10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2018

[   ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number:  0-27622

HIGHLANDS BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation or organization)	54-1796693 (I.R.S. Employer Identification No.)
P.O. Box 1128 Abingdon, Virginia (Address of principal executive offices)	24212-1128 (Zip Code)

276-628-9181

(Registrant's telephone number, including area code)

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [ X ]        No [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐	Non-accelerated filer  ☐ (Do not check if a smaller reporting company)
Smaller reporting company  þ	Emerging growth company  ☐

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 8,199,228 shares of common stock, par value $0.625 per share, outstanding as of May 14, 2018.

Highlands Bankshares, Inc.

Form 10-Q

For the Quarter Ended March 31, 2018

INDEX

PART I. FINANCIAL INFORMATION	PAGE
Item 1.  Financial Statements
Consolidated Balance Sheets at March 31, 2018 (Unaudited) and December 31, 2017	3
Consolidated Statements of Income (Unaudited) for the three-month periods ended March 31, 2018 and 2017	4
Consolidated Statements of Comprehensive Income (Unaudited) for the three-month periods ended March 31, 2018 and 2017	5
Consolidated Statements of Cash Flows (Unaudited)  for the three month periods ended March 31, 2018 and 2017	6
Consolidated Statements of Changes in  Stockholders' Equity (Unaudited) for the three-month periods ended March 31, 2018 and 2017	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.  Controls and Procedures	32
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.  Defaults Upon Senior Securities	33
Item 4.  Mine Safety Disclosures	33
Item 5.  Other Information	33
Item 6.  Exhibits	33
SIGNATURES AND CERTIFICATIONS	34

2

PART I.

FINANCIAL INFORMATION

ITEM 1.  Financial Statements

Consolidated Balance Sheets

(Amounts in thousands) 

	(Unaudited) March 31, 2018			December 31, 2017
ASSETS
Cash and due from banks	$	22,626		$	15,179
Federal funds sold	18,276			15,618
Total cash and cash equivalents	40,902			30,797
Investment securities available for sale (amortized cost $76,898 at March 31, 2018, $79,990 at December 31, 2017)	74,140			78,527
Other investments, at cost	2,793			3,116
Loans held for sale	1,795			4,808
Loans	431,266			431,574
Allowance for loan losses	(4,000		)	(3,954		)
Net loans	427,266			427,620
Premises and equipment, net	18,138			18,332
Real estate held for sale	1,370			1,430
Deferred tax assets	7,263			7,161
Interest receivable	1,777			1,987
Bank-owned life insurance	14,768			14,679
Other real estate owned	2,169			2,350
Other assets	3,148			3,290
Total assets	$	595,529		$	594,097
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing	$	157,907		$	148,633
Interest bearing	352,091			350,150
Total deposits	509,998			498,783
Interest, taxes and other liabilities	1,954			1,364
Short-term borrowings	—			10,000
Long-term debt	30,133			30,146
Total liabilities	542,085			540,293
STOCKHOLDERS' EQUITY
Common stock (8,199 shares issued and outstanding for each period presented)	5,124			5,124
Preferred stock (2,092 shares issued and outstanding for each period presented)	4,184			4,184
Additional paid-in capital	19,169			19,113
Retained earnings	27,149			26,539
Accumulated other comprehensive income	(2,182		)	(1,156		)
Total stockholders' equity	53,444			53,804
Total liabilities and stockholders' equity	$	595,529		$	594,097

See accompanying Notes to Consolidated Financial Statements

3

Consolidated Statements of Income

(Amounts in thousands, except per share data)

(Unaudited)

	Three months ended March 31
	2018		2017
INTEREST INCOME
Loans receivable and fees on loans	$	5,315	$	5,049
Investment securities	478		582
Federal funds sold	70		50
Total interest income	5,863		5,681
INTEREST EXPENSE
Deposits	463		446
Other borrowed funds	364		585
Total interest expense	827		1,031
Net interest income	5,036		4,650
Provision for loan losses	172		17
Net interest income after provision for loan losses	4,864		4,633
NON-INTEREST INCOME
Mortgage banking income	100		226
Service charges on deposit accounts	337		397
Other service charges, commissions and fees	419		498
Other operating income	226		166
Total non-interest income	1,082		1,287
NON-INTEREST EXPENSE
Salaries and employee benefits	2,403		2,493
Occupancy and equipment expense	731		669
Foreclosed assets – write-down and operating expenses	131		20
Other operating expense	1,901		1,267
Total non-interest expense	5,166		4,449
Income before income taxes	780		1,471
Income tax expense (benefit) (Note 5)	170		439
Net income	$	610	$	1,032
Net income per common share (Note 7)
Basic	0.07		0.13
Fully diluted	0.06		0.10

See accompanying Notes to Consolidated Financial Statements

4

Consolidated Statements of Comprehensive Income

(Amounts in thousands)

(Unaudited) 

	Three months ended March 31
	2018			2017
Net income	$	610		$	1,032
Other comprehensive (loss) income
Unrealized (losses) gains on securities during the period	(1,297		)	94
Less: reclassification adjustment	—			—
Other comprehensive (loss) income before tax	(1,297		)	94
Income tax (benefit) expense related to other comprehensive income	(271		)	32
Other comprehensive (loss) income	(1,026		)	62
Comprehensive (loss) income	$	(416	)	$	1,094

See accompanying Notes to Consolidated Financial Statements

5

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited) 

	Three Months Ended March 31,
	2018			2017
CASH FLOWS FROM OPERATING  ACTIVITIES:
Net income	$	610		$	1,032
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	172			17
Depreciation and amortization	401			404
Provision for deferred tax assets	170			—
Restricted stock expense	56			55
Originations of loans held for sale	(7,651		)	(7,386		)
Proceeds from loans held for sale	10,664			5,578
Decrease in interest receivable	210			202
Valuation adjustment of real estate held for sale	60			—
Valuation adjustment of other real estate owned	90			—
Decrease in other assets	52			1,266
Increase in interest, taxes and other liabilities	590			124
Net cash provided by operating activities	5,424			1,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities of securities	2,965			3,910
Purchase of debt and equity securities	—			(5,293		)
Redemptions of other investments	323			252
Net decrease in loans	117			212
Proceeds from sales of other real estate owned	156			255
Premises and equipment expenditures	(82		)	(410		)
Net cash (used in) provided by investing activities	3,479			(1,074		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits	(13,922		)	(1,966		)
Net increase in demand, savings and other deposits	25,137			7,564
Decrease in short-term borrowings	(10,000		)	—
Decrease in long-term debt	(13		)	(13		)
Net cash provided by financing activities	1,202			5,585
Net change in cash and cash equivalents	10,105			5,803
Cash and cash equivalents at beginning of period	30,797			50,385
Cash and cash equivalents at end of period	$	40,902		$	56,188
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments during the period for interest	$	860		$	1,047
Cash payments during the period for income taxes	—			—
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Transfer of loans to other real estate owned	65			228
Loans originated from sales of other real estate owned	—			—

See accompanying Notes to Consolidated Financial Statements

6

Consolidated Statements of Changes in Stockholders' Equity

(Amounts in thousands)

(Unaudited)

	Common stock shares	Common stock par value		Preferred stock shares	Preferred stock par value		Additional paid-in-capital		Retained earnings		Accumulated other comprehensive income (loss)			Stockholders' equity
Balance December 31, 2016	8,199	$	5,124	2,092	$	4,184	$	18,891	$	26,785	$	(1,226	)	$	53,758
Net income									1,032					1,032
Other comprehensive income											62			62
Stock-based compensation	—	—					55							55
Balance March 31, 2017	8,199	$	5,124	2,092	$	4,184	$	18,946	$	27,817	$	(1,164	)	$	54,907
Balance December 31, 2017	8,199	$	5,124	2,092	$	4,184	$	19,113	$	26,539	$	(1,156	)	$	53,804
Net income									610					610
Other comprehensive loss											(1,026		)	(1,026		)
Stock-based compensation							56							56
Balance March 31, 2018	8,199	$	5,124	2,092	$	4,184	$	19,169	$	27,149	$	(2,182	)	$	53,444

See accompanying Notes to Consolidated Financial Statements

7

Notes to Consolidated Financial Statements

(Unaudited)

(in thousands, except share, per share and percentage data)

Note 1  -  General

The consolidated financial statements of Highlands Bankshares, Inc. (the "Company") conform to United States generally accepted accounting principles and to banking industry practices. The accompanying consolidated interim financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The consolidated balance sheet as of December 31, 2017 has been extracted from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Form 10-K"). The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the 2017 Form 10-K. The results of operations for the three-month period ended March 31, 2018, are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2 – Summary of Significant Accounting Policy Update For Certain Required Disclosures

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09, as subsequently amended by ASU No. 2015-14 issued in August 2015, required adoption in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company adopted ASU 2014-09 effective January 1, 2018.

Application of ASU 2014-09 requires identification of customer contracts, identification of the performance obligations within those contracts, identification of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue once the performance obligation is satisfied. ASU 2014-09 requires disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company evaluated the impact on noninterest income, which includes fees for services, commissions on sales, and various deposit service charges. The Company concluded that no cumulative-effect adjustment to retained earnings was necessary. The adoption of the standard did not have a material effect on the Company’s financial position or results of operations.

In January 2016, ASU No. 2016-01 Financial Instruments--Overall (ASU 2016-01) was issued by the FASB.  ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted ASU 2016-01 on January 1, 2018. The adoption of ASU 2016-01 did not have a material effect on the Company's consolidated financial statements.

In June 2016, ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments was issued by the FASB. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company continues to evaluate the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

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

8

Note 3 - Investment Securities Available For Sale

The amortized cost and market value of securities available for sale are as follows:

	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,459	$	8	$	615	$	11,852
Mortgage backed securities	57,925		8		1,967		55,966
SBA Pools	6,514		—		192		6,322
	$	76,898	$	16	$	2,774	$	74,140

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,766	$	44	$	299	$	12,511
Mortgage backed securities	60,383		12		1,088		59,307
SBA Pools	6,841		1		133		6,709
	$	79,990	$	57	$	1,520	$	78,527

Investment securities available for sale with a fair value of $28,989 and $26,856 at March 31, 2018 and December 31, 2017, respectively, were pledged as collateral on public deposits, FHLB advances and for other purposes as required or permitted by law.

The following table presents the age of gross unrealized losses and fair value by investment category:

	March 31, 2018
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	4,071	$	102	$	6,921	$	513	$	10,992	$	615
Mortgage-backed securities	14,150		368		40,278		1,599		54,428		1,967
SBA Pools	160		1		5,948		191		6,108		192
Total	$	18,381	$	471	$	53,147	$	2,303	$	71,528	$	2,774

	December 31, 2017
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	1,744	$	18	$	7,158	$	281	$	8,902	$	299
Mortgage-backed securities	14,540		177		42,415		911		56,955		1,088
SBA Pools	176		1		6,206		132		6,382		133
Total	$	16,460	$	196	$	55,779	$	1,324	$	72,239	$	1,520

The Company assesses its securities for OTTI quarterly by reviewing credit ratings, financial and regulatory reports as well as other pertinent published financial data. As of March 31, 2018 and December 31, 2017, the Company's assessment revealed no impairment other than that deemed temporary on those securities.

The amortized cost and estimated fair value of securities available for sale at March 31, 2018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

9

	Amortized Cost		Fair Value
Investment securities with scheduled maturities:
Due in one year or less	$	125	$	125
Due after one year through five years	599		602
Due after five years through ten years	866		827
Due after ten years	17,382		16,619
Total investment securities with scheduled maturities	18,972		18,173
Mortgage-backed securities	57,926		55,967
Total investment securities available for sale	$	76,898	$	74,140

The following table summarizes the securities gains (losses) recognized for the period presented:

	Three months ended March 31
	2018		2017
Gross gains	$	—	$	—
Gross losses	—		—
Securities gains, net	$	—	$	—

Note 4  -  Loans and Allowance for Loan Losses

The composition of net loans is as follows:

	March 31, 2018		December 31, 2017
Real estate secured:
Residential 1-4 family	$	171,731	$	174,889
Multifamily	18,157		19,469
Construction and land loans	16,933		15,907
Commercial, owner occupied	82,151		82,121
Commercial, non-owner occupied	34,437		33,748
Second mortgages	4,670		4,684
Equity lines of credit	35,568		34,378
Farmland	12,977		13,188
Total real estate secured	376,624		378,384
Non-real estate secured
Personal	13,617		14,192
Commercial	38,734		36,785
Agricultural	3,002		2,950
Total non-real estate secured	55,353		53,927
Gross loans	431,977		432,311
Less:
Allowance for loan losses	4,000		3,954
Net deferred fees	711		737
Loans, net	$	427,266	$	427,620

10

The following table is an analysis of past due loans as of March 31, 2018:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,647	$	689	$	2,336	$	169,395	$	171,731	$	243
Equity lines of credit	—		—		—		35,568		35,568		—
Multifamily	—		—		—		18,157		18,157		—
Farmland	678		194		872		12,105		12,977		—
Construction, land development, other land loans	74		—		74		16,859		16,933		—
Commercial real estate:
Owner-occupied	601		317		918		81,233		82,151		—
Non-owner-occupied	1,707		—		1,707		32,730		34,437		—
Second mortgages	—		—		—		4,670		4,670		—
Non-real estate secured
Personal	95		17		112		13,505		13,617		—
Commercial	104		209		313		38,421		38,734		—
Agricultural	—		—		—		3,002		3,002		—
Total	$	4,906	$	1,426	$	6,332	$	425,645	$	431,977	$	243

The following table is an analysis of past due loans as of December 31, 2017:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,092	$	566	$	1,658	$	173,231	$	174,889	$	—
Equity lines of credit	—		—		—		34,378		34,378		—
Multifamily	—		—		—		19,469		19,469		—
Farmland	234		50		284		12,904		13,188		—
Construction, land development, other land loans	—		—		—		15,907		15,907		—
Commercial real estate:
Owner-occupied	11		708		719		81,402		82,121		—
Non-owner-occupied	—		—		—		33,748		33,748		—
Second mortgages	—		—		—		4,684		4,684		—
Non-real estate secured
Personal	211		23		234		13,958		14,192		—
Commercial	502		279		781		36,004		36,785		26
Agricultural	49		—		49		2,901		2,950		—
Total	$	2,099	$	1,626	$	3,725	$	428,586	$	432,311	$	26

Loans are considered delinquent when payments have not been made according to the terms of the contract. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.  Additionally, in certain instances, loans that have been restructured or modified may also be classified as non-accrual per regulatory guidance until a satisfactory payment history has been established. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

11

The following is a summary of non-accrual loans at March 31, 2018 and December 31, 2017: 

	March 31, 2018		December 31, 2017
Real estate secured
Residential 1-4 family	$	553	$	887
Commercial real estate:
Owner-occupied	575		708
Non-owner-occupied	—		—
Second mortgages	—		—
Equity lines of credit	—		—
Farmland	194		193
Non-real estate secured
Personal	14		23
Commercial and agricultural	209		254
Total	$	1,545	$	2,065

The following is a summary of residential real estate currently in the process of foreclosure as well as foreclosed residential real estate as of March 31, 2018.

	Number	Balance
Residential real estate in the process of foreclosure	5	$	392
Foreclosed residential real estate	3	228

The following tables represent a summary of credit quality indicators of the Company's loan portfolio at March 31, 2018 and December 31, 2017. The grades are assigned and/or modified by the Company's credit review and credit analysis departments based on the creditworthiness of the borrower and the overall strength of the loan.

The following tables provide the credit risk profile by internally assigned grade as of March 31, 2018 and December 31, 2017: 

March 31, 2018	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	36,436	$	—	$	11	$	3,158	$	3,174	$	230
Satisfactory	89,329		10,055		3,965		5,921		45,999		13,932
Acceptable	39,696		8,102		3,616		6,177		28,795		16,351
Special Mention	909		—		3,185		1,677		978		1,569
Substandard	5,361		—		2,200		—		3,205		2,355
Doubtful	—		—		—		—		—		—
Total	$	171,731	$	18,157	$	12,977	$	16,933	$	82,151	$	34,437

December 31, 2017	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	33,107	$	—	$	13	$	2,870	$	3,535	$	295
Satisfactory	95,659		10,653		4,419		5,445		45,906		13,602
Acceptable	40,487		8,816		3,333		5,906		28,344		15,609
Special Mention	388		—		3,206		1,565		2,542		2,226
Substandard	5,248		—		2,217		121		1,661		2,016
Doubtful	—		—		—		—		133		—
Total	$	174,889	$	19,469	$	13,188	$	15,907	$	82,121	$	33,748

12

Explanation of credit grades:

Quality--This grade is reserved for the Bank's top quality loans. These loans have excellent sources of repayment, with no significant identifiable risk of collection.  Generally, loans assigned this rating will demonstrate the following characteristics:

• Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

• Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

• Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

For existing loans, all of the requirements above apply plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are either stable or improving.

Satisfactory-This grade is given to performing loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this rating will demonstrate the following characteristics:

• General conformity to the Bank's policy requirements, product guidelines and underwriting standards.  Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

• Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.  

• Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

For existing loans, all of the requirements outlined above will apply, plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are stable with any declines considered minor and temporary.

Acceptable-This grade is given to loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this rating may demonstrate some or all of the following characteristics:

• Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.

• Unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.

• Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

For existing loans, payments have generally been made as agreed with only minor and isolated delinquencies.

Special Mention -This grade is given to Watch List loans that include the following characteristics:

• Loans with underwriting guideline tolerances and/or exceptions with no identifiable mitigating factors.

• Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

• Loans where adverse economic conditions that develop subsequent to the loan origination do not jeopardize liquidation of the debt, but do substantially increase the level of risk may also warrant this rating.

Substandard-Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

The weaknesses may include, but are not limited to:

• High debt to worth ratios and or declining or negative earnings trends

• Declining or inadequate liquidity

13

• Improper loan structure  or questionable repayment sources

• Lack of well-defined secondary repayment source, and

• Unfavorable competitive comparisons.

Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals.

Doubtful -Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists.

However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are:

• Injection of capital

• Alternative financing

• Liquidation of assets or the pledging of additional collateral.

Credit Risk Profile based on payment activity as of March 31, 2018:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	13,600	$	40,238	$	38,525	$	3,002
Nonperforming (>90 days past due)	17		—		209		—
Total	$	13,617	$	40,238	$	38,734	$	3,002

Credit Risk Profile based on payment activity as of December 31, 2017:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	14,169	$	39,062	$	36,506	$	2,950
Nonperforming (>90 days past due)	23		—		279		—
Total	$	14,192	$	39,062	$	36,785	$	2,950

14

The following tables reflect the Bank's impaired loans at March 31, 2018:

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	4,769	$	4,769	—	$	6,084	$	74
Equity lines of credit	35		35		—	42		—
Multifamily	—		—		—	—		—
Farmland	656		656		—	571		12
Construction, land development, other land loans	1,677		1,677		—	1,721		—
Commercial real estate- owner occupied	932		932		—	1,242		—
Commercial real estate- non owner occupied	—		—		—	32		—
Second mortgages	122		122		—	166		—
Non-real estate secured
Personal	—		—		—	48		11
Commercial and agricultural	1,177		1,177		—	841		12
Total	$	9,368	$	9,368	—	$	10,747	$	109

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	525	$	525	$	19	$	300	$	2
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,621		1,621		192		1,676		—
Construction, land development, other land loans	—		—		—		—		—
Commercial real estate- owner occupied	2,376		2,376		516		2,125		—
Commercial real estate- non owner occupied	4,027		4,027		782		3,960		—
Second mortgages	—		—		—		—		—
Non-real estate secured
Personal	21		21		23		12		—
Commercial and agricultural	349		349		234		426		—
Total	$	8,919	$	8,919	$	1,766	$	8,499	$	2

15

The following tables reflect the Bank's impaired loans at December 31, 2017:

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	7,398	$	7,398	—	$	6,123	$	279
Equity lines of credit	49		49		—	37		—
Multifamily	—		—		—	495		56
Farmland	486		486		—	586		42
Construction, land development, other land loans	1,765		1,765		—	1,753		67
Commercial real estate- owner occupied	1,552		1,552		—	3,677		22
Commercial real estate- non owner occupied	63		63		—	973		19
Second mortgages	209		209		—	198		3
Non real estate secured
Personal	95		95		—	55		—
Commercial and agricultural	504		504		—	274		—
Total	$	12,121	$	12,121	—	$	14,171	$	488

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	74	$	74	$	11	$	267	$	24
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,731		1,731		257		962		13
Construction, land development, other land loans	—		—		—		183		24
Commercial real estate- owner occupied	1,873		1,873		465		1,506		196
Commercial real estate- non owner occupied	3,892		3,892		955		2,951		141
Second mortgages	—		—		—		9		—
Non real estate secured
Personal	2		2		2		27		—
Commercial and agricultural	502		502		418		568		4
Total	$	8,074	$	8,074	$	2,108	$	6,473	$	402

16

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by loan category and is segregated by impairment evaluation method as of and for the three month periods ended March 31, 2018 and March 31, 2017.

Three months ended March 31, 2018	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied			Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated		Total
Allowance for Loan Losses:
Balance at December 31,  2017	$	133		—		$	1		$	1,636		$	955		$	12		$	—	$	54		$	265		$	383		$	515	$	3,954
Provision expense (credit) for credit losses	3			3		2			(219		)	(167		)	(3		)	6		139			21			(136		)	523		172
Charge-offs	—			—		—			95			—			5			—		—			88			149			—		337
Recoveries	(8		)	—		(1		)	(17		)	—			—			—		(1		)	(30		)	(154		)	—		(211		)
Net charge-offs (recoveries)	(8		)	—		(1		)	78			—			5			—		(1		)	58			(5		)	—		126
Balance at March 31, 2018	$	144		$	3	$	4		$	1,339		$	788		$	4		$	6	$	194		$	228		$	252		$	1,038	$	4,000
Allowance allocated by impairment method:
Individually evaluated	$	19		$	—	$	—		$	516		$	782		$	—		$	—	$	192		$	24		$	233		$	—	$	1,766
Collectively evaluated	125			3		4			823			6			4			6		2			204			19			1,038		2,234
Loan balances by impairment method used:
Individually evaluated	$	5,269		$	—	$	1,677		$	3,194		$	3,835		$	122		$	35	$	2,200		$	21		$	1,509		$	—	$	17,862
Collectively evaluated	166,462			18,157		15,256			78,957			30,602			4,548			35,533		10,777			13,596			40,227			—		414,115
Balance at March 31, 2018	$	171,731		$	18,157	$	16,933		$	82,151		$	34,437		$	4,670		$	35,568	$	12,977		$	13,617		$	41,736		—		$	431,977

17

Three months ended March 31, 2017	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied		Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated			Total
Allowance for Loan Losses:
Balance at December 31, 2016	$	371		—		$	21		$	1,339	$	445		$	15		$	27	$	16		$	802		$	535		$	1,258		$	4,829
Provision for credit losses	(16		)	—		(1		)	350		403			(11		)	4		37			204			(99		)	(854		)	17
Charge-offs	14			—		—			—		—			—			—		—			79			59			—			152
Recoveries	(3		)	—		(1		)	—		(1		)	—			—		(1		)	(25		)	(3		)	—			(34		)
Net charge-offs	11			—		(1		)	—		(1		)	—			—		(1		)	54			56			—			118
Balance at March 31, 2017	$	344		$	—	$	21		$	1,689	$	849		$	4		$	31	$	54		$	952		$	380		$	404		$	4,728
Allowance allocated by impairment method:
Individually evaluated	$	47		$	—	$	20		$	960	$	768		$	—		$	—	$	20		$	—		$	280		$	—		$	2,095
Collectively evaluated	297			—		1			729		81			4			31		34			952			100			404			2,633
Loan balances by impairment method used:
Individually evaluated	$	6,396		$	980	$	1,902		$	4,263	$	4,225		$	64		$	—	$	773		$	260		$	466		$	—		$	19,329
Collectively evaluated	176,684			21,743		14,619			65,035		25,179			6,131			19,882		11,510			16,777			32,941			—			390,501
Balance at March 31, 2017	$	183,080		$	22,723	$	16,521		$	69,298	$	29,404		$	6,195		$	19,882	$	12,283		$	17,037		$	33,407		—			$	409,830

18

The Company's credit administration personnel and senior financial officers are responsible for tracking, coding, and monitoring loans that become Troubled Debt Restructurings ("TDRs"). Concessions are made to existing borrowers in the form of modified interest rates and / or payment terms. The loans are segregated for regulatory and external reporting. Each specific TDR is reviewed to determine if the accrual of interest should be discontinued and also reviewed for impairment. The Company's senior credit officer performs this analysis on a quarterly basis in addition to determining any other loans that are impaired within the loan portfolio. The Company had a total of $9,955 and $8,005 of loans categorized as troubled debt restructurings as of March 31, 2018 and December 31, 2017, respectively. Interest is accrued on TDRs if the loan is otherwise not impaired and the full collection of principal and interest under the modified terms is still deemed probable.

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

The following table identifies restructurings completed during the three-month period ended March 31, 2018 that represent new TDRs.

March 31, 2018 Interest only Number Pre-Modification Recorded Investment Post-Modification Recorded Investment

Below Market Rate
Residential 1-4 family	1	$	162	$	162
Commercial real estate-non-owner occupied	1	1,479		1,479
Total below market rate	2	1,641		1,641

Total restructurings 2 $ 1,641 $ 1,641

There were no new TDRs in the three-month period ended March 31, 2017. There were no defaults in the three month periods ending March 31, 2018 and March 31, 2017 of TDRs modified in the previous 12 months.

The Bank has engaged an external third party to perform its loan review function in order to identify weaknesses within the loan portfolio. The review, which seeks to cover 50 percent of loan balances each year, considers collateral, repayment history, guarantor strength, debt service coverage, and other relevant information on an individual and global level. These reviews consider borrower cash flow capacity, using financial statements, income tax returns and internally prepared interim statements for borrowers and guarantors. Debt service coverage (DSC) is calculated on each individual customer, or guarantor, as well as the aggregate or global DSC. The DSC is discounted to determine a stressed DSC. Collateral evaluation includes an inspection of the collateral file to determine if the Bank is properly secured.  Collateral is discounted, when appropriate, to determine a stressed loan to value (LTV) ratio. 

The Company also seeks to identify potential problem relationships through a monthly watch list review, which includes a review of past due loans, as well as any other information that might be presented by loan officers, regarding a particular loan relationship that is exhibiting stress. Watch list relationships display distinct characteristics including, but not limited to, late payments greater than 60 days, a low DSC calculation, bankruptcy filings, casualty losses, or other issues that would cause a perceived increase in the risk of loss to the Bank.

The segments of the Company's loan portfolio are disaggregated to a level that allows management to monitor risk and performance. In reviewing risk, management has determined there to be several different risk categories within the loan portfolio. The allowance for loan losses consists of amounts applicable to: (i) the commercial loan portfolio; (ii) the commercial real estate loan portfolio; (iii) the construction loan portfolio; (iv) the consumer loan portfolio; and, (v) the residential loan portfolio. The commercial real estate ("CRE") loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include multifamily structures and owner-occupied commercial structures. The construction loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. Commercial construction loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. Construction lending is generally considered to involve a higher degree of credit risk than long-term permanent financing.

The following describes the Company's basic methodology for computing its ALLL.

19

On a quarterly basis, the ALLL methodology begins with the identification of loans subject to ASC 310.  All loans that are rated "7" (Doubtful) are assessed as impaired based on the expectation that the full collection of principal and interest is in doubt. All loans that are rated "6" (Substandard) or are expected to be downgraded to "6", require additional analysis to determine whether they may be impaired under ASC 310. All loans that are rated "5" (Special Mention) are presumed not to be impaired. However, "5" rated loans, together with any Troubled Debt Restructured (TDR) loan, may warrant further analysis before completing an assessment of impairment.

A loan is considered impaired and an allowance for loan losses is established on loans for which it is probable that the full collection of principal and interest is in doubt. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value based on recent appraisal and /or tax assessment value, liquidation value and/or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018 and December 31, 2017, all of the total impaired loans were evaluated based on either the fair value of the collateral or the discounted cash flows.

For ASC 310 loans that are individually evaluated and found to be impaired (primarily those designated as Substandard and Doubtful), the associated ALLL will be based upon one of the three impairment measurement methods specified within ASC 310:

(1) Present value of expected future cash flows discounted at the loan's effective interest rate;

(2) Loan's observable market price; or

(3) Fair value of the collateral.

To determine the amount of loan loss exposure for the impaired ASC 310 loans, the value of collateral for secured loans is evaluated to determine the current value and potential exposure.  The collateral value is adjusted for its age and condition, and, for real estate, adjusted for condition, location, and age of the most current appraisal.  If the adjusted value of the collateral is less than the current principal balance, the difference is designated as direct exposure for loan loss calculations.  The total balance of unsecured loans is considered as direct exposure.

ASC 450 Loan Loss:

For all other loans, including individual loans determined not to be impaired under ASC 310, the associated ALLL is calculated in accordance with ASC 450 that provides for estimated credit losses likely to be realized on groups of loans with similar risk characteristics. The Company uses standard call report categories to segregate loans into groups with similar risk characteristics. Estimated credit losses reflect significant factors that affect the collectability of the portfolio as of the evaluation date. Key factors that influence risk within the Company's loan portfolio are divided into three major categories:

Historical loss factors - To calculate the anticipated loan loss in each call report category for ASC 450 loans, the Company begins with the net loss in each category for each of the last twelve quarters. The Company uses a rolling twelve quarter weighted historical loss average where the most recent quarters are weighted heavier than the earlier quarters so that the calculation reflects current risk trends within the portfolio.  The weighting used by the Company is similar to the Rule of 78's with the net losses of the most recent quarter weighted at 12/78ths and those in the first quarter in the twelve quarter period weighted at 1/78th.   Therefore, the net losses of the most recent year represent approximately 54% of the calculation compared with 33% if a simple average of losses over the three-year period was used.  The total of weighted factors for each call report category is applied to the current outstanding loan balance in each category to calculate expected loss based on historical data for a group of loans with similar risk characteristics.  The same weighting is applied to all loan types .

External economic factors - Economic conditions have a significant impact on Company's loan portfolio because deteriorating conditions can adversely impact both collateral values and the customer's ability to service debt.  Management has selected the following external factors as indicators of economic conditions:

National GDP growth rate

Local unemployment rates

Prime interest rate

The values for external factors are updated on a quarterly basis based on current economic data.

Internal process factors - Internal factors that influence loss rates as a result of risk management and control practices include the following:

20

Past-due loans

Non-accrual loans

Commercial real estate concentrations

Loan volume

Level and trend of classified loans

The values for internal factors are updated on a quarterly basis based on current portfolio metrics.

Once the quarterly ALLL is computed, the calculations are reviewed by the Company's management. The ALLL is then reviewed and approved by the Board of Directors.

Loans Held for Sale

The Company's mortgage division originates certain single family, residential first mortgage loans for sale on a presold basis. Loan sale activity is summarized below. Loans are typically sold to investors within 20 days of closing. Management feels the carrying amounts approximate the fair values of loans held for sale.

	Three months ended March 31
	2018		2017
Loans held for sale at end of period	$	1,795	$	3,063
Proceeds from sales of mortgage loans originated for sale	10,664		5,578
Gain on sales of mortgage loans originated for sale	100		226

21

Note 5  -  Income Taxes

Income tax expense for the three month periods ended March 31, is different than the amount computed by applying the appropriate statutory corporate federal income tax rate to income before taxes. The reasons for these differences are as follows:

	Three months ended March 31,
	2018			2017
Tax expense (benefit) at statutory rate	$	164		$	500
Increase (decrease) in tax expense resulting from:
Tax-exempt interest	(27		)	(29		)
Other, net	33			(32		)
Income tax expense	$	170		$	439
Statutory corporate federal income tax rate	21		%	34		%

Note 6  - Capital Requirements

Regulators of the Company and its subsidiary, Highlands Union Bank (the "Bank"), have implemented risk-based capital guidelines which require compliance with certain minimum capital ratios as a percent of assets and other certain off-balance sheet items that are adjusted for predefined credit risk factors.  On July 7, 2013 the Federal Reserve Board approved Basel III Final Rules to begin implementation January 1, 2015. The desired overall objective of Basel III is to improve the banking sector's ability to absorb shocks arising from financial and economic stress. The Final Rule includes a new Common Equity Tier 1 minimum ratio and raises the tier 1 risk weighted assets ratio to 6 percent from 4 percent. In addition, beginning in 2016, the new rules required banks to maintain a capital conservation buffer of between 2 and 2 ½ %. Additionally, the new rules increased the risk weighting of various assets. The new rules will be phased in between 2015 and 2019. Generally, the Basel III Final Rule requires banks to maintain higher levels of common equity and regulatory capital. On December 18, 2014, the President of the United States signed into law Public Law 113-250 (the "Act"), which directs the Board of Governors of the Federal Reserve System (Board) to propose revisions to the Small Bank Holding Company Policy Statement (Policy Statement) to raise the total consolidated asset limit in the Policy Statement from $500 million to $1 billion.

On February 5, 2015 the Company received notification from the Federal Reserve Bank that it would no longer be required to report holding company consolidated capital ratios.

The following table presents the capital ratios for the Bank only.

	March 31, 2018		December 31, 2017
Tier 1 leverage	8.51	%	8.36	%
Tier 1 risk-based	12.13	%	12.15	%
Total risk-based	13.10	%	13.11	%
Common equity tier 1	12.13	%	12.15	%

22

Note 7 – Stock and Earnings Per Share

Earnings per common share is computed using the weighted average outstanding shares for the three month periods ended March 31, 2018 and 2017. The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per common share computation:

	Three months ended March 31,
(thousands, except per share information)	2018		2017
Net income available to common stockholders	$	610	$	1,032
Weighted average common shares outstanding	8,199		8,113
Total shares outstanding including assumed conversion	10,292		10,292
Basic earnings per common share	$	0.07	$	0.13
Fully diluted earnings per share (including convertible preferred shares outstanding and restricted stock)	0.06		0.10

Note 8 – Commitments and Contingencies

The Bank is a party to various financial instruments with off-balance sheet risk arising in the normal course of business to meet the financing needs of its customers. Those financial instruments include commitments to extend credit and standby letters of credit.

At March 31, 2018, unused commitments totaled $62,721, compared to $55,038 at December 31, 2017. Standby letters of credit totaled $971 at March 31, 2018, compared to $991 at December 31, 2017.

Note 9 – Fair Value

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record financial instruments at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC Topic 820 on Fair Value Measurements and Disclosures, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to determine fair value. These adjustments may include amounts to reflect counterparty credit quality, the borrower's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

23

Recurring - Investment Securities Available for Sale

Securities classified as available for sale are reported at fair value utilizing level 2. For level 2 securities, the Company obtains fair value measurements from multiple independent third party sources. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond's terms and conditions, among other things.

The following tables summarize the Company's available for sale securities portfolio measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy.

March 31, 2018
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	11,852	$	—	$	11,852
Mortgage backed securities	—		55,966		—		55,966
SBA pools	—		6,322		—		6,322
Total available for sale securities	$	—	$	74,140	$	—	$	74,140

December 31, 2017
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	12,511	$	—	$	12,511
Mortgage backed securities	—		59,307		—		59,307
SBA pools	—		6,709		—		6,709
Total available for sale securities	—		$	78,527	—		$	78,527

Recurring - Derivatives

Beginning in 2017, the Company entered into interest rate swaps related to customer loan transactions to manage its interest rate risk. These interest rate swaps, which had a notional value of $7,902 as of March 31, 2018 and December 31, 2017, are considered to be derivative financial instruments and are recorded at fair value, based on third party pricing models that are sensitive to market observable data and are therefore classified as level 2 values. The fair value of derivative financial instruments as of March 31, 2018 totaled $144, compared to $45 at December 31, 2017.

Non Recurring - Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including recently appraised collateral value and /or tax assessed value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018 and December 31, 2017, all of the total impaired loans were evaluated based on the fair value of the collateral or the present value of the future cash flows. The Company frequently obtains appraisals prepared by external professional appraisers and applies discounts ranging from 8% to 40% depending on type of property, condition, location, etc. The Company also, in certain instances, prepares internally generated valuations from on-site inspections, third-party valuation models or other information.

Non Recurring – Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on inputs derived from secondary markets for loans with similar characteristics. The Company considers loans held for sale as non-recurring level 2.

24

Non Recurring –Other Real Estate Owned  / Repossessions / Real Estate Held for Sale

Other real estate owned and repossessions are adjusted to fair value upon transfer of the loans to other real estate owned and repossessions. Subsequently, foreclosed assets and repossessions are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices or recent appraised values of the collateral which the Company considers as nonrecurring level 2.  When the current appraised value is not available or is further discounted below the most recent appraised value less selling costs due to absorption rates and market conditions, the Company records the foreclosed assets within level 3 of the fair value hierarchy.

Real estate held for sale is adjusted to fair value upon transfer from fixed assets or when no longer being used for banking purposes.

The following table summarizes the Company's assets at fair value on a non-recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy. The tables disclose the recorded investment of impaired loans requiring a specific allowance.

March 31, 2018	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	6,879	$	6,879
OREO	—		—		2,169		2,169
Real estate held for sale	—		—		1,370		1,370

December 31, 2017	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	5,967	$	5,967
OREO	—		—		2,350		2,350
Real estate held for sale	—		—		1,430		1,430

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

			Quantitative Information about Level 3 Fair Value Measurements
	12/31/17		3/31/2018		Valuation Techniques	Unobservable Input (2)	Range (Weighted Average)
OREO, net	$	2,350	$	2,169	Appraisal of collateral (1)	Appraisal adjustments	0% to 45% (13%)
						Liquidation expenses	0% to 10% (9%)
Real Estate held for sale	$	1,430	$	1,370	Appraisal of collateral (1)	Appraisal adjustments	0% to 50% (40%)
						Liquidation expenses	0% to 10% (8%)
Impaired loans	$	5,967	$	7,153	Fair value of collateral –real estate  (1), (3)	Appraisal adjustments	0% to 10% (9%)
					Fair value of collateral –equipment, inventory, other  (1), (3)	Appraisal adjustments	25% to 50% (33%)
						Liquidation expenses	0% to 10% (9%)

Valuation adjustments and liquidation cost adjustments represent unobservable inputs for OREO and impaired loans.  The ranges of discounts applied are based on age of independent appraisals, type and condition of collateral, current market conditions, and experience with the local market.

25

(1)  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)  Includes qualitative adjustments by management.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a 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.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and Cash Equivalents

The carrying amount reported in the balance sheets for cash, short-term investments and federal funds sold approximates fair value.

Securities Available for Sale

Fair values are determined in the manner as described above.

Other Investments

Other investments include Federal Home Loan Bank stock, Federal Reserve Bank stock, Community Bankers Bank stock, and Pacific Coast Bankers Bank.  The carrying value of those securities approximates fair value based on the redemption provisions of those Banks. Also included in other investments are certificates of deposit purchased from other FDIC insured banks in which the carrying amount approximates fair value.

Loans

The fair value of loans represent the amount at which the loans of the Bank could be exchanged on the open market, based upon the current lending rate for similar types of lending arrangements discounted over the remaining life of the loans .  For fixed rate loans and for variable rate loans with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis.

Deposits

The fair value of time deposits is based on discounted cash flows using current market rates applied to the cash flow analysis for each time deposit. Other non-maturity deposits are reported at their carrying values.

Other Short-Term Borrowings

Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Estimated maturity dates are also included in the calculation of fair value for these borrowings.

Long-term Debt and Capital Securities

Rates currently available to the Company for debt with similar terms and remaining maturities or established call prices are used to estimate fair value of existing debt.

Off-Balance Sheet Instruments

26

The carrying value of off-balance sheet commitments to extend credit, standby letters of credit, and financial guarantees, is considered equal to fair value.  Because of the uncertainty involved in attempting to assess the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

The carrying amounts and fair values of the Company's financial instruments at March 31, 2018 and December 31, 2017 were as follows:

	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	40,902	$	40,902	$	30,797	$	30,797
Securities available for sale	74,140		74,140		78,527		78,527
Other investments	2,793		2,793		3,116		3,116
Loans, net	427,266		427,660		427,620		429,467
Interest rate swaps	144		144		45		45
Deposits	509,998		423,236		498,783		424,664
Other short-term borrowings	—		—		10,000		10,000
Long-term debt	30,133		30,430		30,243		30,780

Note 10–Formal Written Agreement

On October 13, 2010, the Company and Bank entered into a written agreement ("Written Agreement") with the Federal Reserve Bank of Richmond (the "Reserve Bank").  Under the terms of the Written Agreement, the Bank has agreed to develop and submit to the Reserve Bank for approval within the time periods specified therein written plans or programs to:

• strengthen board oversight of the management and operations of the Bank;

• strengthen credit risk management and administration;

• provide for the effective grading of the Bank's loan portfolio;

• summarize the findings of its review of the adequacy of the staffing of its loan review function;

• improve the Bank's position with respect to loans, relationships, or other assets in excess of $500 that currently are, or in the future become past due more than 90 days, on the Bank's problem loan list, or adversely classified in any report of examination of the Bank;

• review and revise the Bank's methodology for determining the allowance for loan and lease losses ("ALLL") and maintain an adequate ALLL;

• maintain sufficient capital at the Company and the Bank;

• establish a revised written contingency funding plan;

• establish a revised written strategic and capital plan;

• establish a revised investment policy;

• improve the Bank's earnings and overall condition;

• revise the Bank's information technology program;

• establish a disaster recovery and business continuity program; and,

• establish a committee to monitor compliance with all aspects of the written agreement.

Further, both the Company and the Bank have agreed to refrain from declaring or paying dividends without prior regulatory approval.  The Company has agreed that it will not take any other form of payment representing a reduction in Bank's capital or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without prior regulatory approval.  The Company also has agreed not to incur, increase or guarantee any debt or not to purchase or redeem any shares of its stock without prior regulatory approval.

27

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is provided to address information about the Company's financial condition and results of operations that is not otherwise apparent from the Consolidated Financial Statements and the notes thereto or included in this report. Reference should be made to those statements and the notes thereto for an understanding of the following discussion and analysis.

The Company generates a significant amount of its income from the net interest income earned by the Bank. Net interest income is the difference between interest income and interest expense. Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon. The Company's cost of money is a function of the average amount of deposits and borrowed money outstanding during the period and the interest rates paid thereon. Asset quality affects the amount of interest income lost on non-accrual loans and the amount of the allowance for loan losses. Highlands Union Insurance Services and Highlands Union Financial Services, which are subsidiaries of Highlands Union Bank, generate fee income by providing insurance and financial service products to its clients. Russell Road Properties, LLC is also an entity in which the Bank has a significant interest and was created to hold and manage certain properties acquired by the Bank through foreclosure or deed in lieu of foreclosure.

Critical Accounting Policies

The financial condition and results of operations presented in the Consolidated Financial Statements, accompanying Notes to Consolidated Financial Statements and management's discussion and analysis are, to a large degree, dependent upon the accounting policies of the Company. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change. For a discussion of the Company's critical accounting policies related to its allowance for loan losses and other than temporary impairment, see the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Results of Operations

Consolidated net income totaled $610,000 for the three-month period ended March 31, 2018, compared to $1.0 million for the three-month period ended March 31, 2017.

The following table provides summarized income statements for the three-month periods ended March 31, 2018 and March 31, 2017.

	Three months ended March 31,
	2018		2017
Net interest income	$	5,036	$	4,650
Provision expense	172		17
Noninterest income	1,082		1,287
Noninterest expense	5,166		4,449
Income before income taxes	780		1,471
Income tax expense	170		439
Net income	$	610	$	1,032

Net interest income for the three-month period ended March 31, 2018 increased $386,000 or 8.3 percent compared to the three months ended March 31, 2017 primarily due to reduction in FHLB advances compared to the prior period. Average loan balances for the three months ended March 31, 2018 increased slightly compared to the three month period ended March 31, 2017. Average securities balances declined $15.2 million during the same period. The tax-equivalent yield on average interest-earning assets was 4.31 percent for the three-month period ended March 31, 2018 compared to 4.28 percent in the same period of 2017. 

Average interest-bearing liabilities decreased $18.1 million for the three months ended March 31, 2018,when compared to the same period of 2017 due to improved yields on interest-earning assets and repayments of FHLB advances. The total yield on interest-earning assets improved from 4.24 percent during the three months ended March 31, 2017 to 4.41 percent for the three-month period ended March 31, 2018. The average rate on interest-bearing liabilities declined from 0.99 percent in the three month

28

period ended March 31, 2017, to 0.86 percent for the three months ended March 31, 2018 due to FHLB advance repayment and change in deposit mix.

The provision for loan losses for the three-month period ended March 31, 2018 totaled $172,000, compared to $17,000 during the corresponding period of 2017.

The Company continually monitors the loan portfolio for signs of credit weaknesses or developing collection problems. Loan loss provisions for each period are determined after evaluating the loan portfolio and determining the level necessary to absorb current charge-offs and maintain the reserve at adequate levels.  The Company's allowance for loan losses at March 31, 2018 was 0.93 percent of total loans compared to 0.92 percent at December 31, 2017. Net charge-offs for the three-month period ended March 31, 2018 totaled $126,000 compared to $118,000 recorded during the same period of 2017.

During the third quarter of 2017, the Company reduced its unallocated allowance for loan losses and established a $97,000 reserve for unfunded commitments, representing the estimated potential exposure for unfunded loan commitments. The reserve for unfunded commitments is reported within other liabilities in the consolidated balance sheet.

During the first quarter of 2018, noninterest income decreased $205,000 compared to the corresponding period for 2017, primarily due to lower mortgage banking income. The Company's mortgage division originates loans to be sold on a servicing-released basis through its branch footprint and in North and South Carolina. The Company is currently transitioning its mortgage banking operation from a correspondent basis to a broker, which will result in narrower margins on originated loans, but will result in lower noninterest expenses associated with the mortgage banking operation. Income from the gain on sale of loans totaled $100,000 during the first quarter of 2018, compared to $226,000 during the same period of 2017.

Other service charges, commissions and fees decreased $79,000 as compared to the same period of 2017, primarily due to lower financial services income. Service charge income decreased $60,000 during the first quarter of 2018, compared to the same period of 2017, due to a reduction in NSF income.

Total noninterest expense for the three-month period ended March 31, 2018 increased $717,000 from the comparable period in 2017, due to increases in OREO-related expenses, occupancy costs, and various other operating expenses. OREO-related expenses increased $111,000 due to writedowns triggered by updated property appraisals. Occupancy expenses were higher due to increased lease expense related to the mortgage operation and depreciation expense related to a new facility in Johnson City, TN.

Other operating expense increased $634,000 from the three months ended March 31, 2017 to the three months ended March 31, 2018, the increase resulting from higher software maintenance costs and nonrecurring increases in legal expense, advisory services related to business continuity and writedowns related to real estate held for sale.

Salaries and employee benefits decreased $90,000 for the three months ended March 31, 2018 as compared to the prior year period, resulting from the impact of earlier workforce reductions, partially offset by the lower deferred salary costs from current year loan originations.

The annualized return on average equity was 7.25 percent for the three-month period ended March 31, 2018, compared to 7.48 percent for the corresponding period of 2017. Annualized return on average assets for the three months ended March 31, 2018 was 0.68 percent compared to 0.68 percent for the three months ended March 31, 2017. While both operating ratios remain below peer averages, the improvements reflect ongoing efforts to achieve stable profitability. The Company continues to identify and implement strategies to improve core operating results.

Financial Position

Investment securities available for sale totaled $74.1 million at March 31, 2018, compared to $78.5 million at December 31, 2017. Investment securities available for sale at March 31, 2018 were comprised of mortgage backed securities/CMOs (75.5 percent of the total securities portfolio), municipal issues (16.0 percent), and SBAs pools (8.5 percent).  There were no investment securities held to maturity at March 31, 2018 or December 31, 2017.

Other investments include holdings of Federal Reserve, Federal Home Loan Bank, Pacific Coast Bankers Bank, and Community Bankers Bank stock. These investments had a carrying value of $2.8 million at March 31, 2018, and are considered to be non-marketable as the Company is required to hold these investments and the only market for these investments is the issuing agency.

29

Loans, net of deferred fees, totaled $431.3 million at March 31, 2018, compared to $431.6 million at December 31, 2017. The loan to deposit ratio was 84.6 percent at March 31, 2018 compared to 86.5 percent at December 31, 2017. Deposits at March 31, 2018 totaled $510.0 million, and have increased $11.2 million since December 31, 2017. Deposit growth during 2018 has been primarily among noninterest bearing deposits, which increased $9.3 millionsince December 31, 2017.

As of March 31, 2018, the Company has $30.1 million in FHLB advances. No new advances were originated during the last 12 months and, during the three months ended March 31, 2018, the Company elected to utilized existing liquidity to repay $10.0 million of FHLB advances prior to their scheduled maturity dates later in 2018. The Company secures all of its existing and future advances from the FHLB with 1-4 family residential mortgage, commercial real estate and multi-family loans.

Non-performing assets include non-accrual loans, loans contractually past due 90 days or more and still accruing interest, other real estate owned and repossessions. Non-performing assets were $3.7 million or 0.86 percent of loans held for investment and OREO at March 31, 2018, compared to $4.4 million or 1.02 percent of loans held for investment and OREO at December 31, 2017.  The Company continues its efforts to reduce non-performing assets, primarily by reducing non-accrual loans and selling OREO.

The allowance for loan losses is calculated based on management's judgment and analysis of current and historical loss experience, risk characteristics of the loan portfolio, concentrations of credit and asset quality, as well as other internal and external factors, including general economic conditions. The calculation of the allowance for loan losses is reviewed by the senior credit officers, the chief risk officer, senior financial officers and the board of directors.

At March 31, 2018 and December 31, 2017, management determined that the Company's allowance for loan losses is sufficient and is appropriate based on the requirements of accounting principles generally accepted in the United States of America.

At March 31, 2018, other real estate owned totaled $2.2 million and consisted of 14 relationships. At December 31, 2017 OREO balances were $2.4 million and consisted of 15 relationships. The following chart details each category type, number of relationships, and balance.

	March 31, 2018			December 31, 2017
Balance in thousands	Number	Balance		Number	Balance
Land development/vacant land	8	$	452	10	$	663
1-4 family residential mortgage	3	207		2	142
Commercial real estate	3	1,510		3	1,545
Total	14	$	2,169	15	$	2,350

The Company's major markets include: Southwestern Virginia; the Tri-City region of Eastern Tennessee; Sevierville and Knoxville, Tennessee; and Boone/Banner Elk, North Carolina. The following table provides information about properties owned in each geographic area, the number of individual properties and book value.

	March 31, 2018			December 31, 2017
Balance in thousands	Number	Balance		Number	Balance
Sevierville and Knoxville TN Area	1	$	71	1	$	71
Southwest VA and Tri-city TN Area	11	2,028		12	2,209
Boone and Banner Elk NC Area	2	70		2	70
Total	14	$	2,169	15	$	2,350

The Company focuses on selling OREO properties and reducing other non-performing assets. The ability to sell OREO continues to be somewhat negatively affected by limited demand.

30

Liquidity and Capital Resources

Total stockholders' equity of the Company was $53.4 million at March 31, 2018, compared to $53.8 million at December 31, 2017. The change in stockholders' equity during 2018 reflects an increase in accumulated other comprehensive loss related to the market value of the Company's available for sale securities portfolio, net of retained earnings.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total risk-based capital and tier 1 capital to risk-weighted assets (as defined in the regulations), and tier 1 capital to adjusted total assets (as defined).  See Note 6 for a more detailed discussion of the Bank's regulatory capital ratios.

Liquidity is the ability to provide sufficient cash levels to meet financial commitments and to fund loan demand and deposit withdrawals. The Company and subsidiary Bank maintain a significant level of liquidity in the form of cash and cash equivalents ($40.9 million as of March 31, 2018) and unrestricted investment securities available for sale ($45.2 million). Cash and cash equivalents are immediately available for satisfaction of deposit withdrawals, customer credit needs, and operations of the Bank.  The Bank also maintains a significant amount of available credit with both the Federal Home Loan Bank and a correspondent financial institution. Unencumbered investment securities available for sale represent a secondary level of liquidity available for conversion to liquid funds in the event of extraordinary needs. The Company believes that it maintains sufficient liquidity to meet its current and projected requirements and needs.

Caution About Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including certain plans, expectations, goals and projections, which are inherently subject to numerous assumptions, risks and uncertainties. The Company's actual results could differ materially from those set forth or implied in the forward-looking statements.

Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:

• adverse economic conditions in the market area and the impact on credit quality and risks inherent in the loan portfolio such as repayment risk and fluctuating collateral values;

• our inability to manage, dispose of and properly value non-performing assets and other real estate owned;

• further deterioration in the housing market and collateral values;

• our inability to assess the creditworthiness of our loan portfolio and maintain a sufficient allowance for loan losses;

• our inability to maintain adequate sources of funding and liquidity, including secondary sources such as Federal Home Loan Bank advances;

• our ability to attract and maintain capital levels adequate to support our asset levels and risk profile;

• our inability to comply with the written agreement, dated October 13, 2010, with the Federal Reserve Bank of Richmond;

• our successful management of interest rate risk and changes in interest rates and interest rate policies;

• reliance on our management team, including our ability to attract and retain key personnel;

• our ability to successfully manage our strategic plan;

• difficult market conditions in our industry;

• problems with technology utilized by us;

• our ability to successfully manage third-party vendors upon whom we are dependent;

• competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;

• potential impact on us of recently enacted legislation and future regulation;

• changes in accounting policies or standards;

• demand, development and acceptance of new products and services; and,

• changing trends in customer profiles and behavior.

31

ITEM 3.Quantitative and Qualitative Disclosures About Market RiskNot Applicable

ITEM 4. Controls and Procedures

We have carried out an evaluation, under the supervision and the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our 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. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have not been any changes in the Company's internal controls over financial reporting during the first quarter of 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

On December 23, 2015, James M. Brock and Jean W. Brock (together, "Brock") filed a complaint in the Circuit Court of Grayson County, Virginia, alleging that the Bank acted negligently when it foreclosed on property adjacent to the Brock's property and allegedly failed to remediate the foreclosed property, allegedly causing damage to Brock's property. Brock seeks damages of $200,000 plus prejudgment interest, attorneys' fees, and costs. The Bank denies any wrongdoing in this matter and intends to vigorously defend itself. No trial date has yet been set. The Company is unable to estimate the likelihood of an unfavorable outcome or the amount or range of potential loss.

Item 1A. Risk Factors

Not applicable

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

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

Not Applicable

Item 5.  Other Information

None

Item 6.  Exhibits

Exhibit Index
31.1	Rule 13a-14(a) Certification of President and Chief Executive Officer
312	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification Statement of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification 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 March 31, 2018, 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) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Stockholders' Equity and (vi) related notes (furnished herewith).

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HIGHLANDS BANKSHARES, INC
	(Registrant)
Date: 5/14/2018	By:	/s/ Timothy K. Schools
		Timothy K. Schools
		President and Chief Executive Officer
Date: 5/14/2018		/s/ John H. Gray
		John H. Gray
		Chief Financial Officer

34

Exhibit Index
31.1	Rule 13a-14(a) Certification of President and Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification Statement of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification 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 March 31, 2018, 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) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Changes in Stockholders' Equity and (vi) related notes (furnished herewith).

35

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification of President and Chief Executive Officer

I, Timothy K. Schools, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Highlands Bankshares, Inc. for the quarter ended March 31, 2018.
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-a5(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: May 14, 2018

/s/ Timothy K. Schools

Timothy K. Schools

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification of Chief Financial Officer

I, John H. Gray, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Highlands Bankshares, Inc. for the quarter ended March 31, 2018.
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-a5(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: May 14, 2018

/s/ John H. Gray

John H. Gray

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification

Pursuant To 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of  The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Highlands Bankshares, Inc. (the "Company") for the period ended March 31, 2018 as filed with the Securities and Exchange Commission (the "Report"), I, Timothy K. Schools, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Timothy K. Schools

Timothy K. Schools

President and Chief Executive Officer

May 14, 2018

EX-32.2

Exhibit 32.2

Certification

Pursuant To 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of  The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Highlands Bankshares, Inc. (the "Company") for the period ended March 31, 2018 as filed with the Securities and Exchange Commission (the "Report"), I, John H. Gray, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John H. Gray

John H. Gray

Chief Financial Officer

May 14, 2018

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 14, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	HIGHLANDS BANKSHARES INC /VA/
Entity Central Index Key	0001008579
Document Period End Date	Mar. 31, 2018
Current Fiscal Year End Date	--12-31
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding (in shares)		8,199,228
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 22,626	$ 15,179
Federal funds sold	18,276	15,618
Total cash and cash equivalents	40,902	30,797
Investment securities available for sale (amortized cost $76,898 at March 31, 2018, $79,990 at December 31, 2017)	74,140	78,527
Other investments, at cost	2,793	3,116
Loans held for sale	1,795	4,808
Loans	431,266	431,574
Allowance for loan losses	(4,000)	(3,954)
Net loans	427,266	427,620
Premises and equipment, net	18,138	18,332
Real estate held for sale	1,370	1,430
Deferred tax assets	7,263	7,161
Interest receivable	1,777	1,987
Bank-owned life insurance	14,768	14,679
Other real estate owned	2,169	2,350
Other assets	3,148	3,290
Total assets	595,529	594,097
Deposits:
Non-interest bearing	157,907	148,633
Interest bearing	352,091	350,150
Total deposits	509,998	498,783
Interest, taxes and other liabilities	1,954	1,364
Short-term borrowings	0	10,000
Long-term debt	30,133	30,146
Total liabilities	542,085	540,293
STOCKHOLDERS' EQUITY
Common stock (8,199 shares issued and outstanding for each period presented)	5,124	5,124
Preferred stock (2,092 shares issued and outstanding for each period presented)	4,184	4,184
Additional paid-in capital	19,169	19,113
Retained earnings	27,149	26,539
Accumulated other comprehensive income	(2,182)	(1,156)
Total stockholders' equity	53,444	53,804
Total liabilities and stockholders' equity	$ 595,529	$ 594,097

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
ASSETS
Investment securities available for sale, amortization cost	$ 76,898	$ 79,990
STOCKHOLDERS' EQUITY
Common stock, shares issued (in shares)	8,199	8,199
Common stock, shares outstanding (in shares)	8,199	8,199
Preferred stock shares issued (in shares)	2,092	2,092
Preferred stock shares outstanding (in shares)	2,092	2,092

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
INTEREST INCOME
Loans receivable and fees on loans	$ 5,315	$ 5,049
Investment securities	478	582
Federal funds sold	70	50
Total interest income	5,863	5,681
INTEREST EXPENSE
Deposits	463	446
Other borrowed funds	364	585
Total interest expense	827	1,031
Net interest income	5,036	4,650
Provision for loan losses	172	17
Net interest income after provision for loan losses	4,864	4,633
NON-INTEREST INCOME
Mortgage banking income	100	226
Service charges on deposit accounts	337	397
Other service charges, commissions and fees	419	498
Other operating income	226	166
Total non-interest income	1,082	1,287
NON-INTEREST EXPENSE
Salaries and employee benefits	2,403	2,493
Occupancy and equipment expense	731	669
Foreclosed assets – write-down and operating expenses	131	20
Other operating expense	1,901	1,267
Total non-interest expense	5,166	4,449
Income before income taxes	780	1,471
Income tax expense (benefit) (Note 5)	170	439
Net income	$ 610	$ 1,032
Net income per common share (Note 7)
Net income (loss) per common share, basic (in dollars per share)	$ 0.07	$ 0.13
Net income (loss) per common share, fully diluted (in dollars per share)	$ 0.06	$ 0.10

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Net income	$ 610	$ 1,032
Other comprehensive (loss) income
Unrealized (losses) gains on securities during the period	(1,297)	94
Less: reclassification adjustment	0	0
Other comprehensive (loss) income before tax	(1,297)	94
Income tax (benefit) expense related to other comprehensive income	(271)	32
Other comprehensive (loss) income	(1,026)	62
Comprehensive (loss) income	$ (416)	$ 1,094

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 610	$ 1,032
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	172	17
Depreciation and amortization	401	404
Provision for deferred tax assets	170	0
Restricted stock expense	56	55
Originations of loans held for sale	(7,651)	(7,386)
Proceeds from loans held for sale	10,664	5,578
Decrease in interest receivable	210	202
Valuation adjustment of real estate held for sale	60	0
Valuation adjustment of other real estate owned	90	0
Decrease in other assets	52	1,266
Increase in interest, taxes and other liabilities	590	124
Net cash provided by operating activities	5,424	1,292
Securities available for sale:
Proceeds from maturities of securities	2,965	3,910
Purchase of debt and equity securities	0	(5,293)
Redemptions of other investments	323	252
Net decrease in loans	117	212
Proceeds from sales of other real estate owned	156	255
Premises and equipment expenditures	(82)	(410)
Net cash (used in) provided by investing activities	3,479	(1,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits	(13,922)	(1,966)
Net increase in demand, savings and other deposits	25,137	7,564
Decrease in short-term borrowings	(10,000)	0
Decrease in long-term debt	(13)	(13)
Net cash provided by financing activities	1,202	5,585
Net change in cash and cash equivalents	10,105	5,803
Cash and cash equivalents at beginning of period	30,797	50,385
Cash and cash equivalents at end of period	40,902	56,188
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments during the period for interest	860	1,047
Cash payments during the period for income taxes	0	0
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Transfer of loans to other real estate owned	65	228
Loans originated from sales of other real estate owned	$ 0	$ 0

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Preferred Stock	Additional paid-in-capital	Retained earnings	Accumulated other comprehensive income (loss)
Beginning balance at Dec. 31, 2016	$ 53,758	$ 5,124	$ 4,184	$ 18,891	$ 26,785	$ (1,226)
Beginning balance (in shares) at Dec. 31, 2016		8,199	2,092
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,032				1,032
Other comprehensive loss	62					62
Stock-based compensation	55	$ 0		55
Grant of restricted stock (in shares)		0
Ending balance at Mar. 31, 2017	54,907	$ 5,124	$ 4,184	18,946	27,817	(1,164)
Ending balance (in shares) at Mar. 31, 2017		8,199	2,092
Beginning balance at Dec. 31, 2017	53,804	$ 5,124	$ 4,184	19,113	26,539	(1,156)
Beginning balance (in shares) at Dec. 31, 2017		8,199	2,092
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	610				610
Other comprehensive loss	(1,026)					(1,026)
Stock-based compensation	56			56
Ending balance at Mar. 31, 2018	$ 53,444	$ 5,124	$ 4,184	$ 19,169	$ 27,149	$ (2,182)
Ending balance (in shares) at Mar. 31, 2018		8,199	2,092

XML

General

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

General

The consolidated financial statements of Highlands Bankshares, Inc. (the "Company") conform to United States generally accepted accounting principles and to banking industry practices. The accompanying consolidated interim financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The consolidated balance sheet as of December 31, 2017 has been extracted from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Form 10-K"). The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the 2017 Form 10-K. The results of operations for the three-month period ended March 31, 2018, are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

XML

Summary of Significant Accounting Policy Update For Certain Required Disclosures

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policy Update For Certain Required Disclosures

Summary of Significant Accounting Policy Update For Certain Required Disclosures

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09, as subsequently amended by ASU No. 2015-14 issued in August 2015, required adoption in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company adopted ASU 2014-09 effective January 1, 2018.

Application of ASU 2014-09 requires identification of customer contracts, identification of the performance obligations within those contracts, identification of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue once the performance obligation is satisfied. ASU 2014-09 requires disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company evaluated the impact on noninterest income, which includes fees for services, commissions on sales, and various deposit service charges. The Company concluded that no cumulative-effect adjustment to retained earnings was necessary. The adoption of the standard did not have a material effect on the Company’s financial position or results of operations.

In January 2016, ASU No. 2016-01 Financial Instruments--Overall (ASU 2016-01) was issued by the FASB.  ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted ASU 2016-01 on January 1, 2018. The adoption of ASU 2016-01 did not have a material effect on the Company's consolidated financial statements.

In June 2016, ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments was issued by the FASB. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company continues to evaluate the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

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

XML

Investment Securities Available For Sale

3 Months Ended

Mar. 31, 2018

Investments, Debt and Equity Securities [Abstract]

Investment Securities Available For Sale

Investment Securities Available For Sale

The amortized cost and market value of securities available for sale are as follows:

	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,459	$	8	$	615	$	11,852
Mortgage backed securities	57,925		8		1,967		55,966
SBA Pools	6,514		—		192		6,322
	$	76,898	$	16	$	2,774	$	74,140

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,766	$	44	$	299	$	12,511
Mortgage backed securities	60,383		12		1,088		59,307
SBA Pools	6,841		1		133		6,709
	$	79,990	$	57	$	1,520	$	78,527

Investment securities available for sale with a fair value of $28,989 and $26,856 at March 31, 2018 and December 31, 2017, respectively, were pledged as collateral on public deposits, FHLB advances and for other purposes as required or permitted by law.

The following table presents the age of gross unrealized losses and fair value by investment category:

	March 31, 2018
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	4,071	$	102	$	6,921	$	513	$	10,992	$	615
Mortgage-backed securities	14,150		368		40,278		1,599		54,428		1,967
SBA Pools	160		1		5,948		191		6,108		192
Total	$	18,381	$	471	$	53,147	$	2,303	$	71,528	$	2,774

	December 31, 2017
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	1,744	$	18	$	7,158	$	281	$	8,902	$	299
Mortgage-backed securities	14,540		177		42,415		911		56,955		1,088
SBA Pools	176		1		6,206		132		6,382		133
Total	$	16,460	$	196	$	55,779	$	1,324	$	72,239	$	1,520

The Company assesses its securities for OTTI quarterly by reviewing credit ratings, financial and regulatory reports as well as other pertinent published financial data. As of March 31, 2018 and December 31, 2017, the Company's assessment revealed no impairment other than that deemed temporary on those securities.

The amortized cost and estimated fair value of securities available for sale at March 31, 2018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Investment securities with scheduled maturities:
Due in one year or less	$	125	$	125
Due after one year through five years	599		602
Due after five years through ten years	866		827
Due after ten years	17,382		16,619
Total investment securities with scheduled maturities	18,972		18,173
Mortgage-backed securities	57,926		55,967
Total investment securities available for sale	$	76,898	$	74,140

The following table summarizes the securities gains (losses) recognized for the period presented:

	Three months ended March 31
	2018		2017
Gross gains	$	—	$	—
Gross losses	—		—
Securities gains, net	$	—	$	—

XML

Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

The composition of net loans is as follows:

	March 31, 2018		December 31, 2017
Real estate secured:
Residential 1-4 family	$	171,731	$	174,889
Multifamily	18,157		19,469
Construction and land loans	16,933		15,907
Commercial, owner occupied	82,151		82,121
Commercial, non-owner occupied	34,437		33,748
Second mortgages	4,670		4,684
Equity lines of credit	35,568		34,378
Farmland	12,977		13,188
Total real estate secured	376,624		378,384
Non-real estate secured
Personal	13,617		14,192
Commercial	38,734		36,785
Agricultural	3,002		2,950
Total non-real estate secured	55,353		53,927
Gross loans	431,977		432,311
Less:
Allowance for loan losses	4,000		3,954
Net deferred fees	711		737
Loans, net	$	427,266	$	427,620

The following table is an analysis of past due loans as of March 31, 2018:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,647	$	689	$	2,336	$	169,395	$	171,731	$	243
Equity lines of credit	—		—		—		35,568		35,568		—
Multifamily	—		—		—		18,157		18,157		—
Farmland	678		194		872		12,105		12,977		—
Construction, land development, other land loans	74		—		74		16,859		16,933		—
Commercial real estate:
Owner-occupied	601		317		918		81,233		82,151		—
Non-owner-occupied	1,707		—		1,707		32,730		34,437		—
Second mortgages	—		—		—		4,670		4,670		—
Non-real estate secured
Personal	95		17		112		13,505		13,617		—
Commercial	104		209		313		38,421		38,734		—
Agricultural	—		—		—		3,002		3,002		—
Total	$	4,906	$	1,426	$	6,332	$	425,645	$	431,977	$	243

The following table is an analysis of past due loans as of December 31, 2017:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,092	$	566	$	1,658	$	173,231	$	174,889	$	—
Equity lines of credit	—		—		—		34,378		34,378		—
Multifamily	—		—		—		19,469		19,469		—
Farmland	234		50		284		12,904		13,188		—
Construction, land development, other land loans	—		—		—		15,907		15,907		—
Commercial real estate:
Owner-occupied	11		708		719		81,402		82,121		—
Non-owner-occupied	—		—		—		33,748		33,748		—
Second mortgages	—		—		—		4,684		4,684		—
Non-real estate secured
Personal	211		23		234		13,958		14,192		—
Commercial	502		279		781		36,004		36,785		26
Agricultural	49		—		49		2,901		2,950		—
Total	$	2,099	$	1,626	$	3,725	$	428,586	$	432,311	$	26

Loans are considered delinquent when payments have not been made according to the terms of the contract. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.  Additionally, in certain instances, loans that have been restructured or modified may also be classified as non-accrual per regulatory guidance until a satisfactory payment history has been established. Credit card loans and other personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

The following is a summary of non-accrual loans at March 31, 2018 and December 31, 2017: 

	March 31, 2018		December 31, 2017
Real estate secured
Residential 1-4 family	$	553	$	887
Commercial real estate:
Owner-occupied	575		708
Non-owner-occupied	—		—
Second mortgages	—		—
Equity lines of credit	—		—
Farmland	194		193
Non-real estate secured
Personal	14		23
Commercial and agricultural	209		254
Total	$	1,545	$	2,065

The following is a summary of residential real estate currently in the process of foreclosure as well as foreclosed residential real estate as of March 31, 2018.

	Number	Balance
Residential real estate in the process of foreclosure	5	$	392
Foreclosed residential real estate	3	228

The following tables represent a summary of credit quality indicators of the Company's loan portfolio at March 31, 2018 and December 31, 2017. The grades are assigned and/or modified by the Company's credit review and credit analysis departments based on the creditworthiness of the borrower and the overall strength of the loan.

The following tables provide the credit risk profile by internally assigned grade as of March 31, 2018 and December 31, 2017: 

March 31, 2018	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	36,436	$	—	$	11	$	3,158	$	3,174	$	230
Satisfactory	89,329		10,055		3,965		5,921		45,999		13,932
Acceptable	39,696		8,102		3,616		6,177		28,795		16,351
Special Mention	909		—		3,185		1,677		978		1,569
Substandard	5,361		—		2,200		—		3,205		2,355
Doubtful	—		—		—		—		—		—
Total	$	171,731	$	18,157	$	12,977	$	16,933	$	82,151	$	34,437

December 31, 2017	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	33,107	$	—	$	13	$	2,870	$	3,535	$	295
Satisfactory	95,659		10,653		4,419		5,445		45,906		13,602
Acceptable	40,487		8,816		3,333		5,906		28,344		15,609
Special Mention	388		—		3,206		1,565		2,542		2,226
Substandard	5,248		—		2,217		121		1,661		2,016
Doubtful	—		—		—		—		133		—
Total	$	174,889	$	19,469	$	13,188	$	15,907	$	82,121	$	33,748

Explanation of credit grades:

Quality--This grade is reserved for the Bank's top quality loans. These loans have excellent sources of repayment, with no significant identifiable risk of collection.  Generally, loans assigned this rating will demonstrate the following characteristics:

• Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

• Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

• Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

For existing loans, all of the requirements above apply plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are either stable or improving.

Satisfactory-This grade is given to performing loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this rating will demonstrate the following characteristics:

• General conformity to the Bank's policy requirements, product guidelines and underwriting standards.  Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

• Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.  

• Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

For existing loans, all of the requirements outlined above will apply, plus all payments have been made as agreed, current financial information on all borrowers and guarantors has been obtained and analyzed, and overall business operating trends are stable with any declines considered minor and temporary.

Acceptable-This grade is given to loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this rating may demonstrate some or all of the following characteristics:

• Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.

• Unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.

• Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

For existing loans, payments have generally been made as agreed with only minor and isolated delinquencies.

Special Mention -This grade is given to Watch List loans that include the following characteristics:

• Loans with underwriting guideline tolerances and/or exceptions with no identifiable mitigating factors.

• Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

• Loans where adverse economic conditions that develop subsequent to the loan origination do not jeopardize liquidation of the debt, but do substantially increase the level of risk may also warrant this rating.

Substandard-Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

The weaknesses may include, but are not limited to:

• High debt to worth ratios and or declining or negative earnings trends

• Declining or inadequate liquidity

• Improper loan structure  or questionable repayment sources

• Lack of well-defined secondary repayment source, and

• Unfavorable competitive comparisons.

Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals.

Doubtful -Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists.

However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are:

• Injection of capital

• Alternative financing

• Liquidation of assets or the pledging of additional collateral.

Credit Risk Profile based on payment activity as of March 31, 2018:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	13,600	$	40,238	$	38,525	$	3,002
Nonperforming (>90 days past due)	17		—		209		—
Total	$	13,617	$	40,238	$	38,734	$	3,002

Credit Risk Profile based on payment activity as of December 31, 2017:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	14,169	$	39,062	$	36,506	$	2,950
Nonperforming (>90 days past due)	23		—		279		—
Total	$	14,192	$	39,062	$	36,785	$	2,950

The following tables reflect the Bank's impaired loans at March 31, 2018:

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	4,769	$	4,769	—	$	6,084	$	74
Equity lines of credit	35		35		—	42		—
Multifamily	—		—		—	—		—
Farmland	656		656		—	571		12
Construction, land development, other land loans	1,677		1,677		—	1,721		—
Commercial real estate- owner occupied	932		932		—	1,242		—
Commercial real estate- non owner occupied	—		—		—	32		—
Second mortgages	122		122		—	166		—
Non-real estate secured
Personal	—		—		—	48		11
Commercial and agricultural	1,177		1,177		—	841		12
Total	$	9,368	$	9,368	—	$	10,747	$	109

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	525	$	525	$	19	$	300	$	2
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,621		1,621		192		1,676		—
Construction, land development, other land loans	—		—		—		—		—
Commercial real estate- owner occupied	2,376		2,376		516		2,125		—
Commercial real estate- non owner occupied	4,027		4,027		782		3,960		—
Second mortgages	—		—		—		—		—
Non-real estate secured
Personal	21		21		23		12		—
Commercial and agricultural	349		349		234		426		—
Total	$	8,919	$	8,919	$	1,766	$	8,499	$	2

The following tables reflect the Bank's impaired loans at December 31, 2017:

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	7,398	$	7,398	—	$	6,123	$	279
Equity lines of credit	49		49		—	37		—
Multifamily	—		—		—	495		56
Farmland	486		486		—	586		42
Construction, land development, other land loans	1,765		1,765		—	1,753		67
Commercial real estate- owner occupied	1,552		1,552		—	3,677		22
Commercial real estate- non owner occupied	63		63		—	973		19
Second mortgages	209		209		—	198		3
Non real estate secured
Personal	95		95		—	55		—
Commercial and agricultural	504		504		—	274		—
Total	$	12,121	$	12,121	—	$	14,171	$	488

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	74	$	74	$	11	$	267	$	24
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,731		1,731		257		962		13
Construction, land development, other land loans	—		—		—		183		24
Commercial real estate- owner occupied	1,873		1,873		465		1,506		196
Commercial real estate- non owner occupied	3,892		3,892		955		2,951		141
Second mortgages	—		—		—		9		—
Non real estate secured
Personal	2		2		2		27		—
Commercial and agricultural	502		502		418		568		4
Total	$	8,074	$	8,074	$	2,108	$	6,473	$	402

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by loan category and is segregated by impairment evaluation method as of and for the three month periods ended March 31, 2018 and March 31, 2017.

Three months ended March 31, 2018	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied			Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated		Total
Allowance for Loan Losses:
Balance at December 31,  2017	$	133		—		$	1		$	1,636		$	955		$	12		$	—	$	54		$	265		$	383		$	515	$	3,954
Provision expense (credit) for credit losses	3			3		2			(219		)	(167		)	(3		)	6		139			21			(136		)	523		172
Charge-offs	—			—		—			95			—			5			—		—			88			149			—		337
Recoveries	(8		)	—		(1		)	(17		)	—			—			—		(1		)	(30		)	(154		)	—		(211		)
Net charge-offs (recoveries)	(8		)	—		(1		)	78			—			5			—		(1		)	58			(5		)	—		126
Balance at March 31, 2018	$	144		$	3	$	4		$	1,339		$	788		$	4		$	6	$	194		$	228		$	252		$	1,038	$	4,000
Allowance allocated by impairment method:
Individually evaluated	$	19		$	—	$	—		$	516		$	782		$	—		$	—	$	192		$	24		$	233		$	—	$	1,766
Collectively evaluated	125			3		4			823			6			4			6		2			204			19			1,038		2,234
Loan balances by impairment method used:
Individually evaluated	$	5,269		$	—	$	1,677		$	3,194		$	3,835		$	122		$	35	$	2,200		$	21		$	1,509		$	—	$	17,862
Collectively evaluated	166,462			18,157		15,256			78,957			30,602			4,548			35,533		10,777			13,596			40,227			—		414,115
Balance at March 31, 2018	$	171,731		$	18,157	$	16,933		$	82,151		$	34,437		$	4,670		$	35,568	$	12,977		$	13,617		$	41,736		—		$	431,977

Three months ended March 31, 2017	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied		Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated			Total
Allowance for Loan Losses:
Balance at December 31, 2016	$	371		—		$	21		$	1,339	$	445		$	15		$	27	$	16		$	802		$	535		$	1,258		$	4,829
Provision for credit losses	(16		)	—		(1		)	350		403			(11		)	4		37			204			(99		)	(854		)	17
Charge-offs	14			—		—			—		—			—			—		—			79			59			—			152
Recoveries	(3		)	—		(1		)	—		(1		)	—			—		(1		)	(25		)	(3		)	—			(34		)
Net charge-offs	11			—		(1		)	—		(1		)	—			—		(1		)	54			56			—			118
Balance at March 31, 2017	$	344		$	—	$	21		$	1,689	$	849		$	4		$	31	$	54		$	952		$	380		$	404		$	4,728
Allowance allocated by impairment method:
Individually evaluated	$	47		$	—	$	20		$	960	$	768		$	—		$	—	$	20		$	—		$	280		$	—		$	2,095
Collectively evaluated	297			—		1			729		81			4			31		34			952			100			404			2,633
Loan balances by impairment method used:
Individually evaluated	$	6,396		$	980	$	1,902		$	4,263	$	4,225		$	64		$	—	$	773		$	260		$	466		$	—		$	19,329
Collectively evaluated	176,684			21,743		14,619			65,035		25,179			6,131			19,882		11,510			16,777			32,941			—			390,501
Balance at March 31, 2017	$	183,080		$	22,723	$	16,521		$	69,298	$	29,404		$	6,195		$	19,882	$	12,283		$	17,037		$	33,407		—			$	409,830

The Company's credit administration personnel and senior financial officers are responsible for tracking, coding, and monitoring loans that become Troubled Debt Restructurings ("TDRs"). Concessions are made to existing borrowers in the form of modified interest rates and / or payment terms. The loans are segregated for regulatory and external reporting. Each specific TDR is reviewed to determine if the accrual of interest should be discontinued and also reviewed for impairment. The Company's senior credit officer performs this analysis on a quarterly basis in addition to determining any other loans that are impaired within the loan portfolio. The Company had a total of $9,955 and $8,005 of loans categorized as troubled debt restructurings as of March 31, 2018 and December 31, 2017, respectively. Interest is accrued on TDRs if the loan is otherwise not impaired and the full collection of principal and interest under the modified terms is still deemed probable.

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

The following table identifies restructurings completed during the three-month period ended March 31, 2018 that represent new TDRs.

March 31, 2018 Interest only Number Pre-Modification Recorded Investment Post-Modification Recorded Investment

Below Market Rate
Residential 1-4 family	1	$	162	$	162
Commercial real estate-non-owner occupied	1	1,479		1,479
Total below market rate	2	1,641		1,641

Total restructurings 2 $ 1,641 $ 1,641

There were no new TDRs in the three-month period ended March 31, 2017. There were no defaults in the three month periods ending March 31, 2018 and March 31, 2017 of TDRs modified in the previous 12 months.

The Bank has engaged an external third party to perform its loan review function in order to identify weaknesses within the loan portfolio. The review, which seeks to cover 50 percent of loan balances each year, considers collateral, repayment history, guarantor strength, debt service coverage, and other relevant information on an individual and global level. These reviews consider borrower cash flow capacity, using financial statements, income tax returns and internally prepared interim statements for borrowers and guarantors. Debt service coverage (DSC) is calculated on each individual customer, or guarantor, as well as the aggregate or global DSC. The DSC is discounted to determine a stressed DSC. Collateral evaluation includes an inspection of the collateral file to determine if the Bank is properly secured.  Collateral is discounted, when appropriate, to determine a stressed loan to value (LTV) ratio. 

The Company also seeks to identify potential problem relationships through a monthly watch list review, which includes a review of past due loans, as well as any other information that might be presented by loan officers, regarding a particular loan relationship that is exhibiting stress. Watch list relationships display distinct characteristics including, but not limited to, late payments greater than 60 days, a low DSC calculation, bankruptcy filings, casualty losses, or other issues that would cause a perceived increase in the risk of loss to the Bank.

The segments of the Company's loan portfolio are disaggregated to a level that allows management to monitor risk and performance. In reviewing risk, management has determined there to be several different risk categories within the loan portfolio. The allowance for loan losses consists of amounts applicable to: (i) the commercial loan portfolio; (ii) the commercial real estate loan portfolio; (iii) the construction loan portfolio; (iv) the consumer loan portfolio; and, (v) the residential loan portfolio. The commercial real estate ("CRE") loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include multifamily structures and owner-occupied commercial structures. The construction loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. Commercial construction loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. Construction lending is generally considered to involve a higher degree of credit risk than long-term permanent financing.

The following describes the Company's basic methodology for computing its ALLL.

On a quarterly basis, the ALLL methodology begins with the identification of loans subject to ASC 310.  All loans that are rated "7" (Doubtful) are assessed as impaired based on the expectation that the full collection of principal and interest is in doubt. All loans that are rated "6" (Substandard) or are expected to be downgraded to "6", require additional analysis to determine whether they may be impaired under ASC 310. All loans that are rated "5" (Special Mention) are presumed not to be impaired. However, "5" rated loans, together with any Troubled Debt Restructured (TDR) loan, may warrant further analysis before completing an assessment of impairment.

A loan is considered impaired and an allowance for loan losses is established on loans for which it is probable that the full collection of principal and interest is in doubt. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value based on recent appraisal and /or tax assessment value, liquidation value and/or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018 and December 31, 2017, all of the total impaired loans were evaluated based on either the fair value of the collateral or the discounted cash flows.

For ASC 310 loans that are individually evaluated and found to be impaired (primarily those designated as Substandard and Doubtful), the associated ALLL will be based upon one of the three impairment measurement methods specified within ASC 310:

(1) Present value of expected future cash flows discounted at the loan's effective interest rate;

(2) Loan's observable market price; or

(3) Fair value of the collateral.

To determine the amount of loan loss exposure for the impaired ASC 310 loans, the value of collateral for secured loans is evaluated to determine the current value and potential exposure.  The collateral value is adjusted for its age and condition, and, for real estate, adjusted for condition, location, and age of the most current appraisal.  If the adjusted value of the collateral is less than the current principal balance, the difference is designated as direct exposure for loan loss calculations.  The total balance of unsecured loans is considered as direct exposure.

ASC 450 Loan Loss:

For all other loans, including individual loans determined not to be impaired under ASC 310, the associated ALLL is calculated in accordance with ASC 450 that provides for estimated credit losses likely to be realized on groups of loans with similar risk characteristics. The Company uses standard call report categories to segregate loans into groups with similar risk characteristics. Estimated credit losses reflect significant factors that affect the collectability of the portfolio as of the evaluation date. Key factors that influence risk within the Company's loan portfolio are divided into three major categories:

Historical loss factors - To calculate the anticipated loan loss in each call report category for ASC 450 loans, the Company begins with the net loss in each category for each of the last twelve quarters. The Company uses a rolling twelve quarter weighted historical loss average where the most recent quarters are weighted heavier than the earlier quarters so that the calculation reflects current risk trends within the portfolio.  The weighting used by the Company is similar to the Rule of 78's with the net losses of the most recent quarter weighted at 12/78ths and those in the first quarter in the twelve quarter period weighted at 1/78th.   Therefore, the net losses of the most recent year represent approximately 54% of the calculation compared with 33% if a simple average of losses over the three-year period was used.  The total of weighted factors for each call report category is applied to the current outstanding loan balance in each category to calculate expected loss based on historical data for a group of loans with similar risk characteristics.  The same weighting is applied to all loan types .

External economic factors - Economic conditions have a significant impact on Company's loan portfolio because deteriorating conditions can adversely impact both collateral values and the customer's ability to service debt.  Management has selected the following external factors as indicators of economic conditions:

National GDP growth rate

Local unemployment rates

Prime interest rate

The values for external factors are updated on a quarterly basis based on current economic data.

Internal process factors - Internal factors that influence loss rates as a result of risk management and control practices include the following:

Past-due loans

Non-accrual loans

Commercial real estate concentrations

Loan volume

Level and trend of classified loans

The values for internal factors are updated on a quarterly basis based on current portfolio metrics.

Once the quarterly ALLL is computed, the calculations are reviewed by the Company's management. The ALLL is then reviewed and approved by the Board of Directors.

Loans Held for Sale

The Company's mortgage division originates certain single family, residential first mortgage loans for sale on a presold basis. Loan sale activity is summarized below. Loans are typically sold to investors within 20 days of closing. Management feels the carrying amounts approximate the fair values of loans held for sale.

	Three months ended March 31
	2018		2017
Loans held for sale at end of period	$	1,795	$	3,063
Proceeds from sales of mortgage loans originated for sale	10,664		5,578
Gain on sales of mortgage loans originated for sale	100		226

XML

Income Taxes

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense for the three month periods ended March 31, is different than the amount computed by applying the appropriate statutory corporate federal income tax rate to income before taxes. The reasons for these differences are as follows:

	Three months ended March 31,
	2018			2017
Tax expense (benefit) at statutory rate	$	164		$	500
Increase (decrease) in tax expense resulting from:
Tax-exempt interest	(27		)	(29		)
Other, net	33			(32		)
Income tax expense	$	170		$	439
Statutory corporate federal income tax rate	21		%	34		%

XML

Capital Requirements

3 Months Ended

Mar. 31, 2018

Banking and Thrift [Abstract]

Capital Requirements

Capital Requirements

Regulators of the Company and its subsidiary, Highlands Union Bank (the "Bank"), have implemented risk-based capital guidelines which require compliance with certain minimum capital ratios as a percent of assets and other certain off-balance sheet items that are adjusted for predefined credit risk factors.  On July 7, 2013 the Federal Reserve Board approved Basel III Final Rules to begin implementation January 1, 2015. The desired overall objective of Basel III is to improve the banking sector's ability to absorb shocks arising from financial and economic stress. The Final Rule includes a new Common Equity Tier 1 minimum ratio and raises the tier 1 risk weighted assets ratio to 6 percent from 4 percent. In addition, beginning in 2016, the new rules required banks to maintain a capital conservation buffer of between 2 and 2 ½ %. Additionally, the new rules increased the risk weighting of various assets. The new rules will be phased in between 2015 and 2019. Generally, the Basel III Final Rule requires banks to maintain higher levels of common equity and regulatory capital. On December 18, 2014, the President of the United States signed into law Public Law 113-250 (the "Act"), which directs the Board of Governors of the Federal Reserve System (Board) to propose revisions to the Small Bank Holding Company Policy Statement (Policy Statement) to raise the total consolidated asset limit in the Policy Statement from $500 million to $1 billion.

On February 5, 2015 the Company received notification from the Federal Reserve Bank that it would no longer be required to report holding company consolidated capital ratios.

The following table presents the capital ratios for the Bank only.

	March 31, 2018		December 31, 2017
Tier 1 leverage	8.51	%	8.36	%
Tier 1 risk-based	12.13	%	12.15	%
Total risk-based	13.10	%	13.11	%
Common equity tier 1	12.13	%	12.15	%

XML

Capital Issuances / Awards

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Capital Issuances / Awards

Capital Issuances / Awards

In January of 2016, the Company's CEO, Timothy K. Schools purchased 235,294 shares of the Company's common stock at a price of $4.25 per share in a private placement as disclosed on Form 4 on January 12, 2016.  In February 2016, two of the private placement purchasers participating in the capital raise in 2014, MFP Partners LP and Deerhill Pond Investment Partners, LP, each purchased another 12,744 shares of common stock at $4.25 per share which allowed them to maintain the same ownership percentage they held immediately prior to Mr. Schools' purchase. The Company down-streamed $1,150 to the Bank.

Effective September 6, 2016, the Company and Timothy K. Schools, the Company's President and Chief Executive Officer, executed an amendment to Mr. Schools' employment agreement. The amendment provides for the grant of 86,667 restricted shares of the Company's common stock.  The restricted shares will vest 50% on the first anniversary of the award date and 50% on the second anniversary of the award date. The restricted shares are being expensed over the 2 years vesting period based on the grant date fair value of the shares.

XML

Stock and Earnings Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Stock and Earnings Per Share

Stock and Earnings Per Share

Earnings per common share is computed using the weighted average outstanding shares for the three month periods ended March 31, 2018 and 2017. The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per common share computation:

	Three months ended March 31,
(thousands, except per share information)	2018		2017
Net income available to common stockholders	$	610	$	1,032
Weighted average common shares outstanding	8,199		8,113
Total shares outstanding including assumed conversion	10,292		10,292
Basic earnings per common share	$	0.07	$	0.13
Fully diluted earnings per share (including convertible preferred shares outstanding and restricted stock)	0.06		0.10

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The Bank is a party to various financial instruments with off-balance sheet risk arising in the normal course of business to meet the financing needs of its customers. Those financial instruments include commitments to extend credit and standby letters of credit.

At March 31, 2018, unused commitments totaled $62,721, compared to $55,038 at December 31, 2017. Standby letters of credit totaled $971 at March 31, 2018, compared to $991 at December 31, 2017.

XML

Fair Value

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value

Fair Value

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record financial instruments at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC Topic 820 on Fair Value Measurements and Disclosures, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to determine fair value. These adjustments may include amounts to reflect counterparty credit quality, the borrower's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Recurring - Investment Securities Available for Sale

Securities classified as available for sale are reported at fair value utilizing level 2. For level 2 securities, the Company obtains fair value measurements from multiple independent third party sources. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond's terms and conditions, among other things.

The following tables summarize the Company's available for sale securities portfolio measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy.

March 31, 2018
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	11,852	$	—	$	11,852
Mortgage backed securities	—		55,966		—		55,966
SBA pools	—		6,322		—		6,322
Total available for sale securities	$	—	$	74,140	$	—	$	74,140

December 31, 2017
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	12,511	$	—	$	12,511
Mortgage backed securities	—		59,307		—		59,307
SBA pools	—		6,709		—		6,709
Total available for sale securities	—		$	78,527	—		$	78,527

Recurring - Derivatives

Beginning in 2017, the Company entered into interest rate swaps related to customer loan transactions to manage its interest rate risk. These interest rate swaps, which had a notional value of $7,902 as of March 31, 2018 and December 31, 2017, are considered to be derivative financial instruments and are recorded at fair value, based on third party pricing models that are sensitive to market observable data and are therefore classified as level 2 values. The fair value of derivative financial instruments as of March 31, 2018 totaled $144, compared to $45 at December 31, 2017.

Non Recurring - Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including recently appraised collateral value and /or tax assessed value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018 and December 31, 2017, all of the total impaired loans were evaluated based on the fair value of the collateral or the present value of the future cash flows. The Company frequently obtains appraisals prepared by external professional appraisers and applies discounts ranging from 8% to 40% depending on type of property, condition, location, etc. The Company also, in certain instances, prepares internally generated valuations from on-site inspections, third-party valuation models or other information.

Non Recurring – Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on inputs derived from secondary markets for loans with similar characteristics. The Company considers loans held for sale as non-recurring level 2.

Non Recurring –Other Real Estate Owned  / Repossessions / Real Estate Held for Sale

Other real estate owned and repossessions are adjusted to fair value upon transfer of the loans to other real estate owned and repossessions. Subsequently, foreclosed assets and repossessions are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices or recent appraised values of the collateral which the Company considers as nonrecurring level 2.  When the current appraised value is not available or is further discounted below the most recent appraised value less selling costs due to absorption rates and market conditions, the Company records the foreclosed assets within level 3 of the fair value hierarchy.

Real estate held for sale is adjusted to fair value upon transfer from fixed assets or when no longer being used for banking purposes.

The following table summarizes the Company's assets at fair value on a non-recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy. The tables disclose the recorded investment of impaired loans requiring a specific allowance.

March 31, 2018	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	6,879	$	6,879
OREO	—		—		2,169		2,169
Real estate held for sale	—		—		1,370		1,370

December 31, 2017	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	5,967	$	5,967
OREO	—		—		2,350		2,350
Real estate held for sale	—		—		1,430		1,430

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

			Quantitative Information about Level 3 Fair Value Measurements
	12/31/17		3/31/2018		Valuation Techniques	Unobservable Input (2)	Range (Weighted Average)
OREO, net	$	2,350	$	2,169	Appraisal of collateral (1)	Appraisal adjustments	0% to 45% (13%)
						Liquidation expenses	0% to 10% (9%)
Real Estate held for sale	$	1,430	$	1,370	Appraisal of collateral (1)	Appraisal adjustments	0% to 50% (40%)
						Liquidation expenses	0% to 10% (8%)
Impaired loans	$	5,967	$	7,153	Fair value of collateral –real estate  (1), (3)	Appraisal adjustments	0% to 10% (9%)
					Fair value of collateral –equipment, inventory, other  (1), (3)	Appraisal adjustments	25% to 50% (33%)
						Liquidation expenses	0% to 10% (9%)

Valuation adjustments and liquidation cost adjustments represent unobservable inputs for OREO and impaired loans.  The ranges of discounts applied are based on age of independent appraisals, type and condition of collateral, current market conditions, and experience with the local market.

(1)  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)  Includes qualitative adjustments by management.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a 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.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and Cash Equivalents

The carrying amount reported in the balance sheets for cash, short-term investments and federal funds sold approximates fair value.

Securities Available for Sale

Fair values are determined in the manner as described above.

Other Investments

Other investments include Federal Home Loan Bank stock, Federal Reserve Bank stock, Community Bankers Bank stock, and Pacific Coast Bankers Bank.  The carrying value of those securities approximates fair value based on the redemption provisions of those Banks. Also included in other investments are certificates of deposit purchased from other FDIC insured banks in which the carrying amount approximates fair value.

Loans

The fair value of loans represent the amount at which the loans of the Bank could be exchanged on the open market, based upon the current lending rate for similar types of lending arrangements discounted over the remaining life of the loans .  For fixed rate loans and for variable rate loans with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis.

Deposits

The fair value of time deposits is based on discounted cash flows using current market rates applied to the cash flow analysis for each time deposit. Other non-maturity deposits are reported at their carrying values.

Other Short-Term Borrowings

Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Estimated maturity dates are also included in the calculation of fair value for these borrowings.

Long-term Debt and Capital Securities

Rates currently available to the Company for debt with similar terms and remaining maturities or established call prices are used to estimate fair value of existing debt.

Off-Balance Sheet Instruments

The carrying value of off-balance sheet commitments to extend credit, standby letters of credit, and financial guarantees, is considered equal to fair value.  Because of the uncertainty involved in attempting to assess the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

The carrying amounts and fair values of the Company's financial instruments at March 31, 2018 and December 31, 2017 were as follows:

	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	40,902	$	40,902	$	30,797	$	30,797
Securities available for sale	74,140		74,140		78,527		78,527
Other investments	2,793		2,793		3,116		3,116
Loans, net	427,266		427,660		427,620		429,467
Interest rate swaps	144		144		45		45
Deposits	509,998		423,236		498,783		424,664
Other short-term borrowings	—		—		10,000		10,000
Long-term debt	30,133		30,430		30,243		30,780

XML

Formal Written Agreement

3 Months Ended

Mar. 31, 2018

Banking and Thrift [Abstract]

Formal Written Agreement

Formal Written Agreement

On October 13, 2010, the Company and Bank entered into a written agreement ("Written Agreement") with the Federal Reserve Bank of Richmond (the "Reserve Bank").  Under the terms of the Written Agreement, the Bank has agreed to develop and submit to the Reserve Bank for approval within the time periods specified therein written plans or programs to:

• strengthen board oversight of the management and operations of the Bank;

• strengthen credit risk management and administration;

• provide for the effective grading of the Bank's loan portfolio;

• summarize the findings of its review of the adequacy of the staffing of its loan review function;

• improve the Bank's position with respect to loans, relationships, or other assets in excess of $500 that currently are, or in the future become past due more than 90 days, on the Bank's problem loan list, or adversely classified in any report of examination of the Bank;

• review and revise the Bank's methodology for determining the allowance for loan and lease losses ("ALLL") and maintain an adequate ALLL;

• maintain sufficient capital at the Company and the Bank;

• establish a revised written contingency funding plan;

• establish a revised written strategic and capital plan;

• establish a revised investment policy;

• improve the Bank's earnings and overall condition;

• revise the Bank's information technology program;

• establish a disaster recovery and business continuity program; and,

• establish a committee to monitor compliance with all aspects of the written agreement.

Further, both the Company and the Bank have agreed to refrain from declaring or paying dividends without prior regulatory approval.  The Company has agreed that it will not take any other form of payment representing a reduction in Bank's capital or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without prior regulatory approval.  The Company also has agreed not to incur, increase or guarantee any debt or not to purchase or redeem any shares of its stock without prior regulatory approval.

XML

Summary of Significant Accounting Policy Update For Certain Required Disclosures (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09, as subsequently amended by ASU No. 2015-14 issued in August 2015, required adoption in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company adopted ASU 2014-09 effective January 1, 2018.

Application of ASU 2014-09 requires identification of customer contracts, identification of the performance obligations within those contracts, identification of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue once the performance obligation is satisfied. ASU 2014-09 requires disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company evaluated the impact on noninterest income, which includes fees for services, commissions on sales, and various deposit service charges. The Company concluded that no cumulative-effect adjustment to retained earnings was necessary. The adoption of the standard did not have a material effect on the Company’s financial position or results of operations.

In January 2016, ASU No. 2016-01 Financial Instruments--Overall (ASU 2016-01) was issued by the FASB.  ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted ASU 2016-01 on January 1, 2018. The adoption of ASU 2016-01 did not have a material effect on the Company's consolidated financial statements.

In June 2016, ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments was issued by the FASB. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company continues to evaluate the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

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

Fair Value

Non Recurring - Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including recently appraised collateral value and /or tax assessed value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2018 and December 31, 2017, all of the total impaired loans were evaluated based on the fair value of the collateral or the present value of the future cash flows. The Company frequently obtains appraisals prepared by external professional appraisers and applies discounts ranging from 8% to 40% depending on type of property, condition, location, etc. The Company also, in certain instances, prepares internally generated valuations from on-site inspections, third-party valuation models or other information.

Non Recurring – Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on inputs derived from secondary markets for loans with similar characteristics. The Company considers loans held for sale as non-recurring level 2.

Non Recurring –Other Real Estate Owned  / Repossessions / Real Estate Held for Sale

Other real estate owned and repossessions are adjusted to fair value upon transfer of the loans to other real estate owned and repossessions. Subsequently, foreclosed assets and repossessions are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices or recent appraised values of the collateral which the Company considers as nonrecurring level 2.  When the current appraised value is not available or is further discounted below the most recent appraised value less selling costs due to absorption rates and market conditions, the Company records the foreclosed assets within level 3 of the fair value hierarchy.

Real estate held for sale is adjusted to fair value upon transfer from fixed assets or when no longer being used for banking purposes.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record financial instruments at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC Topic 820 on Fair Value Measurements and Disclosures, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to determine fair value. These adjustments may include amounts to reflect counterparty credit quality, the borrower's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Recurring - Investment Securities Available for Sale

Securities classified as available for sale are reported at fair value utilizing level 2. For level 2 securities, the Company obtains fair value measurements from multiple independent third party sources. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond's terms and conditions, among other things.

Valuation adjustments and liquidation cost adjustments represent unobservable inputs for OREO and impaired loans.  The ranges of discounts applied are based on age of independent appraisals, type and condition of collateral, current market conditions, and experience with the local market.

(1)  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)  Includes qualitative adjustments by management.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a 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.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and Cash Equivalents

The carrying amount reported in the balance sheets for cash, short-term investments and federal funds sold approximates fair value.

Securities Available for Sale

Fair values are determined in the manner as described above.

Other Investments

Other investments include Federal Home Loan Bank stock, Federal Reserve Bank stock, Community Bankers Bank stock, and Pacific Coast Bankers Bank.  The carrying value of those securities approximates fair value based on the redemption provisions of those Banks. Also included in other investments are certificates of deposit purchased from other FDIC insured banks in which the carrying amount approximates fair value.

Loans

The fair value of loans represent the amount at which the loans of the Bank could be exchanged on the open market, based upon the current lending rate for similar types of lending arrangements discounted over the remaining life of the loans .  For fixed rate loans and for variable rate loans with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the cash flow analysis.

Deposits

The fair value of time deposits is based on discounted cash flows using current market rates applied to the cash flow analysis for each time deposit. Other non-maturity deposits are reported at their carrying values.

Other Short-Term Borrowings

Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Estimated maturity dates are also included in the calculation of fair value for these borrowings.

Long-term Debt and Capital Securities

Rates currently available to the Company for debt with similar terms and remaining maturities or established call prices are used to estimate fair value of existing debt.

Off-Balance Sheet Instruments

The carrying value of off-balance sheet commitments to extend credit, standby letters of credit, and financial guarantees, is considered equal to fair value.  Because of the uncertainty involved in attempting to assess the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

XML

Investment Securities Available For Sale (Tables)

3 Months Ended

Mar. 31, 2018

Investments, Debt and Equity Securities [Abstract]

Amortized cost and market value of securities available-for-sale

The amortized cost and market value of securities available for sale are as follows:

	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,459	$	8	$	615	$	11,852
Mortgage backed securities	57,925		8		1,967		55,966
SBA Pools	6,514		—		192		6,322
	$	76,898	$	16	$	2,774	$	74,140

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and political subdivisions	$	12,766	$	44	$	299	$	12,511
Mortgage backed securities	60,383		12		1,088		59,307
SBA Pools	6,841		1		133		6,709
	$	79,990	$	57	$	1,520	$	78,527

Age of gross unrealized losses and fair value by investment category

The following table presents the age of gross unrealized losses and fair value by investment category:

	March 31, 2018
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	4,071	$	102	$	6,921	$	513	$	10,992	$	615
Mortgage-backed securities	14,150		368		40,278		1,599		54,428		1,967
SBA Pools	160		1		5,948		191		6,108		192
Total	$	18,381	$	471	$	53,147	$	2,303	$	71,528	$	2,774

	December 31, 2017
	Less Than 12 months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and political subdivisions	$	1,744	$	18	$	7,158	$	281	$	8,902	$	299
Mortgage-backed securities	14,540		177		42,415		911		56,955		1,088
SBA Pools	176		1		6,206		132		6,382		133
Total	$	16,460	$	196	$	55,779	$	1,324	$	72,239	$	1,520

Amortized cost and estimated fair value of securities available-for-sale by contractual maturity

The amortized cost and estimated fair value of securities available for sale at March 31, 2018 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Investment securities with scheduled maturities:
Due in one year or less	$	125	$	125
Due after one year through five years	599		602
Due after five years through ten years	866		827
Due after ten years	17,382		16,619
Total investment securities with scheduled maturities	18,972		18,173
Mortgage-backed securities	57,926		55,967
Total investment securities available for sale	$	76,898	$	74,140

Securities Gain (Losses) Recognized

The following table summarizes the securities gains (losses) recognized for the period presented:

	Three months ended March 31
	2018		2017
Gross gains	$	—	$	—
Gross losses	—		—
Securities gains, net	$	—	$	—

XML

Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

Composition of net loans

The composition of net loans is as follows:

	March 31, 2018		December 31, 2017
Real estate secured:
Residential 1-4 family	$	171,731	$	174,889
Multifamily	18,157		19,469
Construction and land loans	16,933		15,907
Commercial, owner occupied	82,151		82,121
Commercial, non-owner occupied	34,437		33,748
Second mortgages	4,670		4,684
Equity lines of credit	35,568		34,378
Farmland	12,977		13,188
Total real estate secured	376,624		378,384
Non-real estate secured
Personal	13,617		14,192
Commercial	38,734		36,785
Agricultural	3,002		2,950
Total non-real estate secured	55,353		53,927
Gross loans	431,977		432,311
Less:
Allowance for loan losses	4,000		3,954
Net deferred fees	711		737
Loans, net	$	427,266	$	427,620

	Three months ended March 31
	2018		2017
Loans held for sale at end of period	$	1,795	$	3,063
Proceeds from sales of mortgage loans originated for sale	10,664		5,578
Gain on sales of mortgage loans originated for sale	100		226

Analysis of past due loans

The following table is an analysis of past due loans as of March 31, 2018:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,647	$	689	$	2,336	$	169,395	$	171,731	$	243
Equity lines of credit	—		—		—		35,568		35,568		—
Multifamily	—		—		—		18,157		18,157		—
Farmland	678		194		872		12,105		12,977		—
Construction, land development, other land loans	74		—		74		16,859		16,933		—
Commercial real estate:
Owner-occupied	601		317		918		81,233		82,151		—
Non-owner-occupied	1,707		—		1,707		32,730		34,437		—
Second mortgages	—		—		—		4,670		4,670		—
Non-real estate secured
Personal	95		17		112		13,505		13,617		—
Commercial	104		209		313		38,421		38,734		—
Agricultural	—		—		—		3,002		3,002		—
Total	$	4,906	$	1,426	$	6,332	$	425,645	$	431,977	$	243

The following table is an analysis of past due loans as of December 31, 2017:

	Past Due
	30-89 days		90 days and over		Total		Current		Total		> 90 Days and Accruing
Real estate secured
Residential 1-4 family	$	1,092	$	566	$	1,658	$	173,231	$	174,889	$	—
Equity lines of credit	—		—		—		34,378		34,378		—
Multifamily	—		—		—		19,469		19,469		—
Farmland	234		50		284		12,904		13,188		—
Construction, land development, other land loans	—		—		—		15,907		15,907		—
Commercial real estate:
Owner-occupied	11		708		719		81,402		82,121		—
Non-owner-occupied	—		—		—		33,748		33,748		—
Second mortgages	—		—		—		4,684		4,684		—
Non-real estate secured
Personal	211		23		234		13,958		14,192		—
Commercial	502		279		781		36,004		36,785		26
Agricultural	49		—		49		2,901		2,950		—
Total	$	2,099	$	1,626	$	3,725	$	428,586	$	432,311	$	26

Schedule of non-accrual loans

The following is a summary of non-accrual loans at March 31, 2018 and December 31, 2017: 

	March 31, 2018		December 31, 2017
Real estate secured
Residential 1-4 family	$	553	$	887
Commercial real estate:
Owner-occupied	575		708
Non-owner-occupied	—		—
Second mortgages	—		—
Equity lines of credit	—		—
Farmland	194		193
Non-real estate secured
Personal	14		23
Commercial and agricultural	209		254
Total	$	1,545	$	2,065

Summary of residential real estate in the process of foreclosure

The following is a summary of residential real estate currently in the process of foreclosure as well as foreclosed residential real estate as of March 31, 2018.

	Number	Balance
Residential real estate in the process of foreclosure	5	$	392
Foreclosed residential real estate	3	228

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by loan category and is segregated by impairment evaluation method as of and for the three month periods ended March 31, 2018 and March 31, 2017.

Three months ended March 31, 2018	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied			Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated		Total
Allowance for Loan Losses:
Balance at December 31,  2017	$	133		—		$	1		$	1,636		$	955		$	12		$	—	$	54		$	265		$	383		$	515	$	3,954
Provision expense (credit) for credit losses	3			3		2			(219		)	(167		)	(3		)	6		139			21			(136		)	523		172
Charge-offs	—			—		—			95			—			5			—		—			88			149			—		337
Recoveries	(8		)	—		(1		)	(17		)	—			—			—		(1		)	(30		)	(154		)	—		(211		)
Net charge-offs (recoveries)	(8		)	—		(1		)	78			—			5			—		(1		)	58			(5		)	—		126
Balance at March 31, 2018	$	144		$	3	$	4		$	1,339		$	788		$	4		$	6	$	194		$	228		$	252		$	1,038	$	4,000
Allowance allocated by impairment method:
Individually evaluated	$	19		$	—	$	—		$	516		$	782		$	—		$	—	$	192		$	24		$	233		$	—	$	1,766
Collectively evaluated	125			3		4			823			6			4			6		2			204			19			1,038		2,234
Loan balances by impairment method used:
Individually evaluated	$	5,269		$	—	$	1,677		$	3,194		$	3,835		$	122		$	35	$	2,200		$	21		$	1,509		$	—	$	17,862
Collectively evaluated	166,462			18,157		15,256			78,957			30,602			4,548			35,533		10,777			13,596			40,227			—		414,115
Balance at March 31, 2018	$	171,731		$	18,157	$	16,933		$	82,151		$	34,437		$	4,670		$	35,568	$	12,977		$	13,617		$	41,736		—		$	431,977

Three months ended March 31, 2017	Residential 1-4 Family			Multifamily		Construction and Land Loans			Commercial Owner Occupied		Commercial Non-Owner Occupied			Second Mortgages			Equity Line of Credit		Farmland			Personal and  Overdrafts			Commercial and Agricultural			Unallocated			Total
Allowance for Loan Losses:
Balance at December 31, 2016	$	371		—		$	21		$	1,339	$	445		$	15		$	27	$	16		$	802		$	535		$	1,258		$	4,829
Provision for credit losses	(16		)	—		(1		)	350		403			(11		)	4		37			204			(99		)	(854		)	17
Charge-offs	14			—		—			—		—			—			—		—			79			59			—			152
Recoveries	(3		)	—		(1		)	—		(1		)	—			—		(1		)	(25		)	(3		)	—			(34		)
Net charge-offs	11			—		(1		)	—		(1		)	—			—		(1		)	54			56			—			118
Balance at March 31, 2017	$	344		$	—	$	21		$	1,689	$	849		$	4		$	31	$	54		$	952		$	380		$	404		$	4,728
Allowance allocated by impairment method:
Individually evaluated	$	47		$	—	$	20		$	960	$	768		$	—		$	—	$	20		$	—		$	280		$	—		$	2,095
Collectively evaluated	297			—		1			729		81			4			31		34			952			100			404			2,633
Loan balances by impairment method used:
Individually evaluated	$	6,396		$	980	$	1,902		$	4,263	$	4,225		$	64		$	—	$	773		$	260		$	466		$	—		$	19,329
Collectively evaluated	176,684			21,743		14,619			65,035		25,179			6,131			19,882		11,510			16,777			32,941			—			390,501
Balance at March 31, 2017	$	183,080		$	22,723	$	16,521		$	69,298	$	29,404		$	6,195		$	19,882	$	12,283		$	17,037		$	33,407		—			$	409,830

Credit risk profiles

Credit Risk Profile based on payment activity as of March 31, 2018:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	13,600	$	40,238	$	38,525	$	3,002
Nonperforming (>90 days past due)	17		—		209		—
Total	$	13,617	$	40,238	$	38,734	$	3,002

Credit Risk Profile based on payment activity as of December 31, 2017:

	Consumer - Non Real Estate		Equity Line of Credit /Second Mortgages		Commercial - Non Real Estate		Agricultural - Non Real Estate
Performing	$	14,169	$	39,062	$	36,506	$	2,950
Nonperforming (>90 days past due)	23		—		279		—
Total	$	14,192	$	39,062	$	36,785	$	2,950

The following tables represent a summary of credit quality indicators of the Company's loan portfolio at March 31, 2018 and December 31, 2017. The grades are assigned and/or modified by the Company's credit review and credit analysis departments based on the creditworthiness of the borrower and the overall strength of the loan.

The following tables provide the credit risk profile by internally assigned grade as of March 31, 2018 and December 31, 2017: 

March 31, 2018	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	36,436	$	—	$	11	$	3,158	$	3,174	$	230
Satisfactory	89,329		10,055		3,965		5,921		45,999		13,932
Acceptable	39,696		8,102		3,616		6,177		28,795		16,351
Special Mention	909		—		3,185		1,677		978		1,569
Substandard	5,361		—		2,200		—		3,205		2,355
Doubtful	—		—		—		—		—		—
Total	$	171,731	$	18,157	$	12,977	$	16,933	$	82,151	$	34,437

December 31, 2017	Residential 1-4 Family		Multifamily		Farmland		Construction, Land Loans		Commercial Real Estate- Owner Occupied		Commercial Real Estate Non-Owner Occupied
Quality	$	33,107	$	—	$	13	$	2,870	$	3,535	$	295
Satisfactory	95,659		10,653		4,419		5,445		45,906		13,602
Acceptable	40,487		8,816		3,333		5,906		28,344		15,609
Special Mention	388		—		3,206		1,565		2,542		2,226
Substandard	5,248		—		2,217		121		1,661		2,016
Doubtful	—		—		—		—		133		—
Total	$	174,889	$	19,469	$	13,188	$	15,907	$	82,121	$	33,748

Impaired loans

The following tables reflect the Bank's impaired loans at March 31, 2018:

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	4,769	$	4,769	—	$	6,084	$	74
Equity lines of credit	35		35		—	42		—
Multifamily	—		—		—	—		—
Farmland	656		656		—	571		12
Construction, land development, other land loans	1,677		1,677		—	1,721		—
Commercial real estate- owner occupied	932		932		—	1,242		—
Commercial real estate- non owner occupied	—		—		—	32		—
Second mortgages	122		122		—	166		—
Non-real estate secured
Personal	—		—		—	48		11
Commercial and agricultural	1,177		1,177		—	841		12
Total	$	9,368	$	9,368	—	$	10,747	$	109

March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	525	$	525	$	19	$	300	$	2
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,621		1,621		192		1,676		—
Construction, land development, other land loans	—		—		—		—		—
Commercial real estate- owner occupied	2,376		2,376		516		2,125		—
Commercial real estate- non owner occupied	4,027		4,027		782		3,960		—
Second mortgages	—		—		—		—		—
Non-real estate secured
Personal	21		21		23		12		—
Commercial and agricultural	349		349		234		426		—
Total	$	8,919	$	8,919	$	1,766	$	8,499	$	2

The following tables reflect the Bank's impaired loans at December 31, 2017:

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment		Interest Income Recognized
With no related allowance
Real estate secured
Residential 1-4 family	$	7,398	$	7,398	—	$	6,123	$	279
Equity lines of credit	49		49		—	37		—
Multifamily	—		—		—	495		56
Farmland	486		486		—	586		42
Construction, land development, other land loans	1,765		1,765		—	1,753		67
Commercial real estate- owner occupied	1,552		1,552		—	3,677		22
Commercial real estate- non owner occupied	63		63		—	973		19
Second mortgages	209		209		—	198		3
Non real estate secured
Personal	95		95		—	55		—
Commercial and agricultural	504		504		—	274		—
Total	$	12,121	$	12,121	—	$	14,171	$	488

December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Real estate secured
Residential 1-4 family	$	74	$	74	$	11	$	267	$	24
Equity lines of credit	—		—		—		—		—
Multifamily	—		—		—		—		—
Farmland	1,731		1,731		257		962		13
Construction, land development, other land loans	—		—		—		183		24
Commercial real estate- owner occupied	1,873		1,873		465		1,506		196
Commercial real estate- non owner occupied	3,892		3,892		955		2,951		141
Second mortgages	—		—		—		9		—
Non real estate secured
Personal	2		2		2		27		—
Commercial and agricultural	502		502		418		568		4
Total	$	8,074	$	8,074	$	2,108	$	6,473	$	402

Troubled debt restructuring

The following table identifies restructurings completed during the three-month period ended March 31, 2018 that represent new TDRs.

March 31, 2018 Interest only Number Pre-Modification Recorded Investment Post-Modification Recorded Investment

Below Market Rate
Residential 1-4 family	1	$	162	$	162
Commercial real estate-non-owner occupied	1	1,479		1,479
Total below market rate	2	1,641		1,641

Total restructurings 2 $ 1,641 $ 1,641

XML

Income Taxes (Tables)

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income tax reconciliation

The reasons for these differences are as follows:

	Three months ended March 31,
	2018			2017
Tax expense (benefit) at statutory rate	$	164		$	500
Increase (decrease) in tax expense resulting from:
Tax-exempt interest	(27		)	(29		)
Other, net	33			(32		)
Income tax expense	$	170		$	439
Statutory corporate federal income tax rate	21		%	34		%

XML

Capital Requirements (Tables)

3 Months Ended

Mar. 31, 2018

Banking and Thrift [Abstract]

Schedule of capital ratios as required by regulators

The following table presents the capital ratios for the Bank only.

	March 31, 2018		December 31, 2017
Tier 1 leverage	8.51	%	8.36	%
Tier 1 risk-based	12.13	%	12.15	%
Total risk-based	13.10	%	13.11	%
Common equity tier 1	12.13	%	12.15	%

XML

Stock and Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Reconciliation of the earnings per common share computation

The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per common share computation:

	Three months ended March 31,
(thousands, except per share information)	2018		2017
Net income available to common stockholders	$	610	$	1,032
Weighted average common shares outstanding	8,199		8,113
Total shares outstanding including assumed conversion	10,292		10,292
Basic earnings per common share	$	0.07	$	0.13
Fully diluted earnings per share (including convertible preferred shares outstanding and restricted stock)	0.06		0.10

XML

Fair Value (Tables)

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Available for sale securities portfolio measured at fair value on a recurring basis

The following tables summarize the Company's available for sale securities portfolio measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy.

March 31, 2018
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	11,852	$	—	$	11,852
Mortgage backed securities	—		55,966		—		55,966
SBA pools	—		6,322		—		6,322
Total available for sale securities	$	—	$	74,140	$	—	$	74,140

December 31, 2017
	Level 1		Level 2		Level 3		Total Fair Value
State and political subdivisions	$	—	$	12,511	$	—	$	12,511
Mortgage backed securities	—		59,307		—		59,307
SBA pools	—		6,709		—		6,709
Total available for sale securities	—		$	78,527	—		$	78,527

Assets at fair value on a non - recurring basis segregated by the level of the valuation inputs within the fair value hierarchy

The following table summarizes the Company's assets at fair value on a non-recurring basis as of March 31, 2018 and December 31, 2017, segregated by the level of the valuation inputs within the fair value hierarchy. The tables disclose the recorded investment of impaired loans requiring a specific allowance.

March 31, 2018	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	6,879	$	6,879
OREO	—		—		2,169		2,169
Real estate held for sale	—		—		1,370		1,370

December 31, 2017	Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	—	$	—	$	5,967	$	5,967
OREO	—		—		2,350		2,350
Real estate held for sale	—		—		1,430		1,430

Level 3 inputs for assets measured on a nonrecurring basis

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

			Quantitative Information about Level 3 Fair Value Measurements
	12/31/17		3/31/2018		Valuation Techniques	Unobservable Input (2)	Range (Weighted Average)
OREO, net	$	2,350	$	2,169	Appraisal of collateral (1)	Appraisal adjustments	0% to 45% (13%)
						Liquidation expenses	0% to 10% (9%)
Real Estate held for sale	$	1,430	$	1,370	Appraisal of collateral (1)	Appraisal adjustments	0% to 50% (40%)
						Liquidation expenses	0% to 10% (8%)
Impaired loans	$	5,967	$	7,153	Fair value of collateral –real estate  (1), (3)	Appraisal adjustments	0% to 10% (9%)
					Fair value of collateral –equipment, inventory, other  (1), (3)	Appraisal adjustments	25% to 50% (33%)
						Liquidation expenses	0% to 10% (9%)

Valuation adjustments and liquidation cost adjustments represent unobservable inputs for OREO and impaired loans.  The ranges of discounts applied are based on age of independent appraisals, type and condition of collateral, current market conditions, and experience with the local market.

(1)  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)  Includes qualitative adjustments by management.

Carrying amounts and fair values of financial instruments

The carrying amounts and fair values of the Company's financial instruments at March 31, 2018 and December 31, 2017 were as follows:

	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	40,902	$	40,902	$	30,797	$	30,797
Securities available for sale	74,140		74,140		78,527		78,527
Other investments	2,793		2,793		3,116		3,116
Loans, net	427,266		427,660		427,620		429,467
Interest rate swaps	144		144		45		45
Deposits	509,998		423,236		498,783		424,664
Other short-term borrowings	—		—		10,000		10,000
Long-term debt	30,133		30,430		30,243		30,780

XML

Investment Securities Available For Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 76,898	$ 79,990
Gross Unrealized Gains	16	57
Gross Unrealized Losses	2,774	1,520
Securities available for sale	74,140	78,527
State and political subdivisions
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,459	12,766
Gross Unrealized Gains	8	44
Gross Unrealized Losses	615	299
Securities available for sale	11,852	12,511
Mortgage backed securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	57,925	60,383
Gross Unrealized Gains	8	12
Gross Unrealized Losses	1,967	1,088
Securities available for sale	55,966	59,307
SBA Pools
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	6,514	6,841
Gross Unrealized Gains	0	1
Gross Unrealized Losses	192	133
Securities available for sale	$ 6,322	$ 6,709

XML

Investment Securities Available For Sale - Narrative (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Investment securities pledged as collateral on public deposits	$ 28,989	$ 26,856

XML

Investment Securities Available For Sale - Age of Gross Unrealized Losses and Fair Value by Investment Category (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 months, Fair Value	$ 18,381	$ 16,460
12 Months or More, Fair value	53,147	55,779
Fair Value	71,528	72,239
Less Than 12 months, Unrealized Losses	471	196
12 Months or More, Unrealized Losses	2,303	1,324
Unrealized Losses	2,774	1,520
State and political subdivisions
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 months, Fair Value	4,071	1,744
12 Months or More, Fair value	6,921	7,158
Fair Value	10,992	8,902
Less Than 12 months, Unrealized Losses	102	18
12 Months or More, Unrealized Losses	513	281
Unrealized Losses	615	299
Mortgage backed securities
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 months, Fair Value	14,150	14,540
12 Months or More, Fair value	40,278	42,415
Fair Value	54,428	56,955
Less Than 12 months, Unrealized Losses	368	177
12 Months or More, Unrealized Losses	1,599	911
Unrealized Losses	1,967	1,088
SBA Pools
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 months, Fair Value	160	176
12 Months or More, Fair value	5,948	6,206
Fair Value	6,108	6,382
Less Than 12 months, Unrealized Losses	1	1
12 Months or More, Unrealized Losses	191	132
Unrealized Losses	$ 192	$ 133

XML

Investment Securities Available For Sale - Investments Securities with Scheduled Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Amortized Cost
Amortized cost - due in one year or less	$ 125
Amortized cost - due after one year through five years	599
Amortized cost - due after five years through ten years	866
Amortized cost - due after ten years	17,382
Amortized cost - total	18,972
Mortgage-backed securities	57,926
Amortized Cost	76,898	$ 79,990
Fair Value
Fair value - due in one year or less	125
Fair value - due after one year through five years	602
Fair value - due after five years through ten years	827
Fair value - due after ten years	16,619
Fair value - sub total	18,173
Mortgage-backed securities	55,967
Fair value - grand total	$ 74,140

XML

Investment Securities Available For Sale - Securities Gains (Losses) Recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Gross gains	$ 0	$ 0
Gross losses	0	0
Securities gains, net	$ 0	$ 0

XML

Loans and Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 431,977	$ 432,311	$ 409,830
Allowance for loan losses	4,000	3,954
Net deferred fees	711	737
Net loans	427,266	427,620
Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	376,624	378,384
Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	55,353	53,927
Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	171,731	174,889	183,080
Residential 1-4 family | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	171,731	174,889
Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	18,157	19,469	22,723
Multifamily | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	18,157	19,469
Construction and land loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	16,933	15,907
Construction and land loans | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	16,933	15,907
Commercial, owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	82,151		69,298
Commercial, owner occupied | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	82,151	82,121
Commercial, non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	34,437		29,404
Commercial, non-owner occupied | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	34,437	33,748
Second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	4,670		6,195
Second mortgages | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	4,670	4,684
Equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	35,568		19,882
Equity lines of credit | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	35,568	34,378
Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	12,977	13,188	$ 12,283
Farmland | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	12,977	13,188
Personal | Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	13,617	14,192
Commercial | Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	38,734	36,785
Agricultural | Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 3,002	$ 2,950

XML

Loans and Allowance for Loan Losses - Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	$ 6,332	$ 3,725
Current	425,645	428,586
Total	431,977	432,311	$ 409,830
90 Days and Accruing	243	26
Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	171,731	174,889	183,080
Equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	35,568		19,882
Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	18,157	19,469	22,723
Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	12,977	13,188	12,283
Construction and land loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	16,933	15,907
Commercial, owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	82,151		69,298
Commercial, non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	34,437		29,404
Second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	4,670		$ 6,195
30-89 days
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	4,906	2,099
90 days and over
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	1,426	1,626
Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	376,624	378,384
Real estate secured | Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	2,336	1,658
Current	169,395	173,231
Total	171,731	174,889
90 Days and Accruing	243	0
Real estate secured | Equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Current	35,568	34,378
Total	35,568	34,378
90 Days and Accruing	0	0
Real estate secured | Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Current	18,157	19,469
Total	18,157	19,469
90 Days and Accruing	0	0
Real estate secured | Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	872	284
Current	12,105	12,904
Total	12,977	13,188
90 Days and Accruing	0	0
Real estate secured | Construction and land loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	74	0
Current	16,859	15,907
Total	16,933	15,907
90 Days and Accruing	0	0
Real estate secured | Commercial, owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	918	719
Current	81,233	81,402
Total	82,151	82,121
90 Days and Accruing	0	0
Real estate secured | Commercial, non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	1,707	0
Current	32,730	33,748
Total	34,437	33,748
90 Days and Accruing	0	0
Real estate secured | Second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Current	4,670	4,684
Total	4,670	4,684
90 Days and Accruing	0	0
Real estate secured | 30-89 days | Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	1,647	1,092
Real estate secured | 30-89 days | Equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 30-89 days | Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 30-89 days | Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	678	234
Real estate secured | 30-89 days | Construction and land loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	74	0
Real estate secured | 30-89 days | Commercial, owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	601	11
Real estate secured | 30-89 days | Commercial, non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	1,707	0
Real estate secured | 30-89 days | Second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 90 days and over | Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	689	566
Real estate secured | 90 days and over | Equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 90 days and over | Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 90 days and over | Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	194	50
Real estate secured | 90 days and over | Construction and land loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 90 days and over | Commercial, owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	317	708
Real estate secured | 90 days and over | Commercial, non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Real estate secured | 90 days and over | Second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	0
Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	55,353	53,927
Non-real estate secured | Personal
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	112	234
Current	13,505	13,958
Total	13,617	14,192
90 Days and Accruing	0	0
Non-real estate secured | Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	313	781
Current	38,421	36,004
Total	38,734	36,785
90 Days and Accruing	0	26
Non-real estate secured | Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	49
Current	3,002	2,901
Total	3,002	2,950
90 Days and Accruing	0	0
Non-real estate secured | 30-89 days | Personal
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	95	211
Non-real estate secured | 30-89 days | Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	104	502
Non-real estate secured | 30-89 days | Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	0	49
Non-real estate secured | 90 days and over | Personal
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	17	23
Non-real estate secured | 90 days and over | Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	209	279
Non-real estate secured | 90 days and over | Agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past Due	$ 0	$ 0

XML

Loans and Allowance for Loan Losses - Summary of Non-Accrual Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 1,545	$ 2,065
Residential 1-4 family | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	553	887
Commercial, owner occupied | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	575	708
Commercial, non-owner occupied | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	0	0
Second mortgages | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	0	0
Equity lines of credit | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	0	0
Farmland | Real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	194	193
Personal | Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	14	23
Commercial | Non-real estate secured
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 209	$ 254

XML

Loans and Allowance for Loan Losses - Foreclosed (Details) - Real estate secured - Residential 1-4 family $ in Thousands	Mar. 31, 2018 USD ($) loan
Residential real estate in the process of foreclosure, number | loan	5
Foreclosed residential real estate, number | loan	3
Residential real estate in the process of foreclosure | $	$ 392
Foreclosed residential real estate | $	$ 228

XML

Loans and Allowance for Loan Losses - Credit Risk Profile (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 431,977	$ 432,311	$ 409,830
Residential 1-4 family
Financing Receivable, Recorded Investment [Line Items]
Loans	171,731	174,889	183,080
Residential 1-4 family | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	36,436	33,107
Residential 1-4 family | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	89,329	95,659
Residential 1-4 family | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	39,696	40,487
Residential 1-4 family | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	909	388
Residential 1-4 family | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	5,361	5,248
Residential 1-4 family | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multifamily
Financing Receivable, Recorded Investment [Line Items]
Loans	18,157	19,469	22,723
Multifamily | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multifamily | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	10,055	10,653
Multifamily | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	8,102	8,816
Multifamily | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multifamily | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multifamily | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Farmland
Financing Receivable, Recorded Investment [Line Items]
Loans	12,977	13,188	$ 12,283
Farmland | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	11	13
Farmland | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	3,965	4,419
Farmland | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	3,616	3,333
Farmland | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	3,185	3,206
Farmland | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	2,200	2,217
Farmland | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Construction and land loans
Financing Receivable, Recorded Investment [Line Items]
Loans	16,933	15,907
Construction and land loans | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	3,158	2,870
Construction and land loans | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	5,921	5,445
Construction and land loans | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	6,177	5,906
Construction and land loans | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	1,677	1,565
Construction and land loans | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	0	121
Construction and land loans | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial Real Estate- Owner Occupied
Financing Receivable, Recorded Investment [Line Items]
Loans	82,151	82,121
Commercial Real Estate- Owner Occupied | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	3,174	3,535
Commercial Real Estate- Owner Occupied | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	45,999	45,906
Commercial Real Estate- Owner Occupied | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	28,795	28,344
Commercial Real Estate- Owner Occupied | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	978	2,542
Commercial Real Estate- Owner Occupied | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	3,205	1,661
Commercial Real Estate- Owner Occupied | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	133
Commercial Real Estate Non-Owner Occupied
Financing Receivable, Recorded Investment [Line Items]
Loans	34,437	33,748
Commercial Real Estate Non-Owner Occupied | Quality
Financing Receivable, Recorded Investment [Line Items]
Loans	230	295
Commercial Real Estate Non-Owner Occupied | Satisfactory
Financing Receivable, Recorded Investment [Line Items]
Loans	13,932	13,602
Commercial Real Estate Non-Owner Occupied | Acceptable
Financing Receivable, Recorded Investment [Line Items]
Loans	16,351	15,609
Commercial Real Estate Non-Owner Occupied | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	1,569	2,226
Commercial Real Estate Non-Owner Occupied | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	2,355	2,016
Commercial Real Estate Non-Owner Occupied | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer - Non Real Estate
Financing Receivable, Recorded Investment [Line Items]
Loans		14,192
Consumer - Non Real Estate | Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	13,600	14,169
Consumer - Non Real Estate | Nonperforming (90 days past due)
Financing Receivable, Recorded Investment [Line Items]
Loans	17	23
Equity Line of Credit /Second Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	40,238	39,062
Equity Line of Credit /Second Mortgages | Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	40,238	39,062
Equity Line of Credit /Second Mortgages | Nonperforming (90 days past due)
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial - Non Real Estate
Financing Receivable, Recorded Investment [Line Items]
Loans	38,734	36,785
Commercial - Non Real Estate | Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	38,525	36,506
Commercial - Non Real Estate | Nonperforming (90 days past due)
Financing Receivable, Recorded Investment [Line Items]
Loans	209	279
Agricultural - Non Real Estate
Financing Receivable, Recorded Investment [Line Items]
Loans	3,002	2,950
Agricultural - Non Real Estate | Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	3,002	2,950
Agricultural - Non Real Estate | Nonperforming (90 days past due)
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Non-real estate secured
Financing Receivable, Recorded Investment [Line Items]
Loans	55,353	$ 53,927
Non-real estate secured | Consumer - Non Real Estate
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 13,617

XML

Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	$ 9,368	$ 12,121
With Related Allowance	8,919	8,074
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	9,368	12,121
With Related Allowance	8,919	8,074
Related Allowance	1,766	2,108
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	10,747	14,171
With Related Allowance	8,499	6,473
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	109	488
With Related Allowance	2	402
Real estate secured | Residential 1-4 family
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	4,769	7,398
With Related Allowance	525	74
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	4,769	7,398
With Related Allowance	525	74
Related Allowance	19	11
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	6,084	6,123
With Related Allowance	300	267
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	74	279
With Related Allowance	2	24
Real estate secured | Equity lines of credit
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	35	49
With Related Allowance	0	0
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	35	49
With Related Allowance	0	0
Related Allowance	0	0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	42	37
With Related Allowance	0	0
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	0
With Related Allowance	0	0
Real estate secured | Multifamily
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	0	0
With Related Allowance	0	0
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	0	0
With Related Allowance	0	0
Related Allowance	0	0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	0	495
With Related Allowance	0	0
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	56
With Related Allowance	0	0
Real estate secured | Farmland
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	656	486
With Related Allowance	1,621	1,731
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	656	486
With Related Allowance	1,621	1,731
Related Allowance	192	257
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	571	586
With Related Allowance	1,676	962
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	12	42
With Related Allowance	0	13
Real estate secured | Construction and land loans
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	1,677	1,765
With Related Allowance	0	0
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	1,677	1,765
With Related Allowance	0	0
Related Allowance	0	0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	1,721	1,753
With Related Allowance	0	183
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	67
With Related Allowance	0	24
Real estate secured | Commercial Real Estate- Owner Occupied
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	932	1,552
With Related Allowance	2,376	1,873
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	932	1,552
With Related Allowance	2,376	1,873
Related Allowance	516	465
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	1,242	3,677
With Related Allowance	2,125	1,506
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	22
With Related Allowance	0
Real estate secured | Commercial Real Estate Non-Owner Occupied
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	0	63
With Related Allowance	4,027	3,892
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	0	63
With Related Allowance	4,027	3,892
Related Allowance	782	955
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	32	973
With Related Allowance	3,960	2,951
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	19
With Related Allowance	0	141
Real estate secured | Second mortgages
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	122	209
With Related Allowance	0	0
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	122	209
With Related Allowance	0	0
Related Allowance	0	0
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	166	198
With Related Allowance	0	9
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	0	3
With Related Allowance	0	0
Non-real estate secured | Personal / Consumer
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	0	95
With Related Allowance	21	2
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	0	95
With Related Allowance	21	2
Related Allowance	23	2
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	48	55
With Related Allowance	12	27
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	11	0
With Related Allowance	0	0
Non-real estate secured | Commercial and Agricultural
Impaired Financing Receivable, Recorded Investment [Abstract]
With No Related Allowance	1,177	504
With Related Allowance	349	502
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
With No Related Allowance	1,177	504
With Related Allowance	349	502
Related Allowance	234	418
Impaired Financing Receivable, Average Recorded Investment [Abstract]
With No Related Allowance	841	274
With Related Allowance	426	568
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
With No Related Allowance	12	0
With Related Allowance	$ 0	$ 4

XML

Loans and Allowance for Loan Losses - Allowance for Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 3,954	$ 4,829
Provision expense (credit) for credit losses	172	17
Charge-offs	337	152
Recoveries	(211)	(34)
Net charge-offs (recoveries)	126	118
Ending Balance	4,000	4,728
Ending Balance: Individually evaluated	1,766	2,095
Ending Balance: Collectively evaluated	2,234	2,633
Loan balances by impairment method used:
Ending Balance: Individually evaluated	17,862	19,329
Ending Balance: Collectively evaluated	414,115	390,501
Total	431,977	409,830	$ 432,311
Residential 1-4 family
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	133	371
Provision expense (credit) for credit losses	3	(16)
Charge-offs	0	14
Recoveries	(8)	(3)
Net charge-offs (recoveries)	(8)	11
Ending Balance	144	344
Ending Balance: Individually evaluated	19	47
Ending Balance: Collectively evaluated	125	297
Loan balances by impairment method used:
Ending Balance: Individually evaluated	5,269	6,396
Ending Balance: Collectively evaluated	166,462	176,684
Total	171,731	183,080	174,889
Multifamily
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	0	0
Provision expense (credit) for credit losses	3	0
Charge-offs	0	0
Recoveries	0	0
Net charge-offs (recoveries)	0	0
Ending Balance	3	0
Ending Balance: Individually evaluated	0	0
Ending Balance: Collectively evaluated	3	0
Loan balances by impairment method used:
Ending Balance: Individually evaluated	0	980
Ending Balance: Collectively evaluated	18,157	21,743
Total	18,157	22,723	19,469
Construction and Land Loans
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	1	21
Provision expense (credit) for credit losses	2	(1)
Charge-offs	0	0
Recoveries	(1)	(1)
Net charge-offs (recoveries)	(1)	(1)
Ending Balance	4	21
Ending Balance: Individually evaluated	0	20
Ending Balance: Collectively evaluated	4	1
Loan balances by impairment method used:
Ending Balance: Individually evaluated	1,677	1,902
Ending Balance: Collectively evaluated	15,256	14,619
Total	16,933	16,521
Commercial Owner Occupied
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,636	1,339
Provision expense (credit) for credit losses	(219)	350
Charge-offs	95	0
Recoveries	(17)	0
Net charge-offs (recoveries)	78	0
Ending Balance	1,339	1,689
Ending Balance: Individually evaluated	516	960
Ending Balance: Collectively evaluated	823	729
Loan balances by impairment method used:
Ending Balance: Individually evaluated	3,194	4,263
Ending Balance: Collectively evaluated	78,957	65,035
Total	82,151	69,298
Commercial Non-Owner Occupied
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	955	445
Provision expense (credit) for credit losses	(167)	403
Charge-offs	0	0
Recoveries	0	(1)
Net charge-offs (recoveries)	0	(1)
Ending Balance	788	849
Ending Balance: Individually evaluated	782	768
Ending Balance: Collectively evaluated	6	81
Loan balances by impairment method used:
Ending Balance: Individually evaluated	3,835	4,225
Ending Balance: Collectively evaluated	30,602	25,179
Total	34,437	29,404
Second Mortgages
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	12	15
Provision expense (credit) for credit losses	(3)	(11)
Charge-offs	5	0
Recoveries	0	0
Net charge-offs (recoveries)	5	0
Ending Balance	4	4
Ending Balance: Individually evaluated	0	0
Ending Balance: Collectively evaluated	4	4
Loan balances by impairment method used:
Ending Balance: Individually evaluated	122	64
Ending Balance: Collectively evaluated	4,548	6,131
Total	4,670	6,195
Equity lines of credit
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	0	27
Provision expense (credit) for credit losses	6	4
Charge-offs	0	0
Recoveries	0	0
Net charge-offs (recoveries)	0	0
Ending Balance	6	31
Ending Balance: Individually evaluated	0	0
Ending Balance: Collectively evaluated	6	31
Loan balances by impairment method used:
Ending Balance: Individually evaluated	35	0
Ending Balance: Collectively evaluated	35,533	19,882
Total	35,568	19,882
Farmland
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	54	16
Provision expense (credit) for credit losses	139	37
Charge-offs	0	0
Recoveries	(1)	(1)
Net charge-offs (recoveries)	(1)	(1)
Ending Balance	194	54
Ending Balance: Individually evaluated	192	20
Ending Balance: Collectively evaluated	2	34
Loan balances by impairment method used:
Ending Balance: Individually evaluated	2,200	773
Ending Balance: Collectively evaluated	10,777	11,510
Total	12,977	12,283	$ 13,188
Personal and Overdrafts
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	265	802
Provision expense (credit) for credit losses	21	204
Charge-offs	88	79
Recoveries	(30)	(25)
Net charge-offs (recoveries)	58	54
Ending Balance	228	952
Ending Balance: Individually evaluated	24	0
Ending Balance: Collectively evaluated	204	952
Loan balances by impairment method used:
Ending Balance: Individually evaluated	21	260
Ending Balance: Collectively evaluated	13,596	16,777
Total	13,617	17,037
Commercial and Agricultural
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	383	535
Provision expense (credit) for credit losses	(136)	(99)
Charge-offs	149	59
Recoveries	(154)	(3)
Net charge-offs (recoveries)	(5)	56
Ending Balance	252	380
Ending Balance: Individually evaluated	233	280
Ending Balance: Collectively evaluated	19	100
Loan balances by impairment method used:
Ending Balance: Individually evaluated	1,509	466
Ending Balance: Collectively evaluated	40,227	32,941
Total	41,736	33,407
Unallocated
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	515	1,258
Provision expense (credit) for credit losses	523	(854)
Charge-offs	0	0
Recoveries	0	0
Net charge-offs (recoveries)	0	0
Ending Balance	1,038	404
Ending Balance: Individually evaluated	0	0
Ending Balance: Collectively evaluated	1,038	404
Loan balances by impairment method used:
Ending Balance: Individually evaluated	0	0
Ending Balance: Collectively evaluated	0	0
Total	$ 0	$ 0

XML

Loans and Allowance for Loan Losses - Troubled Debt Restructuring (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) contract	Mar. 31, 2017 contract
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	2	0
Pre-Modification Recorded Investment	$ 1,641
Post-Modification Recorded Investment	$ 1,641
Below market rate
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	2
Pre-Modification Recorded Investment	$ 1,641
Post-Modification Recorded Investment	$ 1,641
Residential 1-4 family | Below market rate
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1
Pre-Modification Recorded Investment	$ 162
Post-Modification Recorded Investment	$ 162
Commercial, non-owner occupied | Below market rate
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1
Pre-Modification Recorded Investment	$ 1,479
Post-Modification Recorded Investment	$ 1,479

XML

Loans and Allowance for Loan Losses - Narrative (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2018 USD ($) loan_class contract	Mar. 31, 2017 contract	Dec. 31, 2017 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled debt restructuring | $	$ 9,955		$ 8,005
Number of TDR contracts outstanding | contract	2	0
Number of TDR contracts that subsequently defaulted | contract	0	0
Threshold period past due watch list relationship of financing receivable			60 days
Historical loss factor (as percent)	54.00%
Historical loss factor using simple average of losses (as percent)	33.00%
Period used to compute simple average of losses	3 years
Selling period for loans held for sale	20 days
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of classes in loan segment | loan_class	2
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of classes in loan segment | loan_class	2

XML

Loans and Allowance for Loan Losses - Loans Held For Sale (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Receivables [Abstract]
Loans held for sale at end of period	$ 1,795	$ 3,063	$ 4,808
Proceeds from sales of mortgage loans originated for sale	10,664	5,578
Gain on sales of mortgage loans originated for sale	$ 100	$ 226

XML

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Tax Disclosure [Abstract]
Tax expense (benefit) at statutory rate	$ 164	$ 500
Increase (decrease) in tax expense resulting from:
Tax-exempt interest	(27)	(29)
Other, net	33	(32)
Income tax expense	$ 170	$ 439
Statutory corporate federal income tax rate	21.00%	34.00%

XML

Capital Requirements (Details) - Highlands Union Bank	Mar. 31, 2018	Dec. 31, 2017
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage	8.51%	8.36%
Tier 1 risk-based	12.13%	12.15%
Total risk-based	13.10%	13.11%
Common equity tier 1	12.13%	12.15%

XML

Capital Issuances / Awards (Details) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended
	Sep. 06, 2016	Feb. 29, 2016	Jan. 31, 2016	Mar. 31, 2018
Chief Executive Officer | Restricted shares
Subsidiary, Sale of Stock [Line Items]
Grants in period (in shares)	86,667
Vesting period	2 years
Chief Executive Officer | Restricted shares | First anniversary
Subsidiary, Sale of Stock [Line Items]
Vesting percentage (as percent)	50.00%
Chief Executive Officer | Restricted shares | Second anniversary
Subsidiary, Sale of Stock [Line Items]
Vesting percentage (as percent)	50.00%
Private placement | MFP Partners LP
Subsidiary, Sale of Stock [Line Items]
Number of shares sold (in shares)		12,744
Stock price (in dollars per share)		$ 4.25
Private placement | Deerhill Pond Investments Partners, LP
Subsidiary, Sale of Stock [Line Items]
Number of shares sold (in shares)		12,744
Stock price (in dollars per share)		$ 4.25
Chief Executive Officer | Private placement
Subsidiary, Sale of Stock [Line Items]
Number of shares sold (in shares)			235,294
Stock price (in dollars per share)			$ 4.25
Affiliated Entity [Member] | Highlands Union Bank
Subsidiary, Sale of Stock [Line Items]
Due from related party				$ 1,150

XML

Stock and Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Earnings Per Share [Abstract]
Net income available to common stockholders	$ 610	$ 1,032
Weighted average common shares outstanding (in shares)	8,199	8,113
Total shares outstanding including assumed conversion (in shares)	10,292	10,292
Basic earnings per common share (in dollars per share)	$ 0.07	$ 0.13
Fully diluted earnings per share (including convertible preferred shares outstanding and restricted stock) (in dollars per share)	$ 0.06	$ 0.10

XML

Commitments and Contingencies - Narrative (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Loss Contingencies [Line Items]
Unused commitments to extend credit	$ 62,721	$ 55,038
Standby letters of credit
Loss Contingencies [Line Items]
Commitments, maximum exposure	$ 971	$ 991

XML

Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total available for sale securities	$ 74,140	$ 78,527
Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
State and political subdivisions	11,852	12,511
Mortgage backed securities	55,966	59,307
SBA pools	6,322	6,709
Total available for sale securities	74,140	78,527
Level 1 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
State and political subdivisions	0	0
Mortgage backed securities	0	0
SBA pools	0	0
Total available for sale securities	0	0
Level 2 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
State and political subdivisions	11,852	12,511
Mortgage backed securities	55,966	59,307
SBA pools	6,322	6,709
Total available for sale securities	74,140	78,527
Level 3 | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
State and political subdivisions	0	0
Mortgage backed securities	0	0
SBA pools	0	0
Total available for sale securities	$ 0	$ 0

XML

Fair Value - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Nonrecurring | Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	8.00%
Nonrecurring | Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	40.00%
Level 2 | Interest rate swaps | Recurring
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Notional value	$ 7,902	$ 7,902
Fair Value | Interest rate swaps
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Derivative asset	$ 144	$ 45

XML

Fair Value - Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
OREO	$ 2,169	$ 2,350
Real estate held for sale	1,370	1,430
Nonrecurring
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired loans	6,879	5,967
OREO	2,169	2,350
Real estate held for sale	1,370	1,430
Nonrecurring | Level 1
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired loans	0	0
OREO	0	0
Real estate held for sale	0	0
Nonrecurring | Level 2
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired loans	0	0
OREO	0	0
Real estate held for sale	0	0
Nonrecurring | Level 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired loans	6,879	5,967
OREO	2,169	2,350
Real estate held for sale	$ 1,370	$ 1,430

XML

Fair Value - Quantitative Information about Level 3 Fair Value Measurements (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Fair Value Inputs, Assets, Quantitative Information [Line Items]
OREO	$ 2,169	$ 2,350
Real estate held for sale	1,370	1,430
Nonrecurring
Fair Value Inputs, Assets, Quantitative Information [Line Items]
OREO	2,169	2,350
Real estate held for sale	1,370	1,430
Impaired loans	6,879	5,967
Nonrecurring | Level 3
Fair Value Inputs, Assets, Quantitative Information [Line Items]
OREO	2,169	2,350
Real estate held for sale	1,370	1,430
Impaired loans	6,879	5,967
Nonrecurring | Level 3 | Appraisal of collateral
Fair Value Inputs, Assets, Quantitative Information [Line Items]
OREO	$ 2,169	2,350
Real estate held for sale		1,430
Nonrecurring | Level 3 | Fair value of collateral
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans		$ 5,967
OREO, net | Nonrecurring | Level 3 | Appraisal of collateral | Range Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	0.00%
Liquidation expenses (as percent)	0.00%
OREO, net | Nonrecurring | Level 3 | Appraisal of collateral | Range Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	45.00%
Liquidation expenses (as percent)	10.00%
OREO, net | Nonrecurring | Level 3 | Appraisal of collateral | Weighted Average
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	13.00%
Liquidation expenses (as percent)	9.00%
Real Estate held for sale | Nonrecurring | Level 3 | Appraisal of collateral | Range Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	0.00%
Liquidation expenses (as percent)	0.00%
Real Estate held for sale | Nonrecurring | Level 3 | Appraisal of collateral | Range Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	50.00%
Liquidation expenses (as percent)	10.00%
Real Estate held for sale | Nonrecurring | Level 3 | Appraisal of collateral | Weighted Average
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	40.00%
Liquidation expenses (as percent)	8.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - real estate | Range Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	0.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - real estate | Range Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	10.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - real estate | Weighted Average
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	9.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - equipment, inventory, other | Range Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	25.00%
Liquidation expenses (as percent)	0.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - equipment, inventory, other | Range Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	50.00%
Liquidation expenses (as percent)	10.00%
Impaired loans | Nonrecurring | Level 3 | Fair value of collateral - equipment, inventory, other | Weighted Average
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustment (as percent)	33.00%
Liquidation expenses (as percent)	9.00%

XML

Fair Value - Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 74,140	$ 78,527
Carrying Amount
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	40,902	30,797
Securities available for sale	74,140	78,527
Other investments	2,793	3,116
Loans, net	427,266	427,620
Deposits	509,998	498,783
Other short-term borrowings	0	10,000
Long-term debt	30,133	30,243
Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	40,902	30,797
Securities available for sale	74,140	78,527
Other investments	2,793	3,116
Loans, net	427,660	429,467
Deposits	423,236	424,664
Other short-term borrowings	0	10,000
Long-term debt	30,430	30,780
Interest rate swaps | Carrying Amount
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset	144	45
Interest rate swaps | Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset	$ 144	$ 45

XML

Formal Written Agreement (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Banking and Thrift [Abstract]
Loan and other assets amount requiring improvement	$ 500
Past due days	90 days