10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                          to

Commission File Number:  001-38647

FVCBankcorp, Inc.

(Exact name of registrant as specified in its charter)

Virginia	47-5020283
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

11325 Random Hills Road Suite 240
Fairfax, Virginia	22030
(Address of principal executive offices)	(Zip Code)

(703) 436-3800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Trading Symbol(s)	Name of Each Exchange on Which Registered:
Common Stock, $0.01 par value	FVCB	The Nasdaq Stock Market, LLC

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 x   No o

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

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company x
	Emerging growth company x

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. x

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

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

13,875,833 shares of common stock, par value $0.01 per share, outstanding as of November 7, 2019

FVCBankcorp, Inc.

INDEX TO FORM 10-Q

PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements:	3
Consolidated Balance Sheets At September 30, 2019 (unaudited) and December 31, 2018	3
Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	4
Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	5
Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018 (unaudited)	6
Consolidated Statements of Changes in Stockholders’ Equity For the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	7
Notes to Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3. Quantitative and Qualitative Disclosures About Market Risk	69
Item 4. Controls and Procedures	71
PART II — OTHER INFORMATION	72
Item 1. Legal Proceedings	72
Item 1A. Risk Factors	72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3. Defaults Upon Senior Securities	72
Item 4. Mine Safety Disclosures	72
Item 5. Other Information	72
Item 6. Exhibits	72
SIGNATURES	74

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FVCBankcorp, Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

(In thousands, except share data)

	September 30,		December 31,
	2019		2018 *
	(Unaudited)
Assets
Cash and due from banks	$	19,424	$	9,435
Interest-bearing deposits at other financial institutions	92,986		34,060
Securities held-to-maturity (fair value of $0.3 million and $1.7 million at September 30, 2019 and December 31, 2018, respectively)	264		1,761
Securities available-for-sale, at fair value	136,268		123,537
Restricted stock, at cost	6,017		5,299
Loans, net of allowance for loan losses of $10.1 million and $9.2 million at September 30, 2019 and December 31, 2018, respectively	1,233,337		1,127,584
Premises and equipment, net	2,029		2,271
Accrued interest receivable	4,279		4,050
Prepaid expenses	1,165		892
Deferred tax assets, net	7,673		8,591
Goodwill and intangibles, net	8,119		8,443
Bank owned life insurance (BOLI)	26,820		16,406
Other real estate owned (OREO)	3,866		4,224
Operating lease right-of-use assets	13,597		—
Other assets	9,352		5,023
Total assets	$	1,565,196	$	1,351,576
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	294,825	$	233,318
Interest-bearing checking, savings and money market	622,820		583,736
Time deposits	400,075		345,386
Total deposits	$	1,317,720	$	1,162,440
FHLB advances	$	15,000	$	—
Subordinated notes, net of issuance costs	24,467		24,407
Accrued interest payable	924		811
Operating lease liabilities	13,971		—
Accrued expenses and other liabilities	18,045		5,582
Total liabilities	$	1,390,127	$	1,193,240
Commitments and Contingent Liabilities
Stockholders’ Equity

	2019	2018
Preferred stock, $0.01 par value
Shares authorized	1,000,000	1,000,000
Shares issued and outstanding	—	—	—		—
Common stock, $0.01 par value
Shares authorized	20,000,000	20,000,000
Shares issued and outstanding	13,874,776	13,712,615	139		137
Additional paid-in capital			$	125,483	$	123,882
Retained earnings			48,746		36,728
Accumulated other comprehensive income (loss), net			701		(2,411		)
Total stockholders’ equity			$	175,069	$	158,336
Total liabilities and stockholders’ equity			$	1,565,196	$	1,351,576

See Notes to Consolidated Financial Statements.

* Derived from audited consolidated financial statements.

3

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Income

For the three and nine months ended September 30, 2019 and 2018

(In thousands, except per share data)

(Unaudited)

	For the three months ended September 30,				For the nine months ended September 30,
	2019		2018		2019		2018
Interest and Dividend Income
Interest and fees on loans	$	15,915	$	11,977	$	46,601	$	33,841
Interest and dividends on securities held-to-maturity	2		13		28		39
Interest and dividends on securities available-for-sale	832		661		2,609		1,992
Dividends on restricted stock	88		57		234		170
Interest on deposits at other financial institutions	169		165		485		242
Total interest and dividend income	$	17,006	$	12,873	$	49,957	$	36,284
Interest Expense
Interest on deposits	$	4,423	$	2,584	$	12,355	$	7,018
Interest on federal funds purchased	48		16		141		17
Interest on short-term debt	48		—		48		67
Interest on subordinated notes	395		395		1,185		1,185
Total interest expense	$	4,914	$	2,995	$	13,729	$	8,287
Net Interest Income	$	12,092	$	9,878	$	36,228	$	27,997
Provision for loan losses	235		351		1,255		990
Net interest income after provision for loan losses	$	11,857	$	9,527	$	34,973	$	27,007
Noninterest Income
Service charges on deposit accounts	$	240	$	158	$	651	$	452
Gains on calls of securities held-to-maturity	3		—		3		—
BOLI income	198		110		414		329
Other fee income	239		480		888		714
Total noninterest income	$	680	$	748	$	1,956	$	1,495
Noninterest Expenses
Salaries and employee benefits	$	4,349	$	3,491	$	12,533	$	10,000
Occupancy and equipment expense	882		591		2,582		1,743
Data processing and network administration	414		321		1,196		886
State franchise taxes	424		296		1,272		888
Audit, legal and consulting fees	230		147		634		434
Merger and acquisition expense	51		274		133		671
Loan related expenses	125		61		293		179
FDIC insurance	—		133		222		358
Marketing, business development and advertising	121		89		410		269
Director fees	126		121		369		353
Postage, courier and telephone	57		50		151		150
Internet banking	112		83		320		225
Core deposit intangible amortization	95		5		293		16
Other operating expenses	377		286		1,135		858
Total noninterest expenses	$	7,363	$	5,948	$	21,543	$	17,030
Net income before income tax expense	$	5,174	$	4,327	$	15,386	$	11,472
Income tax expense	1,081		942		3,282		2,013
Net income	$	4,093	$	3,385	$	12,104	$	9,459
Earnings per share, basic	$	0.30	$	0.30	$	0.88	$	0.85
Earnings per share, diluted	$	0.28	$	0.27	$	0.82	$	0.78

See Notes to Consolidated Financial Statements.

4

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

For the three and nine months ended September 30, 2019 and 2018

(In thousands)

(Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
	2019			2018			2019			2018
Net income	$	4,093		$	3,385		$	12,104		$	9,459
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of tax expense of $214 and $946 for the three and nine months September 30, 2019, respectively, net of tax benefit of $144 and $621 for the three and nine months ended September 30, 2018, respectively.	456			(540		)	3,218			(2,336		)
Unrealized loss on interest rate swaps, net of tax benefit of $28 and $28 for the three and nine months ended September 30, 2019.	(106		)	—			(106		)
Total other comprehensive income (loss)	$	350		$	(540	)	$	3,112		$	(2,336	)
Total comprehensive income	$	4,443		$	2,845		$	15,216		$	7,123

See Notes to Consolidated Financial Statements.

5

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2019 and 2018

(In thousands)

(Unaudited)

	2019			2018
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities:
Net income	$	12,104		$	9,459
Depreciation	479			340
Provision for loan losses	1,255			990
Net amortization of premium of securities	277			419
Net amortization of deferred loan costs and purchase premiums	494			491
Net accretion of acquisition accounting adjustments	339			—
Gain on calls of held-to-maturity securities	(3		)	—
Amortization of subordinated debt issuance costs	60			60
Stock-based compensation expense	470			531
BOLI income	(414		)	(329		)
Core deposits intangible amortization	293			16
Changes in assets and liabilities:
Increase in accrued interest receivable, prepaid expenses and other assets	(3,774		)	(3,771		)
Increase in accrued interest payable, accrued expenses and other liabilities	3,541			837
Net cash provided by operating activities	$	15,121		$	9,043
Cash Flows From Investing Activities
Maturities of certificates of deposits purchased for investment	$	245		$	245
Increase in interest-bearing deposits at other financial institutions	(58,926		)	(31,257		)
Purchases of securities available-for-sale	(16,535		)	(11,815		)
Proceeds from maturities and calls of securities held-to-maturity	1,500			—
Proceeds from maturities and calls of securities available-for-sale	750			—
Proceeds from redemptions of securities available-for-sale	14,859			12,776
Net purchase of restricted stock	(718		)	(362		)
Net increase in loans	(108,012		)	(90,257		)
Proceeds from sale of OREO	358			—
Purchases of BOLI	(10,000		)	—
Purchases of premises and equipment, net	(237		)	(524		)
Net cash used in investing activities	$	(176,716	)	$	(121,194	)
Cash Flows From Financing Activities
Net increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits	$	100,591		$	155,586
Net increase (decrease) in time deposits	54,860			(89,763		)
Increase in federal funds purchased	—			15,000
Net increase in FHLB advances	15,000			—
Common stock issuance	1,133			32,839
Net cash provided by financing activities	$	171,584		$	113,662
Net increase in cash and cash equivalents	$	9,989		$	1,511
Cash and cash equivalents, beginning of year	9,435			7,428
Cash and cash equivalents, end of year	$	19,424		$	8,939

See Notes to Consolidated Financial Statements.

6

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2019 and 2018

(In thousands)

(Unaudited)

									Accumulated
				Additional					Other
		Common		Paid-in		Retained			Comprehensive
	Shares	Stock		Capital		Earnings			Income (Loss)			Total
Balance at December 31, 2017	10,869	$	109	$	74,008	$	25,859		$	(1,693	)	$	98,283
Net income	—	—		—		9,459			—			9,459
Other comprehensive loss	—	—		—		—			(2,336		)	(2,336		)
Common stock issuance at $20 per share	1,750	18		31,737		—			—			31,755
Common stock issuance for options exercised	212	2		1,082		—			—			1,084
Stock-based compensation expense	—	—		531		—			—			531
Balance at September 30, 2018	12,831	$	129	$	107,358	$	35,318		$	(4,029	)	$	138,776
Balance at July 1, 2018	11,076	$	111	$	75,411	$	31,933		$	(3,489	)	$	103,966
Net income	—	—		—		3,385			—			3,385
Other comprehensive loss	—	—		—		—			(540		)	(540		)
Common stock issuance at $20 per share	1,750	18		31,737		—			—			31,755
Common stock issuance for options exercised	5	—		29		—			—			29
Stock-based compensation expense	—	—		181		—			—			181
Balance at September 30, 2018	12,831	$	129	$	107,358	$	35,318		$	(4,029	)	$	138,776
Balance at December 31, 2018	13,713	$	137	$	123,882	$	36,728		$	(2,411	)	$	158,336
Net income	—	—		—		12,104			—			12,104
Adoption of lease accounting standard	—	—		—		(86		)	—			(86		)
Other comprehensive income	—	—		—		—			3,112			3,112
Common stock issuance for options exercised	162	2		1,131		—			—			1,133
Stock-based compensation expense	—	—		470		—			—			470
Balance at September 30, 2019	13,875	$	139	$	125,483	$	48,746		$	701		$	175,069
Balance at July 1, 2019	13,840	$	138	$	125,021	$	44,653		$	351		$	170,163
Net income	—	—		—		4,093			—			4,093
Other comprehensive income	—	—		—		—			350			350
Common stock issuance for options exercised	35	1		264		—			—			265
Stock-based compensation expense	—	—		198		—			—			198
Balance at September 30, 2019	13,875	$	139	$	125,483	$	48,746		$	701		$	175,069

See Notes to Consolidated Financial Statements.

7

Notes to Unaudited Consolidated Financial Statements

Note 1.Organization and Summary of Significant Accounting Policies

Organization

FVCBankcorp, Inc. (the “Company”), a Virginia corporation, was formed in 2015 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Fairfax, Virginia. The Company conducts its business activities through the branch offices of its wholly owned subsidiary bank, FVCbank (the “Bank”). The Company exists primarily for the purposes of holding the stock of its subsidiary, the Bank.

The Bank was organized under the laws of the Commonwealth of Virginia to engage in a general banking business serving the Washington, D.C. metropolitan area. The Bank commenced regular operations on November 27, 2007 and is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. It is subject to the regulations of the Federal Reserve System and the State Corporation Commission of Virginia.  Consequently, it undergoes periodic examinations by these regulatory authorities.

On October 12, 2018, the Company announced the completion of its acquisition of Colombo Bank (“Colombo”). Colombo, which was headquartered in Rockville, Maryland, merged into FVCbank effective October 12, 2018 adding five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland. Pursuant to the terms of the merger agreement, holders of shares of Colombo common stock received 0.002217 shares of the Company’s common stock and $0.053157 in cash for each share of Colombo common stock held immediately prior to the effective date of the Merger, plus cash in lieu of fractional shares at a rate equal to $19.614 per share of FVCB common stock.  Holders of an aggregate of 35,002 shares of Colombo common stock who individually owned fewer than 45,086 shares of Colombo common stock after aggregation of all shares held in the same name, made a timely election to receive only cash in an amount equal to $0.096649 per share of Colombo common stock. As a result of the merger, 763,051 shares of the Company’s common stock were issued in exchange for outstanding shares of Colombo common stock.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2018. Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

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

8

Notes to Unaudited Consolidated Financial Statements

(Continued)

Significant Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. At the FASB’s October 16, 2019 meeting, the Board affirmed its decision to amend the effective date of this ASU for many companies.   Public business entities that are SEC filers, excluding those meeting the smaller reporting company definition, will retain the initial required implementation date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  All other entities will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has identified a third party vendor to assist in the measurement of expected credit losses under this standard. The implementation committee has completed the data collection process, validated the data inputs, and is in the initial phases of evaluating various allowance methodologies for certain loan segments within the Company’s loan portfolio. The Company is currently evaluating the implementation of ASU 2016-13 due to the change in implementation dates for smaller reporting companies included in the FASB’s Exposure Draft.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the

9

Notes to Unaudited Consolidated Financial Statements

(Continued)

narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.”  This ASU clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement including improvements resulting from various TRG Meetings.  The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-04 will have on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.”  The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, upon the adoption of Topic 326.  The fair value option election does not apply to held-to-maturity debt securities.  An entity that elects the fair value option should subsequently measure those instruments at fair value with changes in fair value flowing through earnings.  The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance sheet.  Early adoption is permitted.  The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.

Note 2.           Securities

Amortized cost and fair values of securities held-to-maturity and securities available-for-sale as of September 30, 2019 and December 31, 2018, are as follows:

10

Notes to Unaudited Consolidated Financial Statements

(Continued)

	September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		(Losses)			Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	6	$	—		$	270
Total Held-to-maturity Securities	$	264	$	6	$	—		$	270
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(2	)	$	998
Securities of state and local municipalities tax exempt	3,667		70		—			3,737
Securities of state and local municipalities taxable	1,514		—		(20		)	1,494
Corporate bonds	5,000		56		(86		)	4,970
SBA pass-through securities	163		—		(2		)	161
Mortgage-backed securities	97,565		1,054		(274		)	98,345
Collateralized mortgage obligations	26,338		362		(137		)	26,563
Total Available-for-sale Securities	$	135,247	$	1,542	$	(521	)	$	136,268

11

Notes to Unaudited Consolidated Financial Statements

(Continued)

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		(Losses)			Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	—	$	(6	)	$	258
Securities of U.S. government and federal agencies	1,497		—		(20		)	1,477
Total Held-to-maturity Securities	$	1,761	$	—	$	(26	)	$	1,735
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(44	)	$	956
Securities of state and local municipalities tax exempt	3,678		—		(39		)	3,639
Securities of state and local municipalities taxable	2,378		—		(70		)	2,308
Corporate bonds	5,000		92		(79		)	5,013
Certificates of deposit	245		—		(1		)	244
SBA pass-through securities	200		—		(5		)	195
Mortgage-backed securities	90,234		94		(2,291		)	88,037
Collateralized mortgage obligations	23,945		10		(810		)	23,145
Total Available-for-sale Securities	$	126,680	$	196	$	(3,339	)	$	123,537

The Company had $12.0 million and $0 in securities pledged with the Federal Reserve Bank to collateralize certain municipal deposits at September 30, 2019 and December 31, 2018, respectively.  There were no securities pledged with the Treasury Board of Virginia at the Community Bankers’ Bank at September 30, 2019.  There was $8.1 million in such securities pledged as of December 31, 2018.

The following table shows fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2019 and December 31, 2018, respectively. The reference point for determining when securities are in an unrealized loss position is month-end. Therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the

12

Notes to Unaudited Consolidated Financial Statements

(Continued)

past twelve-month period. Available-for-sale and held-to-maturity securities that have been in a continuous unrealized loss position are as follows:

	Less Than 12 Months					12 Months or Longer					Total
(In thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
At September 30, 2019	Value		Losses			Value		Losses			Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—		$	998	$	(2	)	$	998	$	(2	)
Securities of state and local municipalities taxable	—		—			994		(20		)	994		(20		)
Corporate bonds	—		—			915		(86		)	915		(86		)
SBA pass-through securities	—		—			161		(2		)	161		(2		)
Mortgage-backed securities	10,252		(22		)	23,478		(252		)	33,730		(274		)
Collateralized mortgage obligations	1,732		(6		)	11,315		(131		)	13,047		(137		)
Total	$	11,984	$	(28	)	$	37,861	$	(493	)	$	49,845	$	(521	)

	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
At December 31, 2018	Value		Losses			Value		Losses			Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—		$	2,433	$	(64	)	$	2,433	$	(64	)
Securities of state and local municipalities tax exempt	263		(1		)	3,634		(44		)	3,897		(45		)
Securities of state and local municipalities taxable	757		(1		)	1,551		(69		)	2,308		(70		)
Corporate bonds	988		(12		)	933		(67		)	1,921		(79		)
Certificates of deposit	—		—			244		(1		)	244		(1		)
SBA pass-through securities	—		—			195		(5		)	195		(5		)
Mortgage-backed securities	12,743		(59		)	60,656		(2,232		)	73,399		(2,291		)
Collateralized mortgage obligations	—		—			16,790		(810		)	16,790		(810		)
Total	$	14,751	$	(73	)	$	86,436	$	(3,292	)	$	101,187	$	(3,365	)

13

Notes to Unaudited Consolidated Financial Statements

(Continued)

Securities of U.S. government and federal agencies: The unrealized loss on one available-for-sale security was caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.

Securities of state and local municipalities: The unrealized losses on the Company’s investment in securities of state and local municipalities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Four of the eight investments carry an S&P investment grade rating of AA+ or above, one has a rating of AA-, one has an AA rating, while the remaining two do not carry a rating.

Corporate bonds: The unrealized losses on the investments in corporate bonds were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. One of these investments carries an S&P investment grade rating of A-. The remaining four investments do not carry a rating.

SBA pass-through securities: The unrealized loss on the Company’s single investment in SBA pass-through securities was caused by interest rate increases. Repayment of the principal on those investments is guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider that investment to be other-than-temporarily impaired at September 30, 2019.

Mortgage-backed securities: The unrealized losses on the Company’s investment in thirty-one mortgage-backed securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2019.

Collateralized mortgage obligations (CMOs): The unrealized loss associated with twenty-five CMOs was caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2019.

The amortized cost and fair value of securities as of September 30, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

14

Notes to Unaudited Consolidated Financial Statements

(Continued)

	September 30, 2019
	Held-to-maturity				Available-for-sale
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Less than 1 year	$	—	$	—	$	500	$	500
After 5 years through 10 years	264		270		22,977		23,090
After 10 years	—		—		111,770		112,678
Total	$	264	$	270	$	135,247	$	136,268

For the nine months ended September 30, 2019 and September 30, 2018, proceeds from maturities, calls and principal repayments of securities were $14.9 million and $12.8 million, respectively.  During the nine months ended September 30, 2019, proceeds from calls and maturities of securities were $2.5 million and gross realized gains of approximately $3,000. There were no realized losses on the sale of securities for the nine months ended September 30, 2019.  During the nine months ended September 30, 2018, there were no proceeds from sales of securities available-for-sale, no gross realized gains, and no realized losses.

Note 3.           Loans and Allowance for Loan Losses

A summary of loan balances by type follows:

	September 30, 2019						December 31, 2018
(In thousands)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial real estate	$	707,029	$	52,436	$	759,465	$	616,614	$	66,988	$	683,602
Commercial and industrial	117,439		7,419		124,858		128,909		8,419		137,328
Commercial construction	209,998		5,823		215,821		141,694		11,645		153,339
Consumer residential	83,346		37,032		120,378		87,609		43,822		131,431
Consumer nonresidential	24,790		111		24,901		32,184		124		32,308
	$	1,142,602	$	102,821	$	1,245,423	$	1,007,010	$	130,998	$	1,138,008
Less:
Allowance for loan losses	9,997		71		10,068		9,159		—		9,159
Unearned income and (unamortized premiums), net	2,018		—		2,018		1,265		—		1,265
Loans, net	$	1,130,587	$	102,750	$	1,233,337	$	996,586	$	130,998	$	1,127,584

During 2018, as a result of the Company’s acquisition of Colombo, the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans).

The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC Topic 310-30 or ASC 310-20.  The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of September 30, 2019 and December 31, 2018 are as follows:

15

Notes to Unaudited Consolidated Financial Statements

(Continued)

(In thousands)	September 30, 2019
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,439
Carrying amount	1,734
Other acquired loans
Outstanding principal balance	102,516
Carrying amount	101,087
Total acquired loans
Outstanding principal balance	104,955
Carrying amount	102,821

(In thousands)	December 31, 2018
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,533
Carrying amount	1,401
Other acquired loans
Outstanding principal balance	131,286
Carrying amount	129,597
Total acquired loans
Outstanding principal balance	133,819
Carrying amount	130,998

The following table presents changes during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30.

(In thousands)
Balance at January 1, 2019	$	357
Accretion	(110		)
Reclassification of nonaccretable difference due to improvement in expected cash flows	16
Other changes, net	69
Balance at September 30, 2019	$	332

(In thousands)
Balance at January 1, 2018	$	—
Accretable yield at acquisition date	379
Accretion	(22		)
Balance at December 31, 2018	$	357

16

Notes to Unaudited Consolidated Financial Statements

(Continued)

An analysis of the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018, and for the year ended December 31, 2018, follows:

Allowance for Loan Losses

For the three months ended September 30, 2019

(In thousands)

	Commercial Real Estate		Commercial and Industrial			Commercial Construction		Consumer Residential			Consumer Nonresidential			Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,989	$	1,411		$	1,888	$	494		$	214		$	9,996
Charge-offs	—		—			—		—			(187		)	(187		)
Recoveries	—		—			—		—			24			24
Provision	52		(105		)	176		(42		)	154			235
Ending Balance	$	6,041	$	1,306		$	2,064	$	452		$	205		$	10,068

Allowance for Loan Losses

For the nine months ended September 30, 2019

(In thousands)

	Commercial Real Estate		Commercial and Industrial			Commercial Construction		Consumer Residential			Consumer Nonresidential			Total
Allowance for credit losses:
Beginning Balance, January 1	$	5,548	$	1,474		$	1,285	$	518		$	334		$	9,159
Charge-offs	—		—			—		—			(370		)	(370		)
Recoveries	—		—			—		—			24			24
Provision	493		(168		)	779		(66		)	217			1,255
Ending Balance	$	6,041	$	1,306		$	2,064	$	452		$	205		$	10,068

17

Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for Loan Losses

For the three months ended September 30, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential			Unallocated		Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,275	$	869	$	1,306	$	604	$	208		$	36	$	8,298
Charge-offs	—		—		—		—		(118		)	—		(118		)
Recoveries	—		10		—		—		35			—		45
Provision	209		18		31		10		69			14		351
Ending Balance	$	5,484	$	897	$	1,337	$	614	$	194		$	50	$	8,576

Allowance for Loan Losses

For the nine months ended September 30, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial			Commercial Construction		Consumer Residential			Consumer Nonresidential			Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768		$	1,191	$	626		$	268		$	40	$	7,725
Charge-offs	—		(86		)	—		—			(128		)	—		(214		)
Recoveries	—		40			—		—			35			—		75
Provision	652		175			146		(12		)	19			10		990
Ending Balance	$	5,484	$	897		$	1,337	$	614		$	194		$	50	$	8,576

Allowance for Loan Losses

For the year ended December 31, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial			Commercial Construction		Consumer Residential			Consumer Nonresidential			Unallocated			Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768		$	1,191	$	626		$	268		$	40		$	7,725
Charge-offs	—		(86		)	—		(187		)	(292		)	—			(565		)
Recoveries	—		26			—		1			52			—			79
Provision	716		766			94		78			306			(40		)	1,920
Beginning Balance	$	5,548	$	1,474		$	1,285	$	518		$	334		$	—		$	9,159

18

Notes to Unaudited Consolidated Financial Statements

(Continued)

The following tables present the recorded investment in loans and impairment method as of September 30, 2019 and 2018, and at December 31, 2018, by portfolio segment:

Allowance for Loan Losses

At September 30, 2019

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	19	$	321	$	—	$	29	23		$	392
Purchased credit impaired	—		—		—		—		—		—
Collectively evaluated for impairment	6,022		985		2,064		423		182		9,676
	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Loans Receivable

At September 30, 2019

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	5,503	$	5,472	$	—	$	200	23		$	11,198
Purchased credit impaired	960		409		—		365		—		1,734
Collectively evaluated for impairment	753,002		118,977		215,821		119,813		24,878		1,232,491
	$	759,465	$	124,858	$	215,821	$	120,378	$	24,901	$	1,245,423

19

Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for Loan Losses

At September 30, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	5,484		897		1,337		614		194		50		8,576
	$	5,484	$	897	$	1,337	$	614	$	194	50		$	8,576

Loans Receivable

At September 30, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	724	$	128	$	—	$	587	$	—	$	—	$	1,439
Collectively evaluated for impairment	592,817		108,394		144,830		105,742		26,327		—		978,110
	$	593,541	$	108,522	$	144,830	$	106,329	$	26,327	$	—	$	979,549

20

Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for Loan Losses

At December 31, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	372	$	—	$	1	$	—	$	—	$	373
Purchased credit impaired	—		—		—		—		—		—		—
Collectively evaluated for impairment	5,548		1,102		1,285		517		334		—		8,786
	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

Loans Receivable

At December 31, 2018

(In thousands)

	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,306	$	2,969	$	—	$	182	$	—	$	—	$	4,457
Purchased credit impaired	139		467		421		374		—		—		1,401
Collectively evaluated for impairment	682,157		133,892		152,918		130,875		32,308		—		1,132,150
	$	683,602	$	137,328	$	153,339	$	131,431	$	32,308	$	—	$	1,138,008

21

Notes to Unaudited Consolidated Financial Statements

(Continued)

Impaired loans by class excluding purchased credit impaired, at September 30, 2019 and December 31, 2018, are summarized as follows:

Impaired Loans - Originated Loan Portfolio

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	1,786		1,786		321		1,790		104
Commercial construction	—		—		—		—		—
Consumer residential	—		—		—		—		—
Consumer nonresidential	—		—		—		—		—
	$	1,786	$	1,786	$	321	$	1,790	$	104
September 30, 2019
With no related allowance:
Commercial real estate	$	5,293	$	5,296	$	—	$	5,314	$	184
Commercial and industrial	3,686		3,687		—		5,954		281
Commercial construction	—		—		—		—		—
Consumer residential	—		—		—		—		—
Consumer nonresidential	—		—		—		—		—
	$	8,979	$	8,983	$	—	$	11,268	$	465

Impaired Loans - Acquired Loan Portfolio

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	36	$	28	$	19	$	181	$	11
Commercial and industrial	—		—		—		—		—
Commercial construction	—		—		—		—		—
Consumer residential	169		163		29		163		8
Consumer nonresidential	23		23		23		24		2
	$	228	$	214	$	71	$	368	$	21
September 30, 2019
With no related allowance:
Commercial real estate	$	174	$	165	$	—	$	165	$	10
Commercial and industrial	—		—		—		—		—
Commercial construction	—		—		—		—		—
Consumer residential	31		31		—		33		2
Consumer nonresidential	—		—		—		—		—
	205		196		$	—	198		12

22

Notes to Unaudited Consolidated Financial Statements

(Continued)

Impaired Loans - Originated Loan Portfolio

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	1,793		1,793		372		1,801		100
Commercial construction	—		—		—		—		—
Consumer residential	182		182		1		184		12
Consumer nonresidential	—		—		—		—		—
	$	1,975	$	1,975	$	373	$	1,985	$	112
December 31, 2018
With no related allowance:
Commercial real estate	$	1,306	$	1,319	$	—	$	1,321	$	68
Commercial and industrial	1,156		1,170		—		1,378		81
Commercial construction	—		—		—		—		—
Consumer residential	—		—		—		—		—
Consumer nonresidential	—		—		—		—		—
	$	2,462	$	2,489	$	—	$	2,699	$	149

Impaired Loans - Acquired Loan Portfolio

(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	—		—		—		—		—
Commercial construction	—		—		—		—		—
Consumer residential	—		—		—		—		—
Consumer nonresidential	—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—
December 31, 2018
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	20		20		—		58		3
Commercial construction	—		—		—		—		—
Consumer residential	—		—		—		—		—
Consumer nonresidential	—		—		—		—		—
	$	20	$	20	$	—	$	58	$	3

23

Notes to Unaudited Consolidated Financial Statements

(Continued)

No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans.  This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass — Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

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

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

Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable.

Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans.

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of September 30, 2019 and December 31, 2018:

24

Notes to Unaudited Consolidated Financial Statements

(Continued)

As of September 30, 2019 - Originated Loan Portfolio

(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Grade:
Pass	$	687,003	$	107,661	$	206,911	$	82,540	$	24,771	$	1,108,886
Special mention	15,834		4,470		3,087		704		19		24,114
Substandard	4,192		5,308		—		102		—		9,602
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	707,029	$	117,439	$	209,998	$	83,346	$	24,790	$	1,142,602

As of September 30, 2019 - Acquired Loan Portfolio

(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Grade:
Pass	$	51,265	$	7,010	$	5,823	$	36,399	$	88	$	100,585
Special mention	875		—		—		141		—		1,016
Substandard	296		409		—		492		23		1,220
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	52,436	$	7,419	$	5,823	$	37,032	$	111	$	102,821

As of December 31, 2018 - Originated Loan Portfolio

(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Grade:
Pass	$	610,580	$	124,349	$	141,694	$	86,848	$	32,184	$	995,655
Special mention	6,034		1,783		—		761		—		8,578
Substandard	—		2,777		—		—		—		2,777
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	616,614	$	128,909	$	141,694	$	87,609	$	32,184	$	1,007,010

As of December 31, 2018 - Acquired Loan Portfolio

(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Residential		Consumer Nonresidential		Total
Grade:
Pass	$	66,849	$	7,952	$	11,224	$	43,811	$	124	$	129,960
Special mention	56		—		421		—		—		477
Substandard	83		467		—		11		—		561
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	66,988	$	8,419	$	11,645	$	43,822	$	124	$	130,998

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors.  The

25

Notes to Unaudited Consolidated Financial Statements

(Continued)

Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained.  At September 30, 2019, the Company had $24.1 million in loans identified as special mention within the originated loan portfolio, an increase of $15.5 million from December 31, 2018.  Special mention rated loans are loans that have a potential weakness that deserves management’s close attention.  The increase from December 31, 2018 is concentrated in four loans that were added to this risk category during the second quarter of 2019.  These loans do not have a specific reserve and are considered well-secured.  At September 30, 2019, the Company had $9.6 million in loans identified as substandard within the originated loan portfolio, an increase of $6.8 million from December 31, 2018. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  For each of these substandard loans, a liquidation analysis is completed.  As of September 30, 2019, specific reserves on originated and acquired loans totaling $392 thousand, has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

Past due and nonaccrual loans presented by loan class were as follows at September 30, 2019 and December 31, 2018:

As of September 30, 2019 - Originated Loan Portfolio

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	$	775	$	504	$	335	$	1,614	$	705,415	$	707,029	$	335	$	5,961
Commercial and industrial	321		69		292		682		116,757		117,439		292		2,604
Commercial construction	—		1,263		—		1,263		208,735		209,998		—		—
Consumer residential	768		165		—		933		82,413		83,346		—		—
Consumer nonresidential	132		20		99		251		24,539		24,790		99		—
Total	$	1,996	$	2,021	$	726	$	4,743	$	1,137,859	$	1,142,602	$	726	$	8,565

As of September 30, 2019 - Acquired Loan Portfolio

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	$	—	$	—	$	—	$	—	$	52,436	$	52,436	$	—	$	296
Commercial and industrial	—		—		—		—		7,419		7,419		—		268
Commercial construction	—		—		—		—		5,823		5,823		—		—
Consumer residential	47		382		—		429		36,603		37,032		—		566
Consumer nonresidential	—		—		—		—		111		111		—		23
Total	$	47	$	382	$	—	$	429	$	102,392	$	102,821	$	—	$	1,153

26

Notes to Unaudited Consolidated Financial Statements

(Continued)

As of December 31, 2018 - Originated Loan Portfolio

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	$	3,062	$	2,148	$	—	$	5,210	$	611,404	$	616,614	$	—	$	—
Commercial and industrial	68		181		2,701		2,950		125,959		128,909		1,031		1,769
Commercial construction	—		—		—		—		141,694		141,694		—		—
Consumer residential	843		345		—		1,188		86,421		87,609		—		182
Consumer nonresidential	111		44		—		155		32,029		32,184		—		—
Total	$	4,084	$	2,718	$	2,701	$	9,503	$	997,507	$	1,007,010	$	1,031	$	1,951

As of December 31, 2018 - Acquired Loan Portfolio

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	$	1,001	$	83	$	56	$	1,140	$	65,848	$	66,988	$	—	$	56
Commercial and industrial	446		—		—		446		7,973		8,419		—		—
Commercial construction	186		—		—		186		11,459		11,645		—		—
Consumer residential	2,785		612		173		3,570		40,252		43,822		—		173
Consumer nonresidential	—		—		—		—		124		124		—		—
Total	$	4,418	$	695	$	229	$	5,342	$	125,656	$	130,998	$	—	$	229

As of September 30, 2019, there were $174 thousand of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. There were none as of December 31, 2018.

There were overdrafts of $207 thousand and $28 thousand at September 30, 2019 and December 31, 2018, which have been reclassified from deposits to loans. At September 30, 2019 and December 31, 2018 loans with a carrying value of $158.0 million and $173.0 million were pledged to the Federal Home Loan Bank of Atlanta.

There was a default of one troubled debt restructuring (TDR) during the twelve months since its restructuring for the nine months ended September 30, 2019. For the nine months ended September 30, 2018, no TDRs defaulted within twelve months of the restructuring.

The following table presents loans classified as TDR’s during the nine months ended September 30, 2019:

For the nine months ended September 30, 2019

Troubled Debt Restructurings	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		(In thousands)
Commercial real estate	1	$	3,903	$	3,903
Total	1	$	3,903	$	3,903

There were no loans classified as TDR’s in the nine months ended September 30, 2018.

As of September 30, 2019, and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $3.9 million and $203 thousand, respectively.

27

Notes to Unaudited Consolidated Financial Statements

(Continued)

The concessions made in troubled debt restructurings were extensions of the maturity dates or reductions in the stated interest rate for the remaining life of the debt.

Note 4.Derivative Financial Instruments

The Company enters into interest rate swap agreements (‘‘swap agreements’’) to facilitate the risk management strategies needed in order to accommodate the needs of its banking customers. The Company mitigates the risk of entering into these loan agreements by entering into equal and offsetting swap agreements with highly-rated third party financial institutions. These back-to-back swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities) as of September 30, 2019 and December 31, 2018. The Company is party to master netting arrangements with its financial institution counterparty; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in value of the derivative. These payments, commonly referred to as variation margin, are recorded as settlements of the derivatives’ mark-to-market exposure rather than collateral against the exposures, which effectively results in any centrally cleared derivative having a Level 2 fair value that approximates zero on a daily basis, and therefore, these swap agreements were not included in the offsetting table in the Fair Value Measurement section. As of September 30, 2019, the Company entered into sixteen interest rate swap agreements which are collateralized with $8.1 million in cash.  There were eight agreements outstanding as of December 31, 2018 which were collateralized with $1.6 million in cash.

The notional amount and fair value of the Company’s derivative financial instruments as of September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019
	Notional Amount		Fair Value
	(In thousands)
Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps	$	89,889	$	(7,665	)
Pay Fixed/Receive Variable Swaps	89,889		7,665

	December 31, 2018
	Notional Amount		Fair Value
	(In thousands)
Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps	$	47,381	$	(1,705	)
Pay Fixed/Receive Variable Swaps	47,381		1,705

28

Notes to Unaudited Consolidated Financial Statements

(Continued)

Interest Rate Risk Management—Cash Flow Hedging Instruments

The Company uses FHLB advances and other wholesale funding from time to time as a source of funds for use in the Company’s lending and investment activities and other general business purposes. This wholesale funding exposes the Company to increased interest rate risk as a result of the variability in cash flows (future interest payments).  The Company believes it is prudent to reduce this interest rate risk.  To meet this objective, the Company entered into an interest rate swap agreement whereby the Company reduces the interest rate risk associated with the Company’s variable rate advances (or other wholesale funding) from the designation date of July 30, 2019 and going through July 30, 2022 (the maturity date).

At September 30, 2019, the information pertaining to outstanding interest rate swap agreements used to hedge variability in cash flows (FHLB advance which is included in other borrowed funds on the consolidated balance sheet) is as follows:

(Dollars in thousands)
Notional amount	$ 15,000
Weighted average pay rate	1.88%
Weighted average receive rate	1.90%
Weighted average maturity in years	3 year
Unrealized loss relating to interest rate swaps	$ (134)

These agreements provided for the Company to receive payments determined by a specific index (three month LIBOR) in exchange for making payments at a fixed rate. At September 30, 2019, the unrealized loss relating to interest rate swaps designated as hedging instruments of the variability of cash flows associated with FHLB advances are reported in other comprehensive income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the advance affects earnings. The Company measures cash flow hedging relationships for effectiveness on a monthly basis, and at September 30, 2019, the hedges were highly effective and the amount of ineffectiveness reflected in earnings was de minimus.

Note 5.Financial Instruments with Off-Balance Sheet Risk

The Company is party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2019 and December 31, 2018, the following financial instruments were outstanding which contract amounts represent credit risk:

29

Notes to Unaudited Consolidated Financial Statements

(Continued)

(In thousands)	September 30, 2019		December 31, 2018
Commitments to grant loans	$	16,700	$	22,349
Unused commitments to fund loans and lines of credit	258,248		216,043
Commercial and standby letters of credit	9,901		9,383

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Commercial and standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments, if deemed necessary.

The Company maintains its cash accounts with the Federal Reserve and correspondent banks.  The total amount of cash on deposit in correspondent banks exceeding the federally insured limits was $13.3 million and $5.1 million at September 30, 2019 and December 31, 2018, respectively.

Note 6.Stock-Based Compensation Plan

The Company’s Amended and Restated 2008 Option Plan (the Plan), which is stockholder-approved, was adopted to advance the interests of the Company by providing selected key employees of the Company, their affiliates, and directors with the opportunity to acquire shares of common stock. In June 2018, the stockholders approved an amendment to the Amended and Restated 2008 Plan to extend the term and increase the number of shares authorized for issuance under the Plan by 200,000 shares.

The maximum number of shares with respect to which awards may be made is 2,529,296 shares of common stock, subject to adjustment for certain corporate events. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant, generally vest annually over four years of continuous service and have ten year contractual terms. At September 30, 2019, 164,597 shares were available to grant under the Plan.

30

Notes to Unaudited Consolidated Financial Statements

(Continued)

No options were granted during the nine months ended September 30, 2019 and 2018, respectively.

A summary of option activity under the Plan as of September 30, 2019, and changes during the three months ended is presented below:

					Weighted-
			Weighted-		Average
	Number		Average		Remaining	Aggregate
	of		Exercise		Contractual	Intrinsic
Options	Shares		Price		Term	Value (1)
Outstanding at January 1, 2019	1,976,247		$	8.00	4.98
Granted	—		—
Exercised	(161,442	)	7.02
Forfeited or expired	(4,646	)	10.36
Outstanding at September 30, 2019	1,810,159		$	8.08	4.34	$	17,159,253
Exercisable at September 30, 2019	1,728,855		$	7.92	4.23	$	16,668,177

(1) The aggregate intrinsic value of stock options 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 September 30, 2019. This amount changes based on changes in the market value of the Company’s stock.

The compensation cost that has been charged to income for the plan was $198 thousand and $181 thousand for the three months ended September 30, 2019 and 2018, respectively. Total compensation cost for the nine months ended September 30, 2019 and 2018 was $470 thousand and $531 thousand, respectively. As of September 30, 2019, there was unamortized compensation expense of $155 thousand that will be amortized over a weighted-average period of 10 months. The total income tax benefit related to stock options exercised and recognized in the income statement for share-based compensation arrangements was $67 and $5 thousand for the three months ended September 30, 2019 and 2018, respectively. Tax benefits recognized for nonqualified stock options during the nine months ended September 30, 2019 and 2018 totaled $162 thousand and $288 thousand, respectively.

79,460 units of restricted stock were granted during the nine months ended September 30, 2019.  There were no restricted stock units granted during the nine months ended September 30, 2018.

A summary of the Company’s restricted stock grant activity as of September 30, 2019 is shown below.

31

Notes to Unaudited Consolidated Financial Statements

(Continued)

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2019	50,629		$	17.57
Granted	79,460		19.18
Vested	(719	)	16.41
Forfeited	(5,031	)	18.48
Balance at September 30, 2019	124,339		$	18.57

As of September 30, 2019, there was $2.2 million of total unrecognized compensation cost related to nonvested restricted shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 42 months.

Note 7.Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 –Valuation is based on quoted prices in active markets for identical assets and liabilities.

32

Notes to Unaudited Consolidated Financial Statements

(Continued)

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 considers observable market data (Level 2).

Cash flow hedges: The Company has interest rate swap derivatives that are designated as cash flow hedges and are recorded at fair value using published yield curve rates from a national valuation service. These observable rates and inputs are applied to a third party industry-wide valuation model, and therefore, the valuations fall into a Level 2 category.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:

			Fair Value Measurements at
			September 30, 2019 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2019		(Level 1)		(Level 2)		(Level 3)
Description
Assets
Available-for-sale
Securities of U.S. government and federal agencies	$	998	$	—	$	998	$	—
Securities of state and local municipalities tax exempt	3,737		—		3,737		—
Securities of state and local municipalities taxable	1,494		—		1,494		—
Corporate bonds	4,970		—		4,970		—
SBA pass-through securities	161		—		161		—
Mortgage-backed securities	98,345		—		98,345		—
Collateralized mortgage obligations	26,563		—		26,563		—
Total Available-for-Sale Securities	$	136,268	$	—	$	136,268	$	—
Derivative asset - cash flow hedges	28		—		28		—
Derivative liability - cash flow hedges	134		—		134		—

33

Notes to Unaudited Consolidated Financial Statements

(Continued)

			Fair Value Measurements at
			December 31, 2018 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
(In thousands)	2018		(Level 1)		(Level 2)		(Level 3)
Description
Assets
Available-for-sale
Securities of U.S.government and federal agencies	$	956	$	—	$	956	$	—
Securities of state and local municipalities tax exempt	3,639		—		3,639		—
Securities of state and local municipalities taxable	2,308		—		2,308		—
Corporate bonds	5,013		—		5,013		—
Certificates of deposit	244		—		244		—
SBA pass-through securities	195		—		195		—
Mortgage-backed securities	88,037		—		88,037		—
Collateralized mortgage obligations	23,145		—		23,145		—
Total Available-for-Sale Securities	$	123,537	$	—	$	123,537	$	—

Certain financial 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 financial 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 present value of future cash flows, observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. 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 is a house or building in the process of construction, has the value derived by discounting comparable sales due to lack of similar properties, or is discounted by the Company due to 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’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses 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.

34

Notes to Unaudited Consolidated Financial Statements

(Continued)

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, which results in a Level 3 classification of the inputs for determining fair value. Other real estate owned properties are evaluated regularly for impairment and adjusted accordingly.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at September 30, 2019 and December 31, 2018:

			Fair Value Measurements
			Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Balance as of		Assets		Inputs		Inputs
(In thousands)	September 30, 2019		(Level 1)		(Level 2)		(Level 3)
Description
Assets
Impaired loans	$	1,622	$	—	$	—	$	1,622
Other real estate owned	$	3,866	$	—	$	—	$	3,866

			Fair Value Measurements
			Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Balance as of		Assets		Inputs		Inputs
(In thousands)	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Description
Assets
Impaired loans	$	1,602	$	—	$	—	$	1,602
Other real estate owned	$	4,224	$	—	$	358	$	3,866

The following table displays quantitative information about Level 3 Fair Value Measurements for September 30, 2019 and December 31, 2018:

Quantitative information about Level 3 Fair Value Measurements for September 30, 2019
(In thousands)
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Avg.)
Impaired loans	$	1,622	Discounted value	Marketability/Selling costs	5% - 8% (7.77)%
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51%

Quantitative information about Level 3 Fair Value Measurements for December 31, 2018
(In thousands)
Assets	Fair Value		Valuation Technique(s)	Unobservable input	Range (Avg.)
Impaired loans	$	1,602	Discounted value	Marketability/Selling costs	0.60% - 11% (10.89)%
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51%

35

Notes to Unaudited Consolidated Financial Statements

(Continued)

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and December 31, 2018.  Fair values for September 30, 2019 and December 31, 2018 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

			Fair Value Measurements as of September 30, 2019, using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,424	$	19,424	$	—	$	—
Interest-bearing deposits at other institutions	92,986		92,986		—		—
Securities held-to-maturity	264		—		270		—
Securities available-for-sale	136,268		—		136,268		—
Restricted stock	6,017		—		6,017		—
Loans, net	1,233,337		—		—		1,221,942
Bank owned life insurance	26,820		—		26,820		—
Accrued interest receivable	4,279		—		4,279		—
Financial liabilities:
Checking, savings and money market accounts	$	917,645	$	—	$	917,645	$	—
Time deposits	400,075		—		400,955		—
FHLB advances	15,000		—		15,027		—
Subordinated notes	24,467		—		25,152		—
Accrued interest payable	924		—		924		—

			Fair Value Measurements as of December 31, 2018, using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	9,435	$	9,435	$	—	$	—
Interest-bearing deposits at other institutions	34,060		34,060		—		—
Securities held-to-maturity	1,761		—		1,735
Securities available-for-sale	123,537		—		123,537		—
Restricted stock	5,299		—		5,299		—
Loans, net	1,127,584		—		—		1,116,012
Bank owned life insurance	16,406		—		16,406		—
Accrued interest receivable	4,050		—		4,050		—
Financial liabilities:
Checking, savings and money market accounts	$	817,054	$	—	$	817,054	$	—
Time deposits	345,386		—		344,877		—
Subordinated notes	24,407		—		24,515		—
Accrued interest payable	811		—		811		—

36

Notes to Unaudited Consolidated Financial Statements

(Continued)

Note 8.Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of stock which then shared in the earnings of the Company.  Holders of the Company’s restricted stock units do not have voting rights during the vesting period and therefore, restricted stock units are not included in the computation of basic earnings per share.

The following shows the weighted average number of shares used in computing earnings per    share and the effect of weighted average number of shares of dilutive potential common stock.  Dilutive potential common stock has no effect on income available to common stockholders.  There were no anti-dilutive shares for each of the periods ended September 30, 2019 and 2018, respectively.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2019		2018		2019		2018
Net income	$	4,093	$	3,385	$	12,104	$	9,459
Weighted average number of shares	13,862		11,325		13,796		11,094
Effect of dilutive securities, restricted stock units and options	1,005		1,145		1,026		1,102
Weighted average diluted shares	14,867		12,470		14,822		12,196
Basic EPS	$	0.30	$	0.30	$	0.88	$	0.85
Diluted EPS	$	0.28	$	0.27	$	0.82	$	0.78

Note 9.Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (AOCI) for the three and nine months ended September 30, 2019 and 2018 are shown in the following table. The Company has two components, which are available-for-sale securities and interest rate swap, for the periods presented.

37

Notes to Unaudited Consolidated Financial Statements

(Continued)

(In thousands)
Three Months Ended September 30, 2019	Available-for-Sale Securities		Interest Rate Swap			Total
Balance, beginning of period	$	351	$	—		$	351
Net unrealized gains (losses) during the period	456		(106		)	350
Other comprehensive income (loss), net of tax	456		(106		)	350
Balance, end of period	$	807	$	(106	)	$	701

(In thousands)
Nine Months Months Ended September 30, 2019	Available-for-Sale Securities			Interest Rate Swap			Total
Balance, beginning of period	$	(2,411	)	$	—		$	(2,411	)
Net unrealized gains (losses) during the period	3,218			(106		)	3,112
Other comprehensive income (loss), net of tax	3,218			(106		)	3,112
Balance, end of period	$	807		$	(106	)	$	701

(In thousands)	Three Months Ended September 30,			Nine Months Ended September 30,
Available-for-Sale Securities	2018			2018
Balance, beginning of period	$	(3,489	)	$	(1,693	)
Net unrealized gains (losses) during the period	(540		)	(2,336		)
Other comprehensive income (loss), net of tax	(540		)	(2,336		)
Balance, end of period	$	(4,029	)	$	(4,029	)

Note 10.Subordinated Notes

On June 20, 2016, the Company issued $25 million in private placement of fixed-to-floating subordinated notes due June 30, 2026.  Interest is payable at 6.00% per annum, from and including June 20, 2016 to, but excluding June 30, 2021, payable semi-annually in arrears.  From and including June 30, 2021 to the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 487 basis points, payable quarterly in arrears.

The Company may, at its option, beginning with the interest payment date of June 30, 2021 and on any scheduled interest payment date thereafter redeem the subordinated notes, in whole or in part, upon not fewer than 30 nor greater than 60 days’ notice to holders, at a redemption price equal to 100% of the principal amount of the subordinated notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders.

The subordinated notes qualify as Tier 2 capital for the Company to the fullest extent permitted under the BASEL III capital rules. When contributed to the capital of the Bank, the proceeds of the subordinated notes may be included in Tier 1 capital for the Bank. At September 30, 2019 and December 31, 2018, $21 million of the proceeds of the Company’s subordinated notes have been included in the Bank’s Tier 1 capital.

38

Notes to Unaudited Consolidated Financial Statements

(Continued)

Note 11.Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 ‘‘Revenue from Contracts with Customers’’ (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, gain on sale of securities, BOLI income, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and personal checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Fees, Exchange and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. This income is reflected in other income on the Company’s consolidated statements of income.

Other income

Other noninterest income consists of loan swap fees, insurance commissions, and other miscellaneous revenue streams not meeting the criteria above. When the Company enters into an interest rate swap agreement, the Company may receive an additional one-time payment fee which is recognized as income when received. The Company receives monthly recurring commissions based on a percentage of premiums issued and revenue is

39

Notes to Unaudited Consolidated Financial Statements

(Continued)

recognized when received. Any residual miscellaneous fees are recognized as they occur, and therefore, the Company determined this consistent practice satisfies the obligation for performance.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2019		2018		2019		2018
Noninterest Income
In-scope of Topic 606
Service Charges on Deposit Accounts	$	240	$	158	$	651	$	452
Fees, Exchange, and Other Service Charges	103		60		301		177
Other	6		10		31		37
Noninterest Income (in-scope of Topic 606)	349		228		983		666
Noninterest Income (out-scope of Topic 606)	331		520		973		829
Total Noninterest Income	$	680	$	748	$	1,956	$	1,495

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2019, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

40

Notes to Unaudited Consolidated Financial Statements

(Continued)

Note 12.Supplemental Cash Flow Information

	For the Nine Months Ended September 30,
(In thousands)	2019		2018
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	13,616	$	7,823
Income taxes	1,516		4,892
Noncash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale	4,164		(2,957		)
Unsettled purchases of available-for-sale securities	8,163		—
Initial right of use asset - operating leases	12,249		—
Initial lease liability - operating leases	12,656		—
Right-of-use assets obtained in the exchange for lease liabilities during the current period	2,378		—

Note 13.Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. There was a cumulative effect adjustment of approximately $86 thousand at adoption. The Company also elected certain practical expedients within the standard and did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases and did not reassess any initial direct costs for existing leases.  Prior to adoption, all of the Company’s leases were classified as operating leases and remain operating leases at adoption. The implementation of the new standard resulted in recognition of a right-of-use asset of approximately $12.2 million and an offsetting lease liability of $12.7 million for leases existing at the date of adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic 842. The Company has elected the practical expedient provided by Topic 842 not to allocate consideration in a contract between lease and non-lease components. The Company also elected, as provided by the standard, not to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of 12 months or less.

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred. Payments for leases with terms longer than twelve months are included in the determination of the lease liability. Payments may be fixed for the term of the lease or variable.  If the lease agreement provides a known escalator, such as a specified percentage increase per

41

Notes to Unaudited Consolidated Financial Statements

(Continued)

year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability. If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability. The Company’s leases provide known escalators that are included in the determination of the lease liability, with the exception of three lease agreements.

Options to Extend, Residual Value Guarantees, and Restrictions and Covenants

The Company’s leases offer the option to extend the lease term. For each of the leases, the Company is reasonably certain it will exercise the options and has included the additional time and lease payments in the calculation of the lease liability. None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about leases:

(In thousands)	September 30, 2019
Lease Liability	$	13,971
Right-of-Use-Asset	$	13,597
Weighted Average Remaining Lease Term (Years)	11.3
Weighted Average discount rate	3.31		%

	For the Three Months Ended		For the Nine Months Ended		For the Three Months Ended		For the Nine Months Ended
(In thousands)	September 30, 2019		September 30, 2019		September 30, 2018		September 30, 2018
Operating Lease Expense	$	551	$	1,466	$	315	$	941
Cash paid for amounts included in lease liabilities	$	398	$	1,241	N/A		N/A
Right-of-use assets obtained in exchange for operating lease liabilities	2,078		2,378		N/A		N/A

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:

42

Notes to Unaudited Consolidated Financial Statements

(Continued)

(In thousands)	September 30, 2019
Three months ending December 31, 2019	$	437
Twelve months ending December 31, 2020	1,546
Twelve months ending December 31, 2021	1,559
Twelve months ending December 31, 2022	1,599
Twelve months ending December 31, 2023	1,596
Twelve months ending December 31, 2024	1,567
Thereafter	8,550
Total	$	16,854
Less: discount	(2,883		)
	$	13,971

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of our consolidated financial condition at September 30, 2019 and December 31, 2018 and the results of our operations for the three and nine months ended September 30, 2019 and 2018. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. Results of operations for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results of operations for the balance of 2019, or for any other period.  In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

·the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

·geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

·the occurrence of significant natural disasters;

·our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure;

·changes in consumer spending and savings habits;

·technological and social media changes;

·the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations;

·changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

·the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

·the impact of changes in laws, regulations and policies affecting the real estate industry;

·the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies;

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·the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

·the willingness of users to substitute competitors’ products and services for our products and services;

·the effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

·changes in the level of our nonperforming assets and charge-offs;

·our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators;

·potential exposure to fraud, negligence, computer theft and cyber-crime;

·the expected growth opportunities or cost savings from an acquisition may not be fully realized or may take longer to realize than expected; and

·deposit attrition, operating costs, customer losses, and business disruption following a merger, including adverse effects on relationships with employees, may be greater than expected.

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in the Company’s Annual Report on Form 10-K, including those discussed in the section entitled “Risk Factors.” If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

Overview

We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank, was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.

On October 12, 2018, we completed our acquisition of Colombo Bank (“Colombo”).  Colombo, which was headquartered in Rockville, Maryland, merged into FVCbank effective October 12, 2018 adding five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland. Pursuant to the terms of the merger agreement, holders of shares of Colombo common stock received 0.002217 shares of the Company’s common stock and $0.053157 in cash for each share of Colombo common stock held immediately prior to the effective date of the merger, plus cash in lieu of fractional shares at a rate equal to $19.614 per share of FVCB common stock. Holders of an aggregate of 35,002 shares of Colombo common stock who individually owned fewer than 45,086 shares of Colombo common stock after aggregation of all shares held in the same name, made a timely election to receive only cash in an amount equal to $0.096649 per share of Colombo common stock.  As a result of the merger, 763,051 shares of common stock were issued in exchange for outstanding shares of Colombo common stock.

Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. As discussed further in “Quantitative and Qualitative Disclosures About Market Risk” below, we manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on

45

deposits and loans, merchant services fee income, loan swap fees, insurance commission income, income from bank owned life insurance, or BOLI, and gains and losses on sales of investment securities available-for-sale.

Critical Accounting Policies

General

The accounting principles we apply under GAAP are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

The accounting policies we view as critical are those relating to judgments, assumptions and estimates regarding the determination of the allowance for loan losses, accounting for purchase credit-impaired loans, fair value measurements, and the valuation of other real estate owned.

Allowance for Loan Losses

We maintain the allowance for loan losses at a level that represents management’s best estimate of known and inherent losses in our loan portfolio. Both the amount of the provision expense and the level of the allowance for loan losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers. Unusual and infrequently occurring events, such as weather-related disasters, may impact our assessment of possible credit losses. As a part of our analysis, we use comparative peer group data and qualitative factors such as levels of and trends in delinquencies, nonaccrual loans, charged-off loans, changes in volume and terms of loans, effects of changes in lending policy, experience and ability and depth of management, national and local economic trends and conditions and concentrations of credit, competition, and loan review results to support estimates.

The allowance for loan losses is based first on a segmentation of the loan portfolio by general loan type, or portfolio segments. For originated loans, certain portfolio segments are further disaggregated and evaluated collectively for impairment based on loan segments, which are largely based on the type of collateral underlying each loan. For purposes of this analysis, we categorize loans into one of five categories: commercial and industrial, commercial real estate, commercial construction, consumer residential, and consumer nonresidential loans. Typically, financial institutions use their historical loss experience and trends in losses for each loan category which are then adjusted for portfolio trends and economic and environmental factors in determining their allowance for loan losses. Since the Bank’s inception in 2007, we have experienced minimal loss history within our loan portfolio. Because of this, our allowance model uses the average loss rates of similar institutions (our custom peer group) as a baseline which is then adjusted based on our particular qualitative loan portfolio characteristics and environmental factors. The indicated loss factors resulting from this analysis are applied for each of the five categories of loans.

Our peer group is defined by selecting commercial banking institutions of similar size within Virginia, Maryland and the District of Columbia. This is known as our custom peer group. The commercial banking institutions comprising the custom peer group can change based on certain factors including but not limited to the characteristics, size, and geographic footprint of the institution. We have identified 28 banks for our custom peer group which are within $200 million to $3 billion in total assets, the majority of whom are geographically concentrated in the Washington, D.C. metropolitan area in which we operate, as this area has experienced more stable economic conditions than many other areas of the country. These baseline peer group loss rates are then adjusted based on an analysis of our loan portfolio characteristics, trends, economic considerations and other conditions that should be considered in assessing our credit risk. Our peer loss rates are updated on a quarterly basis.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. We individually assign loss factors to all loans that have been identified as having loss attributes, as indicated by deterioration in the financial condition of the borrower or a decline in underlying collateral value if the loan is collateral dependent. We evaluate the impairment of certain loans on a loan by loan basis for those loans that are adversely risk rated. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the fair value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net collateral value is less than the loan balance (including accrued interest and any unamortized premium or discount associated with the loan) we recognize an impairment and establish a specific reserve for the impaired loan.

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Credit losses are an inherent part of our business and, although we believe the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.

Allowance for Loan Losses - Acquired Loans

Acquired loans accounted for under ASC 310-30

For our acquired loans, to the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

Acquired loans accounted for under ASC 310-20

Subsequent to the acquisition date, we establish an allowance for loan losses through a provision for loan losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other factors, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that may warrant recognition in determining our allowance for loan losses.

Purchased Credit-Impaired Loans

Purchased credit-impaired (PCI) loans, which are the loans acquired in our acquisition of Colombo, are loans acquired at a discount (that is due, in part, to credit quality). These loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no allowance for loan losses. We account for interest income on all loans acquired at a discount (that is due, in part, to credit quality) based on the acquired loans’ expected cash flows. The acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses. Therefore, the allowance for loan losses on these impaired pools reflect only losses incurred after the acquisition (representing the present value of all cash flows that were expected at acquisition but currently are not expected to be received).  At September 30, 2019, we had specific reserves for impairment of acquired loans within our allowance for loan losses totaling $71 thousand for three loans that had further deteriorated post acquisition.

We periodically evaluate the remaining contractual required payments due and estimates of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required payments due and estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications between accretable yield and the non-accretable difference. On an aggregate basis, if the acquired pools of PCI loans perform better than originally expected, we would expect to receive more future cash flows than originally modeled at the acquisition date. For the pools with better than expected cash flows, the forecasted increase would be recorded as an additional accretable yield that is recognized as a prospective increase to our interest income on loans.

Fair Value Measurements

We determine the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Our investment securities available-for-sale are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

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Other Real Estate Owned

Real estate acquired through, or in lieu of, foreclosure is held for sale and is stated at fair value of the property, less estimated disposal costs, if any. Any excess of cost over the fair value less costs to sell at the time of acquisition is charged to the allowance for loan losses. The fair value is reviewed periodically by management and any writedowns are charged against current earnings. Accounting policy and treatment is consistent with accounting for impaired loans described above.

LIBOR and Other Benchmark Rates

Following the announcement by the United Kingdom’s Financial Conduct Authority in July 2017 that it will no longer persuade or require banks to submit rates for the London InterBank Offered Rate (LIBOR) after 2021, central banks and regulators around the world have commissioned working groups to find suitable replacements for Interbank Offered Rates (IBOR) and other benchmark rates and to implement financial benchmark reforms more generally. These actions have resulted in uncertainty regarding the use of alternative reference rates (ARRs) and could cause disruptions in a variety of markets, as well as adversely impact our business, operations and financial results.

To facilitate an orderly transition from IBORs and other benchmark rates to ARRs, the Company has established an enterprise-wide initiative led by senior management. The objective of this initiative is to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including LIBOR, achieve operational readiness and engage impacted clients in connection with the transition to ARRs.

Financial Overview

During 2019, we have continued to expand our market area through organic growth and have continued leveraging our recent acquisition of Colombo, as well as capitalizing on market disruption as a result of recent merger activity.

·Total assets increased to $1.57 billion compared to $1.35 billion at September 30, 2019 and December 31, 2018, respectively, an increase of $213.6 million, or 15.8%.

·Total loans, net of deferred fees, increased $106.7 million, or 9.4%, from December 31, 2018 to September 30, 2019. Nonperforming loans, including loans past due 90 days or more and still accruing, as a percentage of total assets was 0.67% at September 30, 2019, compared to 0.24% at December 31, 2018.  Nonperforming assets, which includes nonperforming loans and other real estate owned, as a percentage of total assets was 0.91% and 0.55%, at September 30, 2019 and December 31, 2018, respectively.

·Total deposits increased $155.3 million, or 13.4%, from December 31, 2018 to September 30, 2019.

·Tangible book value per share at September 30, 2019 was $12.03, an increase from $10.93 at December 31, 2018 and $10.81 at September 30, 2018.

·Net income was $4.1 million for the three months ended September 30, 2019 compared to $3.4 million for the same period of 2018.  For the nine months ended September 30, 2019 and 2018, net income was $12.1 million and $9.5 million, respectively.

Results of Operations—Three and Nine months Ended September 30, 2019 and 2018

Overview

We recorded net income of $4.1 million, or $0.28 per diluted common share, for the three months ended September 30, 2019, compared to net income of $3.4 million, or $0.27 per diluted common share for the three months ended September 30, 2018. Our results for the three months ended September 30, 2018 were impacted by merger-related expenses totaling $274 thousand relating to our acquisition of Colombo. Excluding these merger-related expenses, we would have recorded net income of $3.6 million, or $0.29 per diluted common share for the quarter ended September 30, 2018. Net interest income increased $2.2 million to $12.1 million for the three months ended September 30, 2019, compared to $9.9 million for the three months ended September 30, 2018, a result of an increase in interest-earning assets through organic growth and acquisition. Provision for loan losses was $235 thousand for the three months ended September 30, 2019, compared to $351 thousand for the same period of 2018. Noninterest income decreased $68 thousand to $680 thousand for the three months ended September 30, 2019 as compared to $748 thousand for 2018, primarily a result of a decrease in loan swap fee income during the third quarter of 2019. Noninterest expense was $7.4 million for the three months ended September 30, 2019 compared to $5.9 million for the same three month period of 2018, primarily due to an increase in

48

salaries and benefits expense for additions to business development and back office staffing as a result of our acquisition of Colombo in addition to increases in occupancy and data processing expenses all a result of our acquisition of Colombo.

The annualized return on average assets for the three months ended September 30, 2019 and 2018 was 1.10% and 1.18%, respectively. The annualized return on average equity for the three months ended September 30, 2019 and 2018 was 9.46% and 12.23%, respectively. Excluding merger-related expenses, the annualized return on average assets and annualized return on average equity for the three months ended September 30, 2019 was 1.11% and 9.54%, respectively. Excluding merger-related expenses, the annualized return on average assets and annualized return on average equity for the three months ended September 30, 2018 was 1.27% and 13.13%, respectively. Merger related expenses incurred during the three months ended September 30, 2019 are primarily related to early contract termination costs that occurred during those periods as a result of data lines used and then ultimately converted to the Company’s existing infrastructure during the third quarter of 2019.  For a reconciliation of these performance metrics as adjusted for the merger-related expenses, please refer to “Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP)” below.

For the nine months ended September 30, 2019 and 2018, net income was $12.1 million and $9.5 million, respectively.  Earnings per share on a diluted basis was $0.82 and $0.78 for the nine months ended September 30, 2019 and 2018, respectively.  Results for the nine months ended September 30, 2019 and 2018 were impacted by merger-related expenses of $133 thousand and $671 thousand, respectively. Excluding merger-related expenses, we recorded net income for the nine months ended September 30, 2019 totaling $12.2 million, or $0.82 per diluted common share and net income for the nine months ended September 30, 2018 totaling $10.0 million, or $0.82 per diluted common share. Merger related expenses incurred during the nine months ended September 30, 2019 are primarily related to early contract termination costs that occurred during those periods as a result of data lines used and then ultimately converted to the Company’s existing infrastructure during the third quarter of 2019.  For a reconciliation of our earnings as adjusted for the merger-related expenses, please refer to “Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP)” below.

Net interest income increased $8.2 million to $36.2 million for the nine months ended September 30, 2019, compared to $28.0 million for the nine months ended September 30, 2018, a result of an increase in interest-earning assets. Provision for loan losses was $1.3 million for the nine months ended September 30, 2019, compared to $990 thousand for the same period of 2018.  Noninterest income was $2.0 million and $1.5 million for the nine months ended September 30, 2019 and 2018, respectively. The increase in noninterest income was primarily related to increases in service charges on deposit accounts and other fee income for 2019 as compared to 2018, primarily a result of the increase in the customer base from the acquisition of Colombo.  Noninterest expense was $21.5 million for the nine months ended September 30, 2019 compared to $17.0 million for the same nine month period of 2018, primarily due to an increase in salaries and benefits expense for additions to staffing over the past year and occupancy and data processing expenses all a result of our acquisition of Colombo.

The annualized return on average assets for the nine months ended September 30, 2019 and 2018 was 1.13% and 1.15%, respectively. The annualized return on average equity for the nine months ended September 30, 2019 and 2018 was 9.65% and 12.09%, respectively. Excluding merger-related expenses, the annualized return on average assets and annualized return on average equity for the nine months ended September 30, 2019 was 1.14% and 9.73%, respectively. Excluding merger-related expenses, the annualized return on average assets and annualized return on average equity for the nine months ended September 30, 2018 was 1.22% and 12.81%, respectively. For a reconciliation of these performance metrics as adjusted for the merger-related expenses, please refer to “Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP)” below.

49

Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP)

For the Three and Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income (as reported)	$	4,093		$	3,385		$	12,104		$	9,459
Add: merger and acquisition expense	51			274			133			671
Subtract: provision for income taxes associated with non-GAAP adjustments	(12		)	(24		)	(31		)	(107		)
Net income, excluding merger and acquisition expense, net of tax (non-GAAP)	$	4,132		$	3,635		$	12,206		$	10,023
Earnings per share - basic (excluding merger and acquisition expense)	$	0.30		$	0.32		$	0.88		$	0.90
Earnings per share - diluted (excluding merger and acquisition expense)	$	0.28		$	0.29		$	0.82		$	0.82
Return on average assets (non-GAAP net income)	1.11		%	1.27		%	1.14		%	1.22		%
Return on average equity (non-GAAP net income)	9.55		%	13.13		%	9.73		%	12.81		%

Net Interest Income/Margin

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the three months ended September 30, 2019 and 2018.

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Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

For the Three Months Ended September 30, 2019 and 2018

(Dollars in thousands)

	2019							2018
				Interest		Average				Interest			Average
	Average			Income/		Yield/		Average		Income/			Yield/
	Balance			Expense		Rate		Balance		Expense			Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate	$	770,752		$	9,266	4.81	%	$	575,738	$	6,787		4.72	%
Commercial and industrial	129,174			1,893		5.86	%	110,241		1,600			5.81	%
Commercial construction	194,327			2,784		5.73	%	140,213		1,890			5.39	%
Consumer residential	122,958			1,529		4.98	%	106,922		1,263			4.72	%
Consumer nonresidential	24,149			443		7.34	%	26,878		437			6.50	%
Total loans (1)	1,241,360			15,915		5.13	%	959,992		11,977			4.99	%
Investment securities (2)	131,484			840		2.56	%	116,496		679			2.33	%
Restricted stock	5,669			88		6.20	%	3,678		57			6.24	%
Deposits at other financial institutions and federal funds sold	27,972			169		2.40	%	35,988		165			1.82	%
Total interest-earning assets and interest income	1,406,485			17,012		4.84	%	1,116,154		12,878			4.62	%
Noninterest-earning assets:
Cash and due from banks	10,221									2,386
Premises and equipment, net	2,073									1,416
Accrued interest and other assets	74,685									31,107
Allowance for loan losses	(10,034		)							(8,421		)
Total assets	$	1,483,430								$	1,142,642
Liabilities and Stockholders’ Equity
Interest - bearing liabilities:
Interest - bearing deposits:
Interest checking	$	324,658		$	1,196	1.46	%	$	251,299	$	697		1.10	%
Savings and money markets	255,046			908		1.41	%	190,176		566			1.18	%
Time deposits	318,056			1,903		2.37	%	249,508		1,018			1.62	%
Wholesale deposits	67,376			416		2.45	%	65,354		303			1.84	%
Total interest - bearing deposits	965,136			4,423		1.82	%	756,337		2,584			1.36	%
Other borrowed funds	43,268			491		4.51	%	27,173		411			6.00	%
Total interest-bearing liabilities and interest expense	1,008,404			4,914		1.93	%	783,510		2,995			1.52	%
Noninterest-bearing liabilities:
Demand deposits	278,354							245,742
Other liabilities	23,523							2,662
Common stockholders’ equity	173,149							110,728
Total liabilities and stockholders’ equity	$	1,483,430						$	1,142,642
Net interest income and net interest margin (2)				$	12,098	3.41	%			$	9,883		3.54	%

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield.  Interest income on nonaccruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled $314 thousand and $135 thousand for the three months ended September 30, 2019 and 2018, respectively.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 22.5% for 2019 and 21% for 2018.

The level of net interest income is affected primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. See “Quantitative and Qualitative Disclosures About Market Risk” below for further information. The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the three months ended September 30, 2019.

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Rate and Volume Analysis

For the Three Months Ended September 30, 2019 and 2018

(Dollars in thousands)

	2019 Compared to 2018
	Average			Average			Increase
	Volume			Rate			(Decrease)
Interest income:
Loans (1):
Commercial real estate	$	2,299		$	180		$	2,479
Commercial and industrial	275			18			293
Commercial construction	729			165			894
Consumer residential	186			80			266
Consumer nonresidential	(44		)	50			6
Total loans (1)	3,445			493			3,938
Investment securities (2)	87			74			161
Restricted stock	32			(1		)	31
Deposits at other financial institutions and federal funds sold	(36		)	40			4
Total interest income	3,528			606			4,134
Interest expense:
Interest - bearing deposits:
Interest checking	210			289			499
Savings and money markets	196			146			342
Time deposits	297			588			885
Wholesale deposits	9			103			112
Total interest - bearing deposits	712			1,126			1,838
Other borrowed funds	240			(159		)	81
Total interest expense	952			967			1,919
Net interest income (2)	$	2,576		$	(361	)	$	2,215

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield.  Interest income on nonaccruing loans was not material for the periods presented.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 22.5% for 2019 and 21% for 2018.

Net interest income for the three months ended September 30, 2019 was $12.1 million, compared to $9.9 million for the three months ended September 30, 2018, an increase of $2.2 million, or 22.4%. The increase in net interest income was primarily a result of an increase in the volume of interest-earning assets related to organic growth during 2019 compared to 2018 in addition to the earning assets acquired from Colombo. The yield on interest-earning assets increased 22 basis points to 4.84% for the three months ended September 30, 2019, compared to 4.62% for the same period of 2018. Offsetting this increase in yield was a 41 basis point increase in the cost of interest-bearing liabilities reflecting increasing rates on interest-bearing deposits.

Our net interest margin, on a tax equivalent basis, for the three months ended September 30, 2019 and 2018 was 3.41% and 3.54%, respectively. The decrease in our net interest margin was primarily a result of an increase in rate on our interest-bearing

52

liabilities during 2019 as compared to 2018. Net interest income, on a tax equivalent basis, is a financial measure that we believe provides a more accurate picture of the interest margin for comparative purposes. To derive our net interest margin on a tax equivalent basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use our statutory tax rates for the periods presented. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources. The following table provides a reconciliation of our GAAP net interest income to our tax equivalent net interest income.

Supplemental Financial Data and Reconciliations to GAAP Financial Measures

For the Three and Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
GAAP Financial Measurements:
Interest income:
Loans	$	15,915	$	11,977	$	46,601	$	33,841
Deposits at other financial institutions and federal funds sold	169		165		485		242
Investment securities available-for-sale	832		661		2,609		1,992
Investment securities held-to-maturity	2		13		28		39
Restricted stock	88		57		234		170
Total interest income	17,006		12,873		49,957		36,284
Interest expense:
Interest-bearing deposits	4,423		2,584		12,355		7,018
Other borrowed funds	491		411		1,374		1,269
Total interest expense	4,914		2,995		13,729		8,287
Net interest income	$	12,092	$	9,878	$	36,228	$	27,997
Non-GAAP Financial Measurements:
Add: Tax benefit on tax-exempt interest income - securities	6		5		18		17
Total tax benefit on tax-exempt interest income	$	6	$	5	$	18	$	17
Tax equivalent net interest income	$	12,098	$	9,883	$	36,246	$	28,014

Average interest-earning assets increased by 26.0% to $1.41 billion for the three months ended September 30, 2019 compared to $1.12 billion for the three months ended September 30, 2018, which resulted in an increase in total interest income on a tax equivalent basis of $4.1 million, to $17.0 million for the three months ended September 30, 2019, compared to $12.9 million for the three months ended September 30, 2018. The increase in our earning assets was primarily driven by an increase in the average volume of loans receivable of $281.4 million, which contributed to an additional $3.4 million in interest income. This increase in interest income was enhanced by an increase in yields earned on the loan portfolio which increased interest income $493 thousand. Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2019 and 2018.

Total average interest-bearing deposits increased $208.8 million to $965.1 million for the three months ended September 30, 2019 compared to $756.3 million for the three months ended September 30, 2018. Average noninterest-bearing deposits increased $32.6 million to $278.4 million for the three months ended September 30, 2019 compared to $245.7 million for the same period in 2018. The largest increase in average interest-bearing deposit balances was in our interest checking, which increased $73.4 million compared to 2018. Average wholesale deposits increased $2.0 million to $67.4 million for the third quarter of 2019 compared to $65.4 million for the third quarter of 2018. This change in the mix of our interest-bearing liabilities, in addition to the increases in the targeted fed funds rate during 2018 which held at that level until July 2019, have contributed to the increase in our cost of interest-bearing deposits to 1.82% for the three months ended September 30, 2019, from 1.36% for the same period in 2018. The cost of other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, decreased 149 basis points to 4.51% for the three months ended September 30, 2019, from 6.00% for the same period in 2018.  The decrease in the cost of other borrowed funds was a result of an FHLB advance recorded during the third quarter of 2019 with a rate of 1.88%.

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the nine months ended September 30, 2019 and 2018.

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Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

 For the Nine Months Ended September 30, 2019 and 2018

(In thousands)

	2019							2018
				Interest		Average					Interest		Average
	Average			Income/		Yield/		Average			Income/		Yield/
	Balance			Expense		Rate		Balance			Expense		Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate	$	722,758		$	25,985	4.79	%	$	559,578		$	19,503	4.65	%
Commercial and industrial	133,083			6,182		6.19	%	103,395			4,305		5.55	%
Commercial construction	184,175			7,896		5.72	%	128,618			5,009		5.19	%
Consumer residential	128,794			4,990		5.17	%	108,056			3,660		4.52	%
Consumer nonresidential	27,316			1,548		7.56	%	28,543			1,364		6.37	%
Total loans (1)	1,196,126			46,601		5.19	%	928,190			33,841		4.86	%
Investment securities (2)	136,388			2,655		2.60	%	118,391			2,048		2.31	%
Restricted stock	5,359			234		5.83	%	3,773			170		6.02	%
Deposits at other financial institutions and federal funds sold	28,583			485		2.27	%	22,821			242		1.42	%
Total interest-earning assets and interest income	1,366,456			49,975		4.88	%	1,073,175			36,301		4.51	%
Noninterest-earning assets:
Cash and due from banks	7,891							2,422
Premises and equipment, net	2,172							1,347
Accrued interest and other assets	61,160							28,871
Allowance for loan losses	(9,597		)					(8,148		)
Total assets	$	1,428,082						$	1,097,667
Liabilities and Stockholders’ Equity
Interest - bearing liabilities:
Interest - bearing deposits:
Interest checking	$	307,372		$	3,096	1.35	%	$	211,461		$	1,588	1.00	%
Savings and money markets	255,437			2,825		1.48	%	188,560			1,490		1.06	%
Time deposits	308,500			5,012		2.17	%	252,130			2,824		1.50	%
Wholesale deposits	76,713			1,422		2.48	%	92,432			1,116		1.61	%
Total interest - bearing deposits	948,022			12,355		1.74	%	744,583			7,018		1.26	%
Other borrowed funds	35,425			1,374		5.17	%	30,251			1,269		5.61	%
Total interest-bearing liabilities and interest expense	983,447			13,729		1.87	%	774,834			8,287		1.43	%
Noninterest-bearing liabilities:
Demand deposits	259,236							216,381
Other liabilities	18,202							2,105
Common stockholders’ equity	167,197							104,347
Total liabilities and stockholders’ equity	$	1,428,082						$	1,097,667
Net interest income and net interest margin				$	36,246	3.55	%				$	28,014	3.48	%

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield.  Interest income on nonaccruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled $707 thousand and $370 thousand for the nine months ended September 30, 2019 and 2018, respectively.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 22.5% for 2019 and 21% for 2018.

The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the nine months ended September 30, 2019.

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Rate and Volume Analysis For the Nine Months Ended September 30, 2019 and 2018 (In thousands)
	2019 Compared to 2018
	Average			Average			Increase
	Volume			Rate			(Decrease)
Interest income:
Loans (1):
Commercial real estate	$	5,687		$	795		$	6,482
Commercial and industrial	1,236			641			1,877
Commercial construction	2,164			723			2,887
Consumer residential	702			628			1,330
Consumer nonresidential	(59		)	243			184
Total loans (1)	9,730			3,030			12,760
Investment securities (2)	311			296			607
Restricted stock	72			(8		)	64
Deposits at other financial institutions and federal funds sold	62			181			243
Total interest income	10,175			3,499			13,674
Interest expense:
Interest - bearing deposits:
Interest checking	703			805			1,508
Savings and money markets	531			804			1,335
Time deposits	659			1,529			2,188
Wholesale deposits	(194		)	500			306
Total interest - bearing deposits	1,699			3,638			5,337
Other borrowed funds	222			(117		)	105
Total interest expense	1,921			3,521			5,442
Net interest income	$	8,254		$	(22	)	$	8,232

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield.  Interest income on nonaccruing loans was not material for the periods presented.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 22.5% for 2019 and 21% for 2018.

Net interest income for the nine months ended September 30, 2019 was $36.2 million, compared to $28.0 million for the nine months ended September 30, 2018, an increase of $8.2 million, or 29.4%. The increase in net interest income was primarily a result of an increase in the volume of interest-earning assets related to organic growth during 2019 compared to 2018 in addition to the earnings assets acquired from Colombo. The yield on interest-earning assets increased 37 basis points to 4.88% for the nine months ended September 30, 2019, compared to 4.51% for the same period of 2018, a result of the increased rate environment earlier in the year. Offsetting this increase in yield was a 44 basis point increase in the cost of interest-bearing liabilities, primarily reflecting increasing rates of interest-bearing deposits.

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Average interest-earning assets increased by 27.3% to $1.37 billion for the nine months ended September 30, 2019 compared to $1.07 billion for the nine months ended September 30, 2018, which resulted in an increase in total interest income on a tax equivalent basis of $13.7 million, to $50.0 million for the nine months ended September 30, 2019, compared to $36.3 million for the nine months ended September 30, 2018. The increase in our earning assets was primarily driven by an increase in the average volume of loans receivable of $268.0 million, which contributed to an additional $9.7 million in interest income. This increase in interest income was enhanced by an increase in yields earned on the loan portfolio which increased interest income $3.0 million. Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2019 and 2018.

Total average interest-bearing deposits increased $203.4 million to $948.0 million for the nine months ended September 30, 2019 compared to $744.6 million for the nine months ended September 30, 2018. Average noninterest-bearing deposits increased $42.9 million to $259.2 million for the nine months ended September 30, 2019 compared to $216.4 million for the same period in 2018. The largest increase in average interest-bearing deposit balances was in our interest checking, which increased $95.9 million compared to 2018. Average wholesale deposits decreased $15.7 million to $76.7 million for the nine months ended September 30, 2019 compared to $92.4 million for the nine months ended September 30, 2018. This change in the mix of our interest-bearing liabilities, in addition to the increases in the targeted fed funds rate during 2018 which held at that level until July 2019, have contributed to the increase in our cost of interest-bearing deposits to 1.74% for the nine months ended September 30, 2019, from 1.26% for the same period in 2018. The cost of other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, decreased 44 basis points to 5.17% for the nine months ended September 30, 2019, from 5.61% for the same period in 2018. The decrease in the cost of other borrowed funds was a result of an FHLB advance recorded during the third quarter of 2019 with a rate of 1.88%.

Provision Expense and Allowance for Loan Losses

Our policy is to maintain the allowance for loan losses at a level that represents our best estimate of inherent losses in the loan portfolio. Both the amount of the provision and the level of the allowance for loan losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers.

We recorded a provision for loan losses of $235 thousand for the three months ended September 30, 2019 compared to a provision for loan losses of $351 thousand for the same period of 2018, which primarily reflects our increase in loan origination volume while maintaining a low level of problem loans. For the nine months ended September 30, 2019 and 2018, provisions for loan losses was $1.3 million and $990 thousand, respectively.  Specific reserves decreased $6 thousand and increased $20 thousand for the three and nine months ended September 30, 2019, respectively, a result of the liquidation analysis completed for impaired loans for the third quarter of 2019.  See “Asset Quality” below for additional information on the credit quality of the loan portfolio.  The allowance for loan losses at September 30, 2019 was $10.1 million compared to $9.2 million at December 31, 2018. Our allowance for loan loss ratio as a percent of total loans, net of deferred fees and costs, for each of September 30, 2019 and December 31, 2018 was 0.81%.

Noninterest Income

Noninterest income includes service charges on deposits and loans, loan swap fee income, and income from our BOLI policies, and continues to supplement our operating results. Noninterest income for the three months ended September 30, 2019 and 2018 was $680 thousand and $748 thousand, respectively. Fee income from fees on loans, service charges on deposits, and other fee income was $479 thousand for the three months ended September 30, 2019, a decrease of 24.9%, as compared to the same quarter of 2018, a result of a decrease in loan swap fee income recorded during the third quarter of 2019.

For the nine months ended September 30, 2019 and 2018, noninterest income was $2.0 million and $1.5 million, respectively. Included in noninterest income for the nine months ended September 30, 2019 is fee income from loan swap activity totaling $408 thousand compared to $430 thousand for the nine months ended September 30, 2018.  We anticipate that loan swap fee income will decrease from prior levels as a result of the current yield curve environment.  Fee income from fees on loans, service charges on deposits, and other fee income was $1.5 million for the nine months ended September 30, 2019, an increase of 32.0%, as compared to the same period of 2018, a result of an increase in customer relationships over the past year.

Noninterest Expense

Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $7.4 million and $5.9 million for the three months ended September 30, 2019 and 2018, respectively.

Salaries and benefits expense increased $858 thousand to $4.3 million for the three months ended September 30, 2019 compared to $3.5 million for the same period in 2018. The increase in salaries and benefits expense is primarily related to increases in

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our business development and back office personnel to support our growth plans and staffing we retained from our acquisition of Colombo. Occupancy and equipment expense increased $291 thousand for the three months ended September 30, 2019 as compared to the same period of 2018 as a result of the increase in locations following the completion of our acquisition of Colombo.  All other increases in noninterest expense for the quarter ended September 30, 2019 as compared to the quarter ended September 30, 2018 are primarily related to the supporting the larger organization following the Colombo acquisition and continued organic growth.

For the nine months ended September 30, 2019 and 2018, noninterest expense was $21.5 million and $17.0 million, respectively. Salaries and benefits expense increased $2.5 million in 2019 as compared to 2018 due to the aforementioned increase in staffing. All other increases in noninterest expense for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 are primarily related to supporting the larger organization following the Colombo acquisition and continued organic bank growth.

During the third quarter of 2019, as a result of the FDIC Deposit Insurance Fund exceeding 1.38% of insured deposits at June 30, 2019, we recorded a small bank assessment credit of $111,000.  Any additional small bank assessment credit we receive in the future will be equally immaterial to our earnings.

Income Taxes

We recorded a provision for income tax expense of $1.1 million for the three months ended September 30, 2019, compared to $942 thousand for the three months ended September 30, 2018. Our effective tax rate for the three months ended September 30, 2019 was 20.9%, compared to 21.8% for the same period of 2018. Our effective tax rate for the each of the three months ended September 30, 2019 and 2018 was less than the statutory rate because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during 2019 and 2018.  For the nine months ended September 2019 and 2018, provision for tax expense was $3.3 million and $2.0 million respectively. Our effective tax rate for the nine months ended September 30, 2019 and 2018 was 21.3% and 17.6%, respectively.  For 2019, our effective tax rate is expected to be greater than the statutory federal rate as a result of our operating in additional states following the Colombo acquisition and minimal tax-exempt income.  Our effective tax rate for the nine months ended September 30, 2018 is less than the statutory rate primarily because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during 2018.

Discussion and Analysis of Financial Condition

Overview

At September 30, 2019, total assets were $1.57 billion, an increase of 15.8%, or $213.6 million, from $1.35 billion at December 31, 2018. Total loans receivable, net of deferred fees and costs, increased 9.4%, or $106.7 million, to $1.24 billion at September 30, 2019, from $1.14 billion at December 31, 2018. Total investment securities increased $11.2 million, or 9.0%, to $136.5 million at September 30, 2019, from $125.3 million at December 31, 2018. Total deposits increased 13.4%, or $155.3 million, to $1.32 billion at September 30, 2019, from $1.16 billion at December 31, 2018. From time to time, we may utilize other borrowed funds such as federal funds purchased and FHLB advances as an additional funding source for the Bank. At September 30, 2019, we had FHLB advances totaling $15.0 million compared to none at December 31, 2018.

Loans Receivable, Net

Total loans receivable, net of deferred fees and costs, were $1.24 billion at September 30, 2019, an increase of $106.7 million, or 9.4%, compared to $1.14 billion at December 31, 2018. The increase in the loans receivable portfolio was a result of organic loan growth primarily in our commercial real estate and commercial construction portfolios.

Commercial real estate loans totaled $759.5 million at September 30, 2019, compared to $683.6 million at December 31, 2018, an increase of $75.9 million, or 11.1%.  Owner-occupied commercial real estate loans were $174.1 million at September 30, 2019 compared to $160.6 million at December 31, 2018.  Nonowner-occupied commercial real estate loans were $513.4 million at September 30, 2019 compared to $452.2 million at December 31, 2018.  Construction loans totaled $215.8 million at September 30, 2019, or 17.3% of total loans receivable.  Of the $215.8 million in construction loans, $48.6 million are collateralized by land and only $793 thousand are lot acquisition and development loans (which have a higher degree of credit risk than the remaining portion of the construction portfolio).  Our commercial real estate portfolio including construction loans is diversified by asset type and geographic concentration.  We plan to manage this portion of our portfolio in a disciplined manner.  We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices.

The following table presents the composition of our loans receivable portfolio at September 30, 2019 and at December 31, 2018.

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Loans Receivable At September 30, 2019 and December 31, 2018 (Dollars in thousands)
	September 30,		December 31,
	2019		2018
Commercial real estate	$	759,465	$	683,602
Commercial and industrial	124,858		137,328
Commercial construction	215,821		153,339
Consumer residential	120,378		131,431
Consumer nonresidential	24,901		32,308
Gross loans	1,245,423		1,138,008
Less:
Allowance for loan losses	10,068		9,159
Unearned income and (unamortized premiums)	2,018		1,265
Loans receivable, net	$	1,233,337	$	1,127,584

Asset Quality

Nonperforming assets, defined as nonaccrual loans, loans past due 90 days or more and still accruing, and OREO at September 30, 2019 were $14.3 million compared to $7.4 million at December 31, 2018. Nonperforming loans of $1.2 million are from our acquired loan portfolio.  Our ratio of nonperforming assets to total assets was 0.91% at September 30, 2019 compared to 0.55% at December 31, 2018. Nonperforming loans increased $7.2 million and are primarily commercial real estate loans, three of which are acquired loans that have a specific reserve of $71 thousand at September 30, 2019.  Loans that we have classified as nonperforming are a result of customer specific deterioration mostly financial in nature that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio.  For each of our criticized assets, we conduct an impairment analysis to determine the level of additional or specific reserves required for any portion of the loan that may result in a loss.  As a result of the analysis completed, we have specific reserves totaling $392 thousand and $372 thousand at September 30, 2019 and December 31, 2018, respectively.  Because these loans are individually evaluated for impairment, nonperforming loans are excluded from the general reserve allocation, which is why our allowance for loan losses as a percentage to total loans remain at 0.81% for both September 30, 2019 and December 31, 2018.

Loans contractually past-due 90 days or more at September 30, 2019 consist of four loans which have matured and are awaiting final payment and are well-collateralized.  There was one troubled debt restructurings, or TDRs, as of September 30, 2019, which is included in our total of nonaccrual loans and not performing, compared to $203 thousand as of December 31, 2018 which was a performing TDR.

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors.  We analyze loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained.  At September 30, 2019, we had $24.1 million in loans identified as special mention within the originated loan portfolio, an increase of $15.5 million from December 31, 2018.  Special mention rated loans are loans that have a potential weakness that deserves management’s close attention; however, the borrower continues to pay in accordance with their contract.  The increase from December 31, 2018 is concentrated in four loans that were added to this risk category during the second quarter of 2019.  These loans are not considered impaired, do not have a specific reserve, and are considered well-secured.  At September 30, 2019, we had $9.6 million in loans identified as substandard within the originated loan portfolio, an increase of $6.8 million from December 31, 2018. Substandard rated loans are loans that are inadequately protected by the current net worth and

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paying capacity of the obligor or of the collateral pledged, if any.  For each of these substandard loans, a liquidation analysis is completed.  As of September 30, 2019, specific reserves on originated and acquired loans totaling $392 thousand, has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

We recorded annualized net charge-offs to average loans receivable of 0.04% for the nine months ended September 30, 2019, all of which were related to loans we purchased from a finance company for our consumer unsecured loan portfolio, and therefore were not originally underwritten by the Bank.   We recorded annualized net charge-offs to average loans receivable of 0.02% for the nine months ended September 30, 2018. The following tables provide additional information on our asset quality for the periods presented.

Nonperforming Assets At September 30, 2019 and December 31, 2018 (Dollars in thousands)
	September 30,			December 31,
	2019			2018
Nonperforming assets:
Nonaccrual loans	$	9,718		$	2,180
Loans contractually past-due 90 days or more	726			1,031
Total nonperforming loans (NPLs)	$	10,444		$	3,211
Other real estate owned (OREO)	3,866			4,224
Total nonperforming assets (NPAs)	$	14,310		$	7,435
Performing troubled debt restructurings (TDRs)	$	—		$	203
NPLs/Total Assets	0.67		%	0.24		%
NPAs/Total Assets	0.91		%	0.55		%
NPAs and TDRs/Total Assets	0.91		%	0.57		%
Allowance for loan losses/NPLs	96.40		%	285.24		%

Nonperforming Loans by Type At September 30, 2019 and December 31, 2018 (Dollars in thousands)
	September 30,		December 31,
	2019		2018
Commercial real estate	$	6,592	$	56
Commercial and industrial	3,164		2,800
Commercial construction	—		—
Consumer residential	566		355
Consumer nonresidential	122		—
	$	10,444	$	3,211

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At September 30, 2019, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 day past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. At December 31, 2018, we had one potential problem loan with a balance totaling $123 thousand. We have taken a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our loan loss allowance methodology incorporates increased reserve factors for certain loans that are adversely rated but not impaired as compared to the general portfolio.

At September 30, 2019, we had one OREO property with a fair value of $3.9 million. We are in the process of selling this property and do not expect a material gain or loss from the current fair value of the property as we recorded a $1.1 million gain on the foreclosure of the property during the year ended December 31, 2017.

While our loan growth has continued to be strong, unexpected changes in economic growth could adversely affect our loan portfolio, including causing increases in delinquencies and default rates, which would adversely impact our charge-offs and provision for loan losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may also be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. At September 30, 2019, our commercial real estate portfolio (including construction lending) was 78.3% of our total loan portfolio. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.

See “Critical Accounting Policies” above for more information on our allowance for loan losses methodology.

The following tables present additional information pertaining to the activity in and allocation of the allowance for loan losses by loan type and the percentage of the loan type to the total loan portfolio. The allocation of the allowance for loan losses to a category of loans is not necessarily indicative of future losses or charge-offs, and does not restrict the use of the allowance to any specific category of loans.

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Allowance for Loan Losses

For the Three and Nine Months Ended September 30, 2019 and 2018

(Dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	9,996		$	8,298		$	9,159		$	7,725
Provision for loan losses	235			351			1,255			990
Loans charged off:
Commercial real estate	—			—			—			—
Commercial and industrial	—			—			—			(86		)
Commercial construction	—			—			—			—
Consumer residential	—			—			—			—
Consumer nonresidential	(187		)	(118		)	(370		)	(128		)
Total loans charged off	(187		)	(118		)	(370		)	(214		)
Recoveries:
Commercial real estate	—			—			—			—
Commercial and industrial	—			10			—			40
Commercial construction	—			—			—			—
Consumer residential	—			—			—			—
Consumer nonresidential	24			35			24			35
Total recoveries	24			45			24			75
Net (charge offs) recoveries	(163		)	(73		)	(346		)	(139		)
Ending balance	$	10,068		$	8,576		$	10,068		$	8,576

	September 30,
	2019			2018
Loans, net of deferred fees:
Balance at period end	$	1,243,405		$	978,304
Allowance for loan losses to loans receivable, net of fees	0.81		%	0.88		%
Net charge-offs (recoveries) to average loans receivable, annualized	0.04		%	0.01		%

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Allocation of the Allowance for Loan Losses At September 30, 2019 and December 31, 2018 (Dollars in thousands)
	September 30,				December 31,
	2019				2018
	Allocation		% of Total*		Allocation		% of Total*
Commercial real estate	$	6,041	60.98	%	$	5,548	60.07	%
Commercial and industrial	1,306		10.02	%	1,474		12.07	%
Commercial construction	2,064		17.33	%	1,285		13.47	%
Consumer residential	452		9.67	%	518		11.55	%
Consumer nonresidential	205		2.00	%	334		2.84	%
Total allowance for loan losses	$	10,068	100.00	%	$	9,159	100.00	%

* Percentage of loan type to the total loan portfolio.

Investment Securities

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale, investment securities held-to-maturity and certificates of deposit. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity at September 30, 2019 and December 31, 2018 totaled $264 thousand and $1.8 million, respectively, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $136.3 million at September 30, 2019, an increase of $12.7 million or 10.3%, from $123.5 million at December 31, 2018. We purchased $16.5 million in available-for-sale investment securities during the nine months ended September 30, 2019 to reinvest some of the $14.9 million in cash flows provided by mortgage-backed securities redemptions.  We also had commitments to purchase an additional $8.2 million in investment securities at September 30, 2019.

As of September 30, 2019 and December 31, 2018, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. Investment securities that were pledged to secure public deposits totaled $12.0 million and $8.1 million at September 30, 2019 and December 31, 2018, respectively.

We complete reviews for other-than-temporary impairment at least quarterly. At September 30, 2019 and  December 31, 2018, only investment grade securities were in an unrealized loss position. Investment securities with unrealized losses are a result of pricing changes due to recent and negative conditions in the current market environment and not as a result of permanent credit impairment. Contractual cash flows for the agency mortgage-backed securities are guaranteed and/or funded by the U.S. government. Municipal securities have third party protective elements and there are no negative indications that the contractual cash flows will not be received when due. We do not intend to sell nor do we believe we will be required to sell any of our temporarily impaired securities prior to the recovery of the amortized cost.

No other-than-temporary impairment has been recognized for the securities in our investment portfolio as of September 30, 2019 and December 31, 2018.

We hold restricted investments in equities of the Federal Reserve Bank of Richmond, or FRB, and FHLB. At September 30, 2019, we owned $1.9 million in FHLB stock and $4.0 million in FRB stock. At December 31, 2018, we owned $1.1 million in FHLB stock and $4.0 million in FRB stock.

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The following table reflects the composition of our investment portfolio, at amortized cost, at September 30, 2019 and December 31, 2018.

Investment Securities At September 30, 2019 and December 31, 2018 (Dollars in thousands)
	September 30,				December 31,
	2019				2018
	Balance		Percent of Total		Balance		Percent of Total
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	0.20	%	$	264	0.21	%
Securities of U.S. government and federal agencies	—		0.00	%	1,497		1.16	%
Total held-to-maturity securities	$	264	0.20	%	$	1,761	1.37	%
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	0.74	%	$	1,000	0.78	%
Securities of state and local municipalities	5,181		3.82	%	6,056		4.72	%
Corporate bonds and securities	5,000		3.69	%	5,000		3.89	%
Mortgage-backed securities	124,066		91.55	%	114,379		89.05	%
Certificates of deposit	—		0.00	%	245		0.19	%
Total available-for-sale securities	$	135,247	99.80	%	$	126,680	98.63	%
Total investment securities	$	135,511	100.00	%	$	128,441	100.00	%

The following tables present the amortized cost of our investment portfolio by their stated maturities, as well as the weighted average yields for each of the maturity ranges at September 30, 2019 and December 31, 2018.

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Investment Securities by Stated Maturity

At September 30, 2019

(Dollars in thousands)

	At September 30, 2019
	Within One Year				One to Five Years			Five to Ten Years				Over Ten Years				Total
			Weighted				Weighted			Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average	Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield		Cost		Yield	Cost		Yield		Cost		Yield		Cost		Yield
Held-to-maturity
Securities of state and local municipalities tax exempt	$	—	—		$	—	—	$	264	2.32	%	$	—	—		$	264	2.32	%
Securities of U.S. government and federal agencies	—		—		—		—	—		—		—		—		—		—
Total held-to-maturity securities	$	—	—		$	—	—	$	264	2.32	%	$	—	—		$	264	2.32	%
Available-for-sale
Securities of U.S. government and federal agencies	$	—	—		$	—	—	$	1,000	2.12	%	$	—	—		$	1,000	2.12	%
Securities of state and local municipalities	500		1.95	%	—		—	2,411		2.28	%	2,270		2.81	%	5,181		2.48	%
Corporate bonds	—		—		—		—	5,000		4.93	%	—		—		5,000		4.93	%
Mortgage-backed securities	—		—		—		—	14,566		2.25	%	109,500		2.55	%	124,066		2.51	%
Certificates of deposit	—		—		—		—	—		—		—		—		—		—
Total available-for-sale securities	$	500	1.95	%	$	—	—	$	22,977	2.83	%	$	111,770	2.55	%	$	135,247	2.60	%
Total investment securities	$	500	1.95	%	$	—	—	$	23,241	2.82	%	$	111,770	2.55	%	$	135,511	2.60	%

Deposits and Other Borrowed Funds

Total deposits were $1.32 billion at September 30, 2019, an increase of $155.3 million, or 13.4%, from $1.16 billion at December 31, 2018. Noninterest-bearing deposits totaled $294.8 million at September 30, 2019, comprising 22.4% of total deposits and increased $61.5 million, or 26.4%, compared to December 31, 2018. At September 30, 2019, deposits from municipalities which are secured by a letter of credit issued by the FHLB and a portion of our investment securities portfolio, represented 9.0% of our total deposits. Deposits of any individual municipality are generally limited to 5% of total assets and in the aggregate, municipalities are limited to 18% of total assets. Some of these customers utilize our treasury management services, and all maintain deposits of varying types and maturities. As such, we believe that these customers are unlikely to abruptly terminate their relationship with us. However, in the event that we were to lose all or a significant portion of the deposits of one or more of these customers, we believe that we have adequate alternative sources of liquidity to enable us to replace these funds, although the cost of such replacement sources of liquidity could be higher.

The following table provides information on our deposit composition at September 30, 2019 and December 31, 2018.

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Deposit Composition

At September 30, 2019 and December 31, 2018

(Dollars in thousands)

	September 30,				December 31,
	2019				2018
	Balance		Average Rate		Balance		Average Rate
Noninterest bearing demand	$	294,825	—		$	233,318	—
Interest bearing - checking, savings and money market	622,820		1.19	%	583,736		1.21	%
Time deposits $100,000 or more	245,903		2.43	%	214,832		1.92	%
Other time deposits	154,172		2.18	%	130,554		1.64	%
	$	1,317,720			$	1,162,440

The remaining maturity of time deposits at June 30, 2019 and December 31, 2018 are as follows:

	September 30,		December 31,
	2019		2018
Three months or less	$	63,110	$	84,621
Over three months through six months	112,197		64,177
Over six months through twelve months	143,010		96,778
Over twelve months	81,758		99,810
	$	400,075	$	345,386

Wholesale deposits decreased to $73.0 million at September 30, 2019 from $84.4 million at December 31, 2018. In addition, we are a member of the Promontory Interfinancial Network, or Promontory, which gives us the ability to offer Certificates of Deposit Account Registry Service, or CDARS, and Insured Cash Sweep, or ICS, products to our customers who seek to maximize FDIC insurance protection. When a customer places a large deposit with us for Promontory, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At September 30, 2019 and December 31, 2018, we had $126.5 million and $88.7 million, respectively, in either CDARS reciprocal or ICS reciprocal products. The following table reports those certificates of deposit that exceed $100,000 by maturity as of September 30, 2019 and December 31, 2018.

Certificates of Deposit Over $100,000

At September 30, 2019 and December 31, 2018

(Dollars in thousands)

	September 30,		December 31,
	2019		2018
Three months or less	$	35,874	$	47,326
Over three months through six months	43,129		16,897
Over six months through twelve months	108,438		78,101
Over twelve months	58,462		72,508
	$	245,903	$	214,832

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Other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, were $39.5 million at September 30, 2019, and consisted of $15.0 million in FHLB advances and $24.5 million of subordinated notes.  At December 31, 2018, we had subordinated notes totaling $24.4 million and no other borrowed funds outstanding for that period.

The following table reflects the short-term borrowings and other borrowed funds outstanding at September 30, 2019 and December 31, 2018.

Other Borrowed Funds

At September 30, 2019 and December 31, 2018

(Dollars in thousands)

	September 30,				December 31,
	2019				2018
	Amount		Weighted		Amount		Weighted
	Outstanding		Average Rate		Outstanding		Average Rate
Other short-term borrowed funds:
FHLB advances - short term	15,000		1.88	%	—		—
Total borrowed funds and weighted average rate	$	15,000	1.88	%	$	—	—
Other borrowed funds:
Subordinated Debt	24,467		6.00	%	24,407		6.00	%
Total other borrowed funds and weighted average rate	$	24,467	6.00	%	$	24,407	6.00	%
Total borrowed funds and weighted average rate	$	39,467	4.43	%	$	24,407	6.00	%

Capital Resources

Capital adequacy is an important measure of financial stability and performance. Our objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.

Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profile of the financial institution. The minimum capital requirements are: (i) a common equity Tier 1, or CET1, capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to our CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, we currently consider our minimum capital ratios to be as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for Total capital. 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. Recently enacted legislation directs the federal bank regulatory agencies to develop a “Community Bank Leverage Ratio,” calculated by dividing tangible equity capital by average consolidated total assets, of not less than 8% and not more than 10%. In November 2018, the federal banking agencies proposed a Community Bank Leverage Ratio of 9%. If a “qualified community bank,” generally a depository institution or depository institution holding company with consolidated assets of less than $10 billion, has a leverage ratio which exceeds the Community Bank Leverage Ratio, then such bank will be considered to have met all generally applicable leverage and risk based capital requirements, the capital ratio requirements for “well capitalized” status under Section 38 of the FDIA, and any other leverage or capital requirements to which it is subject. A bank or holding company may be excluded from qualifying community bank status base on its risk profile, including consideration of its off-balance sheet exposures; trading assets and liabilities; total notional derivatives exposures and such other facts as the appropriate federal banking agencies determine to be appropriate. Even if the Company and Bank qualify for use of the Community Bank Leverage Ratio, there can be no assurance that satisfaction of the Community Bank Leverage Ratio will provide adequate capital for their operations and growth, or an adequate cushion against increase levels of nonperforming assets or weakened economic conditions.

Shareholders’ equity at September 30, 2019 was $175.1 million, an increase of $16.7 million, compared to $158.3 million at December 31, 2018. The increase in shareholders’ equity was primarily attributable the recognition of net income of $12.1 million through September 30, 2019. Common stock issued as a result of option exercises increased shareholders’ equity by $1.1 million for the nine months ended September 30, 2019. Accumulated other comprehensive income increased $3.1 million during 2019, primarily as a result of an increase in market value of our available-for-sale investment securities portfolio.

Total shareholders’ equity to total assets for September 30, 2019 and December 31, 2018 was 11.2% and 11.7%, respectively. Tangible book value per share at September 30, 2019 and December 31, 2018 was $12.03 and $10.93, respectively. Total risk-based

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capital to risk-weighted assets for the Bank was 13.40% at September 30, 2019 compared to 14.02% at December 31, 2018. Accordingly, we were considered “well capitalized” for regulatory purposes at September 30, 2019 and December 31, 2018.

As noted above, regulatory capital levels for the Bank meet those established for “well capitalized” institutions. While we are currently considered “well capitalized,” we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities.

As the Company is a bank holding company with less than $3 billion in assets, and which does not (i) conduct significant off balance sheet activities, (ii) engage in significant non-banking activities, and (iii) have a material amount of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”), it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, which are substantially identical to those applicable to the Bank, and which are described below. The Company understands that the Federal Reserve has not historically deemed a bank holding company ineligible for application of the small bank holding company policy statement solely because its common stock is registered under the Exchange Act. There can be no assurance that the Federal Reserve will continue this practice.

The following tables shows the minimum capital requirement and our capital position at September 30, 2019 and December 31, 2018 for the Bank.

Capital Components

At September 30, 2019 and December 31, 2018

(Dollars in thousands)

										To Be Well
										Capitalized Under
					For Capital					Prompt Corrective
	Actual				Adequacy Purposes (1)					Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
At September 30, 2019
Total risk-based capital	$	187,905	13.40	%	$	147,267	>	10.50	%	$	140,255	>	10.00	%
Tier I risk-based capital	177,824		12.68	%	119,216		>	8.50	%	112,204		>	8.00	%
Common equity tier I capital	177,824		12.68	%	98,178		>	7.00	%	91,165		>	6.50	%
Leverage capital ratio	177,824		12.11	%	96,229		>	6.50	%	74,022		>	5.00	%
At December 31, 2018
Total risk-based capital	$	172,975	14.02	%	$	121,861	>	9.875	%	$	123,404	>	10.00	%
Tier I risk-based capital	163,804		13.27	%	97,180		>	7.875	%	98,723		>	8.00	%
Common equity tier I capital	163,804		13.27	%	78,670		>	6.375	%	80,213		>	6.50	%
Leverage capital ratio	163,804		12.41	%	52,771		>	4.000	%	65,971		>	5.00	%

(1) Except with regard to the Bank’s Tier 1 to average assets ratio, the minimum capital requirement for capital adequacy purposes includes the phased-in portion of the BASEL III Capital Rules conservation buffer.

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Liquidity

Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. We must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. The objective of our liquidity management program is to ensure that we always have sufficient resources to meet the demands of our depositors and borrowers. Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing.

In addition to deposits, we have access to the different wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market. We are a member of the Promontory Interfinancial Network, which allows banking customers to access FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits. We also have one-way authority with Promontory for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed. We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.

Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.

We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. We believe that we have sufficient resources to meet our liquidity needs.

Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $248.7 million at September 30, 2019, or 15.9% of total assets, an increase from $167.0 million, or 12.4% at December 31, 2018. The increase in liquid assets is a result of an increase in deposits that occurred late during the third quarter of 2019 and invested in fed funds sold due to the short term nature of these customer deposits.  We held investments that are classified as held-to-maturity in the amount of $264 thousand at September 30, 2019. To maintain ready access to the Bank’s secured lines of credit, the Bank has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and FRB. Additional borrowing capacity at the FHLB at September 30, 2019 was approximately $131.5 million. Borrowing capacity with the FRB was approximately $56.8 million at September 30, 2019. These facilities are subject to the FHLB and the Federal Reserve approving disbursement to us. In addition, we have investment securities of $124.3 million which are available to pledge at FHLB to provide additional borrowing capacity if needed. We also have unsecured federal funds purchased lines of $199.0 million available to us. We anticipate maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth and fully comply with all regulatory requirements.

Liquidity is essential to our business. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us. Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. As discussed under the caption “Deposits and Other Borrowed Funds” above, we have a deposit concentration related to municipalities at September 30, 2019. While we believe we have a healthy liquidity position and do not anticipate the loss of deposits of any of the significant deposit customers, any of the factors discussed above could materially impact our liquidity position in the future.

Financial Instruments with Off-Balance-Sheet Risk and Credit Risk

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. We evaluate each customer’s credit worthiness on a case-by-case basis and require collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on management’s evaluation of the counterparty. Collateral held varies but may include deposits held by us, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates up to one year or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments represent obligations to extend credit or guarantee borrowings and are not recorded on the consolidated statements of financial condition. The rates and terms of these instruments are competitive with others in the market in which we do business.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which we have committed.

Standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

With the exception of these off-balance sheet arrangements, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, changes in financial condition, revenue, expenses, capital expenditures, or capital resources, that is material to the business of the Company.

At September 30, 2019 and December 31, 2018, unused commitments to fund loans and lines of credit totaled $258.2 million and $216.0 million, respectively. Commercial and standby letters of credit totaled $9.9 million and $9.4 million at September 30, 2019 and December 31, 2018, respectively.

Quantitative and Qualitative Disclosures About Market Risk

As a financial institution, we are exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR. Our goal is to maximize net interest income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that we maintain. We manage interest rate risk through an asset and liability committee, or ALCO. ALCO is responsible for managing our interest rate risk in conjunction with liquidity and capital management.

We employ an independent consulting firm to model our interest rate sensitivity. We use a net interest income simulation model as our primary tool to measure interest rate sensitivity. Many assumptions are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how we expect rates to change on non-maturity deposits such as interest checking, money market checking, savings accounts as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates and the developed assumptions, the model then produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. Next, the model determines what net interest income would be based on specific changes in interest rates. The rate simulations are performed for a two year period and include ramped rate changes of down 100 basis points to 400 basis points and up 100 basis points to 400 basis points. In both the up and down scenarios, the model assumes a parallel shift in the yield curve. The results of these simulations are then compared to the base case.

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of the Bank’s interest rate risk position over a historical time frame for comparison purposes.

At September 30, 2019, our asset/liability position was asset sensitive based on our interest rate sensitivity model. Our net interest income would increase by 1.4% in an up 100 basis point scenario and would increase by 4.6% in an up 400 basis point scenario over a one-year time frame. In the two-year time horizon, our net interest income would increase by 3.5% in an up 100 basis

69

point scenario and would increase by 10.4% in an up 400 basis point scenario. At September 30, 2019 and December 31, 2018, all interest rate risk stress tests measures were within our board policy established limits in each of the increased rate scenarios.

Additional information on our interest rate sensitivity for a static balance sheet over a one-year time horizon as of September 30, 2019 and December 31, 2018 can be found below.

Interest Rate Risk to Earnings (Net Interest Income)
September 30, 2019			December 31, 2018
Change in interest rates (basis points)	Percentage change in net interest income		Change in interest rates (basis points)	Percentage change in net interest income
+400	4.57	%	+400	2.74	%
+300	3.61	%	+300	2.25	%
+200	2.67	%	+200	1.77	%
+100	1.44	%	+100	1.03	%
0	—		0	—
–100	-1.26	%	–100	–1.13	%
–200	–4.46	%	–200	–4.80	%

Economic value of equity, or EVE, measures the period end market value of assets less the market value of liabilities and the change in this value as rates change. It models simultaneous parallel shifts in market interest rates, implied by the forward yield curve. The EVE model calculates the market value of capital by taking the present value of all asset cash flows less the present value of all liability cash flows.

The interest rate risk to capital at September 30, 2019 and December 31, 2018 is shown below and reflects that our market value of capital is in a liability position in which an increase in short-term interest rates is expected to generate lower market values of capital. At September 30, 2019 and December 31, 2018, all EVE stress tests measures were within our board policy established limits.

Interest Rate Risk to Capital
September 30, 2019			December 31, 2018
Change in interest rates (basis points)	Percentage change in economic value of equity		Change in interest rates (basis points)	Percentage change in economic value of equity
+400	-9.05	%	+400	–16.16	%
+300	-6.20	%	+300	–11.98	%
+200	-3.06	%	+200	–7.37	%
+100	-0.94	%	+100	–3.33	%
0	—		0	—
–100	0.25	%	–100	2.39	%
–200	-1.29	%	–200	2.75	%

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Item 4.  Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a — 15(e) under the Exchange Act).  As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer. Based on and as of the date of such evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective.

The Company also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and are properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and an internal audit program to monitor its effectiveness. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that materially affected, or are likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

In the ordinary course of our operations, we become party to various legal proceedings.  Currently, we are not party to any material legal proceedings, and no such proceedings except as noted above are, to management’s knowledge, threatened against us.

Item 1A.  Risk Factors

There have been no material changes as of September 30, 2019 in the risk factors from those disclosed in our Annual Report on Form 10-K for the Period Ended December 31, 2018.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(a)  None.

(b)  Not applicable.

(c)  During the three months ended September 30, 2019, we did not purchase shares of our common stock.

Item 3.  Defaults Upon Senior Securities

(a)  None.

(b)  None.

Item 4.  Mine Safety Disclosures

None.

Item 5.  Other Information

(a)  None.

(b)  None.

Item 6.  Exhibits

31.1	Rule 13a-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a) Certification of Principal Financial Officer
32.1	Statement of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Statement of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes.

72

EXHIBIT INDEX

Exhibit No.	Description
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes.

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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.

	FVCBankcorp, Inc.
	(Registrant)
Date: November 13, 2019	/s/ David W. Pijor
	David W. Pijor
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Date: November 13, 2019	/s/ Jennifer L. Deacon
	Jennifer L. Deacon
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

74

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David W. Pijor, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2019 of FVCBankcorp, 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 registrant’s other certifying officers 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: November 13, 2019	/s/ David W. Pijor
	David W. Pijor
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jennifer L. Deacon, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2019 of FVCBankcorp, 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 registrant’s other certifying officers 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: November 13, 2019	/s/ Jennifer L. Deacon
	Jennifer L. Deacon
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Form 10-Q”) of FVCBankcorp, Inc. (the “Company”), I, David W. Pijor, Chairman and Chief Executive Officer, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(a)the Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(b)the information contained in the Form 10-Q fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for, the periods presented in the Form 10-Q.

Date: November 13, 2019	/s/ David W. Pijor
	David W. Pijor
	Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

STATEMENT OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Form 10-Q”) of FVCBankcorp, Inc. (the “Company”), I, Jennifer L. Deacon, Executive Vice President and Chief Financial Officer, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(a)the Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(b)the information contained in the Form 10-Q fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company and its subsidiaries as of, and for, the periods presented in the Form 10-Q.

Date: November 13, 2019	/s/ Jennifer L. Deacon
	Jennifer L. Deacon
	Executive Vice President and Chief Financial Officer

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Financial Instruments with Off-Balance Sheet Risk (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Financial Instruments with Off-Balance Sheet Risk
Cash on deposit in correspondent banks exceeding the federally insured limits	$ 13,300	$ 5,100
Commitments to grant loans | Contract credit risk
Financial Instruments with Off-Balance Sheet Risk
Financial instruments outstanding	16,700	22,349
Unused commitments to fund loans and lines of credit | Contract credit risk
Financial Instruments with Off-Balance Sheet Risk
Financial instruments outstanding	258,248	216,043
Commercial and standby letters of credit | Contract credit risk
Financial Instruments with Off-Balance Sheet Risk
Financial instruments outstanding	$ 9,901	$ 9,383
Letters of credit expiration period (in years)	1 year

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Fair Value Measurements - Financial assets and liabilities measured at fair value on a recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Total Available-for-Sale Securities	$ 136,268	$ 123,537	[1]
Level 2
Assets
Total Available-for-Sale Securities	136,268	123,537
Recurring
Assets
Total Available-for-Sale Securities	136,268	123,537
Derivative asset - cash flow hedges	28
Derivative liability - cash flow hedges	134
Recurring | Securities of U.S. government and federal agencies
Assets
Total Available-for-Sale Securities	998	956
Recurring | Securities of state and local municipalities tax exempt
Assets
Total Available-for-Sale Securities	3,737	3,639
Recurring | Securities of state and local municipalities taxable
Assets
Total Available-for-Sale Securities	1,494	2,308
Recurring | Corporate bonds
Assets
Total Available-for-Sale Securities	4,970	5,013
Recurring | Certificates of deposit
Assets
Total Available-for-Sale Securities		244
Recurring | SBA pass-through securities
Assets
Total Available-for-Sale Securities	161	195
Recurring | Mortgage-backed securities
Assets
Total Available-for-Sale Securities	98,345	88,037
Recurring | Collateralized mortgage obligations
Assets
Total Available-for-Sale Securities	26,563	23,145
Recurring | Level 2
Assets
Total Available-for-Sale Securities	136,268	123,537
Derivative asset - cash flow hedges	28
Derivative liability - cash flow hedges	134
Recurring | Level 2 | Securities of U.S. government and federal agencies
Assets
Total Available-for-Sale Securities	998	956
Recurring | Level 2 | Securities of state and local municipalities tax exempt
Assets
Total Available-for-Sale Securities	3,737	3,639
Recurring | Level 2 | Securities of state and local municipalities taxable
Assets
Total Available-for-Sale Securities	1,494	2,308
Recurring | Level 2 | Corporate bonds
Assets
Total Available-for-Sale Securities	4,970	5,013
Recurring | Level 2 | Certificates of deposit
Assets
Total Available-for-Sale Securities		244
Recurring | Level 2 | SBA pass-through securities
Assets
Total Available-for-Sale Securities	161	195
Recurring | Level 2 | Mortgage-backed securities
Assets
Total Available-for-Sale Securities	98,345	88,037
Recurring | Level 2 | Collateralized mortgage obligations
Assets
Total Available-for-Sale Securities	$ 26,563	$ 23,145

[1] Derived from audited consolidated financial statements.

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Share
Number of anti-dilutive shares excluded from the calculation			0	0
Net income	$ 4,093	$ 3,385	$ 12,104	$ 9,459
Weighted average number of shares	13,862	11,325	13,796	11,094
Effect of dilutive securities, restricted stock units and options	1,005	1,145	1,026	1,102
Weighted average diluted shares	14,867	12,470	14,822	12,196
Basic EPS	$ 0.30	$ 0.30	$ 0.88	$ 0.85
Diluted EPS	$ 0.28	$ 0.27	$ 0.82	$ 0.78

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Securities - Contractual Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Held-to-maturity, Amortized Cost
After 5 years through 10 years	$ 264
Amortized Cost	264	$ 1,761	[1]
Held-to-maturity, Fair Value
After 5 years through 10 years	270
Fair Value	270	1,735
Available-for-sale, Amortized Cost
Less than 1 year	500
After 5 years through 10 years	22,977
After 10 years	111,770
Amortized Cost	135,247
Available-for-sale, Fair Value
Less than 1 year	500
After 5 years through 10 years	23,090
After 10 years	112,678
Fair Value	$ 136,268	$ 123,537	[1]

[1] Derived from audited consolidated financial statements.

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Organization and Summary of Significant Accounting Policies- Organization (Details) - Colombo	Oct. 12, 2018 location $ / shares shares
Number of additional banking locations | location	5
Number of shares issuable per share	0.002217
Cash consideration per share | $ / shares	$ 0.053157
Average closing price | $ / shares	$ 19.614
Shares for the right to receive only cash payment | shares	35,002
Maximum limit of shares for the right to receive only cash payment | shares	45,086
Cash payment per share for shareholders having the right | $ / shares	$ 0.096649
Number of shares expected to be issued due to merger | shares	763,051

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Accumulated Other Comprehensive Income (Loss)

Schedule of reclassifications from accumulated other comprehensive income

(In thousands)
Three Months Ended September 30, 2019	Available-for-Sale Securities		Interest Rate Swap		Total
Balance, beginning of period	$	351	$	—	$	351
Net unrealized gains (losses) during the period		456		(106)		350
Other comprehensive income (loss), net of tax		456		(106)		350
Balance, end of period	$	807	$	(106)	$	701

(In thousands)
Nine Months Ended September 30, 2019	Available-for-Sale Securities		Interest Rate Swap		Total
Balance, beginning of period	$	(2,411)	$	—	$	(2,411)
Net unrealized gains (losses) during the period		3,218		(106)		3,112
Other comprehensive income (loss), net of tax		3,218		(106)		3,112
Balance, end of period	$	807	$	(106)	$	701

Schedule of changes in accumulated other comprehensive income (AOCI)

	Three Months Ended		Nine Months Ended
(In thousands)	September 30,		September 30,
Available-for-Sale Securities		2018	2018
Balance, beginning of period	$	(3,489)	$	(1,693)
Net unrealized gains (losses) during the period		(540)		(2,336)
Other comprehensive income (loss), net of tax		(540)		(2,336)
Balance, end of period	$	(4,029)	$	(4,029)

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Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2019

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 3.         Loans and Allowance for Loan Losses

A summary of loan balances by type follows:

	September 30, 2019						December 31, 2018
(In thousands)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial real estate	$	707,029	$	52,436	$	759,465	$	616,614	$	66,988	$	683,602
Commercial and industrial		117,439		7,419		124,858		128,909		8,419		137,328
Commercial construction		209,998		5,823		215,821		141,694		11,645		153,339
Consumer residential		83,346		37,032		120,378		87,609		43,822		131,431
Consumer nonresidential		24,790		111		24,901		32,184		124		32,308
	$	1,142,602	$	102,821	$	1,245,423	$	1,007,010	$	130,998	$	1,138,008
Less:
Allowance for loan losses		9,997		71		10,068		9,159		—		9,159
Unearned income and (unamortized premiums), net		2,018		—		2,018		1,265		—		1,265
Loans, net	$	1,130,587	$	102,750	$	1,233,337	$	996,586	$	130,998	$	1,127,584

During 2018, as a result of the Company’s acquisition of Colombo, the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans).

The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC Topic 310-30 or ASC 310-20.  The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of September 30, 2019 and December 31, 2018 are as follows:

(In thousands)	September 30, 2019
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,439
Carrying amount		1,734
Other acquired loans
Outstanding principal balance		102,516
Carrying amount		101,087
Total acquired loans
Outstanding principal balance		104,955
Carrying amount		102,821

(In thousands)	December 31, 2018
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,533
Carrying amount		1,401
Other acquired loans
Outstanding principal balance		131,286
Carrying amount		129,597
Total acquired loans
Outstanding principal balance		133,819
Carrying amount		130,998

The following table presents changes during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30.

(In thousands)
Balance at January 1, 2019	$	357
Accretion		(110)
Reclassification of nonaccretable difference due to improvement in expected cash flows		16
Other changes, net		69
Balance at September 30, 2019	$	332
(In thousands)
Balance at January 1, 2018	$	—
Accretable yield at acquisition date		379
Accretion		(22)
Balance at December 31, 2018	$	357

An analysis of the allowance for loan losses for the three and nine months ended September 30, 2019 and 2018, and for the year ended December 31, 2018, follows:

Allowance for Loan Losses

For the three months ended September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,989	$	1,411	$	1,888	$	494	$	214	$	9,996
Charge-offs		—		—		—		—		(187)		(187)
Recoveries		—		—		—		—		24		24
Provision		52		(105)		176		(42)		154		235
Ending Balance	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Allowance for Loan Losses

For the nine months ended September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	5,548	$	1,474	$	1,285	$	518	$	334	$	9,159
Charge-offs		—		—		—		—		(370)		(370)
Recoveries		—		—		—		—		24		24
Provision		493		(168)		779		(66)		217		1,255
Ending Balance	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Allowance for Loan Losses

For the three months ended September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,275	$	869	$	1,306	$	604	$	208	$	36	$	8,298
Charge-offs		—		—		—		—		(118)		—		(118)
Recoveries		—		10		—		—		35		—		45
Provision		209		18		31		10		69		14		351
Ending Balance	$	5,484	$	897	$	1,337	$	614	$	194	$	50	$	8,576

Allowance for Loan Losses

For the nine months ended September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		—		(128)		—		(214)
Recoveries		—		40		—		—		35		—		75
Provision		652		175		146		(12)		19		10		990
Ending Balance	$	5,484	$	897	$	1,337	$	614	$	194	$	50	$	8,576

Allowance for Loan Losses

For the year ended December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		(187)		(292)		—		(565)
Recoveries		—		26		—		1		52		—		79
Provision		716		766		94		78		306		(40)		1,920
Beginning Balance	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

The following tables present the recorded investment in loans and impairment method as of September 30, 2019 and 2018, and at December 31, 2018, by portfolio segment:

Allowance for Loan Losses

At September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	19	$	321	$	—	$	29		23	$	392
Purchased credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		6,022		985		2,064		423		182		9,676
	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Loans Receivable

At September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	5,503	$	5,472	$	—	$	200		23	$	11,198
Purchased credit impaired		960		409		—		365		—		1,734
Collectively evaluated for impairment		753,002		118,977		215,821		119,813		24,878		1,232,491
	$	759,465	$	124,858	$	215,821	$	120,378	$	24,901	$	1,245,423

Allowance for Loan Losses

At September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		5,484		897		1,337		614		194		50		8,576
	$	5,484	$	897	$	1,337	$	614	$	194		50	$	8,576

Loans Receivable

At September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	724	$	128	$	—	$	587	$	—	$	—	$	1,439
Collectively evaluated for impairment		592,817		108,394		144,830		105,742		26,327		—		978,110
	$	593,541	$	108,522	$	144,830	$	106,329	$	26,327	$	—	$	979,549

Allowance for Loan Losses

At December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	372	$	—	$	1	$	—	$	—	$	373
Purchased credit impaired		—		—		—		—		—		—		—
Collectively evaluated for impairment		5,548		1,102		1,285		517		334		—		8,786
	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

Loans Receivable

At December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,306	$	2,969	$	—	$	182	$	—	$	—	$	4,457
Purchased credit impaired		139		467		421		374		—		—		1,401
Collectively evaluated for impairment		682,157		133,892		152,918		130,875		32,308		—		1,132,150
	$	683,602	$	137,328	$	153,339	$	131,431	$	32,308	$	—	$	1,138,008

Impaired loans by class excluding purchased credit impaired, at September 30, 2019 and December 31, 2018, are summarized as follows:

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,786		1,786		321		1,790		104
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	1,786	$	1,786	$	321	$	1,790	$	104
September 30, 2019
With no related allowance:
Commercial real estate	$	5,293	$	5,296	$	—	$	5,314	$	184
Commercial and industrial		3,686		3,687		—		5,954		281
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	8,979	$	8,983	$	—	$	11,268	$	465

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	36	$	28	$	19	$	181	$	11
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		169		163		29		163		8
Consumer nonresidential		23		23		23		24		2
	$	228	$	214	$	71	$	368	$	21
September 30, 2019
With no related allowance:
Commercial real estate	$	174	$	165	$	—	$	165	$	10
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		31		31		—		33		2
Consumer nonresidential		—		—		—		—		—
		205		196	$	—		198		12

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,793		1,793		372		1,801		100
Commercial construction		—		—		—		—		—
Consumer residential		182		182		1		184		12
Consumer nonresidential		—		—		—		—		—
	$	1,975	$	1,975	$	373	$	1,985	$	112
December 31, 2018
With no related allowance:
Commercial real estate	$	1,306	$	1,319	$	—	$	1,321	$	68
Commercial and industrial		1,156		1,170		—		1,378		81
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	2,462	$	2,489	$	—	$	2,699	$	149

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—
December 31, 2018
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		20		20		—		58		3
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	20	$	20	$	—	$	58	$	3

No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non‑homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass — Loans listed as pass include larger non‑homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

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

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

Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable.

Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans.

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of September 30, 2019 and December 31, 2018:

As of September 30, 2019 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	687,003	$	107,661	$	206,911	$	82,540	$	24,771	$	1,108,886
Special mention		15,834		4,470		3,087		704		19		24,114
Substandard		4,192		5,308		—		102		—		9,602
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	707,029	$	117,439	$	209,998	$	83,346	$	24,790	$	1,142,602

As of September 30, 2019 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	51,265	$	7,010	$	5,823	$	36,399	$	88	$	100,585
Special mention		875		—		—		141		—		1,016
Substandard		296		409		—		492		23		1,220
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,436	$	7,419	$	5,823	$	37,032	$	111	$	102,821

As of December 31, 2018 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	610,580	$	124,349	$	141,694	$	86,848	$	32,184	$	995,655
Special mention		6,034		1,783		—		761		—		8,578
Substandard		—		2,777		—		—		—		2,777
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	616,614	$	128,909	$	141,694	$	87,609	$	32,184	$	1,007,010

As of December 31, 2018 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	66,849	$	7,952	$	11,224	$	43,811	$	124	$	129,960
Special mention		56		—		421		—		—		477
Substandard		83		467		—		11		—		561
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	66,988	$	8,419	$	11,645	$	43,822	$	124	$	130,998

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At September 30, 2019, the Company had $24.1 million in loans identified as special mention within the originated loan portfolio, an increase of $15.5 million from December 31, 2018. Special mention rated loans are loans that have a potential weakness that deserves management's close attention. The increase from December 31, 2018 is concentrated in four loans that were added to this risk category during the second quarter of 2019. These loans do not have a specific reserve and are considered well-secured. At September 30, 2019, the Company had $9.6 million in loans identified as substandard within the originated loan portfolio, an increase of $6.8 million from December 31, 2018. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. As of September 30, 2019, specific reserves on originated and acquired loans totaling $392 thousand, has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

Past due and nonaccrual loans presented by loan class were as follows at September 30, 2019 and December 31, 2018:

As of September 30, 2019 – Originated Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	775	$	504	$	335	$	1,614	$	705,415	$	707,029	$	335	$	5,961
Commercial and industrial		321		69		292		682		116,757		117,439		292		2,604
Commercial construction		—		1,263		—		1,263		208,735		209,998		—		—
Consumer residential		768		165		—		933		82,413		83,346		—		—
Consumer nonresidential		132		20		99		251		24,539		24,790		99		—
Total	$	1,996	$	2,021	$	726	$	4,743	$	1,137,859	$	1,142,602	$	726	$	8,565

As of September 30, 2019 – Acquired Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	—	$	—	$	—	$	—	$	52,436	$	52,436	$	—	$	296
Commercial and industrial		—		—		—		—		7,419		7,419		—		268
Commercial construction		—		—		—		—		5,823		5,823		—		—
Consumer residential		47		382		—		429		36,603		37,032		—		566
Consumer nonresidential		—		—		—		—		111		111		—		23
Total	$	47	$	382	$	—	$	429	$	102,392	$	102,821	$	—	$	1,153

As of December 31, 2018 – Originated Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	3,062	$	2,148	$	—	$	5,210	$	611,404	$	616,614	$	—	$	—
Commercial and industrial		68		181		2,701		2,950		125,959		128,909		1,031		1,769
Commercial construction		—		—		—		—		141,694		141,694		—		—
Consumer residential		843		345		—		1,188		86,421		87,609		—		182
Consumer nonresidential		111		44		—		155		32,029		32,184		—		—
Total	$	4,084	$	2,718	$	2,701	$	9,503	$	997,507	$	1,007,010	$	1,031	$	1,951

As of December 31, 2018 – Acquired Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	1,001	$	83	$	56	$	1,140	$	65,848	$	66,988	$	—	$	56
Commercial and industrial		446		—		—		446		7,973		8,419		—		—
Commercial construction		186		—		—		186		11,459		11,645		—		—
Consumer residential		2,785		612		173		3,570		40,252		43,822		—		173
Consumer nonresidential		—		—		—		—		124		124		—		—
Total	$	4,418	$	695	$	229	$	5,342	$	125,656	$	130,998	$	—	$	229

As of September 30, 2019, there were $174 thousand of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. There were none as of December 31, 2018.

There were overdrafts of $207 thousand and $28 thousand at September 30, 2019 and December 31, 2018, which have been reclassified from deposits to loans. At September 30, 2019 and December 31, 2018 loans with a carrying value of $158.0 million and $173.0 million were pledged to the Federal Home Loan Bank of Atlanta.

There was a default of  one troubled debt restructuring (TDR) during the twelve months since its restructuring for the nine months ended September 30, 2019. For the nine months ended September 30, 2018, no TDRs defaulted within twelve months of the restructuring.

The following table presents loans classified as TDR’s during the nine months ended September 30, 2019:

For the nine months ended September 30, 2019

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
Troubled Debt Restructurings	Contracts	Investment		Investment
	(In thousands)
Commercial real estate	1	$	3,903	$	3,903
Total	1	$	3,903	$	3,903

There were no loans classified as TDR’s in the nine months ended September 30, 2018.

As of September 30, 2019, and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $3.9 million and $203 thousand, respectively.

The concessions made in troubled debt restructurings were extensions of the maturity dates or reductions in the stated interest rate for the remaining life of the debt.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Fair Value Measurements

Note 7.         Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

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 considers observable market data (Level 2).

Cash flow hedges: The Company has interest rate swap derivatives that are designated as cash flow hedges and are recorded at fair value using published yield curve rates from a national valuation service. These observable rates and inputs are applied to a third party industry-wide valuation model, and therefore, the valuations fall into a Level 2 category.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:

			Fair Value Measurements at
			September 30, 2019 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	September 30,		Assets		Inputs		Inputs
Description	2019		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale
Securities of U.S. government and federal agencies	$	998	$	—	$	998	$	—
Securities of state and local municipalities tax exempt		3,737		—		3,737		—
Securities of state and local municipalities taxable		1,494		—		1,494		—
Corporate bonds		4,970		—		4,970		—
SBA pass-through securities		161		—		161		—
Mortgage-backed securities		98,345		—		98,345		—
Collateralized mortgage obligations		26,563		—		26,563		—
Total Available-for-Sale Securities	$	136,268	$	—	$	136,268	$	—
Derivative asset - cash flow hedges		28		—		28		—
Derivative liability - cash flow hedges		134		—		134		—

			Fair Value Measurements at
			December 31, 2018 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	December 31,		Assets		Inputs		Inputs
Description	2018		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale
Securities of U.S. government and federal agencies	$	956	$	—	$	956	$	—
Securities of state and local municipalities tax exempt		3,639		—		3,639		—
Securities of state and local municipalities taxable		2,308		—		2,308		—
Corporate bonds		5,013		—		5,013		—
Certificates of deposit		244		—		244		—
SBA pass-through securities		195		—		195		—
Mortgage-backed securities		88,037		—		88,037		—
Collateralized mortgage obligations		23,145		—		23,145		—
Total Available-for-Sale Securities	$	123,537	$	—	$	123,537	$	—

Certain financial 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 financial 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 present value of future cash flows,observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. 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 is a house or building in the process of construction, has the value derived by discounting comparable sales due to lack of similar properties, or is discounted by the Company due to 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’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses 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:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, which results in a Level 3 classification of the inputs for determining fair value. Other real estate owned properties are evaluated regularly for impairment and adjusted accordingly.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at September 30, 2019 and December 31, 2018:

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	September 30,		Assets		Inputs		Inputs
Description	2019		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans	$	1,622	$	—	$	—	$	1,622
Other real estate owned	$	3,866	$	—	$	—	$	3,866

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	December 31,		Assets		Inputs		Inputs
Description	2018		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans	$	1,602	$	—	$	—	$	1,602
Other real estate owned	$	4,224	$	—	$	358	$	3,866

The following table displays quantitative information about Level 3 Fair Value Measurements for September 30, 2019 and December 31, 2018:

Quantitative information about Level 3 Fair Value Measurements for September 30, 2019
(In thousands)
Assets	Fair Value		ValuationTechnique(s)	Unobservableinput	Range (Avg.)
Impaired loans	$	1,622	Discounted value	Marketability/Selling costs	5% - 8% (7.77%)
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51	%

Quantitative information about Level 3 Fair Value Measurements for December 31, 2018
(In thousands)
Assets	Fair Value		ValuationTechnique(s)	Unobservableinput	Range (Avg.)
Impaired loans	$	1,602	Discounted value	Marketability/Selling costs	0.60% - 11% (10.89%)
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51	%

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and December 31, 2018. Fair values for September 30, 2019 and December 31, 2018 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016‑01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

			Fair Value Measurements as of September 30, 2019, using
			Quoted Prices
			in Active
			Markets for		Significant Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,424	$	19,424	$	—	$	—
Interest-bearing deposits at other institutions		92,986		92,986		—		—
Securities held-to-maturity		264		—		270		—
Securities available-for-sale		136,268		—		136,268		—
Restricted stock		6,017		—		6,017		—
Loans, net		1,233,337		—		—		1,221,942
Bank owned life insurance		26,820		—		26,820		—
Accrued interest receivable		4,279		—		4,279		—
Financial liabilities:
Checking, savings and money market accounts	$	917,645	$	—	$	917,645	$	—
Time deposits		400,075		—		400,955		—
FHLB advances		15,000		—		15,027		—
Subordinated notes		24,467		—		25,152		—
Accrued interest payable		924		—		924		—

			Fair Value Measurements as of December 31, 2018, using
			Quoted Prices
			in Active
			Markets for		Significant Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	9,435	$	9,435	$	—	$	—
Interest-bearing deposits at other institutions		34,060		34,060		—		—
Securities held-to-maturity		1,761		—		1,735
Securities available-for-sale		123,537		—		123,537		—
Restricted stock		5,299		—		5,299		—
Loans, net		1,127,584		—		—		1,116,012
Bank owned life insurance		16,406		—		16,406		—
Accrued interest receivable		4,050		—		4,050		—
Financial liabilities:
Checking, savings and money market accounts	$	817,054	$	—	$	817,054	$	—
Time deposits		345,386		—		344,877		—
Subordinated notes		24,407		—		24,515		—
Accrued interest payable		811		—		811		—

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Revenue Recognition

9 Months Ended

Sep. 30, 2019

Revenue Recognition

Revenue Recognition

Note 11.       Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014‑09 ''Revenue from Contracts with Customers'' (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, gain on sale of securities, BOLI income, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in‑scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and personal checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Fees, Exchange and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non‑Company ATM or a non‑Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. This income is reflected in other income on the Company’s consolidated statements of income.

Other income

Other noninterest income consists of loan swap fees, insurance commissions, and other miscellaneous revenue streams not meeting the criteria above. When the Company enters into an interest rate swap agreement, the Company may receive an additional one-time payment fee which is recognized as income when received. The Company receives monthly recurring commissions based on a percentage of premiums issued and revenue is recognized when received. Any residual miscellaneous fees are recognized as they occur, and therefore, the Company determined this consistent practice satisfies the obligation for performance.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2019		2018		2019		2018
Noninterest Income
In-scope of Topic 606
Service Charges on Deposit Accounts	$	240	$	158	$	651	$	452
Fees, Exchange, and Other Service Charges		103		60		301		177
Other		6		10		31		37
Noninterest Income (in-scope of Topic 606)		349		228		983		666
Noninterest Income (out-scope of Topic 606)		331		520		973		829
Total Noninterest Income	$	680	$	748	$	1,956	$	1,495

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long‑term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2019, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

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Securities (Tables)

9 Months Ended

Sep. 30, 2019

Securities

Schedule of amortized cost and fair values of securities held-to-maturity and securities available-for-sale

	September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	6	$	—	$	270
Securities of U.S. government and federal agencies				—		—		—
Total Held-to-maturity Securities	$	264	$	6	$	—	$	270
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(2)	$	998
Securities of state and local municipalities tax exempt		3,667		70		—		3,737
Securities of state and local municipalities taxable		1,514		—		(20)		1,494
Corporate bonds		5,000		56		(86)		4,970
Certificates of deposit		—		—		—		—
SBA pass-through securities		163		—		(2)		161
Mortgage-backed securities		97,565		1,054		(274)		98,345
Collateralized mortgage obligations		26,338		362		(137)		26,563
Total Available-for-sale Securities	$	135,247	$	1,542	$	(521)	$	136,268

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	—	$	(6)	$	258
Securities of U.S. government and federal agencies		1,497		—		(20)		1,477
Total Held-to-maturity Securities	$	1,761	$	—	$	(26)	$	1,735
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(44)	$	956
Securities of state and local municipalities tax exempt		3,678		—		(39)		3,639
Securities of state and local municipalities taxable		2,378		—		(70)		2,308
Corporate bonds		5,000		92		(79)		5,013
Certificates of deposit		245		—		(1)		244
SBA pass-through securities		200		—		(5)		195
Mortgage-backed securities		90,234		94		(2,291)		88,037
Collateralized mortgage obligations		23,945		10		(810)		23,145
Total Available-for-sale Securities	$	126,680	$	196	$	(3,339)	$	123,537

Schedule of available-for-sale securities that have been in a continuous unrealized loss position

	Less Than 12 Months				12 Months or Longer				Total
(In thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At September 30, 2019	Value		Losses		Value		Losses		Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—	$	998	$	(2)	$	998	$	(2)
Securities of state and local municipalities taxable		—		—		994		(20)		994		(20)
Corporate bonds		—		—		915		(86)		915		(86)
SBA pass-through securities		—		—		161		(2)		161		(2)
Mortgage-backed securities		10,252		(22)		23,478		(252)		33,730		(274)
Collateralized mortgage obligations		1,732		(6)		11,315		(131)		13,047		(137)
Total	$	11,984	$	(28)	$	37,861	$	(493)	$	49,845	$	(521)

	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At December 31, 2018	Value		Losses		Value		Losses		Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—	$	2,433	$	(64)	$	2,433	$	(64)
Securities of state and local municipalities tax exempt		263		(1)		3,634		(44)		3,897		(45)
Securities of state and local municipalities taxable		757		(1)		1,551		(69)		2,308		(70)
Corporate bonds		988		(12)		933		(67)		1,921		(79)
Certificates of deposit		—		—		244		(1)		244		(1)
SBA pass-through securities		—		—		195		(5)		195		(5)
Mortgage-backed securities		12,743		(59)		60,656		(2,232)		73,399		(2,291)
Collateralized mortgage obligations		—		—		16,790		(810)		16,790		(810)
Total	$	14,751	$	(73)	$	86,436	$	(3,292)	$	101,187	$	(3,365)

Schedule of amortized cost and fair value of held-to-maturity securities and available-for-sale securities by contractual maturity

	September 30, 2019
	Held-to-maturity				Available-for-sale
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Less than 1 year	$	—	$	—	$	500	$	500
After 5 years through 10 years		264		270		22,977		23,090
After 10 years		—		—		111,770		112,678
Total	$	264	$	270	$	135,247	$	136,268

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Stock-Based Compensation Plan (Tables)

9 Months Ended

Sep. 30, 2019

Stock-Based Compensation Plan

Summary of option activity

				Weighted-
		Weighted-		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
Options	Shares	Price		Term	Value (1)
Outstanding at January 1, 2019	1,976,247	$	8.00	4.98
Granted	—		—
Exercised	(161,442)		7.02
Forfeited or expired	(4,646)		10.36
Outstanding at September 30, 2019	1,810,159	$	8.08	4.34	$	17,159,253
Exercisable at September 30, 2019	1,728,855	$	7.92	4.23	$	16,668,177

(1)  The aggregate intrinsic value of stock options 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 September 30, 2019. This amount changes based on changes in the market value of the Company’s stock.

Summary of restricted stock grant activity

		Weighted Average
	Number of	Grant Date
	Shares	Fair Value
Nonvested at January 1, 2019	50,629	$	17.57
Granted	79,460		19.18
Vested	(719)		16.41
Forfeited	(5,031)		18.48
Balance at September 30, 2019	124,339	$	18.57

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Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest on deposits and borrowed funds		$ 13,616	$ 7,823
Cash paid for income taxes		1,516	4,892
Noncash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale		4,164	$ (2,957)
Unsettled purchases of available-for-sale securities		8,163
Initial right of use asset - operating leases		12,249
Initial lease liability - operating leases		12,656
Right-of-use assets obtained in the exchange for lease liabilities during the current period	$ 2,078	$ 2,378

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss), net	Total
Balance at the beginning of the period at Dec. 31, 2017	$ 109	$ 74,008	$ 25,859	$ (1,693)	$ 98,283
Balance at the beginning of the period (in shares) at Dec. 31, 2017	10,869
Increase (Decrease) in Stockholders' Equity
Net income			9,459		9,459
Other comprehensive income (loss), net of tax				(2,336)	(2,336)
Common stock issuance at $20 per share	$ 18	31,737			31,755
Common stock issuance at $20 per share (in shares)	1,750
Common stock issuance for options exercised	$ 2	1,082			1,084
Common stock issuance for options exercised (in shares)	212
Stock-based compensation expense		531			531
Balance at the end of the period at Sep. 30, 2018	$ 129	107,358	35,318	(4,029)	138,776
Balance at the end of the period (in shares) at Sep. 30, 2018	12,831
Balance at the beginning of the period at Jun. 30, 2018	$ 111	75,411	31,933	(3,489)	103,966
Balance at the beginning of the period (in shares) at Jun. 30, 2018	11,076
Increase (Decrease) in Stockholders' Equity
Net income			3,385		3,385
Other comprehensive income (loss), net of tax				(540)	(540)
Common stock issuance at $20 per share	$ 18	31,737			31,755
Common stock issuance at $20 per share (in shares)	1,750
Common stock issuance for options exercised		29			29
Common stock issuance for options exercised (in shares)	5
Stock-based compensation expense		181			181
Balance at the end of the period at Sep. 30, 2018	$ 129	107,358	35,318	(4,029)	138,776
Balance at the end of the period (in shares) at Sep. 30, 2018	12,831
Balance at the beginning of the period at Dec. 31, 2018	$ 137	123,882	36,728	(2,411)	158,336	[1]
Balance at the beginning of the period (in shares) at Dec. 31, 2018	13,713
Increase (Decrease) in Stockholders' Equity
Net income			12,104		12,104
Adoption of lease accounting standard			(86)		(86)
Other comprehensive income (loss), net of tax				3,112	3,112
Common stock issuance for options exercised	$ 2	1,131			1,133
Common stock issuance for options exercised (in shares)	162
Stock-based compensation expense		470			470
Balance at the end of the period at Sep. 30, 2019	$ 139	125,483	48,746	701	175,069
Balance at the end of the period (in shares) at Sep. 30, 2019	13,875
Balance at the beginning of the period at Jun. 30, 2019	$ 138	125,021	44,653	351	170,163
Balance at the beginning of the period (in shares) at Jun. 30, 2019	13,840
Increase (Decrease) in Stockholders' Equity
Net income			4,093		4,093
Other comprehensive income (loss), net of tax				350	350
Common stock issuance for options exercised	$ 1	264			265
Common stock issuance for options exercised (in shares)	35
Stock-based compensation expense		198			198
Balance at the end of the period at Sep. 30, 2019	$ 139	$ 125,483	$ 48,746	$ 701	$ 175,069
Balance at the end of the period (in shares) at Sep. 30, 2019	13,875

[1] Derived from audited consolidated financial statements.

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Derivative Financial Instruments - Interest Rate Risk Management-Cash Flow Hedging Instruments (Details) - Cash flow hedge $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Derivatives, Fair Value [Line Items]
Notional amount	$ 15,000
Weighted average pay rate	1.88%
Weighted average receive rate	1.90%
Weighted average maturity in years	3 years
Unrealized loss relating to interest rate swaps	$ (134)

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Loans and Allowance for Loan Losses - Risk category (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Loans and allowance - Risk category of loans
Loans, gross	$ 1,245,423	$ 1,138,008	$ 979,549
Commercial | Real Estate
Loans and allowance - Risk category of loans
Loans, gross	759,465	683,602	593,541
Commercial | Commercial and Industrial
Loans and allowance - Risk category of loans
Loans, gross	124,858	137,328	108,522
Commercial | Construction
Loans and allowance - Risk category of loans
Loans, gross	215,821	153,339	144,830
Consumer | Residential
Loans and allowance - Risk category of loans
Loans, gross	120,378	131,431	106,329
Consumer | Nonresidential
Loans and allowance - Risk category of loans
Loans, gross	24,901	32,308	$ 26,327
Originated Loan Portfolio
Loans and allowance - Risk category of loans
Loans, gross	1,142,602	1,007,010
Originated Loan Portfolio | Pass
Loans and allowance - Risk category of loans
Loans, gross	1,108,886	995,655
Originated Loan Portfolio | Special mention
Loans and allowance - Risk category of loans
Loans, gross	24,114	8,578
Increase in loans	15,500
Originated Loan Portfolio | Substandard
Loans and allowance - Risk category of loans
Loans, gross	9,602	2,777
Increase in loans	6,800
Originated Loan Portfolio | Commercial | Real Estate
Loans and allowance - Risk category of loans
Loans, gross	707,029	616,614
Originated Loan Portfolio | Commercial | Real Estate | Pass
Loans and allowance - Risk category of loans
Loans, gross	687,003	610,580
Originated Loan Portfolio | Commercial | Real Estate | Special mention
Loans and allowance - Risk category of loans
Loans, gross	15,834	6,034
Originated Loan Portfolio | Commercial | Real Estate | Substandard
Loans and allowance - Risk category of loans
Loans, gross	4,192
Originated Loan Portfolio | Commercial | Commercial and Industrial
Loans and allowance - Risk category of loans
Loans, gross	117,439	128,909
Originated Loan Portfolio | Commercial | Commercial and Industrial | Pass
Loans and allowance - Risk category of loans
Loans, gross	107,661	124,349
Originated Loan Portfolio | Commercial | Commercial and Industrial | Special mention
Loans and allowance - Risk category of loans
Loans, gross	4,470	1,783
Originated Loan Portfolio | Commercial | Commercial and Industrial | Substandard
Loans and allowance - Risk category of loans
Loans, gross	5,308	2,777
Originated Loan Portfolio | Commercial | Construction
Loans and allowance - Risk category of loans
Loans, gross	209,998	141,694
Originated Loan Portfolio | Commercial | Construction | Pass
Loans and allowance - Risk category of loans
Loans, gross	206,911	141,694
Originated Loan Portfolio | Commercial | Construction | Special mention
Loans and allowance - Risk category of loans
Loans, gross	3,087
Originated Loan Portfolio | Consumer | Residential
Loans and allowance - Risk category of loans
Loans, gross	83,346	87,609
Originated Loan Portfolio | Consumer | Residential | Pass
Loans and allowance - Risk category of loans
Loans, gross	82,540	86,848
Originated Loan Portfolio | Consumer | Residential | Special mention
Loans and allowance - Risk category of loans
Loans, gross	704	761
Originated Loan Portfolio | Consumer | Residential | Substandard
Loans and allowance - Risk category of loans
Loans, gross	102
Originated Loan Portfolio | Consumer | Nonresidential
Loans and allowance - Risk category of loans
Loans, gross	24,790	32,184
Originated Loan Portfolio | Consumer | Nonresidential | Pass
Loans and allowance - Risk category of loans
Loans, gross	24,771	32,184
Originated Loan Portfolio | Consumer | Nonresidential | Special mention
Loans and allowance - Risk category of loans
Loans, gross	19
Acquired Loan Portfolio
Loans and allowance - Risk category of loans
Loans, gross	102,821	130,998
Acquired Loan Portfolio | Pass
Loans and allowance - Risk category of loans
Loans, gross	100,585	129,960
Acquired Loan Portfolio | Special mention
Loans and allowance - Risk category of loans
Loans, gross	1,016	477
Acquired Loan Portfolio | Substandard
Loans and allowance - Risk category of loans
Loans, gross	1,220	561
Acquired Loan Portfolio | Commercial | Real Estate
Loans and allowance - Risk category of loans
Loans, gross	52,436	66,988
Acquired Loan Portfolio | Commercial | Real Estate | Pass
Loans and allowance - Risk category of loans
Loans, gross	51,265	66,849
Acquired Loan Portfolio | Commercial | Real Estate | Special mention
Loans and allowance - Risk category of loans
Loans, gross	875	56
Acquired Loan Portfolio | Commercial | Real Estate | Substandard
Loans and allowance - Risk category of loans
Loans, gross	296	83
Acquired Loan Portfolio | Commercial | Commercial and Industrial
Loans and allowance - Risk category of loans
Loans, gross	7,419	8,419
Acquired Loan Portfolio | Commercial | Commercial and Industrial | Pass
Loans and allowance - Risk category of loans
Loans, gross	7,010	7,952
Acquired Loan Portfolio | Commercial | Commercial and Industrial | Substandard
Loans and allowance - Risk category of loans
Loans, gross	409	467
Acquired Loan Portfolio | Commercial | Construction
Loans and allowance - Risk category of loans
Loans, gross	5,823	11,645
Acquired Loan Portfolio | Commercial | Construction | Pass
Loans and allowance - Risk category of loans
Loans, gross	5,823	11,224
Acquired Loan Portfolio | Commercial | Construction | Special mention
Loans and allowance - Risk category of loans
Loans, gross		421
Acquired Loan Portfolio | Consumer | Residential
Loans and allowance - Risk category of loans
Loans, gross	37,032	43,822
Acquired Loan Portfolio | Consumer | Residential | Pass
Loans and allowance - Risk category of loans
Loans, gross	36,399	43,811
Acquired Loan Portfolio | Consumer | Residential | Special mention
Loans and allowance - Risk category of loans
Loans, gross	141
Acquired Loan Portfolio | Consumer | Residential | Substandard
Loans and allowance - Risk category of loans
Loans, gross	492	11
Acquired Loan Portfolio | Consumer | Nonresidential
Loans and allowance - Risk category of loans
Loans, gross	111	124
Acquired Loan Portfolio | Consumer | Nonresidential | Pass
Loans and allowance - Risk category of loans
Loans, gross	88	$ 124
Acquired Loan Portfolio | Consumer | Nonresidential | Substandard
Loans and allowance - Risk category of loans
Loans, gross	$ 23

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest and Dividend Income
Interest and fees on loans	$ 15,915	$ 11,977	$ 46,601	$ 33,841
Interest and dividends on securities held-to-maturity	2	13	28	39
Interest and dividends on securities available-for-sale	832	661	2,609	1,992
Dividends on restricted stock	88	57	234	170
Interest on deposits at other financial institutions	169	165	485	242
Total interest and dividend income	17,006	12,873	49,957	36,284
Interest Expense
Interest on deposits	4,423	2,584	12,355	7,018
Interest on federal funds purchased	48	16	141	17
Interest on short-term debt	48		48	67
Interest on subordinated notes	395	395	1,185	1,185
Total interest expense	4,914	2,995	13,729	8,287
Net Interest Income	12,092	9,878	36,228	27,997
Provision for loan losses	235	351	1,255	990
Net interest income after provision for loan losses	11,857	9,527	34,973	27,007
Noninterest Income
Service charges on deposit accounts	240	158	651	452
Gains on calls of securities held-to-maturity	3		3
BOLI income	198	110	414	329
Other fee income	239	480	888	714
Total noninterest income	680	748	1,956	1,495
Noninterest Expenses
Salaries and employee benefits	4,349	3,491	12,533	10,000
Occupancy and equipment expense	882	591	2,582	1,743
Data processing and network administration	414	321	1,196	886
State franchise taxes	424	296	1,272	888
Audit, legal and consulting fees	230	147	634	434
Merger and acquisition expense	51	274	133	671
Loan related expenses	125	61	293	179
FDIC insurance		133	222	358
Marketing, business development and advertising	121	89	410	269
Director fees	126	121	369	353
Postage, courier and telephone	57	50	151	150
Internet banking	112	83	320	225
Core deposits intangible amortization	95	5	293	16
Other operating expenses	377	286	1,135	858
Total noninterest expenses	7,363	5,948	21,543	17,030
Net income before income tax expense	5,174	4,327	15,386	11,472
Income tax expense	1,081	942	3,282	2,013
Net income	$ 4,093	$ 3,385	$ 12,104	$ 9,459
Earnings per share, basic	$ 0.30	$ 0.30	$ 0.88	$ 0.85
Earnings per share, diluted	$ 0.28	$ 0.27	$ 0.82	$ 0.78

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Loans and Allowance for Loan Losses - Summary of loan balances by type (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018		Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Loans and Allowance for Loan Losses
Loans, gross	$ 1,245,423		$ 1,138,008		$ 979,549
Allowance for loan losses	10,068	$ 9,996	9,159		8,576	$ 8,298	$ 7,725
Unearned income and (unamortized premiums), net	2,018		1,265
Loans, net	1,233,337		1,127,584	[1]
Commercial | Real Estate
Loans and Allowance for Loan Losses
Loans, gross	759,465		683,602		593,541
Allowance for loan losses	6,041	5,989	5,548		5,484	5,275	4,832
Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Loans, gross	124,858		137,328		108,522
Allowance for loan losses	1,306	1,411	1,474		897	869	768
Commercial | Construction
Loans and Allowance for Loan Losses
Loans, gross	215,821		153,339		144,830
Allowance for loan losses	2,064	1,888	1,285		1,337	1,306	1,191
Consumer | Residential
Loans and Allowance for Loan Losses
Loans, gross	120,378		131,431		106,329
Allowance for loan losses	452	494	518		614	604	626
Consumer | Nonresidential
Loans and Allowance for Loan Losses
Loans, gross	24,901		32,308		26,327
Allowance for loan losses	205	$ 214	334		$ 194	$ 208	$ 268
Originated Loan Portfolio
Loans and Allowance for Loan Losses
Loans, gross	1,142,602		1,007,010
Allowance for loan losses	9,997		9,159
Unearned income and (unamortized premiums), net	2,018		1,265
Loans, net	1,130,587		996,586
Originated Loan Portfolio | Commercial | Real Estate
Loans and Allowance for Loan Losses
Loans, gross	707,029		616,614
Originated Loan Portfolio | Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Loans, gross	117,439		128,909
Originated Loan Portfolio | Commercial | Construction
Loans and Allowance for Loan Losses
Loans, gross	209,998		141,694
Originated Loan Portfolio | Consumer | Residential
Loans and Allowance for Loan Losses
Loans, gross	83,346		87,609
Originated Loan Portfolio | Consumer | Nonresidential
Loans and Allowance for Loan Losses
Loans, gross	24,790		32,184
Acquired Loan Portfolio
Loans and Allowance for Loan Losses
Loans, gross	102,821		130,998
Allowance for loan losses	71
Loans, net	102,750		130,998
Acquired Loan Portfolio | Commercial | Real Estate
Loans and Allowance for Loan Losses
Loans, gross	52,436		66,988
Acquired Loan Portfolio | Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Loans, gross	7,419		8,419
Acquired Loan Portfolio | Commercial | Construction
Loans and Allowance for Loan Losses
Loans, gross	5,823		11,645
Acquired Loan Portfolio | Consumer | Residential
Loans and Allowance for Loan Losses
Loans, gross	37,032		43,822
Acquired Loan Portfolio | Consumer | Nonresidential
Loans and Allowance for Loan Losses
Loans, gross	$ 111		$ 124

[1] Derived from audited consolidated financial statements.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Schedule of financial assets and liabilities measured at fair value on a recurring basis

			Fair Value Measurements at
			September 30, 2019 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	September 30,		Assets		Inputs		Inputs
Description	2019		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale
Securities of U.S. government and federal agencies	$	998	$	—	$	998	$	—
Securities of state and local municipalities tax exempt		3,737		—		3,737		—
Securities of state and local municipalities taxable		1,494		—		1,494		—
Corporate bonds		4,970		—		4,970		—
SBA pass-through securities		161		—		161		—
Mortgage-backed securities		98,345		—		98,345		—
Collateralized mortgage obligations		26,563		—		26,563		—
Total Available-for-Sale Securities	$	136,268	$	—	$	136,268	$	—
Derivative asset - cash flow hedges		28		—		28		—
Derivative liability - cash flow hedges		134		—		134		—

			Fair Value Measurements at
			December 31, 2018 Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	December 31,		Assets		Inputs		Inputs
Description	2018		(Level 1)		(Level 2)		(Level 3)
Assets
Available-for-sale
Securities of U.S. government and federal agencies	$	956	$	—	$	956	$	—
Securities of state and local municipalities tax exempt		3,639		—		3,639		—
Securities of state and local municipalities taxable		2,308		—		2,308		—
Corporate bonds		5,013		—		5,013		—
Certificates of deposit		244		—		244		—
SBA pass-through securities		195		—		195		—
Mortgage-backed securities		88,037		—		88,037		—
Collateralized mortgage obligations		23,145		—		23,145		—
Total Available-for-Sale Securities	$	123,537	$	—	$	123,537	$	—

Schedule of the Company's assets that were measured at fair value on a nonrecurring basis

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	September 30,		Assets		Inputs		Inputs
Description	2019		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans	$	1,622	$	—	$	—	$	1,622
Other real estate owned	$	3,866	$	—	$	—	$	3,866

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
(In thousands)	December 31,		Assets		Inputs		Inputs
Description	2018		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans	$	1,602	$	—	$	—	$	1,602
Other real estate owned	$	4,224	$	—	$	358	$	3,866

Schedule of quantitative information about Level 3 Fair Value Measurements

Quantitative information about Level 3 Fair Value Measurements for September 30, 2019
(In thousands)
Assets	Fair Value		ValuationTechnique(s)	Unobservableinput	Range (Avg.)
Impaired loans	$	1,622	Discounted value	Marketability/Selling costs	5% - 8% (7.77%)
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51	%

Quantitative information about Level 3 Fair Value Measurements for December 31, 2018
(In thousands)
Assets	Fair Value		ValuationTechnique(s)	Unobservableinput	Range (Avg.)
Impaired loans	$	1,602	Discounted value	Marketability/Selling costs	0.60% - 11% (10.89%)
Other real estate owned	$	3,866	Discounted appraised value	Selling costs	10.51	%

Schedule of carrying amount, fair value and placement in the fair value hierarchy of the Company's financial instruments

			Fair Value Measurements as of September 30, 2019, using
			Quoted Prices
			in Active
			Markets for		Significant Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,424	$	19,424	$	—	$	—
Interest-bearing deposits at other institutions		92,986		92,986		—		—
Securities held-to-maturity		264		—		270		—
Securities available-for-sale		136,268		—		136,268		—
Restricted stock		6,017		—		6,017		—
Loans, net		1,233,337		—		—		1,221,942
Bank owned life insurance		26,820		—		26,820		—
Accrued interest receivable		4,279		—		4,279		—
Financial liabilities:
Checking, savings and money market accounts	$	917,645	$	—	$	917,645	$	—
Time deposits		400,075		—		400,955		—
FHLB advances		15,000		—		15,027		—
Subordinated notes		24,467		—		25,152		—
Accrued interest payable		924		—		924		—

			Fair Value Measurements as of December 31, 2018, using
			Quoted Prices
			in Active
			Markets for		Significant Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
(In thousands)	Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	9,435	$	9,435	$	—	$	—
Interest-bearing deposits at other institutions		34,060		34,060		—		—
Securities held-to-maturity		1,761		—		1,735
Securities available-for-sale		123,537		—		123,537		—
Restricted stock		5,299		—		5,299		—
Loans, net		1,127,584		—		—		1,116,012
Bank owned life insurance		16,406		—		16,406		—
Accrued interest receivable		4,050		—		4,050		—
Financial liabilities:
Checking, savings and money market accounts	$	817,054	$	—	$	817,054	$	—
Time deposits		345,386		—		344,877		—
Subordinated notes		24,407		—		24,515		—
Accrued interest payable		811		—		811		—

XML

Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow Information

Supplemental Cash Flow Information

Note 12.     Supplemental Cash Flow Information

	For the Nine Months Ended September 30,
(In thousands)	2019		2018
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	13,616	$	7,823
Income taxes		1,516		4,892
Noncash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale		4,164		(2,957)
Unsettled purchases of available-for-sale securities		8,163		—
Initial right of use asset - operating leases		12,249		—
Initial lease liability - operating leases		12,656		—
Right-of-use assets obtained in the exchange for lease liabilities during the current period		2,378		—

XML

Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2019

Loans and Allowance for Loan Losses

Summary of loan balances

	September 30, 2019						December 31, 2018
(In thousands)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial real estate	$	707,029	$	52,436	$	759,465	$	616,614	$	66,988	$	683,602
Commercial and industrial		117,439		7,419		124,858		128,909		8,419		137,328
Commercial construction		209,998		5,823		215,821		141,694		11,645		153,339
Consumer residential		83,346		37,032		120,378		87,609		43,822		131,431
Consumer nonresidential		24,790		111		24,901		32,184		124		32,308
	$	1,142,602	$	102,821	$	1,245,423	$	1,007,010	$	130,998	$	1,138,008
Less:
Allowance for loan losses		9,997		71		10,068		9,159		—		9,159
Unearned income and (unamortized premiums), net		2,018		—		2,018		1,265		—		1,265
Loans, net	$	1,130,587	$	102,750	$	1,233,337	$	996,586	$	130,998	$	1,127,584

Schedule of acquired loans

(In thousands)	September 30, 2019
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,439
Carrying amount		1,734
Other acquired loans
Outstanding principal balance		102,516
Carrying amount		101,087
Total acquired loans
Outstanding principal balance		104,955
Carrying amount		102,821

(In thousands)	December 31, 2018
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,533
Carrying amount		1,401
Other acquired loans
Outstanding principal balance		131,286
Carrying amount		129,597
Total acquired loans
Outstanding principal balance		133,819
Carrying amount		130,998

Schedule of accretable yield on purchased credit impaired loans

(In thousands)
Balance at January 1, 2019	$	357
Accretion		(110)
Reclassification of nonaccretable difference due to improvement in expected cash flows		16
Other changes, net		69
Balance at September 30, 2019	$	332
(In thousands)
Balance at January 1, 2018	$	—
Accretable yield at acquisition date		379
Accretion		(22)
Balance at December 31, 2018	$	357

Schedule of allowance for loan losses

Allowance for Loan Losses

For the three months ended September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,989	$	1,411	$	1,888	$	494	$	214	$	9,996
Charge-offs		—		—		—		—		(187)		(187)
Recoveries		—		—		—		—		24		24
Provision		52		(105)		176		(42)		154		235
Ending Balance	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Allowance for Loan Losses

For the nine months ended September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	5,548	$	1,474	$	1,285	$	518	$	334	$	9,159
Charge-offs		—		—		—		—		(370)		(370)
Recoveries		—		—		—		—		24		24
Provision		493		(168)		779		(66)		217		1,255
Ending Balance	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Allowance for Loan Losses

For the three months ended September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, July 1	$	5,275	$	869	$	1,306	$	604	$	208	$	36	$	8,298
Charge-offs		—		—		—		—		(118)		—		(118)
Recoveries		—		10		—		—		35		—		45
Provision		209		18		31		10		69		14		351
Ending Balance	$	5,484	$	897	$	1,337	$	614	$	194	$	50	$	8,576

Allowance for Loan Losses

For the nine months ended September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		—		(128)		—		(214)
Recoveries		—		40		—		—		35		—		75
Provision		652		175		146		(12)		19		10		990
Ending Balance	$	5,484	$	897	$	1,337	$	614	$	194	$	50	$	8,576

Allowance for Loan Losses

For the year ended December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, January 1	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		(187)		(292)		—		(565)
Recoveries		—		26		—		1		52		—		79
Provision		716		766		94		78		306		(40)		1,920
Beginning Balance	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

Schedule of recorded investment in loans and impairment by portfolio segment

Allowance for Loan Losses

At September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	19	$	321	$	—	$	29		23	$	392
Purchased credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		6,022		985		2,064		423		182		9,676
	$	6,041	$	1,306	$	2,064	$	452	$	205	$	10,068

Loans Receivable

At September 30, 2019

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	5,503	$	5,472	$	—	$	200		23	$	11,198
Purchased credit impaired		960		409		—		365		—		1,734
Collectively evaluated for impairment		753,002		118,977		215,821		119,813		24,878		1,232,491
	$	759,465	$	124,858	$	215,821	$	120,378	$	24,901	$	1,245,423

Allowance for Loan Losses

At September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		5,484		897		1,337		614		194		50		8,576
	$	5,484	$	897	$	1,337	$	614	$	194		50	$	8,576

Loans Receivable

At September 30, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	724	$	128	$	—	$	587	$	—	$	—	$	1,439
Collectively evaluated for impairment		592,817		108,394		144,830		105,742		26,327		—		978,110
	$	593,541	$	108,522	$	144,830	$	106,329	$	26,327	$	—	$	979,549

Allowance for Loan Losses

At December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	372	$	—	$	1	$	—	$	—	$	373
Purchased credit impaired		—		—		—		—		—		—		—
Collectively evaluated for impairment		5,548		1,102		1,285		517		334		—		8,786
	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

Loans Receivable

At December 31, 2018

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,306	$	2,969	$	—	$	182	$	—	$	—	$	4,457
Purchased credit impaired		139		467		421		374		—		—		1,401
Collectively evaluated for impairment		682,157		133,892		152,918		130,875		32,308		—		1,132,150
	$	683,602	$	137,328	$	153,339	$	131,431	$	32,308	$	—	$	1,138,008

Schedule of Impaired loans

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,786		1,786		321		1,790		104
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	1,786	$	1,786	$	321	$	1,790	$	104
September 30, 2019
With no related allowance:
Commercial real estate	$	5,293	$	5,296	$	—	$	5,314	$	184
Commercial and industrial		3,686		3,687		—		5,954		281
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	8,979	$	8,983	$	—	$	11,268	$	465

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
September 30, 2019
With an allowance recorded:
Commercial real estate	$	36	$	28	$	19	$	181	$	11
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		169		163		29		163		8
Consumer nonresidential		23		23		23		24		2
	$	228	$	214	$	71	$	368	$	21
September 30, 2019
With no related allowance:
Commercial real estate	$	174	$	165	$	—	$	165	$	10
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		31		31		—		33		2
Consumer nonresidential		—		—		—		—		—
		205		196	$	—		198		12

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,793		1,793		372		1,801		100
Commercial construction		—		—		—		—		—
Consumer residential		182		182		1		184		12
Consumer nonresidential		—		—		—		—		—
	$	1,975	$	1,975	$	373	$	1,985	$	112
December 31, 2018
With no related allowance:
Commercial real estate	$	1,306	$	1,319	$	—	$	1,321	$	68
Commercial and industrial		1,156		1,170		—		1,378		81
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	2,462	$	2,489	$	—	$	2,699	$	149

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—
December 31, 2018
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		20		20		—		58		3
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	20	$	20	$	—	$	58	$	3

Schedule of risk category of loans

As of September 30, 2019 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	687,003	$	107,661	$	206,911	$	82,540	$	24,771	$	1,108,886
Special mention		15,834		4,470		3,087		704		19		24,114
Substandard		4,192		5,308		—		102		—		9,602
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	707,029	$	117,439	$	209,998	$	83,346	$	24,790	$	1,142,602

As of September 30, 2019 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	51,265	$	7,010	$	5,823	$	36,399	$	88	$	100,585
Special mention		875		—		—		141		—		1,016
Substandard		296		409		—		492		23		1,220
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	52,436	$	7,419	$	5,823	$	37,032	$	111	$	102,821

As of December 31, 2018 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	610,580	$	124,349	$	141,694	$	86,848	$	32,184	$	995,655
Special mention		6,034		1,783		—		761		—		8,578
Substandard		—		2,777		—		—		—		2,777
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	616,614	$	128,909	$	141,694	$	87,609	$	32,184	$	1,007,010

As of December 31, 2018 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	66,849	$	7,952	$	11,224	$	43,811	$	124	$	129,960
Special mention		56		—		421		—		—		477
Substandard		83		467		—		11		—		561
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	66,988	$	8,419	$	11,645	$	43,822	$	124	$	130,998

Schedule of past due and nonaccrual loans

As of September 30, 2019 – Originated Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	775	$	504	$	335	$	1,614	$	705,415	$	707,029	$	335	$	5,961
Commercial and industrial		321		69		292		682		116,757		117,439		292		2,604
Commercial construction		—		1,263		—		1,263		208,735		209,998		—		—
Consumer residential		768		165		—		933		82,413		83,346		—		—
Consumer nonresidential		132		20		99		251		24,539		24,790		99		—
Total	$	1,996	$	2,021	$	726	$	4,743	$	1,137,859	$	1,142,602	$	726	$	8,565

As of September 30, 2019 – Acquired Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	—	$	—	$	—	$	—	$	52,436	$	52,436	$	—	$	296
Commercial and industrial		—		—		—		—		7,419		7,419		—		268
Commercial construction		—		—		—		—		5,823		5,823		—		—
Consumer residential		47		382		—		429		36,603		37,032		—		566
Consumer nonresidential		—		—		—		—		111		111		—		23
Total	$	47	$	382	$	—	$	429	$	102,392	$	102,821	$	—	$	1,153

As of December 31, 2018 – Originated Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	3,062	$	2,148	$	—	$	5,210	$	611,404	$	616,614	$	—	$	—
Commercial and industrial		68		181		2,701		2,950		125,959		128,909		1,031		1,769
Commercial construction		—		—		—		—		141,694		141,694		—		—
Consumer residential		843		345		—		1,188		86,421		87,609		—		182
Consumer nonresidential		111		44		—		155		32,029		32,184		—		—
Total	$	4,084	$	2,718	$	2,701	$	9,503	$	997,507	$	1,007,010	$	1,031	$	1,951

As of December 31, 2018 – Acquired Loan Portfolio

	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	1,001	$	83	$	56	$	1,140	$	65,848	$	66,988	$	—	$	56
Commercial and industrial		446		—		—		446		7,973		8,419		—		—
Commercial construction		186		—		—		186		11,459		11,645		—		—
Consumer residential		2,785		612		173		3,570		40,252		43,822		—		173
Consumer nonresidential		—		—		—		—		124		124		—		—
Total	$	4,418	$	695	$	229	$	5,342	$	125,656	$	130,998	$	—	$	229

As of September 30, 2019, there were $174 thousand of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. There were none as of December 31, 2018.

Schedule of loans classified as TDR's

For the nine months ended September 30, 2019

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
Troubled Debt Restructurings	Contracts	Investment		Investment
	(In thousands)
Commercial real estate	1	$	3,903	$	3,903
Total	1	$	3,903	$	3,903

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Leases (Details) - USD ($) $ in Thousands		9 Months Ended
	Jan. 01, 2019	Sep. 30, 2019
Leases
Adoption of lease accounting standard		$ (86)
Operating lease right-of-use assets		13,597
Operating lease liabilities		$ 13,971
Existence of option to extend		true
Existence of residual value guarantees		false
Adjustment
Leases
Adoption of lease accounting standard	$ 86
ASU 2016-02 Leases
Leases
Operating lease right-of-use assets	12,200
Operating lease liabilities	12,700
ASU 2016-02 Leases | Adjustment
Leases
Adoption of lease accounting standard	$ (86)

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Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Originated Loan Portfolio
Recorded Investment
With an allowance recorded	$ 1,786	$ 1,975
With no related allowance	8,979	2,462
Unpaid Principal Balance
With an allowance recorded	1,786	1,975
With no related allowance	8,983	2,489
Related Allowance	321	373
Average Recorded Investment
With an allowance recorded	1,790	1,985
With no related allowance	11,268	2,699
Interest Income Recognized
With an allowance recorded	104	112
With no related allowance	465	149
Originated Loan Portfolio | Commercial | Real Estate
Recorded Investment
With no related allowance	5,293	1,306
Unpaid Principal Balance
With no related allowance	5,296	1,319
Average Recorded Investment
With no related allowance	5,314	1,321
Interest Income Recognized
With no related allowance	184	68
Originated Loan Portfolio | Commercial | Commercial and Industrial
Recorded Investment
With an allowance recorded	1,786	1,793
With no related allowance	3,686	1,156
Unpaid Principal Balance
With an allowance recorded	1,786	1,793
With no related allowance	3,687	1,170
Related Allowance	321	372
Average Recorded Investment
With an allowance recorded	1,790	1,801
With no related allowance	5,954	1,378
Interest Income Recognized
With an allowance recorded	104	100
With no related allowance	281	81
Originated Loan Portfolio | Consumer | Residential
Recorded Investment
With an allowance recorded		182
Unpaid Principal Balance
With an allowance recorded		182
Related Allowance		1
Average Recorded Investment
With an allowance recorded		184
Interest Income Recognized
With an allowance recorded		12
Acquired Loan Portfolio
Recorded Investment
With an allowance recorded	228
With no related allowance	205	20
Unpaid Principal Balance
With an allowance recorded	214
With no related allowance	196	20
Related Allowance	71
Average Recorded Investment
With an allowance recorded	368
With no related allowance	198	58
Interest Income Recognized
With an allowance recorded	21
With no related allowance	12	3
Acquired Loan Portfolio | Commercial | Real Estate
Recorded Investment
With an allowance recorded	36
With no related allowance	174
Unpaid Principal Balance
With an allowance recorded	28
With no related allowance	165
Related Allowance	19
Average Recorded Investment
With an allowance recorded	181
With no related allowance	165
Interest Income Recognized
With an allowance recorded	11
With no related allowance	10
Acquired Loan Portfolio | Commercial | Commercial and Industrial
Recorded Investment
With no related allowance		20
Unpaid Principal Balance
With no related allowance		20
Average Recorded Investment
With no related allowance		58
Interest Income Recognized
With no related allowance		$ 3
Acquired Loan Portfolio | Consumer | Residential
Recorded Investment
With an allowance recorded	169
With no related allowance	31
Unpaid Principal Balance
With an allowance recorded	163
With no related allowance	31
Related Allowance	29
Average Recorded Investment
With an allowance recorded	163
With no related allowance	33
Interest Income Recognized
With an allowance recorded	8
With no related allowance	2
Acquired Loan Portfolio | Consumer | Nonresidential
Recorded Investment
With an allowance recorded	23
Unpaid Principal Balance
With an allowance recorded	23
Related Allowance	23
Average Recorded Investment
With an allowance recorded	24
Interest Income Recognized
With an allowance recorded	$ 2

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Comprehensive Income
Net income	$ 4,093	$ 3,385	$ 12,104	$ 9,459
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of tax expense of $214 and $946 for the three and nine months September 30, 2019, respectively, net of tax benefit of $144 and $621 for the three and nine months ended September 30, 2018, respectively.	456	(540)	3,218	(2,336)
Unrealized loss on interest rate swaps, net of tax benefit of $28 and $28 for the three and nine months ended September 30, 2019.	(106)		(106)
Total other comprehensive income (loss)	350	(540)	3,112	(2,336)
Total comprehensive income	$ 4,443	$ 2,845	$ 15,216	$ 7,123

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 07, 2019
Document and Entity Information
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Entity Registrant Name	FVCBankcorp, Inc.
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		13,875,833
Entity Central Index Key	0001675644
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3

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Securities - Contractual Maturities - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Securities
Proceeds from maturities, calls and principal repayments of securities	$ 14,900,000	$ 12,800,000
Proceeds from sales of securities available-for-sale	0	0
Gross realized gains on available-for-sale securities	0	0
Realized losses	0	$ 0
Proceeds from calls and maturities of securities	2,500,000
Gross realized gains on securities	3,000
Gross realized loss on securities	$ 0

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Changes in Stockholders' Equity
Common stock issuance price (in dollars per share)	$ 20	$ 20

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Derivative Financial Instruments (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019 USD ($) agreement	Dec. 31, 2018 USD ($) agreement
Swap agreements
Derivative Financial Instruments
Number of swap agreements outstanding not included in the offsetting | agreement	16	8
Collateralized amount	$ 8,100	$ 1,600
Receive Fixed/Pay Variable Swaps
Derivative Financial Instruments
Notional amount	89,889	47,381
Fair Value, Liability	(7,665)	(1,705)
Pay Fixed/Receive Variable Swaps
Derivative Financial Instruments
Notional amount	89,889	47,381
Fair Value, Asset	$ 7,665	$ 1,705

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Accumulated Other Comprehensive Income (Loss) (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) component	Sep. 30, 2018 USD ($)
Changes in accumulated other comprehensive income
Balance, beginning of period	$ 351		$ (2,411)
Net unrealized gains (losses) during the period	350		3,112
Other comprehensive income (loss), net of tax	350	$ (540)	3,112	$ (2,336)
Balance, end of period	701		$ 701
Accumulated Other Comprehensive Income (Loss), net
Number of securities component | component			2
Changes in accumulated other comprehensive income
Other comprehensive income (loss), net of tax	350	(540)	$ 3,112	(2,336)
Available-for-Sale Securities
Changes in accumulated other comprehensive income
Balance, beginning of period	351	(3,489)	(2,411)	(1,693)
Net unrealized gains (losses) during the period	456	(540)	3,218	(2,336)
Other comprehensive income (loss), net of tax	456	(540)	3,218	(2,336)
Balance, end of period	807	$ (4,029)	807	$ (4,029)
Cash Flow Hedges
Changes in accumulated other comprehensive income
Balance, beginning of period	0		0
Net unrealized gains (losses) during the period	(106)		(106)
Other comprehensive income (loss), net of tax	(106)		(106)
Balance, end of period	$ (106)		$ (106)

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Stock-Based Compensation Plan (Details) - Amended and Restated 2008 Option Plan - Stock option - shares	1 Months Ended	9 Months Ended
	Jun. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock-Based Compensation Plan
Additional shares authorized for issuance (in shares)	200,000
Maximum shares authorized (in shares)		2,529,296
Vesting period (in years)		4 years
Contractual term (in years)		10 years
Shares available for grant (in shares)		164,597
Options granted (in shares)		0	0

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Fair Value Measurements - Assets measured at fair value on a nonrecurring basis (Details) - Nonrecurring - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Impaired loans	$ 1,622	$ 1,602
Other real estate owned	3,866	4,224
Level 2
Assets
Other real estate owned		358
Level 3
Assets
Impaired loans	1,622	1,602
Other real estate owned	$ 3,866	$ 3,866

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases

Schedule of information about leases

(In thousands)	September 30, 2019
Lease Liability	$	13,971
Right-of-Use-Asset	$	13,597
Weighted Average Remaining Lease Term (Years)		11.3
Weighted Average discount rate		3.31	%

	For the Three Months Ended		For the Nine Months Ended		For the Three Months Ended		For the Nine Months Ended
(In thousands)	September 30, 2019		September 30, 2019		September 30, 2018		September 30, 2018
Operating Lease Expense	$	551	$	1,466	$	315	$	941
Cash paid for amounts included in lease liabilities	$	398	$	1,241		N/A		N/A
Right-of-use assets obtained in exchange for operating lease liabilities		2,078		2,378		N/A		N/A

Schedule of maturity schedule of undiscounted cash flows that contribute to the lease liability

(In thousands)	September 30, 2019
Three months ending December 31, 2019	$	437
Twelve months ending December 31, 2020		1,546
Twelve months ending December 31, 2021		1,559
Twelve months ending December 31, 2022		1,599
Twelve months ending December 31, 2023		1,596
Twelve months ending December 31, 2024		1,567
Thereafter		8,550
Total	$	16,854
Less: discount		(2,883)
	$	13,971

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share

Schedule of earning per share

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2019		2018		2019		2018
Net income	$	4,093	$	3,385	$	12,104	$	9,459
Weighted average number of shares		13,862		11,325		13,796		11,094
Effect of dilutive securities, restricted stock units and options		1,005		1,145		1,026		1,102
Weighted average diluted shares		14,867		12,470		14,822		12,196
Basic EPS	$	0.30	$	0.30	$	0.88	$	0.85
Diluted EPS	$	0.28	$	0.27	$	0.82	$	0.78

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Securities - Continuous Unrealized Loss Position - Additional information (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) security	Dec. 31, 2018 USD ($)
Schedule Of Available For Sale Securities
Securities held to maturity, fair value | $	$ 270	$ 1,735
Gross Unrealized Losses | $		26
No rating
Schedule Of Available For Sale Securities
Number of investment securities	4
Securities of U.S. government and federal agencies
Schedule Of Available For Sale Securities
Number of investment securities	1
Securities held to maturity, fair value | $		1,477
Gross Unrealized Losses | $		$ 20
Securities of state and local municipalities
Schedule Of Available For Sale Securities
Number of investment securities	8
Securities of state and local municipalities | AA+
Schedule Of Available For Sale Securities
Number of investment securities	4
Securities of state and local municipalities | AA-
Schedule Of Available For Sale Securities
Number of investment securities	1
Securities of state and local municipalities | AA
Schedule Of Available For Sale Securities
Number of investment securities	1
Securities of state and local municipalities | No rating
Schedule Of Available For Sale Securities
Number of investment securities	2
Corporate bonds | A-
Schedule Of Available For Sale Securities
Number of investment securities	1
Mortgage-backed securities
Schedule Of Available For Sale Securities
Number of investment securities	31

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Financial Instruments

Derivative Financial Instruments

Note 4.         Derivative Financial Instruments

The Company enters into interest rate swap agreements (‘‘swap agreements’’) to facilitate the risk management strategies needed in order to accommodate the needs of its banking customers. The Company mitigates the risk of entering into these loan agreements by entering into equal and offsetting swap agreements with highly-rated third party financial institutions. These back-to-back swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities) as of September 30, 2019 and December 31, 2018. The Company is party to master netting arrangements with its financial institution counterparty; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in value of the derivative. These payments, commonly referred to as variation margin, are recorded as settlements of the derivatives’ mark-to-market exposure rather than collateral against the exposures, which effectively results in any centrally cleared derivative having a Level 2 fair value that approximates zero on a daily basis, and therefore, these swap agreements were not included in the offsetting table in the Fair Value Measurement section. As of September 30, 2019, the Company entered into sixteen interest rate swap agreements which are collateralized with $8.1 million in cash.  There were eight agreements outstanding as of December 31, 2018 which were collateralized with $1.6 million in cash.

The notional amount and fair value of the Company’s derivative financial instruments as of September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019
	Notional Amount		Fair Value
Interest Rate Swap Agreements		(In thousands)
Receive Fixed/Pay Variable Swaps	$	89,889	$	(7,665)
Pay Fixed/Receive Variable Swaps		89,889		7,665

	December 31, 2018
	Notional Amount		Fair Value
Interest Rate Swap Agreements		(In thousands)
Receive Fixed/Pay Variable Swaps	$	47,381	$	(1,705)
Pay Fixed/Receive Variable Swaps		47,381		1,705

Interest Rate Risk Management—Cash Flow Hedging Instruments

The Company uses FHLB advances and other wholesale funding from time to time as a source of funds for use in the Company's lending and investment activities and other general business purposes. This wholesale funding exposes the Company to increased interest rate risk as a result of the variability in cash flows (future interest payments).  The Company believes it is prudent to reduce this interest rate risk.  To meet this objective, the Company entered into an interest rate swap agreement whereby the Company reduces the interest rate risk associated with the Company’s variable rate advances (or other wholesale funding) from the designation date of July 30, 2019 and going through July 30, 2022 (the maturity date).

At September 30, 2019, the information pertaining to outstanding interest rate swap agreements used to hedge variability in cash flows (FHLB advance which is included in other borrowed funds on the consolidated balance sheet) is as follows:

(Dollars in thousands)
Notional amount	$	15,000
Weighted average pay rate		1.88	%
Weighted average receive rate		1.90	%
Weighted average maturity in years		3 year
Unrealized loss relating to interest rate swaps	$	(134)

These agreements provided for the Company to receive payments determined by a specific index (three month LIBOR) in exchange for making payments at a fixed rate. At September 30, 2019, the unrealized loss relating to interest rate swaps designated as hedging instruments of the variability of cash flows associated with FHLB advances are reported in other comprehensive income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the advance affects earnings. The Company measures cash flow hedging relationships for effectiveness on a monthly basis, and at September 30, 2019, the hedges were highly effective and the amount of ineffectiveness reflected in earnings was de minimus.

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Earnings Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share

Earnings Per Share

Note 8.          Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of stock which then shared in the earnings of the Company.Holders of the Company's restricted stock units do not have voting rights during the vesting period and therefore, restricted stock units are not included in the computation of basic earnings per share.

The following shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares of dilutive potential common stock. Dilutive potential common stock has no effect on income available to common stockholders. There were no anti-dilutive shares for each of the periods ended September 30, 2019 and 2018, respectively.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2019		2018		2019		2018
Net income	$	4,093	$	3,385	$	12,104	$	9,459
Weighted average number of shares		13,862		11,325		13,796		11,094
Effect of dilutive securities, restricted stock units and options		1,005		1,145		1,026		1,102
Weighted average diluted shares		14,867		12,470		14,822		12,196
Basic EPS	$	0.30	$	0.30	$	0.88	$	0.85
Diluted EPS	$	0.28	$	0.27	$	0.82	$	0.78

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Organization and Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. At the FASB's October 16, 2019 meeting, the Board affirmed its decision to amend the effective date of this ASU for many companies. Public business entities that are SEC filers, excluding those meeting the smaller reporting company definition, will retain the initial required implementation date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. All other entities will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has identified a third party vendor to assist in the measurement of expected credit losses under this standard. The implementation committee has completed the data collection process, validated the data inputs, and is in the initial phases of evaluating various allowance methodologies for certain loan segments within the Company’s loan portfolio. The Company is currently evaluating the implementation of ASU 2016-13 due to the change in implementation dates for smaller reporting companies included in the FASB's Exposure Draft.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”  The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." This ASU clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement including improvements resulting from various TRG Meetings. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-04 will have on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief." The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, upon the adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently measure those instruments at fair value with changes in fair value flowing through earnings. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance sheet. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.

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Financial Instruments with Off-Balance Sheet Risk (Tables)

9 Months Ended

Sep. 30, 2019

Financial Instruments with Off-Balance Sheet Risk

Schedule of financial instruments outstanding which contract amounts represent credit risk

(In thousands)	September 30, 2019		December 31, 2018
Commitments to grant loans	$	16,700	$	22,349
Unused commitments to fund loans and lines of credit		258,248		216,043
Commercial and standby letters of credit		9,901		9,383

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Loans and Allowance for Loan Losses - Past due and Non accrual of loans (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018		Sep. 30, 2018
Loans and Allowance for Loan Losses
Total loans	$ 1,245,423	$ 1,138,008		$ 979,549
Loans, net	1,233,337	1,127,584	[1]
Loans for which formal foreclosure proceedings are in process	174	0
Federal Home Loan Bank of Atlanta
Loans and Allowance for Loan Losses
Loans pledged	158,000	173,000
Adjustment
Loans and Allowance for Loan Losses
Loans, net	207	28
Deposits	(207)	(28)
Commercial | Real Estate
Loans and Allowance for Loan Losses
Total loans	759,465	683,602		593,541
Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Total loans	124,858	137,328		108,522
Commercial | Construction
Loans and Allowance for Loan Losses
Total loans	215,821	153,339		144,830
Consumer | Residential
Loans and Allowance for Loan Losses
Total loans	120,378	131,431		106,329
Consumer | Nonresidential
Loans and Allowance for Loan Losses
Total loans	24,901	32,308		$ 26,327
Originated Loan Portfolio
Loans and Allowance for Loan Losses
Total past due	4,743	9,503
Current	1,137,859	997,507
Total loans	1,142,602	1,007,010
90 days past due and still accruing	726	1,031
Nonaccruals	8,565	1,951
Loans, net	1,130,587	996,586
Originated Loan Portfolio | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	1,996	4,084
Originated Loan Portfolio | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	2,021	2,718
Originated Loan Portfolio | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due	726	2,701
Originated Loan Portfolio | Commercial | Real Estate
Loans and Allowance for Loan Losses
Total past due	1,614	5,210
Current	705,415	611,404
Total loans	707,029	616,614
90 days past due and still accruing	335
Nonaccruals	5,961
Originated Loan Portfolio | Commercial | Real Estate | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	775	3,062
Originated Loan Portfolio | Commercial | Real Estate | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	504	2,148
Originated Loan Portfolio | Commercial | Real Estate | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due	335
Originated Loan Portfolio | Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Total past due	682	2,950
Current	116,757	125,959
Total loans	117,439	128,909
90 days past due and still accruing	292	1,031
Nonaccruals	2,604	1,769
Originated Loan Portfolio | Commercial | Commercial and Industrial | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	321	68
Originated Loan Portfolio | Commercial | Commercial and Industrial | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	69	181
Originated Loan Portfolio | Commercial | Commercial and Industrial | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due	292	2,701
Originated Loan Portfolio | Commercial | Construction
Loans and Allowance for Loan Losses
Total past due	1,263
Current	208,735	141,694
Total loans	209,998	141,694
Originated Loan Portfolio | Commercial | Construction | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	1,263
Originated Loan Portfolio | Consumer | Residential
Loans and Allowance for Loan Losses
Total past due	933	1,188
Current	82,413	86,421
Total loans	83,346	87,609
Nonaccruals		182
Originated Loan Portfolio | Consumer | Residential | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	768	843
Originated Loan Portfolio | Consumer | Residential | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	165	345
Originated Loan Portfolio | Consumer | Nonresidential
Loans and Allowance for Loan Losses
Total past due	251	155
Current	24,539	32,029
Total loans	24,790	32,184
90 days past due and still accruing	99
Originated Loan Portfolio | Consumer | Nonresidential | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	132	111
Originated Loan Portfolio | Consumer | Nonresidential | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	20	44
Originated Loan Portfolio | Consumer | Nonresidential | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due	99
Acquired Loan Portfolio
Loans and Allowance for Loan Losses
Total past due	429	5,342
Current	102,392	125,656
Total loans	102,821	130,998
Nonaccruals	1,153	229
Loans, net	102,750	130,998
Acquired Loan Portfolio | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	47	4,418
Acquired Loan Portfolio | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	382	695
Acquired Loan Portfolio | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due		229
Acquired Loan Portfolio | Commercial | Real Estate
Loans and Allowance for Loan Losses
Total past due		1,140
Current	52,436	65,848
Total loans	52,436	66,988
Nonaccruals	296	56
Acquired Loan Portfolio | Commercial | Real Estate | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due		1,001
Acquired Loan Portfolio | Commercial | Real Estate | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due		83
Acquired Loan Portfolio | Commercial | Real Estate | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due		56
Acquired Loan Portfolio | Commercial | Commercial and Industrial
Loans and Allowance for Loan Losses
Total past due		446
Current	7,419	7,973
Total loans	7,419	8,419
Nonaccruals	268
Acquired Loan Portfolio | Commercial | Commercial and Industrial | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due		446
Acquired Loan Portfolio | Commercial | Construction
Loans and Allowance for Loan Losses
Total past due		186
Current	5,823	11,459
Total loans	5,823	11,645
Acquired Loan Portfolio | Commercial | Construction | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due		186
Acquired Loan Portfolio | Consumer | Residential
Loans and Allowance for Loan Losses
Total past due	429	3,570
Current	36,603	40,252
Total loans	37,032	43,822
Nonaccruals	566	173
Acquired Loan Portfolio | Consumer | Residential | 30-59 days past due
Loans and Allowance for Loan Losses
Total past due	47	2,785
Acquired Loan Portfolio | Consumer | Residential | 60-89 days past due
Loans and Allowance for Loan Losses
Total past due	382	612
Acquired Loan Portfolio | Consumer | Residential | 90 days or more past due
Loans and Allowance for Loan Losses
Total past due		173
Acquired Loan Portfolio | Consumer | Nonresidential
Loans and Allowance for Loan Losses
Current	111	124
Total loans	111	$ 124
Nonaccruals	$ 23

[1] Derived from audited consolidated financial statements.

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Reconciliation of net income to net cash provided by operating activities:
Net income	$ 12,104	$ 9,459
Depreciation	479	340
Provision for loan losses	1,255	990
Net amortization of premium of securities	277	419
Net amortization of deferred loan costs and purchase premiums	494	491
Net accretion of acquisition accounting adjustments	339
Gain on calls of held-to-maturity securities	(3)
Amortization of subordinated debt issuance costs	60	60
Stock-based compensation expense	470	531
BOLI income	(414)	(329)
Core deposits intangible amortization	293	16
Changes in assets and liabilities:
Increase in accrued interest receivable, prepaid expenses and other assets	(3,774)	(3,771)
Increase in accrued interest payable, accrued expenses and other liabilities	3,541	837
Net cash provided by operating activities	15,121	9,043
Cash Flows From Investing Activities
Maturities of certificates of deposits purchased for investment	245	245
Increase in interest-bearing deposits at other financial institutions	(58,926)	(31,257)
Purchases of securities available-for-sale	(16,535)	(11,815)
Proceeds from maturities and calls of securities held-to-maturity	1,500
Proceeds from maturities and calls of securities available-for-sale	750
Proceeds from redemptions of securities available-for-sale	14,859	12,776
Net purchase of restricted stock	(718)	(362)
Net increase in loans	(108,012)	(90,257)
Proceeds from sale of OREO	358
Purchases of BOLI	(10,000)
Purchases of premises and equipment, net	(237)	(524)
Net cash used in investing activities	(176,716)	(121,194)
Cash Flows From Financing Activities
Net increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits	100,591	155,586
Net increase (decrease) in time deposits	54,860	(89,763)
Increase in federal funds purchased		15,000
Net increase in FHLB advances	15,000
Common stock issuance	1,133	32,839
Net cash provided by financing activities	171,584	113,662
Net increase in cash and cash equivalents	9,989	1,511
Cash and cash equivalents, beginning of year	9,435	7,428
Cash and cash equivalents, end of year	$ 19,424	$ 8,939

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Consolidated Balance Sheets
Securities held to maturity, fair value	$ 270	$ 1,735
Allowance for loan losses	$ 10,068	$ 9,159
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	13,874,776	13,712,615
Common stock, shares outstanding	13,874,776	13,712,615

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Loans and Allowance for Loan Losses - Outstanding principal balance and related carrying amount of acquired loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Loans and Allowance for Loan Losses
Carrying amount	$ 11,198	$ 4,457	$ 1,439
Changes in the accretable yield on purchased credit impaired loans
Balance at the beginning of the period	357
Accretable yield at acquisition date		379
Accretion	(110)	(22)
Reclassification of nonaccretable difference due to improvement in expected cash flows	16
Other changes, net	69
Balance at the end of the period	332	357
Purchased credit impaired
Loans and Allowance for Loan Losses
Outstanding principal balance	2,439	2,533
Carrying amount	1,734	1,401
Other acquired loans
Loans and Allowance for Loan Losses
Outstanding principal balance	102,516	131,286
Carrying amount	101,087	129,597
Acquired Loan Portfolio
Loans and Allowance for Loan Losses
Outstanding principal balance	104,955	133,819
Carrying amount	$ 102,821	$ 130,998

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue Recognition
Total noninterest income	$ 680	$ 748	$ 1,956	$ 1,495
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract			true
Before adoption of ASU 2014-09
Revenue Recognition
Noninterest Income (in-scope of Topic 606)	349	228	$ 983	666
Noninterest Income (out-scope of Topic 606)	331	520	973	829
Total noninterest income	680	748	1,956	1,495
Service Charges on Deposit Accounts | Before adoption of ASU 2014-09
Revenue Recognition
Noninterest Income (in-scope of Topic 606)	240	158	651	452
Fees, Exchange, and Other Service Charges | Before adoption of ASU 2014-09
Revenue Recognition
Noninterest Income (in-scope of Topic 606)	103	60	301	177
Other | Before adoption of ASU 2014-09
Revenue Recognition
Noninterest Income (in-scope of Topic 606)	$ 6	$ 10	$ 31	$ 37

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Leases - Maturity schedule of undiscounted cash flows that contribute to the lease liability (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Schedule of undiscounted cash flows
Three months ending December 31, 2019	$ 437
Twelve months ending December 31, 2020	1,546
Twelve months ending December 31, 2021	1,559
Twelve months ending December 31, 2022	1,599
Twelve months ending December 31, 2023	1,596
Twelve months ending December 31, 2024	1,567
Thereafter	8,550
Total	16,854
Less: discount	(2,883)
Operating lease liabilities	$ 13,971

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Stock-Based Compensation Plan - Restricted stock (Details) - Restricted stock $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares
Weighted Average Grant Date Fair Value
Unrecognized compensation cost | $	$ 2.2
Weighted-average recognition period (in months)	42 months
Amended and Restated 2008 Option Plan
Number of Shares
Balance at the beginning of the year (in shares) | shares	50,629
Granted (in shares) | shares	79,460
Vested (in shares) | shares	(719)
Forfeited (in shares) | shares	(5,031)
Balance at the end of the year (in shares) | shares	124,339
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the year (in dollars per share) | $ / shares	$ 17.57
Granted (in dollars per share) | $ / shares	19.18
Vested (in dollars per share) | $ / shares	16.41
Forfeited (in dollars per share) | $ / shares	18.48
Outstanding at the end of the year (in dollars per share) | $ / shares	$ 18.57

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Fair Value Measurements - Carrying amount, fair value and placement in the fair value hierarchy of financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial assets:
Cash and due from banks	$ 19,424	$ 9,435	[1]
Interest-bearing deposits at other institutions	92,986	34,060	[1]
Amortized Cost	264	1,761	[1]
Total Available-for-Sale Securities	136,268	123,537	[1]
Restricted stock	6,017	5,299	[1]
Loans, net	1,233,337	1,127,584	[1]
Bank owned life insurance	26,820	16,406	[1]
Accrued interest receivable	4,279	4,050	[1]
Financial liabilities:
Time deposits	400,075	345,386	[1]
FHLB advances	15,000
Subordinated notes	24,467	24,407	[1]
Accrued interest payable	924	811	[1]
Carrying Amount
Financial assets:
Cash and due from banks	19,424	9,435
Interest-bearing deposits at other institutions	92,986	34,060
Amortized Cost	264	1,761
Total Available-for-Sale Securities	136,268	123,537
Restricted stock	6,017	5,299
Loans, net	1,233,337	1,127,584
Bank owned life insurance	26,820	16,406
Accrued interest receivable	4,279	4,050
Financial liabilities:
Checking, savings and money market accounts	917,645	817,054
Time deposits	400,075	345,386
FHLB advances	15,000
Subordinated notes	24,467	24,407
Accrued interest payable	924	811
Level 1
Financial assets:
Cash and due from banks	19,424	9,435
Interest-bearing deposits at other institutions	92,986	34,060
Level 2
Financial assets:
Amortized Cost	270	1,735
Total Available-for-Sale Securities	136,268	123,537
Restricted stock	6,017	5,299
Bank owned life insurance	26,820	16,406
Accrued interest receivable	4,279	4,050
Financial liabilities:
Checking, savings and money market accounts	917,645	817,054
Time deposits	400,955	344,877
FHLB advances	15,027
Subordinated notes	25,152	24,515
Accrued interest payable	924	811
Level 3
Financial assets:
Loans, net	$ 1,221,942	$ 1,116,012

[1] Derived from audited consolidated financial statements.

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Securities

9 Months Ended

Sep. 30, 2019

Securities

Securities

Note 2.         Securities

Amortized cost and fair values of securities held‑to‑maturity and securities available‑for‑sale as of September  30, 2019 and December 31, 2018, are as follows:

	September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	6	$	—	$	270
Securities of U.S. government and federal agencies				—		—		—
Total Held-to-maturity Securities	$	264	$	6	$	—	$	270
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(2)	$	998
Securities of state and local municipalities tax exempt		3,667		70		—		3,737
Securities of state and local municipalities taxable		1,514		—		(20)		1,494
Corporate bonds		5,000		56		(86)		4,970
Certificates of deposit		—		—		—		—
SBA pass-through securities		163		—		(2)		161
Mortgage-backed securities		97,565		1,054		(274)		98,345
Collateralized mortgage obligations		26,338		362		(137)		26,563
Total Available-for-sale Securities	$	135,247	$	1,542	$	(521)	$	136,268

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gains		(Losses)		Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	—	$	(6)	$	258
Securities of U.S. government and federal agencies		1,497		—		(20)		1,477
Total Held-to-maturity Securities	$	1,761	$	—	$	(26)	$	1,735
Available-for-sale
Securities of U.S. government and federal agencies	$	1,000	$	—	$	(44)	$	956
Securities of state and local municipalities tax exempt		3,678		—		(39)		3,639
Securities of state and local municipalities taxable		2,378		—		(70)		2,308
Corporate bonds		5,000		92		(79)		5,013
Certificates of deposit		245		—		(1)		244
SBA pass-through securities		200		—		(5)		195
Mortgage-backed securities		90,234		94		(2,291)		88,037
Collateralized mortgage obligations		23,945		10		(810)		23,145
Total Available-for-sale Securities	$	126,680	$	196	$	(3,339)	$	123,537

The Company had $12.0 million and $0 in securities pledged with the Federal Reserve Bank to collateralize certain municipal deposits at September 30, 2019 and December 31, 2018, respectively. There were no securities pledged with the Treasury Board of Virginia at the Community Bankers' Bank at September 30, 2019.  There was $8.1 million in such securities pledged as of December 31, 2018.

The following table shows fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2019 and December 31, 2018, respectively. The reference point for determining when securities are in an unrealized loss position is month‑end. Therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the past twelve‑month period. Available‑for‑sale and held-to-maturity securities that have been in a continuous unrealized loss position are as follows:

	Less Than 12 Months				12 Months or Longer				Total
(In thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At September 30, 2019	Value		Losses		Value		Losses		Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—	$	998	$	(2)	$	998	$	(2)
Securities of state and local municipalities taxable		—		—		994		(20)		994		(20)
Corporate bonds		—		—		915		(86)		915		(86)
SBA pass-through securities		—		—		161		(2)		161		(2)
Mortgage-backed securities		10,252		(22)		23,478		(252)		33,730		(274)
Collateralized mortgage obligations		1,732		(6)		11,315		(131)		13,047		(137)
Total	$	11,984	$	(28)	$	37,861	$	(493)	$	49,845	$	(521)

	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At December 31, 2018	Value		Losses		Value		Losses		Value		Losses
Securities of U.S. government and federal agencies	$	—	$	—	$	2,433	$	(64)	$	2,433	$	(64)
Securities of state and local municipalities tax exempt		263		(1)		3,634		(44)		3,897		(45)
Securities of state and local municipalities taxable		757		(1)		1,551		(69)		2,308		(70)
Corporate bonds		988		(12)		933		(67)		1,921		(79)
Certificates of deposit		—		—		244		(1)		244		(1)
SBA pass-through securities		—		—		195		(5)		195		(5)
Mortgage-backed securities		12,743		(59)		60,656		(2,232)		73,399		(2,291)
Collateralized mortgage obligations		—		—		16,790		(810)		16,790		(810)
Total	$	14,751	$	(73)	$	86,436	$	(3,292)	$	101,187	$	(3,365)

Securities of U.S. government and federal agencies:  The unrealized loss on one available‑for‑sale security was caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.

Securities of state and local municipalities:  The unrealized losses on the Company's investment in securities of state and local municipalities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Four of the eight investments carry an S&P investment grade rating of AA+ or above, one has a rating of AA-, one has an AA rating, while the remaining two do not carry a rating.

Corporate bonds:  The unrealized losses on the investments in corporate bonds were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. One of these investments carries an S&P investment grade rating of A-. The remaining four investments do not carry a rating.

SBA pass‑through securities:  The unrealized loss on the Company’s single investment in SBA pass‑through securities was caused by interest rate increases. Repayment of the principal on those investments is guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider that investment to be other‑than‑temporarily impaired at September 30, 2019.

Mortgage‑backed securities:  The unrealized losses on the Company’s investment in thirty-one mortgage‑backed securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be other‑than‑temporarily impaired at September 30, 2019.

Collateralized mortgage obligations (CMOs):  The unrealized loss associated with twenty-five CMOs was caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be other‑than‑temporarily impaired at September 30, 2019.

The amortized cost and fair value of securities as of September 30, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

	September 30, 2019
	Held-to-maturity				Available-for-sale
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Less than 1 year	$	—	$	—	$	500	$	500
After 5 years through 10 years		264		270		22,977		23,090
After 10 years		—		—		111,770		112,678
Total	$	264	$	270	$	135,247	$	136,268

For the nine months ended September 30, 2019 and September 30, 2018, proceeds from maturities, calls and principal repayments of securities were $14.9 million and $12.8 million, respectively. During the nine months ended September 30, 2019 , proceeds from calls and maturities of securities were $2.5 million and gross realized gains of approximately $3,000. There were no realized losses on the sale of securities for the nine months ended September 30, 2019. During the nine months ended September 30, 2018, there were no proceeds from sales of securities available-for-sale, no gross realized gains, and no realized losses.

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Stock-Based Compensation Plan

9 Months Ended

Sep. 30, 2019

Stock-Based Compensation Plan

Stock-Based Compensation Plan

Note 6.         Stock‑Based Compensation Plan

The Company’s Amended and Restated 2008 Option Plan (the Plan), which is stockholder‑approved, was adopted to advance the interests of the Company by providing selected key employees of the Company, their affiliates, and directors with the opportunity to acquire shares of common stock. In June 2018, the stockholders approved an amendment to the Amended and Restated 2008 Plan to extend the term and increase the number of shares authorized for issuance under the Plan by 200,000 shares.

The maximum number of shares with respect to which awards may be made is 2,529,296 shares of common stock, subject to adjustment for certain corporate events. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant, generally vest annually over four years of continuous service and have ten year contractual terms. At September 30, 2019, 164,597 shares were available to grant under the Plan.

No options were granted during the nine months ended September 30, 2019 and 2018, respectively.

A summary of option activity under the Plan as of September 30, 2019, and changes during the three months ended is presented below:

				Weighted-
		Weighted-		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
Options	Shares	Price		Term	Value (1)
Outstanding at January 1, 2019	1,976,247	$	8.00	4.98
Granted	—		—
Exercised	(161,442)		7.02
Forfeited or expired	(4,646)		10.36
Outstanding at September 30, 2019	1,810,159	$	8.08	4.34	$	17,159,253
Exercisable at September 30, 2019	1,728,855	$	7.92	4.23	$	16,668,177

(1)  The aggregate intrinsic value of stock options 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 September 30, 2019. This amount changes based on changes in the market value of the Company’s stock.

The compensation cost that has been charged to income for the plan was $198 thousand and $181 thousand for the three months ended September 30, 2019 and 2018, respectively. Total compensation cost for the nine months ended September 30, 2019 and 2018 was $470 thousand and $531 thousand, respectively. As of September 30, 2019, there was unamortized compensation expense of $155 thousand that will be amortized over a weighted-average period of 10 months. The total income tax benefit related to stock options exercised and recognized in the income statement for share-based compensation arrangements was $67 and $5 thousand for the three months ended September 30, 2019 and 2018, respectively. Tax benefits recognized for nonqualified stock options during the nine months ended September 30, 2019 and 2018 totaled $162 thousand and $288 thousand, respectively.

79,460 units of restricted stock were granted during the nine months ended September 30, 2019. There were no restricted stock units granted during the nine months ended September 30, 2018.

A summary of the Company’s restricted stock grant activity as of September 30, 2019 is shown below.

		Weighted Average
	Number of	Grant Date
	Shares	Fair Value
Nonvested at January 1, 2019	50,629	$	17.57
Granted	79,460		19.18
Vested	(719)		16.41
Forfeited	(5,031)		18.48
Balance at September 30, 2019	124,339	$	18.57

As of September 30, 2019, there was $2.2 million of total unrecognized compensation cost related to nonvested restricted shares granted under the Plan. The cost is expected to be recognized over a weighted‑average period of 42 months.

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Subordinated Notes

9 Months Ended

Sep. 30, 2019

Subordinated Notes

Subordinated Notes

Note 10.       Subordinated Notes

On June 20, 2016, the Company issued $25 million in private placement of fixed‑to‑floating subordinated notes due June 30, 2026. Interest is payable at 6.00% per annum, from and including June 20, 2016 to, but excluding June 30, 2021, payable semi‑annually in arrears. From and including June 30, 2021 to the maturity date or early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 487 basis points, payable quarterly in arrears.

The Company may, at its option, beginning with the interest payment date of June 30, 2021 and on any scheduled interest payment date thereafter redeem the subordinated notes, in whole or in part, upon not fewer than 30 nor greater than 60 days’ notice to holders, at a redemption price equal to 100% of the principal amount of the subordinated notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders.

The subordinated notes qualify as Tier 2 capital for the Company to the fullest extent permitted under the BASEL III capital rules. When contributed to the capital of the Bank, the proceeds of the subordinated notes may be included in Tier 1 capital for the Bank. At September 30, 2019 and December 31, 2018, $21 million of the proceeds of the Company’s subordinated notes have been included in the Bank’s Tier 1 capital.

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Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Held-to-maturity
Amortized Cost	$ 264	$ 1,761	[1]
Gross Unrealized Gains	6
Gross Unrealized (Losses)		(26)
Fair Value	270	1,735
Available-for-sale
Amortized Cost	135,247	126,680
Gross Unrealized Gains	1,542	196
Gross Unrealized (Losses)	(521)	(3,339)
Fair Value	136,268	123,537
Securities of U.S. government and federal agencies
Held-to-maturity
Amortized Cost		1,497
Gross Unrealized (Losses)		(20)
Fair Value		1,477
Available-for-sale
Amortized Cost	1,000	1,000
Gross Unrealized (Losses)	(2)	(44)
Fair Value	998	956
Securities of state and local municipalities tax exempt
Held-to-maturity
Amortized Cost	264	264
Gross Unrealized Gains	6
Gross Unrealized (Losses)		(6)
Fair Value	270	258
Available-for-sale
Amortized Cost	3,667	3,678
Gross Unrealized Gains	70
Gross Unrealized (Losses)		(39)
Fair Value	3,737	3,639
Securities of state and local municipalities taxable
Available-for-sale
Amortized Cost	1,514	2,378
Gross Unrealized (Losses)	(20)	(70)
Fair Value	1,494	2,308
Corporate bonds
Available-for-sale
Amortized Cost	5,000	5,000
Gross Unrealized Gains	56	92
Gross Unrealized (Losses)	(86)	(79)
Fair Value	4,970	5,013
Certificates of deposit
Available-for-sale
Amortized Cost		245
Gross Unrealized (Losses)		(1)
Fair Value		244
SBA pass-through securities
Available-for-sale
Amortized Cost	163	200
Gross Unrealized (Losses)	(2)	(5)
Fair Value	161	195
Mortgage-backed securities
Available-for-sale
Amortized Cost	97,565	90,234
Gross Unrealized Gains	1,054	94
Gross Unrealized (Losses)	(274)	(2,291)
Fair Value	98,345	88,037
Collateralized mortgage obligations
Available-for-sale
Amortized Cost	26,338	23,945
Gross Unrealized Gains	362	10
Gross Unrealized (Losses)	(137)	(810)
Fair Value	26,563	23,145
Federal Reserve Bank
Available-for-sale
Pledged securities	12,000	0
Community Bankers' Bank
Available-for-sale
Pledged securities	$ 0	$ 8,100

[1] Derived from audited consolidated financial statements.

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2019

Revenue Recognition

Schedule of noninterest income

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2019		2018		2019		2018
Noninterest Income
In-scope of Topic 606
Service Charges on Deposit Accounts	$	240	$	158	$	651	$	452
Fees, Exchange, and Other Service Charges		103		60		301		177
Other		6		10		31		37
Noninterest Income (in-scope of Topic 606)		349		228		983		666
Noninterest Income (out-scope of Topic 606)		331		520		973		829
Total Noninterest Income	$	680	$	748	$	1,956	$	1,495

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Stock-Based Compensation Plan - Options (Details) - Stock option - USD ($)		3 Months Ended		9 Months Ended		12 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Additional disclosures
Compensation cost		$ 198,000	$ 181,000	$ 470,000	$ 531,000
Unamortized compensation cost		155,000		$ 155,000
Weighted-average recognition period (in months)				10 months
Total income tax benefits related to stock options exercised		$ 67,000	$ 5,000	$ 162,000	$ 288,000
Amended and Restated 2008 Option Plan
Shares
Outstanding at the beginning of the year (in shares)				1,976,247
Granted (in shares)				0	0
Exercised (in shares)				(161,442)
Forfeited or expired (in shares)				(4,646)
Outstanding at the end of the year (in shares)		1,810,159		1,810,159		1,976,247
Exercisable at the end of the year (in shares)		1,728,855		1,728,855
Weighted-Average Exercise Price
Outstanding at the beginning of the year (in dollars per share)				$ 8.00
Exercised (in dollars per share)				7.02
Forfeited or expired (in dollars per share)				10.36
Outstanding at the end of the year (in dollars per share)		$ 8.08		8.08		$ 8.00
Exercisable at the end of the year (in dollars per share)		$ 7.92		$ 7.92
Additional disclosures
Outstanding Weighted-Average Remaining Contractual Term (in years)		4 years 4 months 2 days				4 years 11 months 23 days
Exercisable Weighted-Average Remaining Contractual Term (in years)		4 years 2 months 23 days
Outstanding Aggregate Intrinsic Value	[1]	$ 17,159,253		$ 17,159,253
Exercisable Aggregate Intrinsic Value	[1]	$ 16,668,177

[1] The aggregate intrinsic value of stock options represents the total pretax 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 September 30, 2019. This amount changes based on changes in the market value of the Company’s stock.

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Fair Value Measurements - Quantitative information about Level 3 fair value measurements (Details)	Sep. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Nonrecurring
Quantitative information about Level 3 Fair Value Measurements
Impaired loans	$ 1,622,000	$ 1,602,000
Other real estate owned	$ 3,866,000	$ 4,224,000
Level 3
Quantitative information about Level 3 Fair Value Measurements
Impaired loans, Range	(7.77)	(10.89)
Impaired loans, Valuation Technique	fvcb:ValuationTechniqueDiscountedValueMember	fvcb:ValuationTechniqueDiscountedValueMember
Impaired loans, Measurement Input	us-gaap:MeasurementInputMarketabilitySellingCostsMember	us-gaap:MeasurementInputMarketabilitySellingCostsMember
Other real estate owned, Range | item	10.51	10.51
Other real estate owned, Valuation Technique	fvcb:ValuationTechniqueDiscountedAppraisedValueMember	fvcb:ValuationTechniqueDiscountedAppraisedValueMember
Other real estate owned, Unobservable input	us-gaap:MeasurementInputCostToSellMember	us-gaap:MeasurementInputCostToSellMember
Level 3 | Minimum
Quantitative information about Level 3 Fair Value Measurements
Impaired loans, Range | item	5.00	0.60
Level 3 | Maximum
Quantitative information about Level 3 Fair Value Measurements
Impaired loans, Range | item	8	11
Level 3 | Nonrecurring
Quantitative information about Level 3 Fair Value Measurements
Impaired loans	$ 1,622,000	$ 1,602,000
Other real estate owned	$ 3,866,000	$ 3,866,000

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

Note 9.          Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (AOCI) for the three and nine months ended September 30, 2019 and 2018 are shown in the following table. The Company has two components, which are available‑for‑sale securities and interest rate swap, for the periods presented.

(In thousands)
Three Months Ended September 30, 2019	Available-for-Sale Securities		Interest Rate Swap		Total
Balance, beginning of period	$	351	$	—	$	351
Net unrealized gains (losses) during the period		456		(106)		350
Other comprehensive income (loss), net of tax		456		(106)		350
Balance, end of period	$	807	$	(106)	$	701

(In thousands)
Nine Months Ended September 30, 2019	Available-for-Sale Securities		Interest Rate Swap		Total
Balance, beginning of period	$	(2,411)	$	—	$	(2,411)
Net unrealized gains (losses) during the period		3,218		(106)		3,112
Other comprehensive income (loss), net of tax		3,218		(106)		3,112
Balance, end of period	$	807	$	(106)	$	701

	Three Months Ended		Nine Months Ended
(In thousands)	September 30,		September 30,
Available-for-Sale Securities		2018	2018
Balance, beginning of period	$	(3,489)	$	(1,693)
Net unrealized gains (losses) during the period		(540)		(2,336)
Other comprehensive income (loss), net of tax		(540)		(2,336)
Balance, end of period	$	(4,029)	$	(4,029)

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Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Note 1.         Organization and Summary of Significant Accounting Policies

Organization

FVCBankcorp, Inc. (the “Company”), a Virginia corporation, was formed in 2015 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Fairfax, Virginia. The Company conducts its business activities through the branch offices of its wholly owned subsidiary bank, FVCbank (the “Bank”). The Company exists primarily for the purposes of holding the stock of its subsidiary, the Bank.

The Bank was organized under the laws of the Commonwealth of Virginia to engage in a general banking business serving the Washington, D.C. metropolitan area. The Bank commenced regular operations on November 27, 2007 and is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. It is subject to the regulations of the Federal Reserve System and the State Corporation Commission of Virginia. Consequently, it undergoes periodic examinations by these regulatory authorities.

On October 12, 2018, the Company announced the completion of its acquisition of Colombo Bank (“Colombo"). Colombo, which was headquartered in Rockville, Maryland, merged into FVCbank effective October 12, 2018 adding five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland. Pursuant to the terms of the merger agreement, holders of shares of Colombo common stock received 0.002217 shares of the Company’s common stock and $0.053157 in cash for each share of Colombo common stock held immediately prior to the effective date of the Merger, plus cash in lieu of fractional shares at a rate equal to $19.614 per share of FVCB common stock. Holders of an aggregate of 35,002 shares of Colombo common stock who individually owned fewer than 45,086 shares of Colombo common stock after aggregation of all shares held in the same name, made a timely election to receive only cash in an amount equal to $0.096649 per share of Colombo common stock. As a result of the merger, 763,051 shares of the Company’s common stock were issued in exchange for outstanding shares of Colombo common stock.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2018. Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

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

Significant Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. At the FASB's October 16, 2019 meeting, the Board affirmed its decision to amend the effective date of this ASU for many companies. Public business entities that are SEC filers, excluding those meeting the smaller reporting company definition, will retain the initial required implementation date of fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. All other entities will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has identified a third party vendor to assist in the measurement of expected credit losses under this standard. The implementation committee has completed the data collection process, validated the data inputs, and is in the initial phases of evaluating various allowance methodologies for certain loan segments within the Company’s loan portfolio. The Company is currently evaluating the implementation of ASU 2016-13 due to the change in implementation dates for smaller reporting companies included in the FASB's Exposure Draft.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are SEC filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”  The amendments modify the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Certain of the amendments are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." This ASU clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement including improvements resulting from various TRG Meetings. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-04 will have on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief." The amendments in this ASU provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, upon the adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently measure those instruments at fair value with changes in fair value flowing through earnings. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the balance sheet. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.

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Financial Instruments with Off-Balance Sheet Risk

9 Months Ended

Sep. 30, 2019

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

Note 5.          Financial Instruments with Off‑Balance Sheet Risk

The Company is party to credit‑related financial instruments with off‑balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on‑balance sheet instruments.

At September 30, 2019 and December 31, 2018, the following financial instruments were outstanding which contract amounts represent credit risk:

(In thousands)	September 30, 2019		December 31, 2018
Commitments to grant loans	$	16,700	$	22,349
Unused commitments to fund loans and lines of credit		258,248		216,043
Commercial and standby letters of credit		9,901		9,383

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Commercial and standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments, if deemed necessary.

The Company maintains its cash accounts with the Federal Reserve and correspondent banks. The total amount of cash on deposit in correspondent banks exceeding the federally insured limits was $13.3 million and $5.1 million at September 30, 2019 and December 31, 2018, respectively.

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Securities - Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months	$ 11,984	$ 14,751
Fair Value, 12 Months or Longer	37,861	86,436
Fair Value, Total	49,845	101,187
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months	(28)	(73)
Unrealized Losses, 12 Months or Longer	(493)	(3,292)
Unrealized Losses, Total	(521)	(3,365)
Securities of U.S. government and federal agencies
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, 12 Months or Longer	998	2,433
Fair Value, Total	998	2,433
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, 12 Months or Longer	(2)	(64)
Unrealized Losses, Total	(2)	(64)
Securities of state and local municipalities taxable
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months		757
Fair Value, 12 Months or Longer	994	1,551
Fair Value, Total	994	2,308
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months		(1)
Unrealized Losses, 12 Months or Longer	(20)	(69)
Unrealized Losses, Total	(20)	(70)
Securities of state and local municipalities tax exempt
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months		263
Fair Value, 12 Months or Longer		3,634
Fair Value, Total		3,897
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months		(1)
Unrealized Losses, 12 Months or Longer		(44)
Unrealized Losses, Total		(45)
Corporate bonds
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months		988
Fair Value, 12 Months or Longer	915	933
Fair Value, Total	915	1,921
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months		(12)
Unrealized Losses, 12 Months or Longer	(86)	(67)
Unrealized Losses, Total	(86)	(79)
Certificates of deposit
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, 12 Months or Longer		244
Fair Value, Total		244
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, 12 Months or Longer		(1)
Unrealized Losses, Total		(1)
SBA pass-through securities
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, 12 Months or Longer	161	195
Fair Value, Total	161	195
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, 12 Months or Longer	(2)	(5)
Unrealized Losses, Total	(2)	(5)
Mortgage-backed securities
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months	10,252	12,743
Fair Value, 12 Months or Longer	23,478	60,656
Fair Value, Total	33,730	73,399
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months	(22)	(59)
Unrealized Losses, 12 Months or Longer	(252)	(2,232)
Unrealized Losses, Total	(274)	(2,291)
Collateralized mortgage obligations
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Fair Value, Less than 12 Months	1,732
Fair Value, 12 Months or Longer	11,315	16,790
Fair Value, Total	13,047	16,790
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Unrealized Losses, Less than 12 Months	(6)
Unrealized Losses, 12 Months or Longer	(131)	(810)
Unrealized Losses, Total	$ (137)	$ (810)

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Supplemental Cash Flow Information (Tables)

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow Information

Schedule of supplemental cash flow information

	For the Nine Months Ended September 30,
(In thousands)	2019		2018
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	13,616	$	7,823
Income taxes		1,516		4,892
Noncash investing and financing activities:
Unrealized gain (loss) on securities available-for-sale		4,164		(2,957)
Unsettled purchases of available-for-sale securities		8,163		—
Initial right of use asset - operating leases		12,249		—
Initial lease liability - operating leases		12,656		—
Right-of-use assets obtained in the exchange for lease liabilities during the current period		2,378		—

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Leases

9 Months Ended

Sep. 30, 2019

Leases

Leases

Note 13.    Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. There was a cumulative effect adjustment of approximately $86 thousand at adoption.  The Company also elected certain practical expedients within the standard and did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases and did not reassess any initial direct costs for existing leases.  Prior to adoption, all of the Company’s leases were classified as operating leases and remain operating leases at adoption. The implementation of the new standard resulted in recognition of a right-of-use asset of approximately $12.2 million and an offsetting lease liability of $12.7 million for leases existing at the date of adoption.

Contracts that commence subsequent to adoption are evaluated to determine whether they are or contain a lease in accordance with Topic 842.  The Company has elected the practical expedient provided by Topic 842 not to allocate consideration in a contract between lease and non-lease components.  The Company also elected, as provided by the standard, not to recognize right-of-use assets and lease liabilities for short-term leases, defined by the standard as leases with terms of 12 months or less. 

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.  Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease.  Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

Lease payments

Lease payments for short-term leases are recognized as lease expense on a straight-line basis over the lease term, or for variable lease payments, in the period in which the obligation was incurred.  Payments for leases with terms longer than twelve months are included in the determination of the lease liability.  Payments may be fixed for the term of the lease or variable.  If the lease agreement provides a known escalator, such as a specified percentage increase per year or a stated increase at a specified time, the variable payment is included in the cash flows used to determine the lease liability.  If the variable payment is based upon an unknown escalator, such as the consumer price index at a future date, the increase is not included in the cash flows used to determine the lease liability.  The Company’s leases provide known escalators that are included in the determination of the lease liability, with the exception of three lease agreements.

Options to Extend, Residual Value Guarantees, and Restrictions and Covenants

The Company’s leases offer the option to extend the lease term.  For each of the leases, the Company is reasonably certain it will exercise the options and has included the additional time and lease payments in the calculation of the lease liability.  None of the Company’s leases provide for residual value guarantees and none provide restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about leases:

(In thousands)	September 30, 2019
Lease Liability	$	13,971
Right-of-Use-Asset	$	13,597
Weighted Average Remaining Lease Term (Years)		11.3
Weighted Average discount rate		3.31	%

	For the Three Months Ended		For the Nine Months Ended		For the Three Months Ended		For the Nine Months Ended
(In thousands)	September 30, 2019		September 30, 2019		September 30, 2018		September 30, 2018
Operating Lease Expense	$	551	$	1,466	$	315	$	941
Cash paid for amounts included in lease liabilities	$	398	$	1,241		N/A		N/A
Right-of-use assets obtained in exchange for operating lease liabilities		2,078		2,378		N/A		N/A

The following table presents a maturity schedule of undiscounted cash flows that contribute to the lease liability:

(In thousands)	September 30, 2019
Three months ending December 31, 2019	$	437
Twelve months ending December 31, 2020		1,546
Twelve months ending December 31, 2021		1,559
Twelve months ending December 31, 2022		1,599
Twelve months ending December 31, 2023		1,596
Twelve months ending December 31, 2024		1,567
Thereafter		8,550
Total	$	16,854
Less: discount		(2,883)
	$	13,971

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Financial Instruments

Schedule of notional amount and fair value of derivative financial instruments

	September 30, 2019
	Notional Amount		Fair Value
Interest Rate Swap Agreements		(In thousands)
Receive Fixed/Pay Variable Swaps	$	89,889	$	(7,665)
Pay Fixed/Receive Variable Swaps		89,889		7,665

	December 31, 2018
	Notional Amount		Fair Value
Interest Rate Swap Agreements		(In thousands)
Receive Fixed/Pay Variable Swaps	$	47,381	$	(1,705)
Pay Fixed/Receive Variable Swaps		47,381		1,705

At September 30, 2019, the information pertaining to outstanding interest rate swap agreements used to hedge variability in cash flows (FHLB advance which is included in other borrowed funds on the consolidated balance sheet) is as follows:

(Dollars in thousands)
Notional amount	$	15,000
Weighted average pay rate		1.88	%
Weighted average receive rate		1.90	%
Weighted average maturity in years		3 year
Unrealized loss relating to interest rate swaps	$	(134)

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Loans and Allowance for Loan Losses - Troubled debt restructurings (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) contract loan	Sep. 30, 2018 loan	Dec. 31, 2018 USD ($)
Loans and Allowance for Loan Losses - Troubled debt restructurings
Number of defaults | loan	1	0
Number of Contracts | contract	1
Pre-Modification Outstanding Recorded Investment	$ 3,903
Post-Modification Outstanding Recorded Investment	3,903
Recorded investment in troubled debt restructurings	$ 3,900		$ 203
Commercial | Real Estate
Loans and Allowance for Loan Losses - Troubled debt restructurings
Number of Contracts | contract	1
Pre-Modification Outstanding Recorded Investment	$ 3,903
Post-Modification Outstanding Recorded Investment	$ 3,903

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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Comprehensive Income
Tax expense securities available for sale	$ 214	$ 144	$ 946	$ 621
Unrealized loss on interest rate swaps, tax benefit	$ 28		$ 28

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	[1]
Assets
Cash and due from banks	$ 19,424	$ 9,435
Interest-bearing deposits at other financial institutions	92,986	34,060
Securities held-to-maturity (fair value of $0.3 million and $1.7 million at September 30, 2019 and December 31, 2018, respectively)	264	1,761
Securities available-for-sale, at fair value	136,268	123,537
Restricted stock, at cost	6,017	5,299
Loans, net of allowance for loan losses of $10.1 million and $9.2 million at September 30, 2019 and December 31, 2018, respectively	1,233,337	1,127,584
Premises and equipment, net	2,029	2,271
Accrued interest receivable	4,279	4,050
Prepaid expenses	1,165	892
Deferred tax assets, net	7,673	8,591
Goodwill and intangibles, net	8,119	8,443
Bank owned life insurance (BOLI)	26,820	16,406
Other real estate owned (OREO)	3,866	4,224
Operating lease right-of-use assets	13,597
Other assets	9,352	5,023
Total assets	1,565,196	1,351,576
Deposits:
Noninterest-bearing	294,825	233,318
Interest-bearing checking, savings and money market	622,820	583,736
Time deposits	400,075	345,386
Total deposits	1,317,720	1,162,440
FHLB advances	15,000
Subordinated notes, net of issuance costs	24,467	24,407
Accrued interest payable	924	811
Operating lease liabilities	13,971
Accrued expenses and other liabilities	18,045	5,582
Total liabilities	1,390,127	1,193,240
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock, $0.01 par value	139	137
Additional paid-in capital	125,483	123,882
Retained earnings	48,746	36,728
Accumulated other comprehensive income (loss), net	701	(2,411)
Total stockholders' equity	175,069	158,336
Total liabilities and stockholders' equity	$ 1,565,196	$ 1,351,576

[1] Derived from audited consolidated financial statements.

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Loans and Allowance for Loan Losses - Allowance for loan losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	$ 9,996	$ 8,298	$ 9,159	$ 7,725	$ 7,725
Charge-offs	(187)	(118)	(370)	(214)	(565)
Recoveries	24	45	24	75	79
Provision	235	351	1,255	990	1,920
Loans and Leases Receivable, Allowance, Ending Balance	10,068	8,576	10,068	8,576	9,159
Ending Balance: Individually evaluated for impairment	392		392		373
Ending Balance: Collectively evaluated for impairment	9,676	8,576	9,676	8,576	8,786
Loans receivables:
Ending Balance: Individually evaluated for impairment	11,198	1,439	11,198	1,439	4,457
Ending Balance: Collectively evaluated for impairment	1,232,491	978,110	1,232,491	978,110	1,132,150
Loans receivables	1,245,423	979,549	1,245,423	979,549	1,138,008
Purchased credit impaired
Loans receivables:
Ending Balance: Individually evaluated for impairment	1,734		1,734		1,401
Loans receivables	1,734		1,734		1,401
Commercial | Real Estate
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	5,989	5,275	5,548	4,832	4,832
Provision	52	209	493	652	716
Loans and Leases Receivable, Allowance, Ending Balance	6,041	5,484	6,041	5,484	5,548
Ending Balance: Individually evaluated for impairment	19		19
Ending Balance: Collectively evaluated for impairment	6,022	5,484	6,022	5,484	5,548
Loans receivables:
Ending Balance: Individually evaluated for impairment	5,503	724	5,503	724	1,306
Ending Balance: Collectively evaluated for impairment	753,002	592,817	753,002	592,817	682,157
Loans receivables	759,465	593,541	759,465	593,541	683,602
Commercial | Real Estate | Purchased credit impaired
Loans receivables:
Loans receivables	960		960		139
Commercial | Commercial and Industrial
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	1,411	869	1,474	768	768
Charge-offs				(86)	(86)
Recoveries		10		40	26
Provision	(105)	18	(168)	175	766
Loans and Leases Receivable, Allowance, Ending Balance	1,306	897	1,306	897	1,474
Ending Balance: Individually evaluated for impairment	321		321		372
Ending Balance: Collectively evaluated for impairment	985	897	985	897	1,102
Loans receivables:
Ending Balance: Individually evaluated for impairment	5,472	128	5,472	128	2,969
Ending Balance: Collectively evaluated for impairment	118,977	108,394	118,977	108,394	133,892
Loans receivables	124,858	108,522	124,858	108,522	137,328
Commercial | Commercial and Industrial | Purchased credit impaired
Loans receivables:
Loans receivables	409		409		467
Commercial | Construction
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	1,888	1,306	1,285	1,191	1,191
Provision	176	31	779	146	94
Loans and Leases Receivable, Allowance, Ending Balance	2,064	1,337	2,064	1,337	1,285
Ending Balance: Collectively evaluated for impairment	2,064	1,337	2,064	1,337	1,285
Loans receivables:
Ending Balance: Collectively evaluated for impairment	215,821	144,830	215,821	144,830	152,918
Loans receivables	215,821	144,830	215,821	144,830	153,339
Commercial | Construction | Purchased credit impaired
Loans receivables:
Loans receivables					421
Consumer | Residential
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	494	604	518	626	626
Charge-offs					(187)
Recoveries					1
Provision	(42)	10	(66)	(12)	78
Loans and Leases Receivable, Allowance, Ending Balance	452	614	452	614	518
Ending Balance: Individually evaluated for impairment	29		29		1
Ending Balance: Collectively evaluated for impairment	423	614	423	614	517
Loans receivables:
Ending Balance: Individually evaluated for impairment	200	587	200	587	182
Ending Balance: Collectively evaluated for impairment	119,813	105,742	119,813	105,742	130,875
Loans receivables	120,378	106,329	120,378	106,329	131,431
Consumer | Residential | Purchased credit impaired
Loans receivables:
Loans receivables	365		365		374
Consumer | Nonresidential
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance	214	208	334	268	268
Charge-offs	(187)	(118)	(370)	(128)	(292)
Recoveries	24	35	24	35	52
Provision	154	69	217	19	306
Loans and Leases Receivable, Allowance, Ending Balance	205	194	205	194	334
Ending Balance: Individually evaluated for impairment	23		23
Ending Balance: Collectively evaluated for impairment	182	194	182	194	334
Loans receivables:
Ending Balance: Individually evaluated for impairment	23		23
Ending Balance: Collectively evaluated for impairment	24,878	26,327	24,878	26,327	32,308
Loans receivables	$ 24,901	26,327	$ 24,901	26,327	32,308
Unallocated
Allowance for loan losses
Loans and Leases Receivable, Allowance, Beginning Balance		36		40	40
Provision		14		10	$ (40)
Loans and Leases Receivable, Allowance, Ending Balance		50		50
Ending Balance: Collectively evaluated for impairment		$ 50		$ 50

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Subordinated Notes (Details) - Subordinated Notes - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Jun. 20, 2016
Subordinated Notes
Face amount			$ 25
Interest rate			6.00%
Redemption price percentage of outstanding principal amount	100.00%
Proceeds from subordinated notes included in the Bank's Tier 1 capital	$ 21	$ 21
Minimum
Subordinated Notes
Notice period for redeem the subordinated notes	30 days
Maximum
Subordinated Notes
Notice period for redeem the subordinated notes	60 days
LIBOR
Subordinated Notes
Variable interest rate (as a percent)	4.87%

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Leases - Information about leases (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Leases
Lease Liability	$ 13,971		$ 13,971
Right-of-Use-Asset	$ 13,597		$ 13,597
Weighted Average Remaining Lease Term	11 years 3 months 18 days		11 years 3 months 18 days
Weighted Average discount rate	3.31%		3.31%
Operating Lease Expense	$ 551	$ 315	$ 1,466	$ 941
Cash paid for amounts included in lease liabilities	398		1,241
Right-of-use assets obtained in the exchange for lease liabilities during the current period	$ 2,078		$ 2,378