0000880641-15-000062.txt : 20150812 0000880641-15-000062.hdr.sgml : 20150812 20150812114750 ACCESSION NUMBER: 0000880641-15-000062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150812 DATE AS OF CHANGE: 20150812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000880641 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541601306 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20146 FILM NUMBER: 151046062 BUSINESS ADDRESS: STREET 1: 2 E MAIN ST CITY: BERRYVILLE STATE: VA ZIP: 22611 BUSINESS PHONE: 540-955-2510 MAIL ADDRESS: STREET 1: PO BOX 391 CITY: BERRYVILLE STATE: VA ZIP: 22611 10-Q 1 efsi-20150630x10q.htm 10-Q EFSI-2015.06.30-10Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 0-20146 
EAGLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Virginia
 
54-1601306
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
2 East Main Street
P.O. Box 391
Berryville, Virginia
 
22611
(Address of principal executive offices)
 
(Zip Code)
(540) 955-2510
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
(Do not check if a smaller reporting company.)
Smaller reporting company
 
ý

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

The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of July 31, 2015 was 3,494,215.




TABLE OF CONTENTS
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements:
 
 
Consolidated Balance Sheets at June 30, 2015 and December 31, 2014
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2014
 
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2015 and 2014
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014
 
Notes to Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits




PART I - FINANCIAL INFORMATION
 
Item 1.        Financial Statements

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except share amounts)
 
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
8,101

 
$
9,075

Interest-bearing deposits with other institutions
4,044

 
25,489

Total cash and cash equivalents
12,145

 
34,564

Securities available for sale, at fair value
105,736

 
94,165

Restricted investments
1,946

 
2,808

Loans
486,028

 
469,820

Allowance for loan losses
(5,536
)
 
(5,080
)
Net Loans
480,492

 
464,740

Bank premises and equipment, net
20,805

 
19,015

Other real estate owned, net of allowance
2,261

 
2,102

Other assets
10,930

 
9,436

Total assets
$
634,315

 
$
626,830

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Deposits:
 
 
 
Noninterest bearing demand deposits
$
171,368

 
$
159,352

Savings and interest bearing demand deposits
257,575

 
249,305

Time deposits
93,844

 
95,159

Total deposits
$
522,787

 
$
503,816

Federal funds purchased
8,329

 

Federal Home Loan Bank advances
20,000

 
40,000

Trust preferred capital notes
7,217

 
7,217

Other liabilities
2,039

 
2,665

Total liabilities
$
560,372

 
$
553,698

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

 
$

Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2015, 3,495,800 including 23,551 shares of unvested restricted stock; issued and outstanding 2014, 3,463,665 including 15,151 shares of unvested restricted stock
8,681

 
8,621

Surplus
13,089

 
12,618

Retained earnings
51,439

 
50,578

Accumulated other comprehensive income
734

 
1,315

Total shareholders’ equity
$
73,943

 
$
73,132

Total liabilities and shareholders’ equity
$
634,315

 
$
626,830

See Notes to Consolidated Financial Statements

1



EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share amounts)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Interest and Dividend Income
 
 
 
 
 
 
 
Interest and fees on loans
$
5,437

 
$
5,589

 
$
10,738

 
$
10,920

Interest and dividends on securities available for sale:

 
 
 
 
 
 
Taxable interest income
406

 
482

 
782

 
989

Interest income exempt from federal income taxes
246

 
278

 
489

 
564

Dividends
26

 
46

 
33

 
71

Interest on deposits with other institutions
6

 
1

 
17

 
2

Total interest and dividend income
$
6,121

 
$
6,396

 
$
12,059

 
$
12,546

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
182

 
245

 
366

 
489

Interest on federal funds purchased and securities sold under agreements to repurchase
1

 
7

 
1

 
20

Interest on Federal Home Loan Bank advances
66

 
158

 
200

 
317

Interest on trust preferred capital notes
33

 
32

 
66

 
65

Interest on interest rate swap
45

 
46

 
91

 
92

Total interest expense
$
327

 
$
488

 
$
724

 
$
983

Net interest income
$
5,794

 
$
5,908

 
$
11,335

 
$
11,563

Provision For (Recovery of) Loan Losses
300

 
(283
)
 
433

 

Net interest income after provision for (recovery of) loan losses
$
5,494

 
$
6,191

 
$
10,902

 
$
11,563

Noninterest Income
 
 
 
 
 
 
 
Income from fiduciary activities
$
356

 
$
362

 
$
784

 
$
661

Service charges on deposit accounts
307

 
319

 
597

 
652

Other service charges and fees
930

 
827

 
1,686

 
1,480

Gain on sale of securities
22

 
6

 
96

 
6

Other operating income
29

 
46

 
110

 
112

Total noninterest income
$
1,644

 
$
1,560

 
$
3,273

 
$
2,911

Noninterest Expenses

 
 
 
 
 
 
Salaries and employee benefits
$
3,112

 
$
2,926

 
$
6,107

 
$
5,751

Occupancy expenses
436

 
307

 
782

 
644

Equipment expenses
260

 
167

 
406

 
349

Advertising and marketing expenses
184

 
126

 
303

 
258

Stationery and supplies
61

 
74

 
112

 
164

ATM network fees
191

 
201

 
349

 
358

Other real estate owned expense
14

 
6

 
20

 
10

Loss (gain) on the sale of other real estate owned
73

 
(17
)
 
92

 
(17
)
FDIC assessment
103

 
86

 
211

 
167

Computer software expense
192

 
213

 
413

 
412

Bank franchise tax
126

 
117

 
243

 
219

Professional fees
261

 
254

 
503

 
471

Cost to terminate operating lease
520

 

 
520

 

Other operating expenses
598

 
506

 
1,128

 
1,023

Total noninterest expenses
$
6,131

 
$
4,966

 
$
11,189

 
$
9,809

Income before income taxes
$
1,007

 
$
2,785

 
$
2,986

 
$
4,665

Income Tax Expense
209

 
827

 
733

 
1,344

Net income
$
798

 
$
1,958

 
$
2,253

 
$
3,321

Earnings Per Share
 
 
 
 
 
 
 
Net income per common share, basic
$
0.23

 
$
0.57

 
$
0.65

 
$
0.97

Net income per common share, diluted
$
0.23

 
$
0.57

 
$
0.65

 
$
0.97

See Notes to Consolidated Financial Statements

2



EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(dollars in thousands)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
798

 
$
1,958

 
$
2,253

 
$
3,321

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized (loss) gain on available for sale securities, net of deferred income tax expense (benefit) of ($523) and $276 for the three months ended, respectively and ($317) and $628 for the six month ended, respectively
(1,012
)
 
535

 
(615
)
 
1,219

Change in fair value of interest rate swap, net of deferred income tax expense of $12 and $6 for the three months ended, respectively and $18 and $19 for the six months ended, respectively
23

 
12

 
34

 
38

Total other comprehensive (loss) income
(989
)
 
547

 
(581
)
 
1,257

Total comprehensive (loss) income
$
(191
)
 
$
2,505

 
$
1,672

 
$
4,578

See Notes to Consolidated Financial Statements

3



EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollars in thousands, except share amounts)
 
 
Common
Stock
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Balance, December 31, 2013
$
8,482

 
$
11,537

 
$
46,082

 
$
305

 
$
66,406

Net income
 
 
 
 
3,321

 
 
 
3,321

Other comprehensive income
 
 
 
 
 
 
1,257

 
1,257

Vesting of restricted stock awards, stock incentive plan (10,009 shares)
25

 
(25
)
 
 
 
 
 

Income tax benefit on vesting of restricted stock
 
 
11

 
 
 
 
 
11

Stock-based compensation expense
 
 
52

 
 
 
 
 
52

Issuance of common stock, dividend investment plan (15,682 shares)
39

 
298

 
 
 
 
 
337

Issuance of common stock, employee benefit plan (6,105 shares)
15

 
122

 
 
 
 
 
137

Dividends declared ($0.38 per share)
 
 
 
 
(1,298
)
 
 
 
(1,298
)
Balance, June 30, 2014
$
8,561

 
$
11,995

 
$
48,105

 
$
1,562

 
$
70,223

 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
$
8,621

 
$
12,618

 
$
50,578

 
$
1,315

 
73,132

Net income
 
 
 
 
2,253

 
 
 
2,253

Other comprehensive (loss)
 
 
 
 
 
 
(581
)
 
(581
)
Vesting of restricted stock awards, stock incentive plan (6,250 shares)
16

 
(16
)
 
 
 
 
 

Income tax benefit on vesting of restricted stock
 
 
5

 
 
 
 
 
5

Stock-based compensation expense
 
 
132

 
 
 
 
 
132

Issuance of common stock, dividend investment plan (16,610 shares)
42

 
332

 
 
 
 
 
374

Issuance of common stock, employee benefit plan (875 shares)
2

 
18

 
 
 
 
 
20

Dividends declared ($0.40 per share)
 
 
 
 
(1,392
)
 
 
 
(1,392
)
Balance, June 30, 2015
$
8,681

 
$
13,089

 
$
51,439

 
$
734

 
$
73,943

See Notes to Consolidated Financial Statements

4




EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
 
 
Six Months Ended
 
June 30,
 
2015
 
2014
Cash Flows from Operating Activities
 
 
 
Net income
$
2,253

 
$
3,321

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
398

 
400

Amortization of intangible and other assets
110

 
77

Provision for loan losses
433

 

Loss (gain) on the sale of other real estate owned
92

 
(17
)
(Gain) on the sale of premises and equipment
(5
)
 

Loss on the sale of repossessed assets
1

 
4

(Gain) on the sale of securities
(96
)
 
(6
)
Stock-based compensation expense
132

 
52

Premium amortization on securities, net
104

 
54

Changes in assets and liabilities:
 
 
 
(Increase) in other assets
(1,306
)
 
(108
)
(Decrease) in other liabilities
(574
)
 
(672
)
Net cash provided by operating activities
$
1,542

 
$
3,105

Cash Flows from Investing Activities
 
 
 
Proceeds from maturities and principal payments of securities available for sale
$
5,131

 
$
6,536

Proceeds from the sale of securities available for sale
2,324

 
1,004

Purchases of securities available for sale
(19,966
)
 
(3,429
)
Proceeds from the sale of restricted investments
900

 
284

Purchases of restricted investments
(38
)
 
(450
)
Purchases of bank premises and equipment
(2,188
)
 
(333
)
Proceeds from the sale of other real estate owned
310

 
34

Proceeds from the sale of bank premises and equipment

5

 

Proceeds from the sale of repossessed assets
8

 
19

Net (increase) in loans
(16,749
)
 
(19,993
)
Net cash (used in) investing activities
$
(30,263
)
 
$
(16,328
)
Cash Flows from Financing Activities
 
 
 
Net increase in noninterest bearing demand deposits, savings, and interest bearing demand deposits
$
20,286

 
$
7,667

Net (decrease) in time deposits
(1,315
)
 
(3,209
)
Net increase in federal funds purchased
8,329

 

Net (decrease) increase in Federal Home Loan Bank advances
(20,000
)
 
7,750

Issuance of common stock, employee benefit plan
20

 
137

Cash dividends paid
(1,018
)
 
(960
)
Net cash provided by financing activities
$
6,302

 
$
11,385






5







EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(continued)
 
 
Six Months Ended
 
June 30,
 
2015
 
2014
(Decrease) in cash and cash equivalents
$
(22,419
)
 
$
(1,838
)
Cash and Cash Equivalents
 
 
 
Beginning
34,564

 
14,243

Ending
$
12,145

 
$
12,405

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash payments for:
 
 
 
Interest
$
812

 
$
993

Income taxes
$
583

 
$
705

Supplemental Schedule of Noncash Investing and Financing Activities:
 
 
 
Unrealized (loss) gain on securities available for sale
$
(932
)
 
$
1,847

Change in fair value of interest rate swap
$
53

 
$
57

Other real estate and repossessed assets acquired in settlement of loans
$
564

 
$
330

Issuance of common stock, dividend investment plan
$
374

 
$
337


6



EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2015
NOTE 1. General

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

In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2015 and December 31, 2014, the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

The Company owns 100% of Bank of Clarke County (the “Bank”) and Eagle Financial Statutory Trust II. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated. The subordinated debt owed to Eagle Financial Statutory Trust II is reflected as a liability of the Company.

Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature.

NOTE 2. Stock-Based Compensation Plan

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

The Company periodically grants Restricted Stock to its directors and executive officers. Restricted Stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restriction period, all shares are considered outstanding and dividends are paid to the grantee. In general, outside directors are periodically granted restricted shares which vest over a period of less than 9 months. Beginning during 2006, executive officers were granted restricted shares which vest over a 3 year service period and restricted shares which vest based on meeting annual performance measures. The Company recognizes compensation expense over the restricted period. As of June 30, 2015, there was $234 thousand of unrecognized compensation cost related to nonvested restricted stock.

The following table presents Restricted Stock activity for the six months ended June 30, 2015 and 2014:
 
 
Six Months Ended
 
June 30,
 
2015
 
2014
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Nonvested, beginning of period
15,151

 
$
22.27

 
17,050

 
$
19.92

Granted
14,650

 
23.85

 
14,900

 
23.50

Vested
(6,250
)
 
20.95

 
(10,009
)
 
19.65

Forfeited

 

 
(790
)
 
21.80

Nonvested, end of period
23,551

 
$
23.61

 
21,151

 
$
22.50




7



NOTE 3. Earnings Per Common Share

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

The following table shows the weighted average number of shares used in computing earnings per share for the three and six months ended June 30, 2015 and 2014 and the effect on the weighted average number of shares of dilutive potential common stock. During 2015, there were no potentially dilutive securities outstanding. For the three and six months ended June 30, 2014, 9,333 and 9,405 stock options were considered anti-dilutive and were excluded from the calculations of diluted earnings per share because their exercise prices exceeded the fair value of our common stock during those periods.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Average number of common shares outstanding
3,487,215

 
3,428,699

 
3,482,259

 
3,421,351

Effect of dilutive common stock

 
667

 

 
595

Average number of common shares outstanding used to calculate diluted earnings per share
3,487,215

 
3,429,366

 
3,482,259

 
3,421,946


NOTE 4. Securities

Amortized costs and fair values of securities available for sale at June 30, 2015 and December 31, 2014 were as follows:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
 
June 30, 2015
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
42,306

 
$
517

 
$
(347
)
 
$
42,476

Mortgage-backed securities
23,336

 
370

 
(232
)
 
23,474

Obligations of states and political subdivisions
38,803

 
1,082

 
(99
)
 
39,786

 
$
104,445

 
$
1,969

 
$
(678
)
 
$
105,736

 
December 31, 2014
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
36,911

 
$
599

 
$
(299
)
 
$
37,211

Mortgage-backed securities
15,245

 
545

 
(11
)
 
15,779

Obligations of states and political subdivisions
39,025

 
1,432

 
(47
)
 
40,410

Corporate securities
761

 
4

 

 
765

 
$
91,942

 
$
2,580

 
$
(357
)
 
$
94,165


During the six months ended June 30, 2015, the Company received proceeds of $2.3 million on sales of available for sale securities for a gross gain of $96 thousand. There were no losses on the sale of available for sale securities during the six months ended June 30, 2015. During the six months ended June 30, 2014, the Company sold $1.0 million available for sale securities for a gross gain of $6 thousand. There were no losses on the sale of available for sale securities during the six months ended June 30, 2014.

8



The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at June 30, 2015 and December 31, 2014 were as follows:
 
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
June 30, 2015
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
19,512

 
$
277

 
$
4,929

 
$
70

 
$
24,441

 
$
347

Mortgage-backed securities
11,305

 
204

 
1,264

 
28

 
12,569

 
232

Obligations of states and political subdivisions
5,893

 
74

 
989

 
25

 
6,882

 
99

 
$
36,710

 
$
555

 
$
7,182

 
$
123

 
$
43,892

 
$
678

 
December 31, 2014
 
(in thousands)
Obligations of U.S. government corporations and agencies
$
1,997

 
$
1

 
$
21,615

 
$
298

 
$
23,612

 
$
299

Mortgage-backed securities

 

 
1,444

 
11

 
1,444

 
11

Obligations of states and political subdivisions
2,998

 
12

 
2,414

 
35

 
5,412

 
47

 
$
4,995

 
$
13

 
$
25,473

 
$
344

 
$
30,468

 
$
357


Gross unrealized losses on available for sale securities included fifty (50) and thirty-eight (38) debt securities at June 30, 2015 and December 31, 2014, respectively. The Company evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the amount of an unrealized loss, the financial condition of the issuer, and the intent and ability of the Company to retain its investment in the issuer long enough to allow for an anticipated recovery in fair value. The fair value of a security reflects its liquidity as compared to similar instruments, current market rates on similar instruments, and the creditworthiness of the issuer. Absent any change in the liquidity of a security or the creditworthiness of the issuer, prices will decline as market rates rise and vice-versa. The primary cause of the unrealized losses at June 30, 2015 and December 31, 2014 was changes in market interest rates. Since the losses can be primarily attributed to changes in market interest rates and not expected cash flows or an issuer’s financial condition, the unrealized losses are deemed to be temporary. The continuing economic recession involving housing, liquidity and credit were also a contributing factor to the unrealized losses on these securities at June 30, 2015 and December 31, 2014. The Company’s mortgage-backed securities are issued by U.S. government agencies, which guarantee payments to investors regardless of the status of the underlying mortgages. The Company monitors the financial condition of these issuers continuously and will record other-than-temporary impairment if the recovery of value is unlikely.

The Company’s securities are exposed to various risks, such as interest rate, market, currency and credit risks. Due to the level of risk associated with certain securities and the level of uncertainty related to changes in the value of securities, it is at least reasonably possible that changes in risks in the near term would materially affect securities reported in the financial statements. In addition, recent economic uncertainty and market events have led to unprecedented volatility in currency, commodity, credit and equity markets culminating in failures of some banking and financial services firms and government intervention to solidify others. These events underscore the level of investment risk associated with the current economic environment, and accordingly the level of risk in the Company’s securities.

Securities having a carrying value of $3.4 million at June 30, 2015 were pledged to secure securities sold under agreements to repurchase and other purposes required by law.


9



The composition of restricted investments at June 30, 2015 and December 31, 2014 was as follows:
 
 
June 30, 2015
 
December 31, 2014
 
(in thousands)
Federal Reserve Bank Stock
$
344

 
$
344

Federal Home Loan Bank Stock
1,462

 
2,324

Community Bankers’ Bank Stock
140

 
140

 
$
1,946

 
$
2,808


NOTE 5. Allowance for Loan Losses

Changes in the allowance for loan losses for the six months ended June 30, 2015 and 2014 and the year ended December 31, 2014 were as follows:
 
 
Six Months Ended
 
Year Ended
 
Six Months Ended
 
June 30,
 
December 31,
 
June 30,
 
2015
 
2014
 
2014
 
 
 
(in thousands)
 
 
Balance, beginning
$
5,080

 
$
5,488

 
$
5,488

Provision charged to operating expense
433

 
350

 

Recoveries added to the allowance
343

 
725

 
588

Loan losses charged to the allowance
(320
)
 
(1,483
)
 
(205
)
Balance, ending
$
5,536

 
$
5,080

 
$
5,871


Nonaccrual and past due loans by class at June 30, 2015 and December 31, 2014 were as follows:
 
 
June 30, 2015
 
(in thousands)
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
90 or More
Days
Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
90 or More
Days Past 
Due Still Accruing
 
Nonaccrual
Loans
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
157

 
$

 
$

 
$
157

 
$
28,178

 
$
28,335

 
$

 
$
946

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner Occupied
1,400

 

 

 
1,400

 
108,644

 
110,044

 

 
1,803

Non-owner occupied

 
150

 
775

 
925

 
63,390

 
64,315

 

 
1,133

Construction and Farmland:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
51

 

 

 
51

 
7,363

 
7,414

 

 

Commercial

 
730

 
46

 
776

 
29,740

 
30,516

 

 
383

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment
108

 
20

 

 
128

 
13,427

 
13,555

 

 

Residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Lines
405

 
280

 

 
685

 
33,526

 
34,211

 

 
286

Single family
1,641

 
455

 
1,133

 
3,229

 
187,805

 
191,034

 
68

 
2,227

Multifamily

 

 

 

 
4,706

 
4,706

 

 

All Other Loans

 

 

 

 
1,898

 
1,898

 

 

Total
$
3,762

 
$
1,635

 
$
1,954

 
$
7,351

 
$
478,677

 
$
486,028

 
$
68

 
$
6,778

 

10



 
December 31, 2014
 
(in thousands)
 
30 - 59
Days
Past Due
 
60 - 89
Days
Past Due
 
90 or More
Days
Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
90 or More
Past Due 
Still
Accruing
 
Nonaccrual
Loans
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
28

 
$

 
$

 
$
28

 
$
28,104

 
$
28,132

 
$

 
$
2,106

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner Occupied
2,191

 

 

 
2,191

 
97,516

 
99,707

 

 
2,591

Non-owner occupied
56

 
210

 
808

 
1,074

 
60,518

 
61,592

 

 
1,231

Construction and Farmland:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential

 
52

 

 
52

 
5,149

 
5,201

 

 

Commercial

 

 
57

 
57

 
31,231

 
31,288

 

 
787

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Installment
50

 
15

 
6

 
71

 
13,803

 
13,874

 
6

 

Residential:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Lines
132

 
41

 
185

 
358

 
30,763

 
31,121

 

 
331

Single family
1,243

 
440

 
644

 
2,327

 
191,246

 
193,573

 

 
3,660

Multifamily

 

 

 

 
3,016

 
3,016

 

 

All Other Loans

 

 

 

 
2,316

 
2,316

 

 

Total
$
3,700

 
$
758

 
$
1,700

 
$
6,158

 
$
463,662

 
$
469,820

 
$
6

 
$
10,706


Allowance for loan losses by segment at June 30, 2015 and December 31, 2014 were as follows:
 
 
As of and For the Six Months Ended
 
June 30, 2015
 
(in thousands)
 
Construction
and Farmland
 
Residential
 
Commercial
Real Estate
 
Commercial - Non Real Estate
 
Consumer
 
All Other
Loans
 
Unallocated
 
Total
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
951

 
$
1,977

 
$
1,347

 
$
464

 
$
103

 
$
42

 
$
196

 
$
5,080

Charge-Offs
(120
)
 
(109
)
 
(47
)
 

 
(33
)
 
(11
)
 

 
(320
)
Recoveries
55

 
41

 
37

 
176

 
20

 
14

 

 
343

Provision
220

 
203

 
41

 
(225
)
 
4

 
30

 
160

 
433

Ending balance
$
1,106

 
$
2,112

 
$
1,378

 
$
415

 
$
94

 
$
75

 
$
356

 
$
5,536

Ending balance: Individually evaluated for impairment
$
214

 
$
529

 
$
174

 
$
28

 
$

 
$

 
$

 
$
945

Ending balance: collectively evaluated for impairment
$
892

 
$
1,583

 
$
1,204

 
$
387

 
$
94

 
$
75

 
$
356

 
$
4,591

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
37,930

 
$
229,951

 
$
174,359

 
$
28,335

 
$
13,555

 
$
1,898

 
$

 
$
486,028

Ending balance individually evaluated for impairment
$
2,317

 
$
6,959

 
$
4,806

 
$
1,024

 
$

 
$

 
$

 
$
15,106

Ending balance collectively evaluated for impairment
$
35,613

 
$
222,992

 
$
169,553

 
$
27,311

 
$
13,555

 
$
1,898

 
$

 
$
470,922

 

11



 
As of and for the Twelve Months Ended
 
December 31, 2014
 
(in thousands)
 
Construction
and Farmland
 
Residential
 
Commercial
Real Estate
 
Commercial - Non Real Estate
 
Consumer
 
All Other
Loans
 
Unallocated
 
Total
Allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
1,032

 
$
2,225

 
$
1,337

 
$
555

 
$
102

 
$
82

 
$
155

 
$
5,488

Charge-Offs
(482
)
 
(808
)
 
(83
)
 

 
(86
)
 
(24
)
 

 
(1,483
)
Recoveries
26

 
63

 
381

 
164

 
87

 
4

 

 
725

Provision
375

 
497

 
(288
)
 
(255
)
 

 
(20
)
 
41

 
350

Ending balance
$
951

 
$
1,977

 
$
1,347

 
$
464

 
$
103

 
$
42

 
$
196

 
$
5,080

Ending balance: Individually evaluated for impairment
$
93

 
$
303

 
$
203

 
$
44

 
$

 
$

 
$

 
$
643

Ending balance: collectively evaluated for impairment
$
858

 
$
1,674

 
$
1,144

 
$
420

 
$
103

 
$
42

 
$
196

 
$
4,437

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
36,489

 
$
227,710

 
$
161,299

 
$
28,132

 
$
13,874

 
$
2,316

 
$

 
$
469,820

Ending balance individually evaluated for impairment
$
2,665

 
$
6,550

 
$
5,716

 
$
2,106

 
$

 
$

 
$

 
$
17,037

Ending balance collectively evaluated for impairment
$
33,824

 
$
221,160

 
$
155,583

 
$
26,026

 
$
13,874

 
$
2,316

 
$

 
$
452,783



12



Impaired loans by class as of and for the periods ended June 30, 2015 and December 31, 2014 were as follows:
 
 
As of and for the Six Months Ended
 
June 30, 2015
 
(in thousands)
 
Unpaid
Principal
Balance
 
Recorded
Investment (1)
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance:
 
 
 
 
 
 
 
 
 
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
1,140

 
$
947

 
$

 
$
1,185

 
$
1

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
Owner Occupied
1,835

 
1,707

 

 
1,761

 
13

Non-owner occupied
1,289

 
1,133

 

 
1,143

 

Construction and Farmland:
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 

Commercial
1,382

 
1,370

 

 
1,399

 
26

Residential:
 
 
 
 
 
 
 
 
 
Equity lines
400

 
222

 

 
223

 
1

Single family
4,434

 
4,097

 

 
4,196

 
59

Multifamily

 

 

 

 

Other Loans

 

 

 

 

 
$
10,480

 
$
9,476

 
$

 
$
9,907

 
$
100

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
77

 
$
77

 
$
28

 
$
83

 
$
9

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
Owner Occupied
673

 
660

 
35

 
666

 
8

Non-owner occupied
1,307

 
1,311

 
139

 
1,320

 
35

Construction and Farmland:
 
 
 
 
 
 
 
 
 
Residential

 

 

 

 

Commercial
976

 
949

 
214

 
966

 
20

Residential:
 
 
 
 
 
 
 
 
 
Equity lines
218

 
64

 
64

 
64

 

Single family
2,592

 
2,590

 
465

 
2,608

 
41

Multifamily

 

 

 

 

Other Loans

 

 

 

 

 
$
5,843

 
$
5,651

 
$
945

 
$
5,707

 
$
113

Total:
 
 
 
 
 
 
 
 
 
Commercial
$
1,217

 
$
1,024

 
$
28

 
$
1,268

 
$
10

Commercial Real Estate
5,104

 
4,811

 
174

 
4,890

 
56

Construction and Farmland
2,358

 
2,319

 
214

 
2,365

 
46

Residential
7,644

 
6,973

 
529

 
7,091

 
101

Other

 

 

 

 

Total
$
16,323

 
$
15,127

 
$
945

 
$
15,614

 
$
213

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and net deferred loan fees or costs.



13



 
As of and for the Twelve Months End
 
December 31, 2014
 
(in thousands)
 
Unpaid
Principal
Balance
 
Recorded
Investment (1)
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With no related allowance:
 
 
 
 
 
 
 
 
 
Commercial - Non Real Estate:
 
 
 
 
 
 
 
 
 
Commercial & Industrial
$
2,159

 
$
2,013

 
$

 
$
2,256

 
$
19

Commercial Real Estate:
 
 
 
 
 
 
 
 
 
Owner Occupied
2,824

 
2,473

 

 
2,857

 
48

Non-owner occupied
2,675

 
2,560