risk rating grade | $ 1,000,000 | $ 1,000,000 | |||
Consumer and Other Loans | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Minimum balance in order to assign a risk rating grade | $ 250,000 | $ 250,000 |
Allowance for Loan Losses - Internal Risk Rating Grades (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
INTERNAL RISK RATING GRADES | ||
Loan Receivables | $ 405,682 | $ 161,033 |
Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 370,828 | 135,703 |
Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 25,953 | 18,522 |
Special Mention | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 833 | 2,030 |
Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 8,068 | 4,778 |
Construction, Land and Land Development | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 57,891 | 39,818 |
Construction, Land and Land Development | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 46,344 | 32,009 |
Construction, Land and Land Development | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 7,958 | 5,795 |
Construction, Land and Land Development | Special Mention | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 270 | 180 |
Construction, Land and Land Development | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 3,319 | 1,834 |
Farmland | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 966 | 1,023 |
Farmland | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 966 | 1,023 |
Commercial Mortgages (Non-Owner Occupied) | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 80,240 | 35,343 |
Commercial Mortgages (Non-Owner Occupied) | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 75,168 | 30,639 |
Commercial Mortgages (Non-Owner Occupied) | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 4,345 | 4,184 |
Commercial Mortgages (Non-Owner Occupied) | Special Mention | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 269 | 272 |
Commercial Mortgages (Non-Owner Occupied) | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 458 | 248 |
Commercial Mortgages (Owner Occupied) | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 73,981 | 41,825 |
Commercial Mortgages (Owner Occupied) | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 60,261 | 31,191 |
Commercial Mortgages (Owner Occupied) | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 11,058 | 6,652 |
Commercial Mortgages (Owner Occupied) | Special Mention | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 254 | 1,453 |
Commercial Mortgages (Owner Occupied) | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 2,408 | 2,529 |
Commercial and Industrial | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 85,939 | 43,024 |
Commercial and Industrial | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 84,483 | 40,841 |
Commercial and Industrial | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 1,230 | 1,891 |
Commercial and Industrial | Special Mention | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 40 | 125 |
Commercial and Industrial | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 186 | $ 167 |
Residential First Mortgages | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 45,718 | |
Residential First Mortgages | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 42,984 | |
Residential First Mortgages | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 1,252 | |
Residential First Mortgages | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 1,482 | |
Residential Revolving and Junior Mortgages | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 23,007 | |
Residential Revolving and Junior Mortgages | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 22,924 | |
Residential Revolving and Junior Mortgages | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 33 | |
Residential Revolving and Junior Mortgages | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 50 | |
Consumer and Other Loans | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 37,940 | |
Consumer and Other Loans | Pass | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 37,698 | |
Consumer and Other Loans | Watch | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | 77 | |
Consumer and Other Loans | Substandard | ||
INTERNAL RISK RATING GRADES | ||
Loan Receivables | $ 165 |
Allowance for Loan Losses - Performing and Non Performing Loans (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Performing and non performing loans | ||||||||||||||||
Loan receivables | $ 243,944 | $ 223,976 | ||||||||||||||
Performing | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 241,098 | 221,661 | ||||||||||||||
Nonperforming | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 2,846 | 2,315 | ||||||||||||||
Residential First Mortgages | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 214,356 | [1] | 194,007 | [2] | ||||||||||||
Residential First Mortgages | Performing | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 212,467 | [1] | 191,852 | [2] | ||||||||||||
Residential First Mortgages | Nonperforming | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 1,889 | [1] | 2,155 | [2] | ||||||||||||
Residential Revolving and Junior Mortgages | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 26,299 | [3] | 26,425 | [4] | ||||||||||||
Residential Revolving and Junior Mortgages | Performing | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 25,342 | [3] | 26,265 | [4] | ||||||||||||
Residential Revolving and Junior Mortgages | Nonperforming | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 957 | [3] | 160 | [4] | ||||||||||||
Consumer and Other Loans | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | 3,289 | [5] | 3,544 | [6] | ||||||||||||
Consumer and Other Loans | Performing | ||||||||||||||||
Performing and non performing loans | ||||||||||||||||
Loan receivables | $ 3,289 | [5] | $ 3,544 | [6] | ||||||||||||
|
Allowance for Loan Losses - Performing and Non Performing Loans (Parenthetical) (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | $ 243,944 | $ 223,976 | ||||||||||||||
Residential First Mortgages | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | 214,356 | [1] | 194,007 | [2] | ||||||||||||
Residential First Mortgages | Substandard | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | 2,300 | 3,300 | ||||||||||||||
Residential Revolving and Junior Mortgages | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | 26,299 | [3] | 26,425 | [4] | ||||||||||||
Residential Revolving and Junior Mortgages | Substandard | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | 1,000 | 1,100 | ||||||||||||||
Consumer and Other Loans | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | 3,289 | [5] | 3,544 | [6] | ||||||||||||
Consumer and Other Loans | Substandard | ||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||
Risk rating grade totaled | $ 85 | $ 0 | ||||||||||||||
|
Allowance for Loan Losses - Company's Recorded Investment and Customers' Unpaid Principal Balances for Impaired Loans, with Associated Allowance Amount (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | $ 5,306 | $ 5,306 | $ 6,746 | |||||
With no related allowance, Customers' Unpaid Principal Balance | 5,779 | 5,779 | 7,140 | |||||
With an allowance recorded, Recorded Investment | 4,297 | 4,297 | 3,669 | |||||
With an allowance recorded, Customers' Unpaid Principal Balance | 4,384 | 4,384 | 3,738 | |||||
With an allowance recorded, Related Allowance | 943 | 943 | 895 | |||||
Total Impaired Loans, Recorded Investment | 9,603 | 9,603 | 10,415 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 10,163 | 10,163 | 10,878 | |||||
Total Impaired Loans, Related Allowance | 943 | 943 | 895 | |||||
With no related allowance, Average Recorded Investment | 5,320 | $ 6,892 | 5,440 | $ 5,521 | ||||
With no related allowance, Interest Income Recognized | 25 | 25 | 54 | 85 | ||||
With an allowance recorded, Average Recorded Investment | 4,303 | 4,386 | 4,312 | 4,439 | ||||
With an allowance recorded, Interest Income Recognized | 29 | 31 | 67 | 60 | ||||
Total, Average Recorded Investment | 9,623 | 11,278 | 9,752 | 9,960 | ||||
Total, Interest Income Recognized | 54 | 56 | 121 | 145 | ||||
Construction, Land and Land Development | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | 1,451 | 1,451 | 1,531 | |||||
With no related allowance, Customers' Unpaid Principal Balance | 1,532 | 1,532 | 1,539 | |||||
With an allowance recorded, Recorded Investment | 233 | 233 | 243 | |||||
With an allowance recorded, Customers' Unpaid Principal Balance | 283 | 283 | 286 | |||||
With an allowance recorded, Related Allowance | 142 | 142 | 145 | |||||
Total Impaired Loans, Recorded Investment | 1,684 | 1,684 | 1,774 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 1,815 | 1,815 | 1,825 | |||||
Total Impaired Loans, Related Allowance | 142 | 142 | 145 | |||||
With no related allowance, Average Recorded Investment | 1,453 | 1,535 | 1,479 | 1,172 | ||||
With no related allowance, Interest Income Recognized | 14 | 14 | 27 | 27 | ||||
With an allowance recorded, Average Recorded Investment | 236 | 255 | 238 | 257 | ||||
With an allowance recorded, Interest Income Recognized | 1 | 1 | 2 | 2 | ||||
Total, Average Recorded Investment | 1,689 | 1,790 | 1,717 | 1,429 | ||||
Total, Interest Income Recognized | 15 | 15 | 29 | 29 | ||||
Residential First Mortgages | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | 1,765 | 1,765 | 2,112 | |||||
With no related allowance, Customers' Unpaid Principal Balance | 1,836 | 1,836 | 2,176 | |||||
With an allowance recorded, Recorded Investment | 1,934 | 1,934 | 1,951 | |||||
With an allowance recorded, Customers' Unpaid Principal Balance | 1,934 | 1,934 | 1,951 | |||||
With an allowance recorded, Related Allowance | 408 | 408 | 367 | |||||
Total Impaired Loans, Recorded Investment | 3,699 | 3,699 | 4,063 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 3,770 | 3,770 | 4,127 | |||||
Total Impaired Loans, Related Allowance | 408 | 408 | 367 | |||||
With no related allowance, Average Recorded Investment | 1,769 | 2,728 | 1,774 | 2,231 | ||||
With no related allowance, Interest Income Recognized | 2 | (2) | 7 | 14 | ||||
With an allowance recorded, Average Recorded Investment | 1,938 | 2,370 | 1,942 | 2,416 | ||||
With an allowance recorded, Interest Income Recognized | 23 | 21 | 47 | 42 | ||||
Total, Average Recorded Investment | 3,707 | 5,098 | 3,716 | 4,647 | ||||
Total, Interest Income Recognized | 25 | 19 | 54 | 56 | ||||
Residential Revolving and Junior Mortgages | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | [1] | 160 | 160 | 995 | ||||
With no related allowance, Customers' Unpaid Principal Balance | [1] | 166 | 166 | 999 | ||||
With an allowance recorded, Recorded Investment | [1] | 1,299 | 1,299 | 544 | ||||
With an allowance recorded, Customers' Unpaid Principal Balance | [1] | 1,302 | 1,302 | 546 | ||||
With an allowance recorded, Related Allowance | [1] | 159 | 159 | 199 | ||||
Total Impaired Loans, Recorded Investment | [1] | 1,459 | 1,459 | 1,539 | ||||
Total Impaired Loans, Customers' Unpaid Principal Balance | [1] | 1,468 | 1,468 | 1,545 | ||||
Total Impaired Loans, Related Allowance | [1] | 159 | 159 | 199 | ||||
With no related allowance, Average Recorded Investment | [1] | 162 | 988 | 162 | 675 | |||
With no related allowance, Interest Income Recognized | [1] | 8 | 1 | 19 | ||||
With an allowance recorded, Average Recorded Investment | [1] | 1,300 | 196 | 1,301 | 195 | |||
With an allowance recorded, Interest Income Recognized | [1] | 5 | 2 | 18 | 4 | |||
Total, Average Recorded Investment | [1] | 1,462 | 1,184 | 1,463 | 870 | |||
Total, Interest Income Recognized | [1] | 5 | 10 | 19 | 23 | |||
Commercial Mortgages (Non-Owner Occupied) | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | 248 | 248 | 248 | |||||
With no related allowance, Customers' Unpaid Principal Balance | 248 | 248 | 248 | |||||
Total Impaired Loans, Recorded Investment | 248 | 248 | 248 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 248 | 248 | 248 | |||||
With no related allowance, Average Recorded Investment | 247 | 248 | 248 | 253 | ||||
With no related allowance, Interest Income Recognized | 5 | 4 | 8 | 8 | ||||
Total, Average Recorded Investment | 247 | 248 | 248 | 253 | ||||
Total, Interest Income Recognized | 5 | 4 | 8 | 8 | ||||
Commercial Mortgages (Owner Occupied) | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With no related allowance, Recorded Investment | 1,682 | 1,682 | 1,860 | |||||
With no related allowance, Customers' Unpaid Principal Balance | 1,997 | 1,997 | 2,178 | |||||
With an allowance recorded, Recorded Investment | 739 | 739 | 839 | |||||
With an allowance recorded, Customers' Unpaid Principal Balance | 764 | 764 | 854 | |||||
With an allowance recorded, Related Allowance | 142 | 142 | 92 | |||||
Total Impaired Loans, Recorded Investment | 2,421 | 2,421 | 2,699 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 2,761 | 2,761 | 3,032 | |||||
Total Impaired Loans, Related Allowance | 142 | 142 | 92 | |||||
With no related allowance, Average Recorded Investment | 1,689 | 1,393 | 1,777 | 1,190 | ||||
With no related allowance, Interest Income Recognized | 4 | 1 | 11 | 17 | ||||
With an allowance recorded, Average Recorded Investment | 737 | 1,460 | 739 | 1,462 | ||||
With an allowance recorded, Interest Income Recognized | 6 | 11 | ||||||
Total, Average Recorded Investment | 2,426 | 2,853 | 2,516 | 2,652 | ||||
Total, Interest Income Recognized | 4 | 7 | 11 | 28 | ||||
Commercial and Industrial | ||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||
With an allowance recorded, Recorded Investment | 92 | 92 | 92 | |||||
With an allowance recorded, Customers' Unpaid Principal Balance | 101 | 101 | 101 | |||||
With an allowance recorded, Related Allowance | 92 | 92 | 92 | |||||
Total Impaired Loans, Recorded Investment | 92 | 92 | 92 | |||||
Total Impaired Loans, Customers' Unpaid Principal Balance | 101 | 101 | 101 | |||||
Total Impaired Loans, Related Allowance | 92 | 92 | $ 92 | |||||
With an allowance recorded, Average Recorded Investment | 92 | 105 | 92 | 109 | ||||
With an allowance recorded, Interest Income Recognized | 1 | 1 | ||||||
Total, Average Recorded Investment | $ 92 | 105 | $ 92 | 109 | ||||
Total, Interest Income Recognized | $ 1 | $ 1 | ||||||
|
Allowance for Loan Losses - Summary of Troubled Debt Restructurings (Detail) - Residential First Mortgages $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2016
USD ($)
|
||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Number of Loans | [1] | 1 | 1 | ||
Pre-Modification Outstanding Recorded Investment | [1] | $ 244 | $ 244 | ||
Post-Modification Outstanding Recorded Investment | [1] | $ 244 | $ 244 | ||
|
Other Real Estate Owned Net - Summary of Properties Included in Other Real Estate Owned (OREO) (Detail) $ in Thousands |
Jun. 30, 2017
USD ($)
Property
|
Dec. 31, 2016
USD ($)
Property
|
|||
---|---|---|---|---|---|
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 30 | 14 | |||
Carrying Value | $ | $ 5,360 | $ 2,494 | [1] | ||
Land lots | |||||
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 18 | 7 | |||
Carrying Value | $ | $ 3,196 | $ 547 | |||
Convenience Stores | |||||
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 1 | 1 | |||
Carrying Value | $ | $ 59 | $ 59 | |||
Restaurant | |||||
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 1 | 1 | |||
Carrying Value | $ | $ 55 | $ 55 | |||
Commercial properties | |||||
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 5 | 3 | |||
Carrying Value | $ | $ 1,071 | $ 942 | |||
Residential | |||||
Real Estate Properties [Line Items] | |||||
No. of Properties | Property | 5 | 2 | |||
Carrying Value | $ | $ 979 | $ 891 | |||
|
Earnings Per Share - Additional Information (Detail) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Unearned Employee Stock Ownership Plan Shares | ||||
Computation Of Earnings Per Share Line Items | ||||
Shares not included in computing diluted earnings per share because effects were anti-dilutive | 15,758 | 46,135 | 22,758 | 53,635 |
Employee Stock Ownership Plan (ESOP), Plan | ||||
Computation Of Earnings Per Share Line Items | ||||
Shares not included in computing diluted earnings per share because effects were anti-dilutive | 140,542 | 70,267 |
Earnings per share - Weighted Average Number of Shares Used in Computing Earnings Per Share (Detail) - $ / shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||||
Basic earnings per share | 9,233,615 | 4,774,856 | 7,017,907 | 4,774,856 |
Effect of dilutive securities: | ||||
Stock options | 71,181 | 19,927 | 66,523 | 17,718 |
Diluted earnings per share | 9,304,796 | 4,794,783 | 7,084,430 | 4,792,574 |
Basic earnings per share | $ 0.06 | $ 0.12 | $ 0.05 | $ 0.23 |
Diluted earnings per share | $ 0.06 | $ 0.12 | $ 0.05 | $ 0.23 |
Stock-Based Compensation Plans - Additional Information (Detail) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
ExecutiveOfficers
shares
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2017
USD ($)
ExecutiveOfficers
shares
|
Jun. 30, 2016
USD ($)
|
Dec. 31, 2016
shares
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Shares available for grant | shares | 311,209 | 311,209 | |||
Stock-based compensation expense | $ 67,000 | $ 16,000 | |||
Unrecognized compensation expenses related to stock award | $ 0 | 0 | |||
Unearned Employee Stock Ownership Plan Shares | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Stock-based compensation expense | $ 8,000 | $ 0 | 24,000 | 16,000 | |
Restricted Stock | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Stock-based compensation expense | $ 43,000 | $ 0 | |||
Number of executives | ExecutiveOfficers | 3 | 3 | |||
Share based compensation, unvested restricted stock granted | shares | 9,000 | 9,000 | 0 | ||
Restricted Stock | Executive | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Share based compensation, restricted stock granted | shares | 14,000 |
Stock-Based Compensation - Fair Value of Options (Detail) |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Risk free interest rate (5 year Treasury) | 1.49% | |
Risk free interest rate minimum(5 year Treasury) | 1.78% | |
Risk free interest rate maximum (5 year Treasury) | 1.93% | |
Expected dividend yield | 0.00% | 0.00% |
Expected term (years) | 5 years | 5 years |
Expected volatility | 40.10% | |
Expected volatility minimum | 17.20% | |
Expected volatility maximum | 21.70% |
Stock-Based Compensation - Fair Value of Options (Parenthetical) (Detail) |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Stock price volatility, risk free interest period | 5 years | 5 years |
Stock-Based Compensation - Summary of Stock Option Activity (Detail) - USD ($) |
6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Options outstanding, beginning | 218,300 | |||
Granted, shares | 13,000 | |||
Forfeited, shares | (1,195) | |||
Exercised, shares | (24,061) | |||
Expired, shares | (9,625) | |||
Options outstanding and exercisable, ending | 196,419 | 218,300 | ||
Options outstanding, beginning, Weighted Average Exercise Price | $ 6.35 | |||
Granted, Weighted Average Exercise Price | 8.54 | |||
Forfeited, Weighted Average Exercise Price | 8.43 | |||
Exercised, Weighted Average Exercise Price | 5.69 | |||
Expired, Weighted Average Exercise Price | 13.96 | |||
Options outstanding and exercisable, ending, Weighted Average Exercise Price | $ 6.20 | $ 6.35 | ||
Options outstanding and exercisable, ending, Weighted Average Remaining Contractual Life | 5 years 10 months 25 days | 5 years 10 months 25 days | ||
Options outstanding, ending, Aggregate Intrinsic Value | [1] | $ 629,496 | ||
|
Employee Benefit Plans - Additional Information (Detail) |
6 Months Ended |
---|---|
Jun. 30, 2017
USD ($)
| |
Defined Contribution Plan Disclosure [Line Items] | |
Minimum age of full-time employees | 21 years |
Conditional age-1 for availing plan | 55 years |
Conditional age-2 for availing plan | 65 years |
Conditional years of service -1 for availing plan | 10 years |
Conditional years of service-2 for availing plan | 5 years |
Pension Plan, Defined Benefit | |
Defined Contribution Plan Disclosure [Line Items] | |
Expected employer contribution | $ 0 |
Other Postretirement Benefit Plan, Defined Benefit | |
Defined Contribution Plan Disclosure [Line Items] | |
Expected employer contribution | 3,000 |
Employer contribution | $ 3,000 |
Employee Benefit Plans - Components of Net Periodic Benefit Cost (Gain) (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Pension Plan, Defined Benefit | ||
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||
Interest cost | $ 62 | $ 69 |
Expected return on plan assets | (90) | (96) |
Settlement loss | 26 | |
Recognized net actuarial loss | 38 | 39 |
Net periodic cost | 36 | 12 |
Other Postretirement Benefit Plan, Defined Benefit | ||
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||
Service cost | 10 | 11 |
Interest cost | 10 | 14 |
Amortization of net gain | (4) | |
Net periodic cost | $ 16 | $ 25 |
Long Term Debt - Additional Information (Detail) |
6 Months Ended | ||||||
---|---|---|---|---|---|---|---|
May 28, 2015
USD ($)
|
Jun. 30, 2017
USD ($)
Loan
|
Sep. 01, 2017 |
Dec. 31, 2016
USD ($)
Loan
|
||||
Debt Instrument [Line Items] | |||||||
Federal Home Loan Bank advances | $ 70,000,000 | $ 35,000,000 | [1] | ||||
Number of FHLB debt advances | Loan | 6 | 5 | |||||
Immediate available credit | $ 44,300,000 | ||||||
Total line of credit | $ 125,300,000 | ||||||
Weighted average interest rate | 1.41% | 1.49% | |||||
Virginia BanCorp | |||||||
Debt Instrument [Line Items] | |||||||
Current Interest Rate | 3.25% | ||||||
Debt acquired in merger | $ 911,000 | ||||||
Debt instrument, maturity date range, start | Mar. 01, 2019 | ||||||
Debt instrument, maturity date range, end | Nov. 01, 2026 | ||||||
Subordinated Debt Due May 2025 | |||||||
Debt Instrument [Line Items] | |||||||
Debt instrument, maturity date | May 28, 2025 | ||||||
Current Interest Rate | 6.50% | 6.50% | |||||
Debt instrument, face amount | $ 7,000,000 | $ 7,000,000 | |||||
Debt instrument, frequency of payment | 1st of March and September of each year, commencing September 1, 2015 | ||||||
Debt instrument integral multiple principal amount | $ 1,000 | ||||||
Debt instrument redemption period start date | May 28, 2020 | ||||||
FHLB | |||||||
Debt Instrument [Line Items] | |||||||
Federal Home Loan Bank advances | $ 40,000,000 | ||||||
Debt instrument, maturity date | Jul. 03, 2017 | ||||||
FHLB | Fixed Rate Credit | |||||||
Debt Instrument [Line Items] | |||||||
Federal Home Loan Bank advances | $ 50,000,000 | ||||||
Debt instrument, maturity date | Aug. 02, 2017 | ||||||
Current Interest Rate | 1.14% | ||||||
FHLB | Daily Rate Credit [Member] | |||||||
Debt Instrument [Line Items] | |||||||
Federal Home Loan Bank advances | $ 5,000,000 | ||||||
Debt instrument, maturity date | May 30, 2018 | ||||||
FHLB | Scenario, Forecast | Fixed Rate Credit | |||||||
Debt Instrument [Line Items] | |||||||
Current Interest Rate | 1.16% | ||||||
|
Long Term Debt - Advances of Debt (Detail) - USD ($) $ in Thousands |
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
[1] | |||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 70,000 | $ 35,000 | |||
Adjustable Rate Hybrid | Federal Home Loan Bank Advances One | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 10,000 | ||||
Originated | Apr. 12, 2013 | ||||
Current Interest Rate | 3.53511% | ||||
Maturity Date | Apr. 13, 2020 | ||||
Daily Rate Credit [Member] | Federal Home Loan Bank Advances Five | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 5,000 | ||||
Originated | May 30, 2017 | ||||
Current Interest Rate | 1.32% | ||||
Maturity Date | May 30, 2018 | ||||
Fixed Rate Credit | Federal Home Loan Bank Advances Two | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 5,000 | ||||
Originated | Dec. 22, 2015 | ||||
Current Interest Rate | 1.08% | ||||
Maturity Date | Sep. 15, 2017 | ||||
Fixed Rate Credit | Federal Home Loan Bank Advances Three | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 5,000 | ||||
Originated | Jan. 17, 2017 | ||||
Current Interest Rate | 0.91% | ||||
Maturity Date | Oct. 17, 2017 | ||||
Fixed Rate Credit | Federal Home Loan Bank Advances Four | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 5,000 | ||||
Originated | Jan. 20, 2017 | ||||
Current Interest Rate | 0.995% | ||||
Maturity Date | Dec. 20, 2017 | ||||
Fixed Rate Credit | Federal Home Loan Bank Advances Six | |||||
Debt Instrument [Line Items] | |||||
Federal Home Loan Bank advances | $ 40,000 | ||||
Originated | Jun. 02, 2017 | ||||
Current Interest Rate | 1.04% | ||||
Maturity Date | Jul. 03, 2017 | ||||
|
Subordinated Debt (Detail) - USD ($) |
Jun. 30, 2017 |
Dec. 31, 2016 |
[1] | May 28, 2015 |
||
---|---|---|---|---|---|---|
Debt and Financial Instruments [Line Items] | ||||||
Subordinated debt | $ 6,868,000 | $ 6,860,000 | ||||
Subordinated Debt Due May 2025 | ||||||
Debt and Financial Instruments [Line Items] | ||||||
Debt instrument, face amount | 7,000,000 | $ 7,000,000 | ||||
Less: Issuance costs | (132,000) | |||||
Subordinated debt | $ 6,868,000 | |||||
|
Subordinated Debt (Parenthetical) (Detail) |
Jun. 30, 2017 |
May 28, 2015 |
---|---|---|
Subordinated Debt Due May 2025 | ||
Debt and Financial Instruments [Line Items] | ||
Debt instrument, coupon percentage | 6.50% | 6.50% |
Fair Value Measurements - Additional Information (Detail) - Fair Value, Measurements, Recurring - Fair Value, Inputs, Level 3 - Mortgage Servicing Rights |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2017
Loan
$ / Loan
|
Dec. 31, 2016
Loan
$ / Loan
|
|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Number of portfolio | 2 | |
Fannie Mae | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Loan segregated, number of pools | Loan | 14 | |
Service costs assumed, per loan | $ / Loan | 6.33 | 6.00 |
Average PSA assumed rate | 147.00% | 150.00% |
Discount rate | 14.00% | 14.00% |
Freddie Mac | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Loan segregated, number of pools | Loan | 5 | |
Service costs assumed, per loan | $ / Loan | 7.67 | |
Average PSA assumed rate | 195.00% | |
Discount rate | 102.84% | |
Constant prepayment rate | 7.51% | |
100% PSA | Fannie Mae | First Month | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Prepayment rate | 0.00% | |
100% PSA | Fannie Mae | Between First Month and Month 30 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Prepayment rate increase, each month | 0.20% | |
100% PSA | Fannie Mae | Month 30 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Prepayment rate | 6.00% | |
100% PSA | Fannie Mae | Thereafter | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Prepayment rate | 6.00% |
Fair Value Measurements - Schedule of Balances of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
---|---|---|---|---|---|
Securities available for sale: | |||||
Securities available-for-sale | $ 54,448 | $ 51,173 | [1] | ||
Mortgage servicing rights | 989 | 671 | [1] | ||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 2,561 | 2,690 | |||
Corporate Bonds | |||||
Securities available for sale: | |||||
Securities available-for-sale | 6,715 | 7,704 | |||
US Government Agencies | |||||
Securities available for sale: | |||||
Securities available-for-sale | 27,056 | 25,313 | |||
State and Municipal Obligations | |||||
Securities available for sale: | |||||
Securities available-for-sale | 20,677 | 18,156 | |||
Cash and Cash Equivalents | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 21 | ||||
Fixed Income Funds | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 1,016 | 1,041 | |||
Equity Funds | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 1,524 | 1,649 | |||
Fair Value, Inputs, Level 1 | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 2,561 | 2,690 | |||
Fair Value, Inputs, Level 1 | Cash and Cash Equivalents | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 21 | ||||
Fair Value, Inputs, Level 1 | Fixed Income Funds | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 1,016 | 1,041 | |||
Fair Value, Inputs, Level 1 | Equity Funds | |||||
Defined benefit plan assets: | |||||
Defined Benefit Plan Fair Value Of Plan Assets | 1,524 | 1,649 | |||
Fair Value, Inputs, Level 2 | |||||
Securities available for sale: | |||||
Securities available-for-sale | 47,733 | 43,469 | |||
Fair Value, Inputs, Level 2 | US Government Agencies | |||||
Securities available for sale: | |||||
Securities available-for-sale | 27,056 | 25,313 | |||
Fair Value, Inputs, Level 2 | State and Municipal Obligations | |||||
Securities available for sale: | |||||
Securities available-for-sale | 20,677 | 18,156 | |||
Fair Value, Inputs, Level 3 | |||||
Securities available for sale: | |||||
Securities available-for-sale | 6,715 | 7,704 | |||
Mortgage servicing rights | 989 | 671 | |||
Fair Value, Inputs, Level 3 | Corporate Bonds | |||||
Securities available for sale: | |||||
Securities available-for-sale | $ 6,715 | $ 7,704 | |||
|
Fair Value Measurements - Reconciliation of Items Using Level Three Inputs (Detail) $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2017
USD ($)
| |
Mortgage Servicing Rights | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Beginning balance | $ 671 |
Purchases | 0 |
Acquired in merger | 324 |
Impairments | 0 |
Fair value adjustments | (6) |
Ending balance | 989 |
Corporate Bonds | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Beginning balance | 7,704 |
Purchases | 0 |
Impairments | 0 |
Fair value adjustments | 11 |
Sales | (1,000) |
Ending balance | $ 6,715 |
Fair Value Measurements - Summary of Assets Measured at Fair Value on Nonrecurring Basis (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Impaired Loans, net | $ 3,354 | $ 2,774 |
Other real estate owned, net | 5,360 | 2,494 |
Fair Value, Inputs, Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Impaired Loans, net | 3,354 | 2,774 |
Other real estate owned, net | $ 5,360 | $ 2,494 |
Fair Value Measurements - Summary of Quantitative Fair Value Measurements for Level 3 (Detail) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Impaired Loans, net | $ 3,354 | $ 2,774 |
Other real estate owned, net | $ 5,360 | $ 2,494 |
Impaired Loans | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 15.00% | |
Unobservable Input, Lack of Marketability | 50.00% | |
Weighted Average | Impaired Loans | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 15.00% | 16.00% |
Unobservable Input, Lack of Marketability | 50.00% | |
Weighted Average | Other Real Estate Owned | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 5.00% | 5.00% |
Unobservable Input, Lack of Marketability | 11.00% | 11.00% |
Minimum | Impaired Loans | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 10.00% | |
Minimum | Other Real Estate Owned | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 0.00% | 3.00% |
Unobservable Input, Lack of Marketability | 10.00% | 10.00% |
Maximum | Impaired Loans | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 20.00% | |
Maximum | Other Real Estate Owned | ||
Fair Value Inputs, Assets, Quantitative Information [Line Items] | ||
Unobservable Input, Selling Cost | 100.00% | 13.00% |
Unobservable Input, Lack of Marketability | 20.00% | 20.00% |
Fair Value Measurements - Estimated Fair Values of Financial Instruments (Detail) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
---|---|---|---|---|---|
Financial Assets: | |||||
Cash and due from banks | $ 7,454 | $ 4,851 | [1] | ||
Interest-bearing deposits | 26,998 | 7,945 | [1] | ||
Certificates of deposit | 3,224 | 4,216 | [1] | ||
Federal funds sold | 6,559 | 1,906 | [1] | ||
Securities available-for-sale | 54,448 | 51,173 | [1] | ||
Restricted securities | 4,662 | 2,649 | [1] | ||
Loans, net | 645,701 | 381,537 | [1] | ||
Loans held for sale | 55,620 | 276 | [1] | ||
Accrued interest receivable | 2,624 | 1,372 | [1] | ||
Bank owned life insurance | 18,508 | 9,869 | [1] | ||
Mortgage servicing rights | 989 | 671 | |||
Financial Liabilities: | |||||
Non-interest-bearing liabilities | 97,299 | 74,799 | [1] | ||
Savings and other interest-bearing deposits | 282,056 | 178,869 | [1] | ||
Time deposits | 309,619 | 128,050 | [1] | ||
Securities sold under repurchase agreements | 10,786 | 18,310 | [1] | ||
FHLB advances | 70,000 | 35,000 | [1] | ||
Subordinated debt | 6,868 | 6,860 | [1] | ||
Accrued interest payable | 395 | 331 | |||
Financial Assets: | |||||
Cash and due from banks | 7,454 | 4,851 | |||
Interest-bearing deposits | 26,998 | 7,945 | |||
Certificates of deposit | 3,224 | 4,216 | |||
Federal funds sold | 6,559 | 1,906 | |||
Securities available-for-sale | 54,448 | 51,173 | [1] | ||
Restricted securities | 4,662 | 2,649 | |||
Loans, net | 654,263 | 384,468 | |||
Loans held for sale | 55,620 | 276 | |||
Accrued interest receivable | 2,624 | 1,372 | |||
Bank owned life insurance | 18,508 | 9,869 | |||
Mortgage servicing rights | 989 | 671 | [1] | ||
Financial Liabilities: | |||||
Non-interest-bearing liabilities | 97,299 | 74,799 | |||
Savings and other interest-bearing deposits | 282,056 | 178,869 | |||
Time deposits | 308,952 | 127,497 | |||
Securities sold under repurchase agreements | 10,786 | 18,310 | |||
FHLB advances | 70,591 | 35,668 | |||
Subordinated debt | 7,000 | 7,000 | |||
Accrued interest payable | 395 | 331 | |||
Fair Value, Inputs, Level 1 | |||||
Financial Assets: | |||||
Cash and due from banks | 7,454 | 4,851 | |||
Interest-bearing deposits | 26,998 | 7,945 | |||
Federal funds sold | 6,559 | 1,906 | |||
Bank owned life insurance | 18,508 | 9,869 | |||
Financial Liabilities: | |||||
Non-interest-bearing liabilities | 97,299 | 74,799 | |||
Fair Value, Inputs, Level 2 | |||||
Financial Assets: | |||||
Securities available-for-sale | 47,733 | 43,469 | |||
Financial Assets: | |||||
Certificates of deposit | 3,224 | 4,216 | |||
Securities available-for-sale | 47,733 | 43,469 | |||
Accrued interest receivable | 2,624 | 1,372 | |||
Financial Liabilities: | |||||
Savings and other interest-bearing deposits | 282,056 | 178,869 | |||
Securities sold under repurchase agreements | 10,786 | 18,310 | |||
FHLB advances | 70,591 | 35,668 | |||
Accrued interest payable | 395 | 331 | |||
Fair Value, Inputs, Level 3 | |||||
Financial Assets: | |||||
Securities available-for-sale | 6,715 | 7,704 | |||
Financial Assets: | |||||
Securities available-for-sale | 6,715 | 7,704 | |||
Restricted securities | 4,662 | 2,649 | |||
Loans, net | 654,263 | 384,468 | |||
Loans held for sale | 55,620 | 276 | |||
Mortgage servicing rights | 989 | 671 | |||
Financial Liabilities: | |||||
Time deposits | 308,952 | 127,497 | |||
Subordinated debt | $ 7,000 | $ 7,000 | |||
|
Changes in Accumulated Other Comprehensive Income (Loss) - Balances in Accumulated Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Balance at beginning of period | [1] | $ 41,705 | ||||
Balance at end of period | $ 84,478 | 84,478 | ||||
Net Unrealized Gains (Losses) on Securities | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Balance at beginning of period | (490) | $ 438 | (520) | $ 107 | ||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense | 295 | 255 | 321 | 590 | ||
Reclassification for previously unrealized net (gains) losses recognized in income, net of tax expense (benefit) | (5) | (69) | (1) | (73) | ||
Balance at end of period | (200) | 624 | (200) | 624 | ||
Pension and Post employment costs | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Balance at beginning of period | (715) | (883) | (715) | (883) | ||
Balance at end of period | (715) | (883) | (715) | (883) | ||
Accumulated Other Comprehensive Income (Loss) | ||||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||
Balance at beginning of period | (1,205) | (445) | (1,235) | (776) | ||
Change in net unrealized holding gains on securities, before reclassification, net of tax expense | 295 | 255 | 321 | 590 | ||
Reclassification for previously unrealized net (gains) losses recognized in income, net of tax expense (benefit) | (5) | (69) | (1) | (73) | ||
Balance at end of period | $ (915) | $ (259) | $ (915) | $ (259) | ||
|
Changes in Accumulated Other Comprehensive Income (Loss) - Balances in Accumulated Other Comprehensive Income (Loss) (Parenthetical) (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Change in net unrealized holding gains on securities, before reclassification, tax expense | $ 150 | $ 130 | $ 164 | $ 303 |
Reclassification for previously unrealized net (gains) losses recognized in income, tax expense (benefit) | $ 2 | $ 35 | $ 1 | $ 37 |
Changes in Accumulated Other Comprehensive Income (Loss) - Reclassification of Unrealized Gains (Losses) and Impairments on Securities (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Tax expense | $ (254) | $ (190) | $ (133) | $ (343) |
Net Unrealized Gains (Losses) on Securities | Reclassification out of Accumulated Other Comprehensive Income | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Net gains on sale of securities available-for-securities | 7 | 104 | 2 | 110 |
Tax expense | (2) | (35) | (1) | (37) |
Impact on net income | $ 5 | $ 69 | $ 1 | $ 73 |
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