10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

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)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, Par Value $2.50

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨    No  ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý

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 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  ý    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. (Check one):

Large accelerated filer	¨		Accelerated filer	ý
Non-accelerated filer	¨	(Do not check if a smaller reporting company.)	Smaller reporting company	ý
			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  ý

The aggregate market value of the voting common equity held by non-affiliates of the registrant at June 30, 2017 was $84,967,563.

The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of March 8, 2018 was 3,466,158.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III.

EAGLE FINANCIAL SERVICES, INC.

INDEX TO FORM 10-K

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Mine Safety Disclosures	17
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	98
Item 9A.	Controls and Procedures	98
Item 9B.	Other Information	98
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	99
Item 11.	Executive Compensation	99
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	99
Item 13.	Certain Relationships and Related Transactions, and Director Independence	99
Item 14.	Principal Accounting Fees and Services	99
PART IV
Item 15.	Exhibits, Financial Statement Schedules	99
Item 16.	Form 10-K Summary	105

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PART I

Item 1. Business

General

Eagle Financial Services, Inc. (the “Company”) is a bank holding company that was incorporated in 1991. The company is headquartered in Berryville, Virginia and conducts its operations through its subsidiary, Bank of Clarke County (the “Bank”). The Bank is chartered under Virginia law.

The Bank has twelve full-service branches and one drive-through only facility. The Bank’s main office is located at 2 East Main Street in Berryville, Virginia. The Bank opened for business on April 1, 1881. The Bank has offices located in Clarke County, Frederick County, and Loudoun County, as well as the Towns of Leesburg and Purcellville and the City of Winchester. This market area is located in the Shenandoah Valley and Northern Virginia.

The Bank offers a wide range of retail and commercial banking services, including demand, savings and time deposits and consumer, mortgage and commercial loans. The Bank has thirteen ATM locations in its trade area and issues both ATM cards and Debit cards to deposit customers. These cards can be used to withdraw cash at most ATM’s through the Bank’s membership in both regional and national networks. These cards can also be used to make purchases at retailers who accept transactions through the same regional and national networks. The Bank offers telephone banking, internet banking, and mobile banking to its customers. Internet banking also offers online bill payment to consumer and commercial customers. The Bank offers other commercial deposit account services such as ACH origination and remote deposit capture.

Eagle Investment Group (“EIG”), a division of the Bank, offers both a trust department and investment services. The trust services division of EIG offers a full range of personal and retirement plan services, which include serving as agent for bill paying and custody of assets, as investment manager with full authority or advisor, as trustee or co-trustee for trusts under will or under agreement, as trustee of life insurance trusts, as guardian or committee, as agent under a power of attorney, as executor or co-executor for estates, as custodian or investment advisor for individual retirement plans, and as trustee or trust advisor for corporate retirement plans such as profit sharing and 401(k) plans. The brokerage division of EIG offers a full range of investment services, which include tax-deferred annuities, IRAs and rollovers, mutual funds, retirement plans, 529 college savings plans, life insurance, long term care insurance, fixed income investing, brokerage CDs, and full service or discount brokerage services. Non-deposit investment products are offered through a third party provider.

In addition to the Bank, as of December 31, 2014, the Company had a wholly owned subsidiary, Eagle Financial Statutory Trust II, which was formed in connection with the issuance of $7,000,000 in trust preferred securities in 2007. On August 7, 2015, the Eagle Financial Statutory Trust II was dissolved. The Company’s subsidiary, Bank of Clarke County, is a partner in Bankers Title Shenandoah, LLC, which sells title insurance and is an investor in Virginia Bankers Insurance Center, LLC, which serves as the broker for insurance sales through its member banks. Bank of Clarke County is also an investor in State Theatre Owner, LLC which rehabilitated the State Theatre of Culpeper, Virginia, Moore Street Investor, LLC which is rehabilitating two buildings located in Richmond and Virginia Footer Master Tenant, LLC which is rehabilitating one building located in Maryland.

Employees

The Company, including the Bank, had 53 officers, 110 other full-time and 18 part-time employees (or 173 full-time equivalent employees) at December 31, 2017. None of the Company’s employees are represented by a union or covered under a collective bargaining agreement. The Company considers relations with its employees to be excellent.

Securities and Exchange Commission Filings

The Company maintains an internet website at www.bankofclarke.bank. Shareholders of the Company and the public may access, free of charge, the Company’s periodic and current reports (including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports) filed with or furnished to the Securities and Exchange Commission, through the “Investor Relations” section of the Company’s website. The reports are made available on this website as soon as practicable following the filing of the reports with the SEC. The information is free of charge and may be reviewed, downloaded and printed from the website at any time.

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Competition

There is significant competition for both loans and deposits within the Company’s trade area. Competition for loans comes from other commercial banks, savings banks, credit unions, mortgage brokers, finance companies, insurance companies, and other institutional lenders. Competition for deposits comes from other commercial banks, savings banks, credit unions, brokerage firms, and other financial institutions. Based on total deposits at June 30, 2017 as reported to the FDIC, the Company has 7.0% of the total deposits in its market area. The Company’s market area includes Clarke County, Frederick County, Loudoun County and the City of Winchester.

Supervision and Regulation

General. As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended, and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve"). As a state-chartered commercial bank, the Bank is subject to regulation, supervision and examination by the Virginia State Corporation Commission’s Bureau of Financial Institutions. It is also subject to regulation, supervision and examination by the Federal Reserve Board. Other federal and state laws, including various consumer and compliance laws, govern the activities of the Bank, the investments that it makes and the aggregate amount of loans that it may grant to one borrower.

The following sections summarize the significant federal and state laws applicable to the Company and its subsidiaries. To the extent that statutory or regulatory provisions are described, the description is qualified in its entirety by reference to that particular statutory or regulatory provision.

The Bank Holding Company Act. Under the Bank Holding Company Act, the Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve may require. Activities at the bank holding company level are limited to the following:

• banking, managing or controlling banks;

• furnishing services to or performing services for its subsidiaries; and

• engaging in other activities that the Federal Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident to these activities.

Some of the activities that the Federal Reserve Board has determined by regulation to be closely related to the business of a bank holding company include making or servicing loans and specific types of leases, performing specific data processing services and acting in some circumstances as a fiduciary or investment or financial adviser.

With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:

• acquiring substantially all the assets of any bank;

• acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares); or

• merging or consolidating with another bank holding company.

In addition, and subject to some exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with their regulations, require Federal Reserve approval prior to any person or company acquiring 25% or more of any class of voting securities of the bank holding company. Prior notice to the Federal Reserve is required if a person acquires 10% or more, but less than 25%, of any class of voting securities of a bank or bank holding company and either has registered securities under Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of that class of voting securities immediately after the transaction.

In November 1999, Congress enacted the Gramm-Leach-Bliley Act (“GLBA”), which made substantial revisions to the statutory restrictions separating banking activities from other financial activities. Under the GLBA, bank holding companies that are well-capitalized and well-managed and meet other conditions can elect to become “financial holding companies.” As financial holding companies, they and their subsidiaries are permitted to acquire or engage in previously impermissible activities such as insurance underwriting, securities underwriting and distribution, travel agency activities, insurance agency activities, merchant banking and other activities that the Federal Reserve determines to be financial in nature or complementary to these activities. Financial holding companies continue to be subject to the overall oversight and supervision of the Federal Reserve, but the GLBA applies the concept of functional regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation by state insurance authorities. Although the Company has not elected to become a financial holding company in order to exercise the broader activity powers provided by the GLBA, the Company may elect do so in the future.

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Payment of Dividends. The Company is a legal entity separate and distinct from the Bank. The majority of the Company’s revenues are from dividends paid to the Company by the Bank. The Bank is subject to laws and regulations that limit the amount of dividends it can pay. In addition, both the Company and the Bank are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums. Banking regulators have indicated that banking organizations should generally pay dividends only if the organization’s current earnings are sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Company does not expect that any of these laws, regulations or policies will materially affect the Bank's ability to pay dividends to the Company. Refer to Item 5 for additional information on dividend restrictions. During the year ended December 31, 2017, the Bank paid $3.8 million in dividends to the Company. The Company paid cash dividends of $2.7 million to shareholders during 2017.

The FDIC has the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. The FDIC has indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice.

Insurance of Accounts, Assessments and Regulation by the FDIC. The Bank’s deposits are insured up to applicable limits by the FDIC. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raised the standard maximum deposit insurance amount to $250,000. The FDIC has implemented a risk-based assessment system in which assessment rates for insured institutions with under $10 billion in assets are calculated based on supervisory evaluations and certain other financial measures. The assessment base is an institution’s average consolidated total assets less average tangible equity, and the initial base assessment rates are currently between 3 and 30 basis points depending on the institution's composite rating, and subject to potential adjustment based on certain long-term unsecured debt. Once the reserve ratio reaches 2.0% or greater, initial base assessment rates will range from 2 to 28 basis points and, once the reserve ratio reaches 2.5% or greater, the initial base assessment rate will range from 1 to 25 basis points.

Capital Requirements. The Federal Reserve and the other federal banking agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. Those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth.

On June 7, 2012, the Federal Reserve issued a series of proposed rules intended to revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. On July 2, 2013, the Federal Reserve approved certain revisions to the proposals and finalized new capital requirements for banking organizations.

Under the risk-based capital requirements of the Federal Reserve that became effective January 1, 2015, the Company and the Bank are required to maintain a minimum ratio to total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 8.0% (unchanged from the prior requirement). At least 6% of the total capital is required to be “Tier 1 capital,” which consists principally of common and certain qualifying preferred shareholders’ equity (including grandfathered trust preferred securities) as well as retained earnings, less certain intangibles and other adjustments (increased from the prior requirement of 4.0%). The “Tier 2 capital” consists of cumulative preferred stock, long-term perpetual preferred stock, a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments), and a limited amount of the general loan loss allowance. A common equity Tier 1 capital ratio of 4.5% of risk-weighted assets was added with the new rules effective January 1, 2015.

Each of the federal bank regulatory agencies also has established a minimum leverage capital ratio of Tier 1 capital to average adjusted assets (“Tier 1 leverage ratio”). The guidelines require a minimum Tier 1 leverage ratio of 3.0% for financial holding companies and banking organizations with the highest supervisory rating. All other banking organizations were required to maintain a minimum Tier 1 leverage ratio of 4.0% unless a different minimum was specified by an appropriate regulatory authority (unchanged from the prior requirement). In addition, for a depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective action, its Tier 1 leverage ratio must be at least 5.0%. Banking organizations that have experienced internal growth or made acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve has not advised the Company or the Bank of any specific minimum leverage ratio applicable to either entity.

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The capital requirements that became effective January 1, 2015 are the initial capital obligations, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

The capital conservation buffer requirement is being phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

With respect to the Bank, the Federal Reserve’s final rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the prior ratio of 6.0%); and (iii) eliminating the provision that provided that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized. These new thresholds were effective for the Bank as of January 1, 2015. The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well-capitalized status were unchanged by the final rules.

The new capital requirements also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development, and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.

In September 2017, the federal bank regulatory agencies proposed to revise and simplify the capital treatment for certain deferred tax assets, mortgage servicing assets, investments in non-consolidated financial entities and minority interests for banking organizations, such as the Bank, that are not subject to the advanced approaches requirements. In November 2017, the regulatory agencies revised the capital rules enacted in 2013 to extend the current transitional treatment of these items for non-advanced approaches banking organizations until the September 2017 proposal is finalized. The September 2017 proposal would also change the capital treatment of certain commercial real estate loans under the standardized approach, which the Bank uses to calculate its capital ratios.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the proposed framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing-in through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.

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Other Safety and Soundness Regulations. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or is in danger of becoming insolvent. For example, under the requirements of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. In addition, the “cross-guarantee” provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the deposit insurance funds. The FDIC’s claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institutions.

Interstate Banking and Branching. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Effective June 1, 1997, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states had opted out of such interstate merger authority prior to such date. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law.

Monetary Policy. The commercial banking business is affected not only by general economic conditions but also by the monetary policies of the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open market operations in United States government securities, changes in the discount rate on member bank borrowing and changes in reserve requirements against deposits held by all federally insured banks. The Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of changing conditions in the national and international economy and in the money markets, as well as the effect of actions by monetary fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Bank.

Federal Reserve System. In 1980, Congress enacted legislation that imposed reserve requirements on all depository institutions that maintain transaction accounts or nonpersonal time deposits. NOW accounts, money market deposit accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to these reserve requirements, as are any nonpersonal time deposits at an institution.

The reserve percentages are subject to adjustment by the Federal Reserve. Because required reserves must be maintained in the form of vault cash or in a non-interest-bearing account at, or on behalf of, a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institution’s interest-earning assets.

Transactions with Affiliates. Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any bank or entity that controls, is controlled by or is under common control with such bank. Generally, Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the association or subsidiary as those provided to a nonaffiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions.

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Transactions with Insiders. The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholders of banks. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the bank’s loan-to-one borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed two times the bank’s unimpaired capital and unimpaired surplus until the bank’s total assets equal or exceed $100,000,000, at which time the aggregate is limited to the bank’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a bank or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the bank with any “interested” director not participating in the voting. The FDIC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.

The Dodd-Frank Act also provides that banks may not “purchase an asset from, or sell an asset to” a bank insider (or their related interests) unless (i) the transaction is conducted on market terms between the parties, and (ii) if the proposed transaction represents more than 10 percent of the capital stock and surplus of the bank, it has been approved in advance by a majority of the bank’s non-interested directors.

Community Reinvestment Act. Under the Community Reinvestment Act and related regulations, depository institutions have an affirmative obligation to assist in meeting the credit needs of their market areas, including low and moderate-income areas, consistent with safe and sound banking practice. The Community Reinvestment Act directs each bank to maintain a public file containing specific information, including all written comments received from the public for the current year and each of the previous two calendar years that specifically relate to the bank’s performance in helping to meet community credit needs. Depository institutions are periodically examined for compliance with the Community Reinvestment Act and are periodically assigned ratings in this regard. Banking regulators consider a depository institution’s Community Reinvestment Act rating when reviewing applications to establish new branches, undertake new lines of business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiaries.

The GLBA and federal bank regulators have made various changes to the Community Reinvestment Act. Among other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual reports must be made to a bank’s primary federal regulator. A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the GLBA may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a “satisfactory” rating in its latest Community Reinvestment Act examination.

Fair Lending; Consumer Laws. In addition to the Community Reinvestment Act, other federal and state laws regulate various lending and consumer aspects of the banking business. Governmental agencies, including the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice, have become concerned that prospective borrowers experience discrimination in their efforts to obtain loans from depository and other lending institutions. These agencies have brought litigation against depository institutions alleging discrimination against borrowers. Many of these suits have been settled, in some cases for material sums, short of a full trial.

These governmental agencies have clarified what they consider to be lending discrimination and have specified various factors that they will use to determine the existence of lending discrimination under the Equal Credit Opportunity Act and the Fair Housing Act, including evidence that a lender discriminated on a prohibited basis, evidence that a lender treated applicants differently based on prohibited factors in the absence of evidence that the treatment was the result of prejudice or a conscious intention to discriminate, and evidence that a lender applied an otherwise neutral non-discriminatory policy uniformly to all applicants, but the practice had a discriminatory effect, unless the practice could be justified as a business necessity.

Banks and other depository institutions are also subject to numerous consumer-oriented laws and regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Funds Availability Act, the Equal Credit Opportunity Act, and the Fair Housing Act, require compliance by depository institutions with various disclosure requirements and requirements regulating the availability of funds after deposit or the making of some loans to customers.

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On September 20, 2017, the Bureau of Consumer Financial Protection (Bureau) issued a final rule that amends Regulation B to permit creditors additional flexibility in complying with Regulation B in order to facilitate compliance with Regulation C, adds certain model forms and removes others from Regulation B, and makes various other amendments to Regulation B and its commentary to facilitate the collection and retention of information about the ethnicity, sex, and race of certain mortgage applicants. The rule is effective on January 1, 2018, except that the amendment to Appendix B removing the existing “Uniform Residential Loan Application” form in amendatory instruction 6 is effective January 1, 2022.

Privacy Regulations. The GLBA contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, both at the inception of the customer relationship and on an annual basis, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. The law provides that, except for specific limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes. The GLBA also provides that the states may adopt customer privacy protections that are more strict than those contained in the act.

Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report cash transactions involving more than $10,000 to the United States Treasury. In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect, involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The USA PATRIOT Act, enacted in response to the September 11, 2001 terrorist attacks, requires bank regulators to consider a financial institution’s compliance with the BSA when reviewing applications from a financial institution. As part of its BSA program, the USA PATRIOT Act also requires a financial institution to follow recently implemented customer identification procedures when opening accounts for new customers and to review lists of individuals and entities who are prohibited from opening accounts at financial institutions.

On May 11, 2016, FinCEN issued final rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements for: banks; brokers or dealers in securities; mutual funds; and futures commission merchants and introducing brokers in commodities. The rules contain explicit customer due diligence requirements and include a new requirement to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Because the Company’s common stock is registered with the SEC, it is currently subject to these requirements.

Incentive Compensation. In June 2010, the Federal Reserve issued a final rule on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. Banking organizations are instructed to review their incentive compensation policies to ensure that they do not encourage excessive risk-taking and implement corrective programs as needed. The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.

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Dodd-Frank Act. In July 2010, the Dodd-Frank Act was signed into law, incorporating numerous financial institution regulatory reforms. The Dodd-Frank Act implements far-reaching reforms of major elements of the financial landscape, particularly for larger financial institutions. Many of its provisions do not directly impact community-based institutions like the Bank. For instance, provisions that regulate derivative transactions and limit derivatives trading activity of federally-insured institutions, enhance supervision of “systemically significant” institutions, impose new regulatory authority over hedge funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred securities for Tier 1 capital are among the provisions that do not directly impact the Bank either because of exemptions for institutions below a certain asset size or because of the nature of the Bank’s operations. Provisions that could impact the Bank include the following:

• FDIC Assessments. The Dodd-Frank Act changed the assessment base for federal deposit insurance from the amount of insured deposits to average consolidated total assets less its average tangible equity. In addition, it increases the minimum size of the Deposit Insurance Fund (“DIF”) and eliminates its ceiling, with the burden of the increase in the minimum size on institutions with more than $10 billion in assets.

• Deposit Insurance. As scheduled, the unlimited insurance for noninterest bearing transaction accounts provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act expired on December 31, 2012. Deposits held in noninterest bearing transaction accounts are now aggregated with any interest bearing deposits the owner may hold in the same ownership category, and the combined total is insured up to at least $250,000.

• Interest on Demand Deposits. The Dodd- Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits, including business transaction and other accounts.

• Interchange Fees. The Federal Reserve set a cap on debit card interchange fees charged to retailers. While banks with less than $10 billion in assets, such as the Bank, are exempted from this measure, it is likely that all banks could be forced by market pressures to lower their interchange fees or face potential rejection of their cards by retailers.

• Consumer Financial Protection Bureau. The Dodd-Frank Act centralizes responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau ("CFPB"), responsible for implementing federal consumer protection laws, although banks below $10 billion in assets will continue to be examined and supervised for compliance with these laws by their federal bank regulator.

• Mortgage Lending. New requirements are imposed on mortgage lending, including new minimum underwriting standards, restrictions concerning loan originator compensation, qualifications of, and registration or licensing of loan originators, special consumer protections for mortgage loans that do not meet certain provision qualifications, prohibitions and limitations on certain mortgage terms and various new mandated disclosures to mortgage borrowers.

• Holding Company Capital Levels. Bank regulators are required to establish minimum capital levels for holding companies that are at least as stringent as those currently applicable to banks. In addition, all trust preferred securities issued after May 19, 2010 will be counted as Tier 2 capital.

• De Novo Interstate Branching. National and state banks are permitted to establish de novo interstate branches outside of their home state, and bank holding companies and banks must be well-capitalized and well managed in order to acquire banks located outside their home state.

• Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

• Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.

• Corporate Governance. The Dodd-Frank Act includes corporate governance revisions that apply to all public companies, not just financial institutions, including with regard to executive compensation and proxy access to shareholders.

Many aspects of the Dodd-Frank Act are subject to rulemaking and interpretation and will take effect over several years, and their impact on the Company or the financial industry is difficult to predict before such regulations are adopted.

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Volcker Rule. The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of 3% of Tier 1 capital in private equity and hedge funds (known as the “Volcker Rule”). On December 10, 2013, the federal bank regulatory agencies adopted final rules implementing the Volcker Rule. These final rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, and (ii) having certain ownership interests in and relationships with hedge funds or private equity funds. The final rules are intended to provide greater clarity with respect to both the extent of those primary prohibitions and of the related exemptions and exclusions. The final rules also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators. Although the final rules provide some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Company and the Subsidiary Banks. The final rules are effective April 1, 2014, but the conformance period has been extended from its statutory end date of July 21, 2014 until July 21, 2017. The Company has evaluated the implications of the final rules on its investments and does not expect any material financial implications.

Ability-to-Repay and Qualified Mortgage Rule. Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring creditors to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Creditors are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the creditor to consider the following eight underwriting factors when making the credit decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history. Alternatively, the creditor can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. To meet the mortgage credit needs of a broader customer base, the Company is predominantly an originator of mortgages that are in compliance with the Ability-to-Pay rules.

Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z). Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on November 20, 2013 (effective on October 3, 2015), combining certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The Bureau amended Regulation X (Real Estate Settlement Procedures Act) and Regulation Z (Truth in Lending) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition to combining the existing disclosure requirements and implementing new requirements imposed by the Dodd-Frank Act, the final rule provides extensive guidance regarding compliance with those requirements. The final rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (in other words, land). The final rule also does not apply to loans made by a creditor who makes five or fewer mortgages in a year.

On July 7, 2017, the CFPB modified the Federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act that are implemented in Regulation Z. This rule memorializes the CFPB’s informal guidance on various issues and makes additional clarifications and technical amendments. This rule also creates tolerances for the total of payments, adjusts a partial exemption mainly affecting housing finance agencies and nonprofits, extends coverage of the TILA-RESPA integrated disclosure (integrated disclosure) requirements to all cooperative units, and provides guidance on sharing the integrated disclosures with various parties involved in the mortgage origination process.

On October 4, 2017, the CFPB issued an interim final rule amending a provision of the Regulation X mortgage servicing rules issued in 2016 relating to the timing for servicers to provide modified written early intervention notices to borrowers who have invoked their cease communication rights under the Fair Debt Collection Practices Act.

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Flood Insurance Rule. On July 21, 2015, five federal regulatory agencies announced the approval of a joint final rule that modifies regulations that apply to loans secured by properties located in special flood hazard areas. The final rule implements provisions of the Homeowner Flood Insurance Affordability Act of 2014 relating to the escrowing of flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. The final rule also implements provisions in the Biggert-Waters Act relating to the force placement of flood insurance.

Home Mortgage Disclosure Act (HMDA) Final Rule. On October 15, 2015, the CFPB issued the final rule aimed at increasing the “quality and type” of HMDA data collected and reported by financial institutions. The HMDA Rule changes: (1) the types of financial institutions that are subject to Regulation C; (2) the types of transactions that are subject to Regulation C; (3) the data that financial institutions are required to collect, record, and report; and (4) the processes for reporting and disclosing HMDA data. On August 24, 2017, the Bureau issued a final rule (2017 HMDA Rule) further amending Regulation C to make technical corrections and to clarify and amend certain requirements adopted by the 2015 HMDA Final Rule. The most significant changes are not effective until January 1, 2018. On or before March 1, 2019, lenders will report the new data they collect in 2018.

Payday, Vehicle Title, and Certain High-Cost Installment Loans. On October 5, 2017, the CFPB has issued this final rule (effective date: January 16, 2018) to create consumer protections for certain consumer credit products. The rule has two primary parts. First, for short-term and longer-term loans with balloon payments, the CFPB is identifying it as an unfair and abusive practice for a lender to make such loans without reasonably determining that consumers have the ability to repay the loans according to their terms. The rule generally requires that, before making such a loan, a lender must reasonably determine that the consumer has the ability to repay the loan. The CFPB has exempted certain short-term loans from the ability-to-repay determination prescribed in the rule if they are made with certain consumer protections. Second, for the same set of loans and for longer-term loans with an annual percentage rate greater than 36 percent that are repaid directly from the consumer’s account, the rule identifies it as an unfair and abusive practice to attempt to withdraw payment from a consumer’s account after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. The rule also requires lenders to provide certain notices to the consumer before attempting to withdraw payment for a covered loan from the consumer’s account.

Future Legislation and Regulation. Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank. In 2017 and early 2018, both the House of Representatives and Senate introduced legislation that would repeal or modify provisions of the Dodd-Frank Act and impact financial services regulation. Although the bills vary in content, certain key aspects include revisions to rules related to mortgage loans reform and simplification of certain Volcker Rule requirements and changes to capital requirements. Future legislation, regulation, and government policy could affect the banking industry as a whole, including the business and results of operations of the Company and the Bank, in ways that are difficult to predict.

Future Regulatory Uncertainty. Because federal and state regulation of financial institutions changes regularly and is the subject of constant legislative debate, the Company cannot forecast how federal and state regulation of financial institutions may change in the future and, as a result, impact our operations. The Company fully expects that the financial institution industry will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices.

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Item 1A. Risk Factors

The Company is subject to many risks that could adversely affect its future financial condition and performance and, therefore, the market value of its securities. The risk factors applicable to the Company include, but are not limited to the following:

Government measures to regulate the financial industry, including the Dodd-Frank Act, subject us to increased regulation and could adversely affect us.

As a financial institution, we are heavily regulated at the state and federal levels. As a result of the financial crisis and related global economic downturn that began in 2007, we have faced, and expect to continue to face, increased public and legislative scrutiny as well as stricter and more comprehensive regulation of our financial services practices. The Dodd-Frank Act includes significant changes in the financial regulatory landscape and will impact all financial institutions, including the Company and the Bank. Because the ultimate impact of the Dodd-Frank Act will depend on future regulatory rulemaking and interpretation, we cannot predict the full effect of this legislation on our businesses, financial condition or results of operations. Among other things, the Dodd-Frank Act and the regulations implemented thereunder limit debit card interchange fees, increase FDIC assessments, impose new requirements on mortgage lending, and establish more stringent capital requirements on bank holding companies. As a result of these and other provisions in the Dodd-Frank Act, we could experience additional costs, as well as limitations on the products and services we offer and on our ability to efficiently pursue business opportunities, which may adversely affect our businesses, financial condition or results of operations.

The Company’s success depends upon its ability to manage interest rate risk.

The profitability of the Company depends significantly on its net interest income, which is the difference between the interest earned on loans, securities and other interest-earning assets, and the interest paid on deposits and borrowings. Changes in interest rates will affect the rates earned on securities and loans and rates paid on deposits and other borrowings. While the Company believes that its current interest rate exposure does not present any significant negative exposure to interest rate changes, it cannot eliminate its exposure to interest rate risk because the factors which cause interest rate risk are beyond the Company’s control. These factors include competition, federal economic, monetary and fiscal policies, and general economic conditions.

The Company’s success depends upon its ability to compete effectively in the banking industry.

The Company’s banking subsidiary faces competition from banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. Certain divisions within the banking subsidiary face competition from wealth management and investment brokerage firms. A number of these banks and other financial institutions are significantly larger and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. This competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.

The Company could be adversely affected by economic conditions in its market area.

The Company’s branches are located in the counties of Clarke, Frederick and Loudoun, the towns of Purcellville, Leesburg and Ashburn, and the City of Winchester. Because our lending is concentrated in this market, we will be affected by the general economic conditions in these areas. Changes in the economy may influence the growth rate of our loans and deposits, the quality of the loan portfolio and loan and deposit pricing. A decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact the demand for banking products and services generally, which could negatively affect our financial condition and performance.

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The Company’s operations may be adversely affected by cyber security risks.

In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to the Company's operations and business strategy. In addition, the Company relies heavily on communications and information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in the Company's customer relationship management, general ledger, deposit, loan, and other systems. The Company has invested in accepted technologies, and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged, or disclosed. A breach in security or other failure could result in legal claims, regulatory penalties, disruption in operations, increased expenses, loss of customers and business partners, and damage to the Company’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.

The Company is subject to more stringent capital and liquidity requirements as a result of the Basel III regulatory capital reforms and the Dodd-Frank Act, the short-term and long-term impact of which is uncertain.

The Company and the Bank are each subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital which each must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. Under the Dodd-Frank Act, the federal banking agencies have established stricter capital requirements and leverage limits for banks and bank holding companies that are based on the Basel III regulatory capital reforms. The Basel III Capital Rules require bank holding companies and their subsidiaries, to maintain significantly more capital and adopted more demanding regulatory capital risk weightings and calculations. As a result of the Basel III Capital Rules, many community banks could be forced to limit banking operations and activities, and growth of loan portfolios, in order to focus on retention of earnings to improve capital levels. The Company believes that it maintains sufficient levels of Tier 1 and Common Equity Tier 1 capital to comply with the Basel III Final Rules. However, if the Company and the Bank fail to meet these minimum capital guidelines and/or other regulatory requirements, the Company could be subject to regulatory restrictions, including limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses, or experience other adverse consequences that could cause its financial condition to be materially and adversely affected.

New regulations issued by the CFPB could adversely impact the Company’s earnings.

The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. Pursuant to the Dodd-Frank Act, the CFPB issued a final rule effective January 10, 2014, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that meet specific requirements with respect to terms, pricing and fees. The new rule also contains new disclosure requirements at mortgage loan origination and in monthly statements. These requirements could limit the Company’s ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact the Company’s profitability.

The Company’s concentration in loans secured by real estate may increase its credit losses, which would negatively affect our financial results.

At December 31, 2017, loans secured by real estate totaled $519.6 million and represented 91.34% of the Company’s loan portfolio. If we experience further adverse changes in the local real estate market or in the local or national economy, borrowers’ ability to pay these loans may be further impaired, which could impact the Company’s financial performance. The Company attempts to limit its exposure to this risk by applying good underwriting practices at origination, evaluating the appraisals used to establish property values, and routinely monitoring the financial condition of borrowers. If the value of real estate serving as collateral for the loan portfolio were to continue to decline materially, a significant part of the loan portfolio could become under-collateralized. If the loans that are secured by real estate become troubled when real estate market conditions are declining or have declined, in the event of foreclosure, the Company may not be able to realize the amount of collateral that was anticipated at the time of originating the loan. In that event, the Company might have to increase the provision for loan losses, which could have a material adverse effect on its operating results and financial condition.

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An inadequate allowance for loan losses would reduce our earnings.

Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. We maintain an allowance for loan losses based upon many factors, including the following:

• actual loan loss history;

• volume, growth, and composition of the loan portfolio;

• the amount of non-performing loans and the value of their related collateral;

• the effect of changes in the local real estate market on collateral values;

• the effect of current economic conditions on a borrower’s ability to pay; and

• other factors deemed relevant by management.

These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events; therefore, realized losses may differ from current estimates. Changes in economic, operating, and other conditions, including changes in interest rates, which are generally beyond our control, could increase actual loan losses significantly. As a result, actual losses could exceed our current allowance estimate. We cannot provide assurance that our allowance for loan losses is sufficient to cover actual loan losses should such losses differ significantly from the current estimates.

In addition, there can be no assurance that our methodology for assessing our asset quality will succeed in properly identifying impaired loans or calculating an appropriate loan loss allowance. We could sustain losses if we incorrectly assess the creditworthiness of our borrowers or fail to detect or respond to deterioration in asset quality in a timely manner. If our assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if bank regulatory authorities require us to increase the allowance for loan losses as a part of their examination process, our earnings and capital could be significantly and adversely affected.

Our exposure to operational risk may adversely affect our business.

We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.

Reputational risk, or the risk to our earnings and capital from negative public opinion, could result from our actual alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance or the occurrence of any of the events or instances mentioned below, or from actions taken by government regulators or community organizations in response to that conduct. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally.

Further, if any of our financial, accounting, or other data processing systems fail or have other significant shortcomings, we could be adversely affected. We depend on internal systems and outsourced technology to support these data storage and processing operations. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. We could be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

If any of the foregoing risks materialize, it could have a material adverse affect on our business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

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The Company may not be able to successfully manage its growth or implement its growth strategy, which may adversely affect results of operations and financial condition.

A key component of the Company’s business strategy is to continue to grow and expand. The Company’s ability to grow and expand depends upon its ability to open new branch locations, attract new deposits to the existing and new branch locations, and identify attractive loan and investment opportunities. The Company may not be able to implement its growth strategy if it is unable to identify attractive markets or branch locations. Once identified, successfully managing growth will depend on integrating the new branch locations while maintaining adequate capital, cost controls and asset quality. As this growth strategy is implemented, the Company will incur construction costs and increased personnel, occupancy and other operating expenses. Because these costs are incurred before new deposits and loans are generated, adding new branch locations will initially decrease earnings, despite efficient execution of this strategy.

The Company relies heavily on its senior management team and the unexpected loss of key officers could adversely affect operations.

The Company believes that its growth and success depends heavily upon the skills of its senior management team. The Company also depends on the experience of its subsidiary’s officers and on their relationships with the customers they serve. The loss of one or more of these officers could disrupt the Company’s operations and impair its ability to implement its business strategy, which could adversely affect the Company’s financial condition and performance.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company owns or leases buildings which are used in normal business operations. The Company’s corporate headquarters, and that of Bank of Clarke County, is located at 2 East Main Street, Berryville, Virginia, 22611. At December 31, 2017, Bank of Clarke County operated twelve full-service branches and one drive-through only facility in the Virginia communities of Berryville, Winchester, Boyce, Stephens City, Purcellville, Leesburg and Ashburn. See Note 1 “Nature of Banking Activities and Significant Accounting Policies” and Note 6 “Bank Premises and Equipment, Net” in the “Notes to the Consolidated Financial Statements” of this Form 10-K for information with respect to the amounts at which bank premises and equipment are carried and commitments under long-term leases.

All of the Company’s properties are well maintained, are in good operating condition and are adequate for the Company’s present and anticipated future needs.

Item 3. Legal Proceedings

There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock trades on the OTC Markets Group's OTCQX Market under the symbol “EFSI.” The OTC Markets Group provides information about the common stock to professional market makers who match sellers with buyers. Securities brokers can obtain information from the OTC Markets Group when working with clients. When a client decides to initiate a transaction, the broker will contact one of the stock’s market makers.

The Company has a limited record of trades involving its common stock in the sense of “bid” and “ask” prices or in highs and lows. The effort to accurately disclose trading prices is made more difficult due to the fact that price per share information is not required to be disclosed to the Company when shares of its stock have been sold by holders and purchased by others. The table titled “Common Stock Market Price and Dividend Data” summarizes the high and low sales prices of shares of the Company’s common stock on the basis of trades known to the Company (including trades through the OTC Markets Group) and dividends declared during 2017 and 2016. The Company may not be aware of the per share price of all trades made.

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Common Stock Market Price and Dividend Data

	2017		2016		Dividends Per Share
	High	Low	High	Low	2017	2016
1st Quarter	$29.00	$25.50	$24.00	$22.85	$0.22	$0.20
2nd Quarter	33.25	28.40	23.74	22.25	0.22	0.20
3rd Quarter	32.63	29.00	23.99	22.70	0.22	0.20
4th Quarter	32.15	29.15	26.00	23.26	0.22	0.22

As of March 8, 2018, the Company had approximately 997 shareholders of record.

The Company has historically paid dividends on a quarterly basis. The final determination of the timing, amount and payment of dividends on the Common Stock is at the discretion of the Company’s Board of Directors. Some of the factors affecting the payment of dividends on the Company’s common stock are operating results, financial condition, capital adequacy, regulatory requirements and shareholders returns.

The Company is organized under the Virginia Stock Corporation Act, which prohibits the payment of a dividend if, after giving it effect, the corporation would not be able to pay its debts as they become due in the usual course of business or if the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved, to satisfy the preferential rights upon dissolution of any preferred shareholders.

The Company is a legal entity separate and distinct from its subsidiaries. Its ability to distribute cash dividends will depend primarily on the ability of the Bank to pay dividends to it, and the Bank is subject to laws and regulations that limit the amount of dividends that it can pay. As a state member bank, the Bank is subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations. Under Virginia law, a bank may not declare a dividend in excess of its undivided profits. Additionally, the Bank may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by it in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the Federal Reserve.

The Federal Reserve and the state of Virginia have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. Both the state of Virginia and the Federal Reserve have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. Under the Federal Reserve’s regulations, the Bank may not declare or pay any dividend in excess of its net income for the current year plus any retained net income from the prior two calendar years. The Bank may also not declare or pay a dividend without the approval of its board and two-thirds of its shareholders if the dividend would exceed its undivided profits, as reported to the Federal Reserve.

In addition, the Company is subject to certain regulatory requirements to maintain capital at or above regulatory minimums. These regulatory requirements regarding capital affect its dividend policies. The Federal Reserve has indicated that a bank holding company should generally pay dividends only if its current earnings are sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.

Issuer Purchases of Equity Securities for the Quarter Ended December 31, 2017

On June 21, 2017, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2018. During 2017, the Company purchased 52,936 shares of its Common Stock under its stock repurchase program at an average price of $29.54.

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The following table details the Company's purchases of its common stock during the fourth quarter pursuant to the Stock Repurchase program renewed on June 21, 2017. The Company authorized 150,000 shares for repurchase under the Stock Repurchase program. The program has an expiration date of June 30, 2018.

	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that may Yet Be Purchased Under the Plan
October 1 - October 31, 2017	4,468	$	30.00	4,468	117,475
November 1 - November 30, 2017	6,360	31.10		10,828	111,115
December 1 - December 31, 2017	—	—		10,828	111,115
	10,828	$	30.65	10,828	111,115

Stock Performance

The following line graph compares the cumulative total return to the shareholders of the Company to the returns of the NASDAQ Bank Index and the NASDAQ Composite Index for the last five years. The amounts in the table represent the value of the investment on December 31^st of the year indicated, assuming $100 was initially invested on December 31, 2012 and the reinvestment of dividends. See Management Discussion and Analysis sections Liquidity and Capital Resources and Note 17, “Restrictions on Dividends, Loans and Advances” to the Consolidated Financial Statements for information on Eagle Financial Services, Inc. ability and intent to pay dividends.

	2012		2013		2014		2015		2016		2017
Eagle Financial Services, Inc.	$	100	$	106	$	114	$	116	$	135	$	173
NASDAQ Bank Index	100		139		143		152		206		213
NASDAQ Composite Index	100		138		157		166		178		229

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20

Item 6. Selected Financial Data

The following table presents selected financial data, which was derived from the Company’s audited financial statements for the periods indicated.

	December 31,
	2017			2016			2015			2014			2013
	(dollars in thousands, except per share amounts)
Income Statement Data:
Interest and dividend income	$	28,351		$	25,785		$	24,493		$	24,850		$	25,036
Interest expense	1,154			1,067			1,347			1,912			2,585
Net interest income	$	27,197		$	24,718		$	23,146		$	22,938		$	22,451
(Recovery of) provision for loan losses	(625		)	(188		)	(227		)	350			—
Net interest income after (recovery of) provision for loan losses	$	27,822		$	24,906		$	23,373		$	22,588		$	22,451
Noninterest income	6,780			6,669			8,438			6,606			7,462
Net revenue	$	34,602		$	31,575		$	31,811		$	29,194		$	29,913
Noninterest expenses	23,190			22,652			22,481			19,986			20,367
Income before income taxes	$	11,412		$	8,923		$	9,330		$	9,208		$	9,546
Income tax expense	3,626			2,553			2,433			2,068			2,388
Net Income	$	7,786		$	6,370		$	6,897		$	7,140		$	7,158
Performance Ratios:
Return on average assets	1.08		%	0.96		%	1.10		%	1.19		%	1.23		%
Return on average equity	9.50		%	7.98		%	9.17		%	10.25		%	11.04		%
Shareholders’ equity to assets	10.95		%	11.34		%	11.97		%	11.67		%	11.32		%
Dividend payout ratio	39.29		%	45.30		%	40.61		%	37.03		%	36.02		%
Non-performing loans to total loans	1.11		%	1.35		%	1.13		%	2.28		%	1.00		%
Non-performing assets to total assets	0.84		%	1.05		%	0.95		%	2.04		%	1.04		%
Per Common Share Data:
Net income, basic	$	2.24		$	1.81		$	1.97		$	2.08		$	2.11
Net income, diluted	2.24			1.81			1.97			2.08			2.11
Cash dividends declared	0.88			0.82			0.80			0.77			0.76
Book value	24.40			23.01			22.25			21.01			19.57
Market price	32.00			25.75			23.00			23.30			22.50
Average shares outstanding, basic	3,468,275			3,518,848			3,495,334			3,438,348			3,386,467
Average shares outstanding, diluted	3,468,275			3,518,848			3,495,334			3,438,646			3,387,212
Balance Sheet Data:
Total securities	$	133,673		$	120,330		$	107,719		$	96,973		$	104,790
Total loans	568,817			516,942			495,573			469,820			444,273
Total assets	765,751			700,149			653,272			630,158			586,444
Total deposits	663,414			603,877			550,718			503,816			487,587
Shareholders’ equity	83,817			79,416			78,221			73,132			66,406

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The purpose of this discussion is to focus on the important factors affecting the financial condition, results of operations, liquidity and capital resources of Eagle Financial Services, Inc. (the “Company”). This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

GENERAL

The Company is a bank holding company which owns 100% of the stock of Bank of Clarke County (the “Bank”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and corporate, municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the extent permitted by law. At December 31, 2017, the Company had total assets of $765.8 million, net loans of $564.4 million, total deposits of $663.4 million and shareholders’ equity of $83.8 million. The Company’s net income was $7.8 million for the year ended December 31, 2017.

MANAGEMENT’S STRATEGY

The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancement opportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to our local, independent status.

OPERATING STRATEGY

The Bank is a locally owned and managed financial institution. This allows the Bank to be flexible and responsive in the products and services it offers. The Bank grows primarily by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank attempts to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.

As interest rates change, the Bank attempts to maintain its net interest margin. This is accomplished by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through Eagle Investment Group, which is the Bank’s investment management division that offers both trust services and investment sales, mortgage originations and deposit operations. The Bank also incurs noninterest expenses associated with compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.

The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank also utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards.

LENDING POLICIES

Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.

The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.

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The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, a senior management loan committee, and a director loan committee. Lending limits for individuals and the Senior Loan Committee are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Category I) is assigned to the Bank’s President / Chief Executive Officer, Senior Loan Officer and Senior Credit Officer (approval authority only). Two officers in Category I may combine their authority to approve loan requests to borrowers with credit exposure up to $1,000,000 on a secured basis and $500,000 unsecured. Officers in Category II, III, IV, V, VI and VII have lesser authorities and with approval of a Category I officer may extend loans to borrowers with exposure of $500,000 on a secured basis and $250,000 unsecured. Loan exposures up to $1,000,000 may be approved with the concurrence of two, Category I officers. Loans to borrowers with total credit exposures between $1,000,000 and $3,000,000 are approved by the Senior Loan Committee consisting of the President, Chief Operating Officer, Senior Loan Officer, Senior Credit Officer, and Chief Financial Officer. Approval of the Senior Loan Committee is required prior to being referred to the Director Loan Committee for approval. Loans exceeding $3,000,000 and up to the Bank’s legal lending limit can be approved by the Director Loan Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.

The following sections discuss the major loan categories within the total loan portfolio:

One-to-Four-Family Residential Real Estate Lending

Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.

Commercial Real Estate Lending

Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.

Construction and Land Development Lending

The Bank makes local construction loans, primarily residential, and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished home. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.

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Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

Consumer Lending

The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank originates its consumer loans within its geographic market area and these loans are generally made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.

CRITICAL ACCOUNTING POLICIES

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change.

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Allowance for Loan Losses

The allowance for loan losses is an estimate of the probable losses inherent in the Company’s loan portfolio. As required by GAAP, the allowance for loan losses is accrued when their occurrence is probable and they can be estimated. Impairment losses are accrued based on the differences between the loan balance and the value of its collateral, the present value of future cash flows, or the price established in the secondary market. The Company’s allowance for loan losses has three basic components: the general allowance, the specific allowance and the unallocated allowance. Each of these components is determined based upon estimates that can and do change when actual events occur. The general allowance uses historical experience and other qualitative factors to estimate future losses and, as a result, the estimated amount of losses can differ significantly from the actual amount of losses which would be incurred in the future. However, the potential for significant differences is mitigated by continuously updating the loss history of the Company. The specific allowance is based upon the evaluation of specific impaired loans on which a loss may be realized. Factors such as past due history, ability to pay, and collateral value are used to identify those loans on which a loss may be realized. Each of these loans is then evaluated to determine how much loss is estimated to be realized on its disposition. The sum of the losses on the individual loans becomes the Company’s specific allowance. This process is inherently subjective and actual losses may be greater than or less than the estimated specific allowance. The unallocated allowance captures losses that are attributable to various economic events which may affect a certain loan type within the loan portfolio or a certain industrial or geographic sector within the Company’s market. As the loans, which are affected by these events, are identified or losses are experienced on the loans which are affected by these events, they will be reflected within the specific or general allowances. Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, of the 2017 Form 10-K, provides additional information related to the allowance for loan losses.

Other Real Estate Owned (OREO)

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, recent sales of similar properties, length of time the properties have been held, and our ability and intention with regard to continued ownership of the properties. The Company may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market conditions.

Other-Than-Temporary Impairment (OTTI) for Securities

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income (loss). We regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery.

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FORWARD LOOKING STATEMENTS

The Company makes forward looking statements in this report that are subject to risks and uncertainties. These forward looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

• difficult market conditions in our industry;

• effects of soundness of other financial institutions;

• potential impact on us of existing and future legislation and regulations;

• the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future;

• 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;

• the successful management of interest rate risk;

• risks inherent in making loans such as repayment risks and fluctuating collateral values;

• changes in general economic and business conditions in the market area;

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

• changes in interest rates and interest rate policies;

• maintaining capital levels adequate to support growth;

• maintaining cost controls and asset qualities as new branches are opened or acquired;

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

• problems with technology utilized by the Bank;

• changing trends in customer profiles and behavior;

• changes in banking and other laws and regulations; and

• other factors described in Item 1A., “Risk Factors,” above.

Because of these uncertainties, actual future results may be materially different from the results indicated by these forward looking statements. In addition, past results of operations do not necessarily indicate future results.

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RESULTS OF OPERATIONS

Net Income

Net income for 2017 was $7.8 million, an increase of $1.4 million or 22.23% from 2016’s net income of $6.4 million. Net income for 2016decreased$527 thousand or 7.64% from 2015’s net income of $6.9 million. Basic and diluted earnings per share were $2.24, $1.81, and $1.97 for 2017, 2016, and 2015, respectively.

Return on average assets (ROA) measures how efficiently the Company uses its assets to produce net income. Some issues reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, was 1.08%, 0.96%, and 1.10% for 2017, 2016, and 2015, respectively.

Return on average equity (ROE) measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by the shareholders. The ROE for the Company was 9.50%, 7.98%, and 9.17% for 2017, 2016, and 2015, respectively.

Net Interest Income

Net interest income, the difference between total interest income and total interest expense, is the Company’s primary source of earnings. Net interest income was $27.2 million for 2017, $24.7 million for 2016, and $23.1 million for 2015, which represents an increase of $2.5 million or 10.03% and $1.6 million or 6.79% for 2017 and 2016, respectively. Net interest income is derived from the volume of earning assets and the rates earned on those assets as compared to the cost of funds. Total interest income was $28.4 million for 2017, $25.8 million for 2016, and $24.5 million for 2015, which represents an increase of $2.6 million or 9.95% and an increase of $1.3 million or 5.27% for 2017 and 2016, respectively. Total interest expense was $1.2 million for 2017, $1.1 million for 2016, and $1.3 million for 2015, which represents an increase of $87 thousand or 8.15% and a decrease of $280 thousand or 20.79% in 2017 and 2016, respectively. The increase in total interest income during 2017 is driven mainly by the growth in interest-earning assets. Refer to the table titled “Volume and Rate Analysis” for further detail.

The table titled “Average Balances, Income and Expenses, Yields and Rates” displays the composition of interest earnings assets and interest bearing liabilities and their respective yields and rates for the years ended December 31, 2017, 2016, and 2015.

The net interest margin was 4.10% for 2017, 4.07% for 2016, and 4.06% for 2015. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earnings assets. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 34% for 2017, 2016, and 2015. The table titled “Tax-Equivalent Net Interest Income” reconciles net interest income to tax-equivalent net interest income, which is not a measurement under GAAP, for the years ended December 31, 2017, 2016, and 2015.

Net interest income may experience some decline due to increasing cost of funds as a result of increasing rates on interest bearing liabilities. Net interest margin and net interest income may be affected negatively due to the change in corporate tax rate from 34% to 21% as a result of the Tax Cuts and Jobs Act that was signed into law on December 22, 2017.

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Average Balances, Income and Expenses, Yields and Rates

(dollars in thousands)

	December 31, 2017							December 31, 2016							December 31, 2015
	Average Balances			Interest Income/ Expense		Average Yield/ Rate		Average Balances			Interest Income/ Expense		Average Yield/ Rate		Average Balances			Interest Income/ Expense		Average Yield/ Rate
Assets:
Securities:
Taxable	$	90,881		$	2,339	2.57	%	$	72,824		$	1,750	2.40	%	$	71,159		$	1,744	2.45	%
Tax-Exempt (1)	38,432			1,567		4.08	%	32,495			1,401		4.31	%	31,592			1,472		4.66	%
Total Securities	$	129,313		$	3,906	3.02	%	$	105,319		$	3,151	2.99	%	$	102,751		$	3,216	3.13	%
Loans:
Taxable	530,109			24,616		4.64	%	497,720			22,815		4.58	%	465,444			21,523		4.62	%
Non-accrual	5,701			—		—	%	5,891			—		—	%	6,446			—		—	%
Tax-Exempt (1)	5,927			311		5.25	%	6,423			336		5.23	%	7,210			346		4.80	%
Total Loans	$	541,737		$	24,927	4.60	%	$	510,034		$	23,151	4.54	%	$	479,100		$	21,869	4.56	%
Federal funds sold	171			1		0.58	%	36			—		—	%	—			—		—	%
Interest-bearing deposits in other banks	13,870			156		1.12	%	15,179			73		0.48	%	12,174			26		0.21	%
Total earning assets (2)	$	679,390		$	28,990	4.27	%	$	624,677		$	26,375	4.22	%	$	587,579		$	25,111	4.27	%
Allowance for loan losses	(4,548		)					(4,967		)					(5,374		)
Total non-earning assets	48,590							44,440							47,626
Total assets	$	723,432						$	664,150						$	629,831
Liabilities and Shareholders’ Equity:
Interest-bearing deposits:
NOW accounts	$	85,154		$	161	0.19	%	$	81,966		$	93	0.11	%	$	80,809		$	85	0.11	%
Money market accounts	128,068			290		0.23	%	117,210			201		0.17	%	99,088			113		0.11	%
Savings accounts	100,838			66		0.07	%	87,035			51		0.06	%	76,054			41		0.05	%
Time deposits:
$100,000 and more	57,010			340		0.60	%	44,193			255		0.58	%	36,098			170		0.47	%
Less than $100,000	39,319			227		0.58	%	45,133			187		0.41	%	57,992			332		0.57	%
Total interest-bearing deposits	$	410,389		$	1,084	0.26	%	$	375,537		$	787	0.21	%	$	350,041		$	741	0.21	%
Federal funds purchased and securities sold under agreements to repurchase	823			13		1.58	%	73			1		1.37	%	1,154			10		0.87	%
Federal Home Loan Bank advances	5,096			57		1.12	%	10,546			136		1.29	%	24,849			336		1.35	%
Trust preferred capital notes (3)	—			—		—	%	—			—		—	%	4,441			196		4.41	%
Total interest-bearing liabilities	$	416,308		$	1,154	0.28	%	$	386,156		$	924	0.24	%	$	380,485		$	1,283	0.34	%
Noninterest-bearing liabilities:
Demand deposits	216,044							195,428							171,508
Other Liabilities	9,129							2,752							2,599
Total liabilities	$	641,481						$	584,336						$	554,592
Shareholders’ equity	81,951							79,814							75,239
Total liabilities and shareholders’ equity	$	723,432						$	664,150						$	629,831
Net interest income				$	27,836						$	25,451						$	23,828
Net interest spread						3.99	%						3.98	%						3.93	%
Interest expense as a percent of average earning assets						0.17	%						0.15	%						0.22	%
Net interest margin						4.10	%						4.07	%						4.06	%

(1) Income and yields are reported on a tax-equivalent basis using a federal tax rate of 34%.

(2) Non-accrual loans are not included in this total since they are not considered earning assets.

(3) Interest expense and average yield was adjusted to exclude interest expense related to the interest rate swap incurred after the redemption of the trust preferred capital notes.

28

Tax-Equivalent Net Interest Income

(dollars in thousands)

	December 31,
	2017		2016		2015
GAAP Financial Measurements:
Interest Income - Loans	$	24,821	$	23,037	$	21,751
Interest Income - Securities and Other Interest-Earnings Assets	3,530		2,748		2,742
Interest Expense - Deposits	1,084		787		741
Interest Expense - Interest Rate Swap	—		143		182
Interest Expense - Other Borrowings	70		137		424
Total Net Interest Income	$	27,197	$	24,718	$	23,146
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1)	$	106	$	114	$	118
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1)	533		476		500
Total Tax Benefit on Tax-Exempt Interest Income	$	639	$	590	$	618
Add: Interest Expense - Interest Rate Swap (2)	—		143		64
Tax-Equivalent Net Interest Income	$	27,836	$	25,451	$	23,828

(1) Tax benefit was calculated using the federal statutory tax rate of 34%.

(2) Tax-Equivalent net interest income was adjusted to exclude interest expense related to the interest rate swap incurred after the redemption of the trust preferred capital notes in 2015.

The tax-equivalent yield on earning assets increased five basis points from 2016 to 2017 and decreased five basis points from 2015 to 2016. The tax-equivalent yield on securities increased three basis points from 2016 to 2017 and decreased 14 basis points from 2015 to 2016. The tax-equivalent yield on loans increased six basis points from 2016 to 2017 and decreased two basis points from 2015 to 2016. The slight increase in the yield on earning assets, securities, and the loan portfolio was primarily a result of increases in interest rates by the Federal Reserve during 2017.

The average rate on interest-bearing liabilities increased four basis points from 2016 to 2017 and decreased 10 basis points from 2015 to 2016. The average rate on total interest-bearing deposits increased five basis points from 2016 to 2017 and remained steady from 2015 to 2016. In general, deposit pricing is done in response to monetary policy actions and yield curve changes. Local competition for funds affects the cost of time deposits, which are primarily comprised of certificates of deposit. The Company issues brokered certificates of deposit as a substitute for offering promotional certificates of deposit when their rates are lower. The rates on brokered certificates of deposit are usually comparable with other wholesale funding sources and these funds can be gathered more efficiently without causing existing deposits to reprice. The Company prefers to rely most heavily on non-maturity deposits, which include NOW accounts, money market accounts, and savings accounts. The average balance of non-maturity interest-bearing deposits increased $27.9 million or 9.75% from $286.2 million during 2016 to $314.1 million in 2017 and $30.3 million or 11.83% from $256.0 million at December 31, 2015 during 2016. Changes in the average rate on interest-bearing liabilities can also be affected by the pricing on other sources of funds, namely borrowings. The Company from time to time will utilize overnight borrowings in the form of federal funds purchased. The average rate on these borrowings increased 21 basis points from 2016 to 2017 and 50 basis points from 2015 to 2016. The cost of federal funds purchased is affected by the Federal Reserve’s changes in the federal funds target rate, which increased to 1.50% during 2017, from 0.75% in 2016. Finally, the Company borrows from the Federal Home Loan Bank through short and long term advances. The average rate on FHLB advances decreased 17 basis points from 2016 to 2017 and six basis points from 2015 to 2016. The average balance on FHLB advances decreased$5.5 million during 2017 and decreased$14.3 million during 2016.

29

The table titled “Volume and Rate Analysis” provides information about the effect of changes in financial assets and liabilities and changes in rates on net interest income. Non-accruing loans are excluded from the average outstanding loans. Tax-equivalent net interest income increased $2.4 million during 2017. The increase in tax-equivalent net interest income during 2017 is comprised of an increase due to volume of $2.1 million and a increase due to rate of $262 thousand. The increase in tax-equivalent net interest income during 2017 was primarily affected by the increased volume of taxable loans and taxable securities.

Volume and Rate Analysis (Tax-Equivalent Basis)

(dollars in thousands)

	2017 vs 2016 Increase (Decrease) Due to Changes in:									2016 vs 2015 Increase (Decrease) Due to Changes in:
	Volume			Rate			Total			Volume			Rate			Total
Earning Assets:
Securities:
Taxable	$	458		$	131		$	589		$	47		$	(41	)	$	6
Tax-exempt	234			(68		)	166			44			(115		)	(71		)
Loans:
Taxable	1,499			302			1,801			1,476			(184		)	1,292
Tax-exempt	(26		)	1			(25		)	(56		)	46			(10		)
Federal funds sold	—			1			1			—			—			—
Interest-bearing deposits in other banks	(6		)	89			83			8			39			47
Total earning assets	$	2,159		$	456		$	2,615		$	1,519		$	(255	)	$	1,264
Interest-Bearing Liabilities:
NOW accounts	$	3		$	65		$	68		$	8		$	—		$	8
Money market accounts	19			70			89			22			66			88
Savings accounts	7			8			15			4			6			10
Time deposits:
$100,000 and more	76			9			85			42			43			85
Less than $100,000	(18		)	58			40			(64		)	(81		)	(145		)
Total interest-bearing deposits	$	87		$	210		$	297		$	12		$	34		$	46
Federal funds purchased and securities sold under agreements to repurchase	$	12		$	—		$	12		$	(23	)	$	14		$	(9	)
Federal Home Loan Bank advances	(63		)	(16		)	(79		)	(186		)	(14		)	(200		)
Trust preferred capital notes	—			—			—			(98		)	(98		)	(196		)
Total interest-bearing liabilities	$	36		$	194		$	230		$	(295	)	$	(64	)	$	(359	)
Change in net interest income	$	2,123		$	262		$	2,385		$	1,814		$	(191	)	$	1,623

Provision for Loan Losses

The provision for loan losses is based upon management’s estimate of the amount required to maintain an adequate allowance for loan losses as discussed within the Critical Accounting Policies section above. The (recovery of) loan losses was $(625) thousand for 2017, $(188) thousand for 2016, and $(227) thousand for 2015. Changes in the amount of provision for loan losses during each period reflect the results of the Bank’s analysis used to determine the adequacy of the allowance for loan losses. The recovery of loan losses in 2017 is due mainly to a decline in the historical loss experience utilized in our allowance model. The recovery of loan losses in 2015 and 2016 reflects lower specific reserves on remaining impaired loans as well as a decline in the historical loss experience utilized in our allowance model. The Company is committed to maintaining an allowance that adequately reflects the risk inherent in the loan portfolio. This commitment is more fully discussed in the “Asset Quality” section.

30

Noninterest Income

Total noninterest income was $6.8 million, $6.7 million, and $8.4 million during 2017, 2016, and 2015, respectively. This represents an increase of $111 thousand or 1.66% for 2017 and a decrease of $1.8 million or 20.96% for 2016. Management reviews the activities which generate noninterest income on an ongoing basis.

The following table provides the components of noninterest income for the twelve months ended December 31, 2017, 2016, and 2015, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

	December 31,
(dollars in thousands)	2017			2016			$ Change			% Change		2016			2015			$ Change			% Change
Income from fiduciary activities	$	1,238		$	1,356		$	(118	)	(8.70	)%	$	1,356		$	1,338		$	18		1.35	%
Service charges on deposit accounts	1,223			1,227			(4		)	(0.33	)%	1,227			1,244			(17		)	(1.37	)%
Other service charges and fees	3,878			3,713			165			4.44	%	3,713			3,375			338			10.01	%
(Loss) on the sale and disposal of premises and equipment	(12		)	(10		)	(2		)	NM		(10		)	(76		)	66			NM
(Loss) gain on sale of securities	(10		)	98			(108		)	NM		98			124			(26		)	NM
Gain on redemption of trust preferred debt	—			—			—			NM		—			2,424			(2,424		)	NM
Other operating income	463			285			178			62.46	%	285			9			276			3,066.67	%
Total noninterest income	$	6,780		$	6,669		$	111		1.66	%	$	6,669		$	8,438		$	(1,769	)	(20.96	)%

NM - Not Meaningful

Income from fiduciary activities, generated by trust services offered through Eagle Investment Group, decreased from 2016 to 2017. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Also, income can fluctuate due to the number of estates settled within any period.

The amount of other services charges and fees is comprised primarily of commissions from the sale of non-deposit investment products, fees received from the Bank’s credit card program, fees generated from the Bank’s ATM/debit card programs, and fees generated from procuring applications for secondary market loans. Other service charges and fees increased by $338 thousand or 10.01% for 2016. This increase can be primarily attributed to an increase of ATM fee income of $172 thousand for 2016.

The $2.4 million gain on redemption of trust preferred capital notes occurred during the third quarter of 2015. On July 29, 2015, the pool to which the Company's $7.0 million in outstanding trust preferred capital notes belonged was liquidated by means of auction. The Company was successful in purchasing the outstanding notes at a price of 65.375% of par or $4.6 million in cash, therefore creating a one time gain.

Other operating income increased during 2017 and 2016. The increase for 2017 was mostly attributed to the receipt of a $320 thousand bank owned life insurance (BOLI) benefit. During the third quarter of 2015, the Company's cash flow hedge was derecognized upon the retirement of the trust preferred capital note as discussed in the previous paragraph. As a result, the loss on the interest rate swap derivative contract recorded in accumulated other comprehensive income of $237 thousand was reclassified to the income statement during the third quarter of 2015, which was partially offset by the adjustment of the derivative contract to fair value for a gain of $88 thousand. A fair value adjustment (gain) to the derivative contract of $149 thousand was recognized through other operating income during 2016.

31

Noninterest Expenses

Total noninterest expenses were $23.2 million, $22.7 million, and $22.5 million during 2017, 2016, and 2015, respectively. This represents an increase of $538 thousand or 2.38% during 2017 and an increase of $171 thousand or 0.76% during 2016. The efficiency ratio of the Company was 67.47%, 70.71%, and 75.77% for 2017, 2016, and 2015, respectively. The efficiency ratio is calculated by dividing total noninterest expenses by the sum of tax-equivalent net interest income and total noninterest income, excluding certain non-recurring gains and losses. A reconciliation of tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income is presented within the Net Interest Income section above.

The following table provides the components of noninterest expense for the twelve months ended December 31, 2017, 2016, and 2015, which are included within the respective Consolidated Statements of Income headings. The following paragraphs provide information about activities which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

	December 31,
(dollars in thousands)	2017			2016		$ Change			% Change		2016		2015			$ Change			% Change
Salaries and employee benefits	$	13,643		$	13,015	$	628		4.83	%	$	13,015	$	12,318		$	697		5.66	%
Occupancy expenses	1,473			1,486		(13		)	(0.87	)%	1,486		1,563			(77		)	(4.93	)%
Equipment expenses	955			889		66			7.42	%	889		751			138			18.38	%
Advertising and marketing expenses	731			633		98			15.48	%	633		612			21			3.43	%
Stationery and supplies	173			201		(28		)	(13.93	)%	201		242			(41		)	(16.94	)%
ATM network fees	816			903		(87		)	(9.63	)%	903		805			98			12.17	%
Other real estate owned expense	11			73		(62		)	(84.93	)%	73		336			(263		)	(78.27	)%
Loss (gain) on foreclosure and sale of other real estate owned	(1		)	90		(91		)	NM		90		(46		)	136			NM
FDIC assessment	222			304		(82		)	(26.97	)%	304		439			(135		)	(30.75	)%
Computer software expense	647			623		24			3.85	%	623		696			(73		)	(10.49	)%
Bank franchise tax	534			501		33			6.59	%	501		505			(4		)	(0.79	)%
Professional fees	1,007			949		58			6.11	%	949		996			(47		)	(4.72	)%
Data processing fees	564			444		120			27.03	%	444		380			64			16.84	%
Other bank services charges	66			209		(143		)	(68.42	)%	209		71			138			194.37	%
Cost to terminate operating lease	—			—		—			NM		—		520			(520		)	NM
Other operating expenses	2,349			2,332		17			0.73	%	2,332		2,293			39			1.70	%
Total noninterest expenses	$	23,190		$	22,652	$	538		2.38	%	$	22,652	$	22,481		$	171		0.76	%

NM - Not Meaningful

Salaries and employee benefits expense increased during 2017 and 2016. The majority of the increase during 2017 was due to the increase in incentive plan expense of $337 thousand. This expense increased due to meeting and exceeding 2017 corporate goals as well as the adoption of a commercial banker incentive plan during the year. The increase during 2016 was mainly due to branching efforts in the Loudoun County market as well as the decision to bring the internal audit function in-house.

Advertising and marketing expenses increased during 2017. Television and newspaper advertising have increased around $63 thousand year over year due to increased efforts to advertise products and promotions.

Stationery and supplies expense decreased during 2017 and 2016 due to efforts to promote paperless statements to customers as well as internal efforts to maintain paperless records where possible.

ATM network fees decreased9.63% during 2017 and increased 12.17% during 2016. ATM network fees fluctuate based on the usage of ATM and debit cards.

32

Other real estate owned expenses decreased significantly during 2017 and 2016. This fluctuation is due mainly to a valuation adjustment of $288 thousand that was recorded during 2015. No valuation allowances were established during 2016 and 2017. The decreases are consistent with decreases in the number of foreclosed properties being held.

FDIC assessments decreased$82 thousand or 26.97% during 2017 and decreased$135 thousand or 30.75% during 2016. As of July 1, 2016 new FDIC assessment changes became effective. The changes included a new lower assessment rate schedule and small institution pricing changes, which caused the subsequent assessments to decrease by approximately 50%.

Computer software expense increased only slightly during 2017. Computer software expense decreased during 2016 despite an increase in number of branches and employees. Fees paid to our core software provider have decreased due to a conscious effort to reduce unused services and renegotiate contract amounts.

Data processing fees increased during 2017 and 2016. This increase is due to an increase in both the number of customers and the number of transactions being performed.

Other bank service charges decreased during 2017 and increased during 2016. The Company elected to prepay a $20.0 million outstanding advance with the Federal Home Loan Bank of Atlanta. A $136 thousand prepayment fee was incurred by the Company in July 2016 in conjunction with the repayment of the advance.

On June 10, 2015, the Company purchased the land on which one of its retail branches resided. The land was purchased subject to an existing lease and subsequently recorded at fair value, resulting in a write down of the total purchase price. This writedown appears in the Consolidated Statement of Income as a Cost to terminate operating lease.

Income Taxes

Income tax expense was $3.6 million, $2.6 million, and $2.4 million for the years ended December 31, 2017, 2016, and 2015, respectively. The change in income tax expense can be attributed to changes in taxable earnings at the federal statutory income tax rate of 34%. These amounts correspond to an effective tax rate of 31.77%, 28.62%, and 26.08% for 2017, 2016, and 2015, respectively. The effective tax rate increased from 2016 when compared to 2017. The Tax Cuts and Jobs Act was signed into law on December 22, 2017, which required for the Company's deferred tax assets and liabilities to be adjusted at that date, for the effect of the change in the corporate tax rate. This adjustment resulted in a net increase to federal income tax expense of $397 thousand during 2017. The effective tax rate increased from 2015 when compared to 2016 due to a refund received during 2016 related to an amended 2014 tax return. The refund was related to a loss from an investment that the Company was not aware of until the K-1 was provided to us. Note 9 to the Consolidated Financial Statements provides a reconciliation between income tax expense computed using the federal statutory income tax rate and the Company’s actual income tax expense during 2017, 2016, and 2015.

FINANCIAL CONDITION

Assets, Liabilities and Shareholders’ Equity

The Company’s total assets were $765.8 million at December 31, 2017, an increase of $65.6 million or 9.37% from $700.1 million at December 31, 2016. Securities increased$13.3 million or 11.16% from 2016 to 2017. Loans, net of allowance for loan losses, increased by $52.0 million or 10.14% from 2016 to 2017. Total liabilities were $681.9 million at December 31, 2017, compared to $620.7 million at December 31, 2016. Total shareholders’ equity at year end 2017 and 2016 was $83.8 million and $79.4 million, respectively.

Securities

Total securities, excluding restricted stock, at December 31, 2017 were $132.6 million as compared to $119.3 million as of December 31, 2016, which represents an increase of $13.3 million or 11.16% during 2017. The table titled “Securities Portfolio” shows the carrying value of securities at December 31, 2017, 2016, and 2015. The Company purchased $43.8 million in securities during 2017. This amount includes $4.0 million or 9.22% in obligations of U.S. government corporations and agencies, $28.4 million or 64.81% in mortgage-backed securities and $11.4 million or 25.96% in obligations of states and political subdivisions. The Company had $10.7 million in maturities, calls, and principal repayments on securities during 2017. This amount includes $41 thousand or 0.38% in obligations of U.S. government corporations and agencies, $6.0 million or 56.07% in mortgage-backed securities and $4.7 million or 43.54% in obligations of states and political subdivisions. The Company did not have any securities from a single issuer, other than U.S. government agencies, whose amount exceeded 10% of shareholders’ equity as of December 31, 2017. Note 2 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio as of December 31, 2017 and 2016.

33

Securities Portfolio

(dollars in thousands)

	December 31,
	2017		2016		2015
Securities available for sale:
Obligations of U.S. government corporations and agencies	$	21,520	$	30,441	$	37,665
Mortgage-backed securities	61,244		42,372		28,931
Obligations of states and political subdivisions	49,802		46,449		39,227
	$	132,566	$	119,262	$	105,823

The ability to dispose of available for sale securities prior to maturity provides management more options to react to future rate changes and provides more liquidity, when needed, to meet short-term obligations. The Company had a net unrealized gain on available for sale securities of $338 thousand and a net unrealized loss of $94 thousand at December 31, 2017 and 2016, respectively. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).

The table titled “Maturity Distribution and Yields of Securities” shows the maturity period and average yield for the different types of securities in the portfolio at December 31, 2017. Although mortgage-backed securities have definitive maturities, they provide monthly principal curtailments which can be reinvested at a prevailing rate and for a different term.

Maturity Distribution and Yields of Securities

(dollars in thousands)

	December 31, 2017
	Due in one year or less				Due after 1 through 5 years				Due after 5 through 10 years				Due after 10  years and Equity Securities				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Securities available for sale:
Obligations of U.S. government corporations and agencies	$	2,023	3.63	%	$	4,110	2.87	%	$	14,389	2.37	%	$	998	3.00	%	$	21,520	2.61	%
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	61,244		2.75	%	61,244		2.75	%
Obligations of states and political subdivisions, taxable	2,362		2.98	%	1,959		4.88	%	5,550		2.80	%	919		2.42	%	10,790		3.18	%
Total taxable	$	4,385	3.28	%	$	6,069	3.52	%	$	19,939	2.49	%	$	63,161	2.75	%	$	93,554	2.77	%
Obligations of states and political subdivisions, tax-exempt (1)	234		4.30	%	8,528		3.10	%	24,988		2.46	%	5,262		2.96	%	39,012		2.68	%
Total	$	4,619	3.33	%	$	14,597	3.28	%	$	44,927	2.47	%	$	68,423	2.77	%	$	132,566	2.74	%

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal tax rate of 34%.

Loan Portfolio

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $568.8 million and $516.9 million at December 31, 2017 and 2016, respectively. This represents an increase of $51.9 million or 10.03% for 2017. The ratio of net loans to deposits increased only slightly during the year from 84.86% to 85.08% at December 31, 2016 and December 31, 2017, respectively. The table titled “Loan Portfolio” shows the composition of the loan portfolio over the last five years.

34

Loan Portfolio

(dollars in thousands)

	December 31,
	2017		2016		2015		2014		2013
Loans secured by real estate:
Construction and land development	$	43,786	$	23,266	$	35,019	$	25,887	$	27,047
Secured by farmland	8,568		8,525		6,550		10,602		9,886
Secured by 1-4 family residential properties	223,210		227,966		229,651		224,694		218,633
Multifamily	4,095		3,566		3,975		3,016		2,850
Commercial	239,915		208,525		175,172		161,299		148,166
Commercial and industrial loans	37,427		30,341		29,366		28,132		20,865
Consumer installment loans	10,187		12,677		13,530		13,874		13,785
All other loans	2,050		2,259		2,413		2,316		3,041
Total loans	$	569,238	$	517,125	$	495,676	$	469,820	$	444,273

Loans secured by real estate were $519.6 million or 91.28% and $471.8 million or 91.24% of total loans at December 31, 2017 and 2016, respectively. This represents an increase of $47.73 million or 10.11% for 2017. Consumer installment loans were $10.2 million or 1.79% and $12.7 million or 2.45% of total loans at December 31, 2017 and 2016, respectively. This represents a decrease of $2.5 million or 19.64% for 2017. Commercial and industrial loans were $37.4 million or 6.58% and $30.3 million or 5.87% of total loans at December 31, 2017 and 2016. This represents an increase of $7.1 million or 23.35% for 2017.

The table titled “Maturity Schedule of Selected Loans” shows the different loan categories and the period during which they mature. For loans maturing in more than one year, the table also shows a breakdown between fixed rate loans and floating rate loans. The table indicates that $316.8 million or 55.66% of the loan portfolio matures within five years. The floating rate loans maturing after five years are primarily comprised of home equity lines of credit.

Maturity Schedule of Selected Loans

(dollars in thousands)

	December 31, 2017
	Within 1 Year		After 1 Year Within 5 Years		After 5 Years		Total
Loans secured by real estate:
Construction and land development	$	14,352	$	13,578	$	15,856	$	43,786
Secured by farmland	4,685		23		3,860		8,568
Secured by 1-4 family residential properties	30,650		76,524		116,036		223,210
Multifamily	861		886		2,348		4,095
Commercial	35,536		100,602		103,777		239,915
Commercial and industrial loans	18,856		8,702		9,869		37,427
Consumer installment loans	846		8,907		434		10,187
All other loans	1,705		121		224		2,050
	$	107,491	$	209,343	$	252,404	$	569,238
For maturities over one year:
Floating rate loans			$	24,304	$	56,687	$	80,991
Fixed rate loans			185,039		195,717		380,756
			$	209,343	$	252,404	$	461,747

35

Asset Quality

The Company has policies and procedures designed to control credit risk and to maintain the quality of its loan portfolio. These include underwriting standards for new originations and ongoing monitoring and reporting of asset quality and adequacy of the allowance for loan losses. There were $6.4 million in total non-performing assets, which consist of nonaccrual loans, other real estate owned, and repossessed assets at December 31, 2017. This is a decrease of $920 thousand when compared to the December 31, 2016 balance of $7.4 million. This increase resulted mostly from the decrease in nonaccrual loans as discussed below.

Nonaccrual loans were $6.3 million at December 31, 2017 and $7.0 million at 2016. The gross amount of interest income that would have been recognized on nonaccrual loans was $369 thousand for 2017 and $147 thousand for 2016. None of this interest income was included in net income for 2017 or 2016. A total of 13 loans totaling $1.6 million were placed in nonaccrual during 2017. The balance of these loans added to nonaccrual status during 2017 ranged from $2 thousand to $368 thousand with an average balance being $122 thousand. In addition, 12 loans totaling $2.1 million were removed from nonaccrual status during 2017. Of the $2.1 million in loans removed from nonaccrual status between December 31, 2016 and December 31, 2017, 6 loans totaling $1.1 million were paid off. Management evaluates the financial condition of these borrowers and the value of any collateral on these loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans. Nonaccrual loans that were evaluated for impairment at December 31, 2017 totaled $6.3 million and had $246 thousand in specific allocations.

Other real estate owned decreased to $106 thousand at December 31, 2017, compared to $370 thousand at December 31, 2016. Three foreclosed properties were sold during 2017, while only one foreclosed properties was acquired. When the property is sold, the difference between the amount of other real estate owned and the settlement proceeds is recognized as a gain or loss on the sale of other real estate owned. A net gain of $1 thousand and a net loss of $90 thousand was recognized on the foreclosure and sale of other real estate owned during 2017 and 2016, respectively. A net gain of $46 thousand was recognized on the sale of other real estate owned during 2015.

Total loans past due 90 days or more and still accruing interest were zero, $8 thousand or less than one basis point, and $307 thousand or 0.06% of total loans at December 31, 2017, 2016, and 2015, respectively. The loans past due 90 days or more and still accruing interest are well secured and in the process of collection; therefore, they were not classified as nonaccrual.

Nonperforming and Other Assets

Nonperforming assets consist of nonaccrual loans, other real estate owned (foreclosed properties), and repossessed assets. The table titled “Nonperforming Assets” shows the amount of nonperforming assets and loans past due 90 days and accruing interest outstanding during the last five years. The table also shows the ratios for the allowance for loan losses as a percentage of nonperforming assets and nonperforming assets as a percentage of loans outstanding and other real estate owned.

Loans are placed on non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses that require additional provisions for loan losses to be charged against earnings.

For real estate loans, upon foreclosure, the properties are recorded at the fair value of the property based on current appraisals and other current market trends, less selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off against the allowance for loan losses. A review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations. Gains on properties acquired through foreclosure where the fair value less costs to sell exceeds the related loan balance and there have been no prior charge-offs are recorded to current earnings.

In addition, the Company may, under certain circumstances, restructure loans in troubled debt restructurings as a concession to a borrower when the borrower is experiencing financial distress. Formal, standardized loan restructuring programs are not utilized by the Company. Each loan considered for restructuring is evaluated based on customer circumstances and may include modifications to one or more loan provisions. Such restructured loans are included in impaired loans. At December 31, 2017, 2016, 2015, 2014, and 2013, the Company had $4.4 million, $7.3 million, $7.5 million, $7.8 million and $6.4 million in restructured loans, respectively.

36

Nonperforming Assets

(dollars in thousands)

	December 31,
	2017			2016			2015			2014			2013
Nonaccrual loans	$	6,339		$	6,991		$	5,285		$	10,706		$	4,412
Other real estate owned and repossessed assets	106			375			571			2,109			1,646
Total nonperforming assets	$	6,445		$	7,366		$	5,856		$	12,815		$	6,058
Loans past due 90 days and accruing interest	$	—		$	8		$	307		$	6		$	11
Allowance for loan losses to nonperforming assets	68		%	61		%	85		%	40		%	91		%
Non-performing assets to period end loans and other real estate owned	1.13		%	1.42		%	1.18		%	2.72		%	1.36		%

Other potential problem loans are defined as performing loans that possess certain risks that management has identified that could result in the loans not being repaid in accordance with their terms. Accordingly, these loans are risk rated at a level of substandard or lower. At December 31, 2017, other potential problem loans totaled $2.3 million. Of the total other potential problem loans, $2.3 million or 100.00% are currently considered impaired and are disclosed in Note 4 to the Consolidated Financial Statements.

Allowance for Loan Losses

The purpose and the methods for measuring the allowance for loans are discussed in the Critical Accounting Policies section above. The table titled “Analysis of Allowance for Loan Losses” shows the activity within the allowance during the last five years, including a breakdown of the loan types which were charged-off and recovered.

Charged-off loans were $370 thousand, $607 thousand, and $456 thousand for 2017, 2016, and 2015, respectively. Recoveries were $901 thousand, $341 thousand, and $562 thousand for 2017, 2016, and 2015, respectively. Net recoveries were $531 thousand and $106 thousand for 2017 and 2015, respectively. Net charge-offs were $266 thousand for 2016. This represents a decrease in net charge-offs of $797 thousand or 299.62% for 2017 and an increase of $372 thousand or 350.94% for 2016. The allowance for loan losses as a percentage of loans was 0.78%, 0.87%, and 1.00% at the end of 2017, 2016, and 2015, respectively. The decreases in allowance for loan losses as a percentage of total loans from December 31, 2016 to December 31, 2017 is primarily due to a decline in the historical loss experience utilized in our allowance model. In addition, the Company was diligent in maintaining updated appraisals for collateral-dependent impaired loans, which resulted in an overall decrease in specific reserves in the allowance for loan losses during 2017. The allowance for loan losses at year-end covered net charge-offs during the year by 16.94 times for 2016. This ratio for 2017 and 2015 is not considered meaningful due to net recoveries being recognized during the year. The ratio of net charge-offs (recoveries) to average loans was (0.10)% for 2017, 0.05% for 2016 ,and (0.02)% for 2015.

The (recovery of) loan losses for the year ended December 31, 2017 was $(625) thousand, compared to $(188) thousand and $(227) thousand for the years ended December 31, 2016 and 2015, respectively. The recovery of loan losses reflects reductions in impaired loans as well as non-performing assets combined with a net recovery position for 2015 and 2017.

The table titled “Allocation of Allowance for Loan Losses” shows the amount of the allowance for loan losses which is allocated to the indicated loan categories, along with that category’s percentage of total loans, at December 31, 2017, 2016, 2015, 2014, and 2013. The amount of allowance for loan losses allocated to each loan category is based on the amount of delinquent loans in that loan category, the status of nonperforming assets in that loan category, the historical losses for that loan category, and the financial condition of certain borrowers whose financial conditional is monitored on a periodic basis. Management believes that the allowance for loan losses is adequate based on the loan portfolio’s current risk characteristics.

37

Analysis of Allowance for Loan Losses

(dollars in thousands)

	December 31,
	2017			2016			2015			2014			2013
Balance, beginning of period	$	4,505		$	4,959		$	5,080		$	5,488		$	6,577
Loans charged-off:
Commercial, financial and agricultural	187			—			—			—			403
Real estate-construction and land development	19			—			166			482			20
Real estate-mortgage	56			535			199			891			796
Consumer	108			72			91			110			103
Total loans charged off	$	370		$	607		$	456		$	1,483		$	1,322
Recoveries:
Commercial, financial and agricultural	$	44		$	11		$	181		$	164		$	47
Real estate-construction and land development	535			144			75			26			5
Real estate-mortgage	277			132			257			444			116
Consumer	45			54			49			91			65
Total recoveries	$	901		$	341		$	562		$	725		$	233
Net (recoveries) charge-offs	(531		)	266			(106		)	758			1,089
(Recovery of) provision for loan losses	(625		)	(188		)	(227		)	350			—
Balance, end of period	$	4,411		$	4,505		$	4,959		$	5,080		$	5,488
Ratio of allowance for loan losses to loans outstanding at period end	0.78		%	0.87		%	1.00		%	1.08		%	1.24		%
Ratio of net charge offs to average loans outstanding during the period	(0.10		)%	0.05		%	(0.02		)%	0.16		%	0.25		%

Allocation of Allowance for Loan Losses

(dollars in thousands)

	Commercial, Financial, and Agricultural				Real Estate Construction				Real Estate Mortgage				Consumer and Other Loans
	Allowance for Loan Losses		Percent of Loans in Category to Total Loans		Allowance for Loan Losses		Percent of Loans in Category to Total Loans		Allowance for Loan Losses		Percent of Loans in Category to Total Loans		Allowance for Loan Losses		Percent of Loans in Category to Total Loans
December 31, 2017	$	570	6.6	%	$	332	9.2	%	$	3,381	82.1	%	$	98	2.1	%
December 31, 2016	235		5.9	%	450		6.1	%	3,514		85.1	%	91		2.9	%
December 31, 2015	211		5.9	%	775		8.4	%	3,590		82.5	%	162		3.2	%
December 31, 2014	464		6.0	%	951		7.8	%	3,324		82.8	%	145		3.4	%
December 31, 2013	555		4.7	%	1,032		8.3	%	3,562		83.2	%	184		3.8	%

38

Deposits

Total deposits were $663.4 million and $603.9 million at December 31, 2017 and 2016, respectively, which represents an increase of $59.5 million or 9.86% during 2017. The table titled “Average Deposits and Rates Paid” shows the average deposit balances and average rates paid for 2017, 2016 and 2015.

Average Deposits and Rates Paid

(dollars in thousands)

	December 31,
	2017				2016				2015
	Amount		Rate		Amount		Rate		Amount		Rate
Noninterest-bearing	$	216,044			$	195,428			$	171,508
Interest-bearing:
NOW accounts	85,154		0.19	%	81,966		0.11	%	80,809		0.11	%
Money market accounts	128,068		0.23	%	117,210		0.17	%	99,088		0.11	%
Regular savings accounts	100,838		0.07	%	87,035		0.06	%	76,054		0.05	%
Time deposits:
$100,000 and more	57,010		0.60	%	44,193		0.58	%	36,098		0.47	%
Less than $100,000	39,319		0.58	%	45,133		0.41	%	57,992		0.57	%
Total interest-bearing	$	410,389	0.26	%	$	375,537	0.21	%	$	350,041	0.21	%
Total deposits	$	626,433			$	570,965			$	521,549

Noninterest-bearing demand deposits, which are comprised of checking accounts, increased$26.04 million or 12.46% from $208.9 million at December 31, 2016 to $235.0 million at December 31, 2017. Interest-bearing deposits, which include NOW accounts, money market accounts, regular savings accounts and time deposits, increased$33.5 million or 8.48% from $394.9 million at December 31, 2016 to $428.4 million at December 31, 2017. Total money market account balances increased$2.9 million or 2.26% from $126.6 million at December 31, 2016 to $129.5 million at December 31, 2017. Total regular savings account balances increased$7.9 million or 8.37% from $94.3 million at December 31, 2016 to $102.2 million at December 31, 2017. Time deposits increased$17.4 million or 19.75% from $88.1 million at December 31, 2016 to $105.5 million at December 31, 2017. Brokered certificates of deposits decreased$2.0 million from $2.2 million at December 31, 2016 to $210 thousand at December 31, 2017. The brokered certificates balance at December 31, 2017 and December 31, 2016 consists of certificates obtained through the CDARS network. The Bank joined the CDARS network in 2008, which allows it to offer over $50 million in FDIC insurance on a certificate of deposit.

The Company attempts to fund asset growth with deposit accounts and focus upon core deposit growth as its primary source of funding. Core deposits consist of checking accounts, NOW accounts, money market accounts, regular savings accounts, and time deposits of less than $250,000, including brokered certificates of deposit. Core deposits totaled $620.4 million or 93.52% and $580.7 million or 96.17% of total deposits at December 31, 2017 and 2016, respectively.

The table titled “Maturities of Certificates of Deposit and Other Time Deposits of $100,000 and Greater” shows the amount of certificates of deposit of $100,000 and more maturing within the time period indicated at December 31, 2017. The total amount maturing within one year is $60.6 million or 88.90% of the total amount outstanding.

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Maturities of Certificates of Deposit and Other Time Deposits of $100,000 and Greater

(dollars in thousands)

	Within Three Months		Three to Six Months		Six to Twelve Months		Over One Year		Total		Percent of Total Deposits
December 31, 2017	$	9,891	$	25,892	$	24,828	$	7,567	$	68,178	10.28	%

CAPITAL RESOURCES

The Company continues to be a well capitalized financial institution. Total shareholders’ equity on December 31, 2017 was $83.8 million, reflecting a percentage of total assets of 10.95% as compared to $79.4 million and 11.34% at December 31, 2016. The common stock’s book value per share increased$1.39 or 6.04% to $24.40 per share at December 31, 2017 from $23.01 per share at December 31, 2016. During 2017, the Company paid $0.88 per share in dividends as compared to $0.82 per share for 2016 and $0.80 per share for 2015. The Company has a Dividend Investment Plan that allows participating shareholders to reinvest the dividends in Company stock. During 2017, the Company purchased 52,936 shares of its Common Stock under its stock repurchase program at an average price of $29.54. During 2016, the Company purchased 89,607 shares of its Common Stock under its stock repurchase program at an average price of $23.92. All of these shares were retired. There was no repurchase activity during 2015.

Analysis of Consolidated Capital

(dollars in thousands)

	December 31, 2017			December 31, 2016
Tier 1 Capital:
Common stock	$	8,587		$	8,633
Capital surplus	12,075			12,642
Retained earnings	62,845			58,165
Total Tier 1 capital	$	83,507		$	79,440
Common equity Tier 1 capital	$	83,507		$	79,440
Tier 2 Capital:
Allowance for loan losses, including reserve for unfunded commitments	$	4,452		$	4,537
Total Tier 2 capital	$	4,452		$	4,537
Total risk-based capital	$	87,959		$	83,977
Risk weighted assets	$	577,845		$	506,632
Risk Based Capital Ratios:
Common equity Tier 1 capital ratio	14.45		%	15.68		%
Tier 1 risk-based capital ratio	14.45		%	15.68		%
Total risk-based capital ratio	15.22		%	16.58		%
Tier 1 leverage ratio	11.21		%	11.84		%

40

Federal regulatory risk-based capital guidelines require percentages to be applied to various assets, including off-balance sheet assets, based on their perceived risk in order to calculate risk-weighted assets. Tier 1 capital consists of total shareholders’ equity plus qualifying trust preferred securities outstanding less net unrealized gains and losses on available for sale securities, goodwill and other intangible assets. Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses and any excess trust preferred securities that do not qualify as Tier 1 capital. The $7,000,000 in trust preferred securities, issued by the Company during 2007, qualified as Tier 1 capital at December 31, 2014 because this amount does not exceed 25% of total capital, including the trust preferred securities.

In July 2013, the Federal Reserve issued final rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). These are the initial capital requirements, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The table titled “Analysis of Capital” shows the components of Tier 1 capital, Tier 2 capital, the amount of total risk-based capital and risk-weighted assets, and the risk based capital ratios for the Company at December 31, 2017 and 2016. Beginning January 1, 2015, the Company calculates its regulatory capital under the U.S. Basel III Standardized Approach. The Company calculated regulatory capital measures for periods prior to 2015 under previous regulatory requirements.

Note 16 to the Consolidated Financial Statements provides additional discussion and analysis of regulatory capital requirements.

LIQUIDITY

Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, securities classified as available for sale and loans maturing within one year. At December 31, 2017 liquid assets totaled $270.1 million as compared to $248.1 million at December 31, 2016. These amounts represent 39.61% and 39.10% of total liabilities at December 31, 2017 and 2016, respectively. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta also provides a source of borrowings with numerous rate and term structures. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently. As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

41

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Note 19 to the Consolidated Financial Statements provides information about the off-balance sheet arrangements which arise through the lending activities of the Company. These arrangements increase the degree of both credit and interest rate risk beyond that which is recognized through the financial assets and liabilities on the consolidated balance sheets.

The table titled “Contractual Obligations and Scheduled Payments” presents the Company’s contractual obligations and scheduled payment amounts due within the period indicated at December 31, 2017.

Contractual Obligations and Scheduled Payments

(dollars in thousands)

	December 31, 2017
	Less than One Year		One Year through Three  Years		Three Years through Five Years		More than Five Years		Total
Operating leases	$	200	$	413	$	440	$	1,724	$	2,777
	$	200	$	413	$	440	$	1,724	$	2,777

The payments due on operating leases are discussed in Note 6 to the Consolidated Financial Statements.

42

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

As the holding company of the Bank, the Company’s primary component of market risk is interest rate volatility. Interest rate fluctuations will impact the amount of interest income and expense the Bank receives or pays on almost all of its assets and liabilities and the market value of its interest-earning assets and interest-bearing liabilities, excluding those which have a very short term until maturity. Interest rate risk exposure of the Company is, therefore, experienced at the Bank level. Asset / liability management attempts to maximize the net interest income of the Company by adjusting the volume and price of rate sensitive assets and liabilities. The Company does not subject itself to foreign currency exchange or commodity price risk due to prohibition through policy and the current nature of operations. Note 14 to the Consolidated Financial Statements discusses derivative instruments and hedging activities of the Company. The Company entered into an interest rate swap agreement related to the outstanding trust preferred capital notes during 2008. The interest rate swap agreement expired on December 1, 2016.

The Bank’s interest rate management strategy is designed to maximize net interest income and preserve the capital of the Company. The Bank’s financial instruments are periodically subjected to various simulations whose results are discussed in the following paragraphs. These models are based on actual data from the Bank’s financial statements and assumptions about the performance of certain financial instruments. Prepayment assumptions are applied to all mortgage related assets, which includes real estate loans and mortgage-backed securities. Prepayment assumptions are based on a median rate at which principal payments are received on these assets over their contractual term. The rate of principal payback is assumed to increase when rates fall and decrease when rates rise. Term assumptions are applied to non-maturity deposits, which includes demand deposits, NOW accounts, savings accounts, and money market accounts. Demand deposits and NOW accounts are generally assumed to have a term greater than one year since the total amount outstanding does not fluctuate with changes in interest rates. Savings accounts and money market accounts are assumed to be more interest rate sensitive, therefore, a majority of the amount outstanding is assumed to have a term of less than one year.

The simulation analysis evaluates the potential effect of upward and downward changes in market interest rates on future net interest income. The Bank previously evaluated change in net interest income by gradually ramping rates up or down over a 12 or 24 month period. The Bank now views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month period after an immediate increase or “shock” in rates, of 100 basis points up to 400 basis points. The shock down 200 to 400 basis points analysis is not meaningful as interest rates are at historic lows and cannot decrease another 200 to 400 basis points and therefore only an immediate decrease or “shock” of 100 basis points is disclosed. The simulation analysis results are presented in the table below:

Year 1 Net Interest Income Simulation

(dollars in thousands)

	Change in Net Interest Income
Assumed Market Interest Rate Shock	Dollars			Percent Change
-100 BP	$	(1,359	)	(4.90	)%
+100 BP	(167		)	(0.60	)%
+200 BP	(437		)	(1.60	)%
+300 BP	(616		)	(2.20	)%
+400 BP	(786		)	(2.80	)%

The Bank uses simulation analysis to assess earnings at risk and economic value of equity (EVE) analysis to assess economic value at risk. This analysis method allows management to regularly monitor the direction and magnitude of the Bank’s interest rate risk exposure. The modeling techniques cannot be measured with complete precision. Maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturity deposit sensitivity and loan and deposit pricing are key assumptions used in acquiring this analysis. There is a realm of uncertainty in using these assumptions but the analysis does provide the Bank with the ability to estimate interest rate risk position over time.

43

The table below examines the Economic Value of Equity (EVE). The EVE of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The model indicates an exposure to falling interest rates. These results are driven primarily by the relative change in value of the Bank’s core deposit base as rates rise.

Static EVE Change

(dollars in thousands)

	Change in EVE
Assumed Market Interest Rate Shift	Dollars			Percent Change
-100 BP Shock	$	(17,842	)	(15.90	)%
+100 BP Shock	5,156			4.60	%
+200 BP Shock	7,045			6.30	%
+300 BP Shock	8,346			7.40	%
+400 BP Shock	8,937			8.00	%

44

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Eagle Financial Services, Inc.

Berryville, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Eagle Financial Services, Inc. and its subsidiary (the Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 15, 2018 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 2015.

Winchester, Virginia

March 15, 2018

45

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Eagle Financial Services, Inc.

Berryville, Virginia

Opinion on the Internal Control Over Financial Reporting

We have audited Eagle Financial Services, Inc. and subsidiary’s (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the consolidated financial statements of the Company and our report dated March 15, 2018 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

46

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia

March 15, 2018

47

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Balance Sheets

December 31, 2017 and 2016

(dollars in thousands, except per share amounts)

	2017			2016
Assets
Cash and due from banks	$	10,578		$	12,515
Interest-bearing deposits with other institutions	22,094			22,610
Federal funds sold	3,176			156
Total cash and cash equivalents	35,848			35,281
Securities available for sale, at fair value	132,566			119,262
Restricted investments	1,107			1,068
Loans	568,817			516,942
Allowance for loan losses	(4,411		)	(4,505		)
Net loans	564,406			512,437
Bank premises and equipment, net	19,579			20,169
Other real estate owned, net of allowance	106			370
Other assets	12,139			11,562
Total assets	$	765,751		$	700,149
Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Noninterest bearing demand deposits	$	234,990		$	208,948
Savings and interest bearing demand deposits	322,948			306,847
Time deposits	105,476			88,082
Total deposits	$	663,414		$	603,877
Other liabilities	18,520			16,856
Total liabilities	$	681,934		$	620,733
Commitments and contingencies
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 2017, 3,449,027 including 14,401 unvested restricted stock; issued and outstanding 2016, 3,468,243 including 14,901 unvested restricted stock	8,587			8,633
Surplus	12,075			12,642
Retained earnings	62,845			58,165
Accumulated other comprehensive income (loss)	310			(24		)
Total shareholders’ equity	$	83,817		$	79,416
Total liabilities and shareholders’ equity	$	765,751		$	700,149

See Notes to Consolidated Financial Statements

48

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Income

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands, except per share amounts)

	2017			2016			2015
Interest and Dividend Income
Interest and fees on loans	$	24,821		$	23,037		$	21,751
Interest and dividends on securities available for sale:
Taxable interest income	2,278			1,669			1,645
Interest income exempt from federal income taxes	1,034			925			972
Dividends	61			81			99
Interest on deposits in banks	157			73			26
Total interest and dividend income	$	28,351		$	25,785		$	24,493
Interest Expense
Interest on deposits	1,084			787			741
Interest on federal funds purchased and securities sold under agreements to repurchase	13			1			10
Interest on Federal Home Loan Bank advances	57			136			336
Interest on trust preferred capital notes	—			—			78
Interest on interest rate swap	—			143			182
Total interest expense	$	1,154		$	1,067		$	1,347
Net interest income	$	27,197		$	24,718		$	23,146
(Recovery Of) Loan Losses	(625		)	(188		)	(227		)
Net interest income after (recovery of) loan losses	$	27,822		$	24,906		$	23,373
Noninterest Income
Income from fiduciary activities	$	1,238		$	1,356		$	1,338
Service charges on deposit accounts	1,223			1,227			1,244
Other service charges and fees	3,878			3,713			3,375
(Loss) on the sale and disposal of premises and equipment	(12		)	(10		)	(76		)
(Loss) gain on sale of securities	(10		)	98			124
Gain on redemption of trust preferred debt	—			—			2,424
Other operating income	463			285			9
Total noninterest income	$	6,780		$	6,669		$	8,438
Noninterest Expenses
Salaries and employee benefits	$	13,643		$	13,015		$	12,318
Occupancy expenses	1,473			1,486			1,563
Equipment expenses	955			889			751
Advertising and marketing expenses	731			633			612
Stationery and supplies	173			201			242
ATM network fees	816			903			805
Other real estate owned expense	11			73			336
(Gain) loss on foreclosure and sale of other real estate owned	(1		)	90			(46		)
FDIC assessment	222			304			439
Computer software expense	647			623			696
Bank franchise tax	534			501			505
Professional fees	1,007			949			996
Data processing fees	564			444			380
Other bank service charges	66			209			71
Cost to terminate operating lease	—			—			520
Other operating expenses	2,349			2,332			2,293
Total noninterest expenses	$	23,190		$	22,652		$	22,481
Income before income taxes	$	11,412		$	8,923		$	9,330
Income Tax Expense	3,626			2,553			2,433
Net income	$	7,786		$	6,370		$	6,897
Earnings Per Share
Net income per common share, basic	$	2.24		$	1.81		$	1.97
Net income per common share, diluted	$	2.24		$	1.81		$	1.97

See Notes to Consolidated Financial Statements

49

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Net income	$	7,786		$	6,370		$	6,897
Other comprehensive income (loss):
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of ($1), $0 and $0 for the years ended December 31, 2017, 2016, and 2015, respectively	(2		)	—			—
Unrealized gain (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax of $147, ($554), and ($234) for the years ended December 31, 2017, 2016, and 2015, respectively	285			(1,075		)	(454		)
Change in fair value of interest rate swap, net of deferred income tax of $0, $0, and $99 for the years ended December 31, 2017, 2016 and 2015, respectively	—			—			190
Total other comprehensive income (loss)	283			(1,075		)	(264		)
Total comprehensive income	$	8,069		$	5,295		$	6,633

See Notes to Consolidated Financial Statements

50

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands, except per share amounts)

	Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2014	$	8,621		$	12,618		$	50,578		$	1,315		$	73,132
Net income							$	6,897					6,897
Other comprehensive (loss)										(264		)	(264		)
Restricted stock awards, stock incentive plan (14,363 shares)	36			(36		)							—
Income tax expense on vesting of restricted stock				5									5
Stock based compensation expense				328									328
Issuance of common stock, dividend investment plan (32,340 shares)	81			648									729
Issuance of common stock, employee benefit plan (8,030 shares)	20			167									187
Dividends declared ($0.80 per share)							(2,793		)				(2,793		)
Balance, December 31, 2015	$	8,758		$	13,730		$	54,682		$	1,051		$	78,221
Net income							6,370						6,370
Other comprehensive (loss)										(1,075		)	(1,075		)
Restricted stock awards, stock incentive plan (13,196 shares)	33			(33		)							—
Income tax benefit on vesting of restricted stock				2									2
Stock-based compensation expense				314									314
Issuance of common stock, dividend investment plan (23,180 shares)	58			475									533
Issuance of common stock, employee benefit plan (3,326 shares)	8			73									81
Retirement of common stock (89,607 shares)	(224		)	(1,919		)							(2,143		)
Dividends declared ($0.82 per share)							(2,887		)				(2,887		)
Balance, December 31, 2016	$	8,633		$	12,642		$	58,165		$	(24	)	$	79,416
Net income							7,786						7,786
Other comprehensive income										283			283
Reclassification of stranded tax effects from change in tax rate							(51		)	51			—
Restricted stock awards, stock incentive plan (14,493 shares)	36			(36		)							—
Stock-based compensation expense				382									382
Issuance of common stock, dividend investment plan (13,769 shares)	35			368									403
Issuance of common stock, employee benefit plan (5,958 shares)	15			151									166
Retirement of common stock (52,936 shares)	(132		)	(1,432		)							(1,564		)
Dividends declared ($0.88 per share)							(3,055		)				(3,055		)
Balance, December 31, 2017	$	8,587		$	12,075		$	62,845		$	310		$	83,817

See Notes to Consolidated Financial Statements

51

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Cash Flows from Operating Activities
Net income	$	7,786		$	6,370		6,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	946			932			843
Amortization of intangible and other assets	200			192			198
(Recovery of) loan losses	(625		)	(188		)	(227		)
Valuation adjustments other real estate owned	—			12			288
(Gain) loss on foreclosure and sale of other real estate owned	(1		)	90			(46		)
Loss on the sale and disposal of premises and equipment	12			10			76
Loss on the sale of repossessed assets	6			1			—
Loss (gain) on the sale of securities	10			(98		)	(124		)
(Gain) on the redemption of trust preferred capital notes	—			—			(2,424		)
Loss on derecognition of cash flow hedge	—			—			237
Fair value adjustment on derivative contract	—			(149		)	(88		)
Stock-based compensation expense	382			314			328
Premium amortization on securities, net	443			370			210
Deferred tax expense	532			207			432
Changes in assets and liabilities:
(Increase) decrease in other assets	(1,465		)	(1,095		)	2,085
Increase (decrease) in other liabilities	1,141			2,732			(1,521		)
Net cash provided by operating activities	$	9,367		$	9,700		$	7,164
Cash Flows from Investing Activities
Proceeds from maturities, calls, and principal payments of securities available for sale	$	10,714		$	23,535		$	17,368
Proceeds from the sale of securities available for sale	20,283			11,356			3,653
Purchases of securities available for sale	(43,797		)	(40,418		)	(33,453		)
Proceeds from the sale of restricted securities	850			850			1,325
Purchases of restricted securities	(889		)	(22		)	(413		)
Proceeds from the sale of bank premises and equipment	—			—			7
Purchases of bank premises and equipment	(368		)	(257		)	(2,875		)
Proceeds from the sale of other real estate owned	318			564			1,956
Proceeds from the sale of repossessed assets	3			4			10
Net (increase) in loans	(51,401		)	(21,995		)	(26,317		)
Net cash (used in) investing activities	$	(64,287	)	$	(26,383	)	$	(38,739	)
Cash Flows from Financing Activities
Net increase in demand deposits, money market and savings accounts	$	42,143		$	57,448		$	49,690
Net increase (decrease) in certificates of deposit	17,394			(4,289		)	(2,788		)
Net (decrease) increase in Federal Home Loan Bank advances	—			(20,000		)	(20,000		)
Redemption of trust preferred capital notes	—			—			(4,793		)
Issuance of common stock, employee benefit plan	166			81			187
Retirement of common stock	(1,564		)	(2,143		)	—
Cash dividends paid	(2,652		)	(2,354		)	(2,064		)
Net cash provided by financing activities	$	55,487		$	28,743		$	20,232

52

EAGLE FINANCIAL SERVICES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (continued)

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017		2016			2015
Increase (decrease) in cash and cash equivalents	$	567	$	12,060		$	(11,343	)
Cash and Cash Equivalents
Beginning	35,281		23,221			34,564
Ending	$	35,848	$	35,281		$	23,221
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	1,144	$	1,099		$	1,442
Income taxes	$	2,744	$	—		$	583
Supplemental Schedule of Noncash Investing and Financing Activities:
Unrealized gain (loss) on securities available for sale	$	432	$	(1,629	)	$	(688	)
Minimum postretirement liability adjustment	$	3	$	—		$	—
Change in fair value of interest rate swap	$	—	$	—		$	52
Other real estate and repossessed assets acquired in settlement of loans	$	57	$	675		$	870
Loans made to finance the sale of other real estate owned	$	—	$	315		$	200
Issuance of common stock, dividend investment plan	$	403	$	533		$	729
Purchases of securities available for sale settled subsequent to year end	$	10,346	$	9,826		$	—

See Notes to Consolidated Financial Statements

53

NOTE 1. Nature of Banking Activities and Significant Accounting Policies

Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Subsidiary grant commercial, financial, agricultural, residential and consumer loans to customers in Virginia and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers.

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

Principles of Consolidation

The Company owns 100% of Bank of Clarke County (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Trust Assets

Eagle Investment Group (“EIG”), as a division of the Bank offers both a trust department and investment services. The trust services division of EIG offers a full range of personal and retirement plan services, which include serving as agent for bill paying and custody of assets, as investment manager with full authority or advisor, as trustee or co-trustee for trusts under will or under agreement, as trustee of life insurance trusts, as guardian or committee, as agent under a power of attorney, as executor or co-executor for estates, as custodian or investment advisor for individual retirement plans, and as trustee or trust advisor for corporate retirement plans such as profit sharing and 401(k) plans. The brokerage division of EIG offers a full range of investment services, which include tax-deferred annuities, IRAs and rollovers, mutual funds, retirement plans, 529 college savings plans, life insurance, long term care insurance, fixed income investing, brokerage CDs, and full service or discount brokerage services. Securities and other property held by the Eagle Investment Group in a fiduciary or agency capacity are not assets of the Company and are not included in the accompanying consolidated financial statements.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest bearing deposits. Generally, federal funds are purchased and sold for one-day periods.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be “other than temporary” are reflected in earnings as realized losses. In estimating “other than temporary” impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The Bank is required to maintain an investment in the capital stock of certain correspondent banks. No readily available market exists for this stock and it has no quoted market value. The investment in these securities is recorded at cost and they are reported on the Company’s consolidated balance sheet as restricted investments.

Loans

The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Counties of Clarke, Frederick, and Loudoun, Virginia and the City of Winchester, Virginia. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

54

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 120 and 90 days delinquent, respectively, unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Troubled Debt Restructurings (TDR)

In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs are considered impaired loans. Upon designation as a TDR, the Company evaluates the borrower’s payment history, past due status and ability to make payments based on the revised terms of the loan. If a loan was accruing prior to being modified as a TDR and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status. If a loan was on non-accrual status at the time of the TDR, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.

Risks by Loan Portfolio Segments

One-to-Four-Family Residential Real Estate Lending

Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee.

Commercial Real Estate Lending

Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general.

Construction and Land Development Lending

There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished home.

Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of the borrower. Commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

55

Consumer Lending

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for (recovery of) loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are impaired. An allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience and other qualitative factors. Other qualitative factors considered in the general component include the levels and trends in delinquencies and nonperforming loans, trends in volume and terms of loans, the effects of any changes in lending policies, the experience, ability, and depth of management, national and local economic trends and conditions, concentrations of credit, the quality of the Company’s loan review system, competition and regulatory requirements. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair market value less estimated liquidation costs of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Bank Premises and Equipment

Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from10to39years for buildings and3to10years for furniture and equipment.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less estimated cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in the net expenses from foreclosed assets.

56

Retirement Plans

The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis. The Company also provides a match to participants in this plan, as described more fully in Note 12.

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, as adopted, authorized the issuance of up to 500,000 shares of common stock. This plan is discussed more fully in Note 11.

Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the applicable taxing authority, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, the Company believes it is “more likely than not” that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the “more likely than not” recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent (50%) likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheet along with any associated interest and penalties that would be payable to the applicable taxing authority upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

Reclassifications

Certain reclassifications have been made to the 2016 financial statements to conform to reporting for 2017. The results of the reclassifications are not considered material and had no effect on prior years' net income or shareholders' equity.

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 the weighted average number of common shares used to compute 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 and the effect on the weighted average number of shares of dilutive potential common stock.

	2017	2016	2015
Weighted average number of common shares outstanding used to calculate basic earnings per share	3,468,275	3,518,848	3,495,334
Effect of dilutive common stock	—	—	—
Weighted average number of common shares outstanding used to calculate diluted earnings per share	3,468,275	3,518,848	3,495,334

There were no potentially dilutive securities outstanding in 2017, 2016 or 2015.

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Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, net of income taxes, are reported within the balance sheet as a separate component of shareholders’ equity. These changes, along with net income, are components of comprehensive income and are reported in the statement of comprehensive income. In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans, unrealized gains or losses on interest rate swaps, and unrealized gains or losses on available for sale securities.

Derivative Financial Instruments

The Company follows GAAP to account for derivative and hedging activities. Accordingly, a derivative is recognized in the balance sheet at its fair value. The fair value of a derivative is determined by quoted market prices and mathematical models using current and historical data. If certain hedging criteria are met, including testing for hedge effectiveness, special hedge accounting may be applied. The Company assesses each hedge, both at inception and on an ongoing basis, to determine whether the derivative used in a hedging transaction is effective in offsetting changes in the fair value or cash flows of the hedged item and whether the derivative is expected to remain effective during subsequent periods. The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting changes in fair value or cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that the forecasted transaction will no longer occur or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued and a derivative remains outstanding, the Company recognizes the derivative in the balance sheet at its fair value and changes in the fair value are recognized in net income.

At inception, the Company designates a derivative as (a) a fair value hedge of recognized assets or liabilities or of unrecognized firm commitments (fair-value hedge) or (b) a hedge of forecasted transactions or variable cash flows to be received or paid in conjunction with recognized assets or liabilities (cash-flow hedge). For a derivative treated as a fair-value hedge, a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For a derivative treated as a cash flow hedge, the effective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized as a component of accumulated other comprehensive income (loss) within shareholders’ equity. For a derivative treated as a cash flow hedge, the ineffective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For more information on derivative financial instruments see Note 14 to the Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of other real estate owned, and the evaluation for other-than-temporary impairment of investment securities.

Stock Repurchase Program

On June 21, 2017, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2018. During 2017, the Company purchased 52,936 shares of its Common Stock under its stock repurchase program at an average price of $29.54. During 2016, the Company purchased 89,607 shares of its Common Stock under its stock repurchase program at an average price of $23.92. All of these shares we retired. There was no repurchase activity during 2015. The maximum number of shares that may yet be purchased under the plan as of December 31, 2017 are 111,115.

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Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and, once effective, will replace significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. Entities can elect to adopt the guidance either on a full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The Company plans to adopt this guidance on the effective date, January 1, 2018 via the modified retrospective approach. The Company has completed its assessment of the adoption of this ASU, noting the standard will result in expanded disclosures related to non-interest income and enhance the qualitative disclosures on the revenues within the scope of the new guidance. The Company has concluded the adoption of ASU 2014-09 will not have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU has been discussed with the Company's current vendor to address updated disclosure requirements of 2016-01. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. The Company has been gathering the lease agreement data and has begun to analyze the monetary impact to the consolidated financial statements. At December 31, 2017, the Company had only one lease.

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In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.The Company formed a CECL committee during 2016 which continues to meet monthly to address the compliance requirements. Historic loan data is currently being gathered and reviewed for completeness and accuracy. In addition, the committee is in the process of selecting a model that will assist in calculating the financial impact of ASU 2016-13 and anticipates running parallel allowance models under the current and new standard well in advance of the required implementation date.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable.Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

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

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this ASU require an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset, when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements.

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In March 2017, the FASB issued ASU 2017‐08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

During May 2017, the FASB issued ASU 2017‐09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.  The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The Company is currently assessing the impact that ASU 2017‐09 will have on its consolidated)financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of ASU 2017-12 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act in the consolidated financial statements for the period ending December 31, 2017. The amount of this reclassification in 2017 was $51 thousand.

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NOTE 2. Securities

Amortized costs and fair values of securities available for sale at December 31, 2017 and 2016 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	21,565	$	213	$	(258	)	$	21,520
Mortgage-backed securities	61,464		126		(346		)	61,244
Obligations of states and political subdivisions	49,199		789		(186		)	49,802
	$	132,228	$	1,128	$	(790	)	$	132,566
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	30,404	$	316	$	(279	)	$	30,441
Mortgage-backed securities	42,681		147		(456		)	42,372
Obligations of states and political subdivisions	46,271		770		(592		)	46,449
	$	119,356	$	1,233	$	(1,327	)	$	119,262

Carrying amounts of restricted securities at December 31, 2017 and 2016 were as follows:

	December 31, 2017		December 31, 2016
	(in thousands)
Federal Reserve Bank Stock	$	344	$	344
Federal Home Loan Bank Stock	623		584
Community Bankers’ Bank Stock	140		140
	$	1,107	$	1,068

The amortized cost and fair value of securities available for sale at December 31, 2017, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	4,596	$	4,619
Due after one year through five years	14,275		14,597
Due after five years through ten years	44,832		44,927
Due after ten years	68,525		68,423
	$	132,228	$	132,566

During the twelve months endedDecember 31, 2017, the Company sold $20.3 million in available for sale securities with gross gains of $94 thousand and gross losses of $104 thousand. During the twelve months endedDecember 31, 2016, the Company sold $11.4 million in available for sale securities with gross gains of $108 thousand and gross losses of $10 thousand. During the twelve months ended December 31, 2015, the Company sold $3.7 million in available for sale securities with gross gains of $124 thousand.

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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 December 31, 2017 and 2016 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
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	4,455	$	58	$	7,810	$	200	$	12,265	$	258
Mortgage-backed securities	11,885		59		17,931		287		29,816		346
Obligations of states and political subdivisions	4,071		27		4,692		159		8,763		186
	$	20,411	$	144	$	30,433	$	646	$	50,844	$	790
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	19,129	$	279	$	—	$	—	$	19,129	$	279
Mortgage-backed securities	28,013		456		—		—		28,013		456
Obligations of states and political subdivisions	16,823		592		—		—		16,823		592
	$	63,965	$	1,327	$	—	$	—	$	63,965	$	1,327

Gross unrealized losses on available for sale securities included fifty-four (54) and eighty (80) debt securities at December 31, 2017 and December 31, 2016, 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. 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. 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 December 31, 2017 and December 31, 2016 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 and management does not intend to sell and it is unlikely that management will be required to sell the securities prior to their anticipated recovery. 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 $2.6 million at December 31, 2017 were pledged for various purposes required by law.

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NOTE 3. Loans

The composition of loans at December 31, 2017 and 2016 was as follows:

	December 31,
	2017			2016
	(in thousands)
Mortgage loans on real estate:
Construction and land development	$	43,786		$	23,266
Secured by farmland	8,568			8,525
Secured by 1-4 family residential properties	223,210			227,966
Multifamily	4,095			3,566
Commercial	239,915			208,525
Commercial and industrial loans	37,427			30,341
Consumer installment loans	10,187			12,677
All other loans	2,050			2,259
Total loans	$	569,238		$	517,125
Net deferred loan fees	(421		)	(183		)
Allowance for loan losses	(4,411		)	(4,505		)
Net Loans	$	564,406		$	512,437

NOTE 4. Allowance for Loan Losses

Changes in the allowance for loan losses for the years December 31, 2017, 2016 and 2015 were as follows:

	December 31,
	2017			2016			2015
				(in thousands)
Balance, beginning	$	4,505		$	4,959		$	5,080
(Recovery of) loan losses	(625		)	(188		)	(227		)
Recoveries added to the allowance	901			341			562
Loan losses charged to the allowance	(370		)	(607		)	(456		)
Balance, ending	$	4,411		$	4,505		$	4,959

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Nonaccrual and past due loans by class at December 31, 2017 and December 31, 2016 were as follows:

	December 31, 2017
	(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	$	75	$	10	$	142	$	227	$	37,200	$	37,427	$	—	$	594
Commercial Real Estate:
Owner Occupied	—		—		—		—		127,018		127,018		—		—
Non-owner occupied	—		368		—		368		112,529		112,897		—		767
Construction and Farmland:
Residential	—		—		—		—		3,214		3,214		—		—
Commercial	187		—		—		187		48,953		49,140		—		—
Consumer:
Installment	17		—		2		19		10,168		10,187		—		13
Residential:
Equity Lines	18		—		—		18		32,820		32,838		—		44
Single family	829		572		4,060		5,461		184,911		190,372		—		4,921
Multifamily	—		—		—		—		4,095		4,095		—		—
All Other Loans	—		—		—		—		2,050		2,050		—		—
Total	$	1,126	$	950	$	4,204	$	6,280	$	562,958	$	569,238	$	—	$	6,339

	December 31, 2016
	(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	$	69	$	49	$	—	$	118	$	30,223	$	30,341	$	—	$	278
Commercial Real Estate:
Owner Occupied	150		384		—		534		114,820		115,354		—		431
Non-owner occupied	—		54		135		189		92,982		93,171		—		1,066
Construction and Farmland:
Residential	50		—		—		50		4,627		4,677		—		—
Commercial	499		—		—		499		26,615		27,114		—		—
Consumer:
Installment	23		2		11		36		12,641		12,677		8		8
Residential:
Equity Lines	66		—		—		66		31,240		31,306		—		132
Single family	444		51		166		661		195,999		196,660		—		5,076
Multifamily	—		—		—		—		3,566		3,566		—		—
All Other Loans	—		—		—		—		2,259		2,259		—		—
Total	$	1,301	$	540	$	312	$	2,153	$	514,972	$	517,125	$	8	$	6,991

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Allowance for loan losses by segment at December 31, 2017, December 31, 2016 and December 31, 2015 were as follows:

	As of and for the Twelve Months Ended
	December 31, 2017
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	450		$	1,992		$	1,522		$	235		$	69		$	22		$	215		$	4,505
Charge-Offs	(19		)	(55		)	(1		)	(187		)	(59		)	(49		)	—			(370		)
Recoveries	535			212			65			44			40			5			—			901
Provision (recovery)	(634		)	(395		)	41			478			19			51			(185		)	(625		)
Ending balance	$	332		$	1,754		$	1,627		$	570		$	69		$	29		$	30		$	4,411
Ending balance: Individually evaluated for impairment	$	—		$	195		$	59		$	195		$	9		$	—		$	—		$	458
Ending balance: collectively evaluated for impairment	$	332		$	1,559		$	1,568		$	375		$	60		$	29		$	30		$	3,953
Loans:
Ending balance	$	52,354		$	227,305		$	239,915		$	37,427		$	10,187		$	2,050		$	—		$	569,238
Ending balance individually evaluated for impairment	$	315		$	8,315		$	1,904		$	858		$	34		$	—		$	—		$	11,426
Ending balance collectively evaluated for impairment	$	52,039		$	218,990		$	238,011		$	36,569		$	10,153		$	2,050		$	—		$	557,812

	As of and for the Twelve Months Ended
	December 31, 2016
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate		Commercial		Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	775		$	2,322		$	1,268	$	211	$	109		$	53		$	221		$	4,959
Charge-Offs	—			(535		)	—		—		(30		)	(42		)	—			(607		)
Recoveries	144			124			8		11		49			5			—			341
Provision (recovery)	(469		)	81			246		13		(59		)	6			(6		)	(188		)
Ending balance	$	450		$	1,992		$	1,522	$	235	$	69		$	22		$	215		$	4,505
Ending balance: Individually evaluated for impairment	$	—		$	268		$	102	$	15	$	—		$	—		$	—		$	385
Ending balance: collectively evaluated for impairment	$	450		$	1,724		$	1,420	$	220	$	69		$	22		$	215		$	4,120
Loans:
Ending balance	$	31,791		$	231,532		$	208,525	$	30,341	$	12,677		$	2,259		$	—		$	517,125
Ending balance individually evaluated for impairment	$	1,320		$	8,608		$	2,864	$	581	$	7		$	—		$	—		$	13,380
Ending balance collectively evaluated for impairment	$	30,471		$	222,924		$	205,661	$	29,760	$	12,670		$	2,259		$	—		$	503,745

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	As of and for the Twelve Months Ended
	December 31, 2015
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			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	(166		)	(152		)	(47		)	—			(66		)	(25		)	—		(456		)
Recoveries	75			142			115			181			33			16			—		562
Provision (recovery)	(85		)	355			(147		)	(434		)	39			20			25		(227		)
Ending balance	$	775		$	2,322		$	1,268		$	211		$	109		$	53		$	221	$	4,959
Ending balance: Individually evaluated for impairment	$	10		$	423		$	141		$	2		$	—		$	—		$	—	$	576
Ending balance: collectively evaluated for impairment	$	765		$	1,899		$	1,127		$	209		$	109		$	53		$	221	$	4,383
Loans:
Ending balance	$	41,569		$	233,626		$	175,172		$	29,366		$	13,530		$	2,413		$	—	$	495,676
Ending balance individually evaluated for impairment	$	1,392		$	7,209		$	4,555		$	847		$	—		$	—		$	—	$	14,003
Ending balance collectively evaluated for impairment	$	40,177		$	226,417		$	170,617		$	28,519		$	13,530		$	2,413		$	—	$	481,673

67

Impaired loans by class at December 31, 2017 and December 31, 2016 were as follows:

	As of and for the Year Ended
	December 31, 2017
	(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	$	626	$	304	$	—	$	342	$	23
Commercial Real Estate:
Owner Occupied	330		331		—		336		15
Non-owner occupied	805		767		—		785		20
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	362		316		—		330		28
Consumer:
Installment	25		25		—		27		1
Residential:
Equity lines	—		—		—		—		—
Single family	7,371		6,985		—		7,069		124
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	9,519	$	8,728	$	—	$	8,889	$	211
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	595	$	556	$	195	$	567	$	17
Commercial Real Estate:
Owner Occupied	—		—		—		—		—
Non-owner occupied	806		809		59		817		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	9		9		9		9		—
Residential:
Equity lines	217		44		44		45		—
Single family	1,349		1,299		151		1,315		57
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	2,976	$	2,717	$	458	$	2,753	$	111
Total:
Commercial	$	1,221	$	860	$	195	$	909	$	40
Commercial Real Estate	1,941		1,907		59		1,938		72
Construction and Farmland	362		316		—		330		28
Consumer	34		34		9		36		1
Residential	8,937		8,328		195		8,429		181
Other	—		—		—		—		—
Total	$	12,495	$	11,445	$	458	$	11,642	$	322

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs.

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	As of and for the Year Ended
	December 31, 2016
	(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	$	311	$	299	$	—	$	356	$	21
Commercial Real Estate:
Owner Occupied	869		772		—		778		15
Non-owner occupied	1,298		1,066		—		1,137		13
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	1,320		1,324		—		1,358		75
Consumer:
Installment	8		8		—		9		—
Residential:
Equity lines	17		17		—		18		—
Single family	7,072		6,849		—		6,930		170
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	10,895	$	10,335	$	—	$	10,586	$	294
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	283	$	283	$	15	$	298	$	14
Commercial Real Estate:
Owner Occupied	203		203		37		205		10
Non-owner occupied	824		826		65		834		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	—		—		—		—		—
Residential:
Equity lines	458		115		56		120		—
Single family	1,678		1,638		212		1,676		60
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	3,446	$	3,065	$	385	$	3,133	$	121
Total:
Commercial	$	594	$	582	$	15	$	654	$	35
Commercial Real Estate	3,194		2,867		102		2,954		75
Construction and Farmland	1,320		1,324		—		1,358		75
Consumer	8		8		—		9		—
Residential	9,225		8,619		268		8,744		230
Other	—		—		—		—		—
Total	$	14,341	$	13,400	$	385	$	13,719	$	415

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs.

69

For the year ended December 31, 2015, the average recorded investment of impaired loans was $14.4 million. The interest income recognized on impaired loans was $404 thousand in 2015.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in nonaccrual loans is the actual principal balance reduced by payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method.

The Company uses a rating system for evaluating the risks associated with non-consumer loans. Consumer loans are not evaluated for risk unless the characteristics of the loan fall within classified categories. Descriptions of these ratings are as follows:

Pass	Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Pass Monitored	Pass monitored loans may be experiencing income and cash volatility, inconsistent operating trends, nominal liquidity and/or a leveraged balance sheet. A higher level of supervision is required for these loans as the potential for a negative event could impact the borrower’s ability to repay the loan.
Special mention	Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Substandard	Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
Doubtful	Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
Loss	Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.

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Credit quality information by class at December 31, 2017 and December 31, 2016 was as follows:

	As of
	December 31, 2017
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	33,279	$	1,788	$	1,748	$	612	$	—	$	—	$	37,427
Commercial Real Estate:
Owner Occupied	112,649		10,893		3,146		330		—		—		127,018
Non-owner occupied	82,050		17,992		12,088		767		—		—		112,897
Construction and Farmland:
Residential	2,614		600		—		—		—		—		3,214
Commercial	30,093		17,069		1,663		315		—		—		49,140
Residential:
Equity Lines	32,495		299		—		—		44		—		32,838
Single family	177,829		5,869		155		6,327		192		—		190,372
Multifamily	3,588		—		507		—		—		—		4,095
All other loans	2,050		—		—		—		—		—		2,050
Total	$	476,647	$	54,510	$	19,307	$	8,351	$	236	$	—	$	559,051

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	10,168	$	19

	As of
	December 31, 2016
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	25,951	$	3,858	$	170	$	362	$	—	$	—	$	30,341
Commercial Real Estate:
Owner Occupied	99,365		13,050		1,766		742		431		—		115,354
Non-owner occupied	60,259		30,515		891		1,506		—		—		93,171
Construction and Farmland:
Residential	4,627		50		—		—		—		—		4,677
Commercial	21,105		5,349		314		346		—		—		27,114
Residential:
Equity Lines	30,791		382		—		17		116		—		31,306
Single family	182,404		6,850		724		6,533		149		—		196,660
Multifamily	3,032		534		—		—		—		—		3,566
All other loans	2,259		—		—		—		—		—		2,259
Total	$	429,793	$	60,588	$	3,865	$	9,506	$	696	$	—	$	504,448

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	12,641	$	36

Three consumer loans totaling $13 thousand were rated below Pass at December 31, 2017. One consumer loan totaling $5 thousand was rated below Pass at December 31, 2016.

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NOTE 5. Troubled Debt Restructurings

All loans deemed a troubled debt restructuring, or “TDR”, are considered impaired, and are evaluated for collateral and cash-flow sufficiency. A loan is considered a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. All of the following factors are indicators that the Bank has granted a concession (one or multiple items may be present):

• The borrower receives a reduction of the stated interest rate to a rate less than the institution is willing to accept at the time of the restructure for a new loan with comparable risk.

• The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.

• The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

• The borrower receives a deferral of required payments (principal and/or interest).

• The borrower receives a reduction of the accrued interest.

There were twenty-one (21) troubled debt restructured loans totaling $4.4 million at December 31, 2017. At December 31, 2016, there were twenty-six (26) troubled debt restructured loans totaling $7.3 million. One loan, totaling $44 thousand, was in nonaccrual status at December 31, 2017. Six loans, totaling $1.6 million, were in nonaccrual status at December 31, 2016. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at December 31, 2017 or December 31, 2016.

The following tables set forth information on the Company’s troubled debt restructurings by class of financing receivable occurring during the years ended December 31, 2017, 2016 and 2015:

		For the Year Ended
		December 31, 2017
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Consumer:
Installment	1	$	22	$	22
Total	1	$	22	$	22
		For the Year Ended
		December 31, 2016
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate
Non-owner occupied	1	$	736	$	736
Residential:
Single family	4	560		463
Total	5	$	1,296	$	4
		For the Year Ended
		December 31, 2015
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential:
Single family	3	$	794	$	794
Total	3	$	794	$	794

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During the twelve months ended December 31, 2017 , the Company restructured one loan by granting a concession to borrowers experiencing financial difficulties. One consumer installment loan was modified by consolidating debt and reducing the interest rate.

During the twelve months ended December 31, 2016, the Company restructured five loans by granting concessions to borrowers experiencing financial difficulties. One residential loan and one commercial real estate loan was modified by extending the amortization period and reducing the interest rate. Two residential loans were modified by reducing the payments to be affordable for the borrower. One residential loan was modified by changing payments to interest-only in order to reduce the monthly payment for a period of time.

During the twelve months ended December 31, 2015, the Company restructured three loans by granting concessions to borrowers experiencing financial difficulties. Two single family residential loans were modified by changing the amortization period. One single family residential loan was modified by changing the amortization period and interest rate in order to reduce the monthly payments.

Loans by class of financing receivable modified as TDRs within the previous 12 months and for which there was a payment default during the stated periods were:

	For the Year Ended
	December 31, 2017
	(in thousands)
	Number of Contracts	Recorded Investment
Total	—	$	—
	For the Year Ended
	December 31, 2016
	(in thousands)
	Number of Contracts	Recorded Investment
Residential:
Single family	2	$	588
Total	2	$	588
	For the Year Ended
	December 31, 2015
	(in thousands)
	Number of Contracts	Recorded Investment
Commercial - Non Real Estate:
Commercial & Industrial	1	$	267
Residential:
Equity	1	60
Single family	2	627
Total	4	$	954

Management defines default as over 30 days contractually past due under the modified terms or the foreclosure and repossession of the collateral and charge-off of the loan during the twelve month period subsequent to the modification.

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NOTE 6. Bank Premises and Equipment, Net

The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2017 and 2016 were as follows:

	December 31,
	2017		2016
	(in thousands)
Land	$	6,729	$	6,729
Buildings and improvements	17,970		17,928
Furniture and equipment	7,100		6,876
	$	31,799	$	31,533
Less accumulated depreciation	12,220		11,364
Bank premises and equipment, net	$	19,579	$	20,169

Depreciation expense on buildings and improvements was $484 thousand, $484 thousand, and $470 thousand for the years ended 2017, 2016, and 2015, respectively. Depreciation expense on furniture and equipment was $462 thousand, $448 thousand, and $373 thousand for the years ended 2017, 2016, and 2015, respectively.

As of December 31, 2017, one facility was under an operating lease, which expires in 2030. This lease requires payment of certain operating expenses and contains renewal options. The total minimum rental commitment at December 31, 2017 under this lease was due as follows:

	December 31, 2017
	(in thousands)
2018	$	200
2019	200
2020	213
2021	220
2022	220
Thereafter	1,724
	$	2,777

The total building and equipment rental expense was $232 thousand, $236 thousand, and $271 thousand in 2017, 2016, and 2015, respectively.

On June 10, 2015, the Company purchased the land on which one of its retail branches resides. The land was purchased subject to an existing lease and subsequently recorded at fair value, resulting in a write down of the total purchase price. This write down appears in the Consolidated Statement of Income as a Cost to terminate operating lease.

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NOTE 7. Deposits

The composition of deposits at December 31, 2017 and December 31, 2016 was as follows:

	December 31,
	2017		2016
	(in thousands)
Noninterest bearing demand deposits	$	234,990	$	208,948
Savings and interest bearing demand deposits:
NOW accounts	$	91,288	$	85,944
Money market accounts	129,497		126,632
Regular savings accounts	102,163		94,271
	$	322,948	$	306,847
Time deposits:
Balances of less than $250,000	$	62,681	$	67,159
Balances of $250,000 and more	42,795		20,923
	$	105,476	$	88,082
	$	663,414	$	603,877

Time deposits with balances of less than $250,000 include $210 thousand and $2.2 million in brokered certificates of deposit at December 31, 2017 and 2016, respectively. There were no time deposits with balances of $250,000 or more in brokered certificates of deposit at December 31, 2017 and 2016, respectively.

The outstanding balance of time deposits at December 31, 2017 was due as follows:

	December 31, 2017
	(in thousands)
2018	$	89,860
2019	7,324
2020	2,032
2021	4,583
2022	1,656
Thereafter	21
	$	105,476

Deposit overdrafts reclassified as loans totaled $115 thousand and $272 thousand at December 31, 2017 and 2016, respectively.

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NOTE 8. Borrowings

The Company, through its subsidiary bank, borrows funds in the form of federal funds purchased and Federal Home Loan Bank advances.

Federal fund lines of credit are extended to the Bank by nonaffiliated banks with which a correspondent banking relationship exists. The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 16. Federal funds purchased generally mature each business day. The following table summarizes information related to federal funds purchased for the years ended December 31, 2017 and 2016:

	December 31,
	2017			2016
	(dollars in thousands)
Balance at year-end	$	—		$	—
Average balance during the year	$	823		$	73
Average interest rate during the year	1.64		%	0.81		%
Maximum month-end balance during the year	$	3,413		$	1,302
Gross lines of credit at year-end	$	28,000		$	36,000
Unused lines of credit at year-end	$	28,000		$	36,000

As of December 31, 2017, the Company also had a $5.0 million unused line of credit, in addition to the $28.0 million in federal funds lines of credit listed in the table above.

As of December 31, 2017, Company had remaining credit availability in the amount of $162.6 million with the Federal Home Loan Bank of Atlanta. This line may be utilized for short and/or long-term borrowing. Advances on the line are secured by all of the Company’s eligible first lien residential real estate loans on one-to-four-unit, single-family dwellings; multi-family dwellings; home equity lines of credit; and commercial real estate loans. The amount of the available credit is limited to a percentage of the estimated market value of the loans as determined periodically by the FHLB of Atlanta. The amount of the available credit is also limited to 20% of total Bank assets.

The Company had no long-term borrowings with the FHLB at December 31, 2017. The Company also had no short-term borrowings with the FHLB at December 31, 2017. The Company had a $20.0 million irrevocable letter of credit at December 31, 2017 with the FHLB to secure public deposits. The Company had no borrowings with the FHLB at December 31, 2016.

NOTE 9. Income Taxes

The Company files income tax returns with the United States of America,the Commonwealth of Virginia and West Virginia. With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2014.

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The net deferred tax asset at December 31, 2017 and 2016 consisted of the following components:

	December 31,
	2017		2016
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	922	$	1,525
Deferred compensation	72		117
Accrued postretirement benefits	23		40
Home equity origination costs	46		73
Nonaccrual interest	101		151
Securities available for sale	—		32
Other	53		193
	$	1,217	$	2,131
Deferred tax liabilities:
Property and equipment	$	506	$	814
Securities available for sale	71		—
	$	577	$	814
Net deferred tax asset	$	640	$	1,317

The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.

Income tax expense for the years ended December 31, 2017, 2016 and 2015 consisted of the following components:

	December 31,
	2017		2016		2015
	(in thousands)
Current tax expense	$	3,094	$	2,346	$	2,001
Deferred tax expense	135		207		432
Deferred tax adjustment for enacted rate change	397		—		—
	$	3,626	$	2,553	$	2,433

The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2017, 2016 and 2015.

	December 31,
	2017			2016			2015
	(in thousands)
Statutory federal corporate tax amount	$	3,880		$	3,034		$	3,172
Tax-exempt interest (income)	(417		)	(387		)	(404		)
Officer insurance (income) loss	(92		)	15			11
Net tax credits	(165		)	(126		)	(105		)
Corporate tax rate change	397			—			—
Other, net	23			17			(241		)
	$	3,626		$	2,553		$	2,433

The effective tax rates were 31.77%, 28.62%, and 26.08%, for years ended December 31, 2017, 2016, and 2015, respectively. This increase in the effective tax rate resulted mostly from the Tax Cuts and Jobs Act that was signed into law on December 22, 2017. The Company's deferred tax assets and liabilities were adjusted at December 31, 2017, for the reduction of our applicable corporate income tax rate from 34% to 21%, effective January 1, 2018. This adjustment resulted in a write-down of our net deferred tax assets and an increase in our federal income tax expense of $397 thousand.

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NOTE 10. Postretirement Benefit Plans

The Company provides certain health care and life insurance benefits for nine retired employees who have met certain eligibility requirements. All other employees retiring after reaching age 65 and having at least 15 years of service with the Company will be allowed to stay on the Company’s group life and health insurance policies, but will be required to pay premiums. The Company’s share of the estimated costs that will be paid after retirement is generally being accrued by charges to expense over the employees’ active service periods to the dates they are fully eligible for benefits.

Generally Accepted Accounting Principles (“GAAP”) requires the Company to recognize the funded status (i.e. the difference between the fair value of plan assets and the projected benefit obligations) of its postretirement benefit plans in the consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of taxes.

The following amounts that have not been recognized in the net periodic benefit cost of the postretirement benefit plan for the year ended December 31, 2017 but are included in other comprehensive income: unrecognized net actuarial gain of $44 thousand. The actuarial gain included in other comprehensive income and expected to be recognized in the net periodic benefit cost of the postretirement benefit plan during 2018 is $7 thousand.

78

The following tables provide a reconciliation of the changes in the benefit obligations and fair value of assets for 2017, 2016, and 2015 and a statement of the funded status at December 31, 2017, 2016 and 2015 for the postretirement benefit plans of the Company. The Company uses a December 31st measurement date for its plans.

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Change in Benefit Obligation:
Benefit obligation, beginning	$	118		$	128		$	137
Service cost	—			—			—
Interest cost	3			4			4
Actuarial (gain) loss	(4		)	(7		)	(6		)
Benefits paid	(8		)	(7		)	(7		)
Settlement loss	—			—			—
Benefit obligation, ending	$	109		$	118		$	128
Change in Plan Assets:
Fair value of plan assets, beginning	$	—		$	—		$	—
Actual return on plan assets	—			—			—
Employer contributions	8			7			7
Benefits paid	(8		)	(7		)	(7		)
Fair value of plan assets, ending	$	—		$	—		$	—
	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Funded Status:
Funded status	$	(109	)	$	(118	)	$	(128	)
Unrecognized net actuarial loss	—			—			—
Unrecognized net transition obligation	—			—			—
Unrecognized prior service cost	—			—			—
Accrued benefits	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Consolidated Balance Sheets:
Prepaid benefit cost	$	—		$	—		$	—
Accrued liability	(109		)	(118		)	(128		)
	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net actuarial (gain)	$	(54	)	$	(58	)	$	(58	)
Net transition obligation	—			—			—
Deferred tax liability	10			19			19
	$	(44	)	$	(39	)	$	(39	)

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The following tables provide the components of net periodic benefit cost of the postretirement benefit plan for the years ended December 31, 2017, 2016, and 2015:

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Components of Net Periodic Benefit Cost:
Service cost	$	—		$	—		$	—
Interest cost	3			4			4
Expected return on plan assets	—			—			—
Amortization of prior service costs	—			—			—
Amortization of transition obligation	—			—			—
Recognized net loss due to settlement	—			—			—
Amortization of net actuarial gain	(7		)	(6		)	(6		)
Net periodic benefit cost	$	(4	)	$	(2	)	$	(2	)

The benefit obligation for the postretirement benefit plan was calculated using a weighted average discount rate of 2.75% for 2017, 3.00% for 2016, and 3.25% for 2015. For measurement purposes, a 8.00% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2018 and 2019, 7.00% for 2020 and 2021, and 5.00% for 2022 and thereafter. If these rates were increased by 1.00% in each year, the benefit obligation at December 31, 2017 would have increased by $3 thousand and the net periodic benefit cost for 2017 would have increased by less than $1 thousand. If these rates were decreased by 1.00% in each year, the benefit obligation at December 31, 2017 would have decreased by $3 thousand and the net periodic benefit cost for 2017 would have decreased by less than $1 thousand.

Estimated future benefit payments at December 31, 2017, which reflect expected future service, as appropriate, were as follows:

	Postretirement Benefits
	(in thousands)
2018	$	15
2019	14
2020	14
2021	13
2022	12
2023 - 2027	39

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NOTE 11. Stock-Based Compensation

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. Outside directors are periodically granted restricted shares which vest over a period of less than nine months. During 2017, executive officers were granted restricted shares which vest over a three year service period and restricted shares which vest based on meeting performance measures over a one year period. Vesting schedules were unchanged from the two prior years. The following table presents the activity for Restricted Stock for the years ended December 31, 2017, 2016 and 2015:

	Twelve Months Ended
	December 31,
	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested, beginning of period	14,901		$	23.05	14,401		$	22.98	15,151		$	22.27
Granted	14,650		27.46		14,650		23.07		14,650		23.85
Vested	(14,493	)	25.90		(13,196	)	23.00		(14,363	)	23.09
Forfeited	(657	)	23.00		(954	)	23.00		(1,037	)	23.50
Nonvested, end of period	14,401		$	24.68	14,901		$	23.05	14,401		$	22.98

The Company recognizes compensation expense over the vesting period based on the fair value of the Company's stock on the grant date. Compensation expense was $382 thousand, $314 thousand, and $328 thousand during December 31, 2017, 2016, and 2015, respectively. The total grant date fair value of Restricted Stock which vested was $375 thousand and $303 thousand for the years ended December 31, 2017 and 2016, respectively. Unrecognized compensation cost related to unvested Restricted Stock was $69 thousand at December 31, 2017. This amount is expected to be recognized over a weighted average period of one year. The Company's policy is to recognize forfeitures as they occur.

NOTE 12. Employee Benefits

The Company has established an Employee Stock Ownership Plan (ESOP) to provide additional retirement benefits to substantially all employees. Contributions can be made to the Bank of Clarke County Employee Retirement Trust to be used to purchase the Company’s common stock. There were no contributions in 2017, 2016, and 2015.

The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of salary on a pretax basis, subject to certain IRS limits. Prior to January 1, 2007, the Company matched 50 percent of employee contributions, on a maximum of six percent of salary deferred, with Company common stock or cash, as elected by each employee. The shares for this purpose are provided principally by the Company’s employee stock ownership plan (ESOP), supplemented, as needed, by newly issued shares. In conjunction with amending the pension plan, the 401(k) plan was amended, effective January 1, 2007, to include a non-elective safe-harbor employer contribution and an age-weighted employer contribution. Each December 31^st, qualifying employees will receive a non-elective safe-harbor contribution equal to three percent of their salary for that year. Also, each December 31^st, qualifying employees will receive an additional contribution based on their age and years of service. The percentage of salary for the age-weighted contribution increases on both factors, age and years of service, with a minimum of one percent of salary and a maximum of ten percent of salary. Contributions under the plan amounted to $1.0 million in 2017, $990 thousand in 2016, and $956 thousand in 2015.

The Company has established an Executive Supplemental Income Plan for certain key employees. Benefits are to be paid in monthly installments following retirement or death. The agreement provides that if employment is terminated for reasons other than death or disability prior to age 65, the amount of benefits could be reduced or forfeited. The executive supplemental income benefit liability was $56 thousand and $64 thousand at December 31, 2017 and 2016, respectively. The executive supplemental income benefit expense, based on the present value of the retirement benefits, was $29 thousand in 2017, $29 thousand in 2016, and $29 thousand in 2015. The plan is unfunded; however, life insurance has been acquired on the lives of these employees in amounts sufficient to discharge the plan’s obligations.

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NOTE 13. Commitments and Contingencies

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments.

During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

As a member of the Federal Reserve System, the Bank is required to maintain certain average reserve balances. These reserve balances include usable vault cash and amounts on deposit with the Federal Reserve Bank. For the final weekly reporting period in the years ended December 31, 2017 and 2016, the amount of daily average required balances were approximately $1.5 million and $1.3 million, respectively. For both periods, these required amounts were met by vault cash and no additional amount was required to be on deposit with the Federal Reserve Bank. In addition, the Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $250 thousand at December 31, 2017 and 2016.

See Note 19 with respect to financial instruments with off-balance-sheet risk.

NOTE 14. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Company has used interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converts floating rate debt into fixed rate debt, or alternatively, converts fixed rate debt into floating rate debt. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense. These interest rate swap agreements are derivative instruments that qualify for hedge accounting as discussed in Note 1. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

On December 4, 2008, the Company entered into an interest rate swap agreement related to the outstanding trust preferred capital notes. The swap agreement became effective on December 1, 2008. The notional amount of the interest rate swap was $7.0 million and had an expiration date of December 1, 2016. Under the terms of the agreement, the Company paid interest quarterly at a fixed rate of 2.85% and received interest quarterly at a variable rate of three month LIBOR. The variable rate reset on each interest payment date. This agreement was designated as a cash-flow hedge at inception of the contract until the redemption of the trust preferred capital notes on July 29, 2015. As a result of the redemption, the derivative contract was no longer classified as a cash flow hedge and was recorded in the balance sheet at its fair value with changes in fair value recorded in Other operating income in the Consolidated Statements of Income.

The following tables present the effect of the derivative instrument on the Consolidated Statements of Income for December 31, 2017, 2016, and 2015:

Derivatives not designated as hedging instruments under GAAP	Location of Gain  (Loss) Recognized in Income	Amount of Gain  (Loss) Recognized in Income
		2017		2016		2015
		(dollars in thousands)
Interest rate swap contracts, net of tax	Other operating income	$	—	$	149	88

The balance of the interest rate swap liability was $237 thousand at the time of the redemption of the Company's trust preferred debt on July 29, 2015. The total amount recorded in accumulated other comprehensive income at that date was reclassified to earnings due to the derecognition of the cash flow hedge. Subsequent to the redemption of the debt and reclassification, the interest rate swap derivative was adjusted to its fair value resulting in a $149 thousand and $88 thousand gain recorded in Other operating income in the Consolidated Statements of Income for the twelve months ended December 31, 2016 and 2015, respectively.

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NOTE 15. Transactions with Directors and Officers

The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business. The aggregate balance of loans to directors, principal officers and their related parties was $4.1 million and $4.7 million at December 31, 2017 and 2016, respectively. These balances reflect total principal additions of $9.4 million and total principal payments of $10.0 million, during 2017. The aggregate balance of deposits from directors, principal officers and their related parties was $19.4 million and $15.6 million at December 31, 2017 and 2016, respectively. Adjustments were made to prior year amounts for directors and officers that are no longer considered to be related parties.

NOTE 16. Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In July 2013, the Federal Reserve Bank issued a final rule that makes technical changes to its market risk capital rules to align them with the BASEL III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The phase-in period for the final rules began January 1, 2015 with full compliance with the final rules to be phased in by January 1, 2019. As a part of this final rule, the Bank was required to begin calculating and disclosing Common Equity Tier 1 Capital to risk weighted assets in 2015. Although not required by the final rule, the Company also began calculating and disclosing Common Equity Tier 1 Capital to risk weighted assets in 2015. In addition to the minimum regulatory capital required for capital adequacy purposes , the Company is required to maintain a minimum Capital Conservation Buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the Capital Conservation Buffer was 0.625% on January 1, 2016 and will increase by 0.625% each year until it reaches 2.5% on January 1, 2019. The Capital Conservation Buffer is applicable to all ratios except the leverage ratio, which is noted below as Tier 1 Capital to Average Assets. The Bank's institution specific capital conservation buffer at December 31, 2017 was 6.86%.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject at December 31, 2017 and 2016.

At December 31, 2017, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and common equity Tier 1 ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category.

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The following table presents the Company’s and the Bank’s actual capital amounts and ratios at December 31, 2017 and 2016:

									Minimum To Be Well
					Minimum Capital				Capitalized Under Prompt Corrective
	Actual				Requirement				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
December 31, 2017:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	83,507	14.45	%	$	26,003	4.50	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	25,622	4.50	%	$	37,009	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	87,959	15.22	%	$	46,228	8.00	%	N/A
Bank of Clarke County	$	84,583	14.86	%	$	45,550	8.00	%	$	56,938	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	83,507	14.45	%	$	34,671	6.00	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	34,163	6.00	%	$	45,550	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	83,507	11.21	%	$	29,810	4.00	%	N/A
Bank of Clarke County	$	80,150	10.86	%	$	29,511	4.00	%	$	36,889	5.00	%
December 31, 2016:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	79,440	15.68	%	$	22,798	4.50	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	22,666	4.50	%	$	32,740	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	83,977	16.58	%	$	40,531	8.00	%	N/A
Bank of Clarke County	$	80,640	16.01	%	$	40,295	8.00	%	$	50,369	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	79,440	15.68	%	$	30,398	6.00	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	30,221	6.00	%	$	40,295	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	79,440	11.84	%	$	26,848	4.00	%	N/A
Bank of Clarke County	$	76,124	11.40	%	$	26,711	4.00	%	$	33,389	5.00	%

NOTE 17. Restrictions On Dividends, Loans and Advances

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends which may be paid at any date is generally limited to the lesser of the Bank’s retained earnings or the three preceding years’ undistributed net income of the Bank. Loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

At December 31, 2017, the Bank’s retained earnings available for the payment of dividends to the Company was $5.3 million. Accordingly, $75.2 million of the Company’s equity in the net assets of the Bank was restricted at December 31, 2017. Funds available for loans or advances by the Bank to the Company amounted to $1.1 million at December 31, 2017.

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NOTE 18. Dividend Investment Plan

The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date. During 2016, the Company amended the Plan to provide that shares of common stock purchased through the Plan would be purchased at a price equal to the market price of the shares. Prior to this date, the Plan allowed participants' dividends to purchase additional shares of common stock at 95% of its fair market value. Our board of directors determined to eliminate the discount for purchases of shares in order to reflect current best practices and market standards for dividend reinvestment plans generally and among our peers.  No other changes have been made to the operation of the dividend reinvestment features of the Plan, and current participants will remain enrolled in the Plan under their current methods of participation unless they choose to alter their enrollment following the procedures described in this prospectus.

NOTE 19. Financial Instruments with Off-Balance-Sheet Risk

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

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

At December 31, 2017 and 2016, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2017		2016
	(dollar in thousands)
Commitments to extend credit	$	3,959	$	27,144
Unfunded commitments under lines of credit	108,483		100,530
Commercial and standby letters of credit	8,437		5,897

Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met. Commitments generally have fixed expiration dates or other termination clauses. Since these commitments may expire or terminate, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, with regards to these commitments, is based on management’s credit evaluation of the customer.

Unfunded commitments under lines of credit are contracts for possible future extensions of credit to existing customers. Unfunded commitments under lines of credit include, but are not limited to, home equity lines of credit, overdraft protection lines of credit, credit cards, and unsecured and secured commercial lines of credit. The terms and conditions of these commitments vary depending on the line of credit’s purpose, collateral, and maturity. The amount disclosed above represents total unused lines of credit for which a contract with the Bank has been established.

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in granting loans to customers. The Bank holds collateral supporting these commitments if it is deemed necessary. At December 31, 2017, $7.5 million of the outstanding letters of credit were collateralized.

The Bank has cash accounts in other commercial banks. The amount on deposit in these banks at December 31, 2017 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $1.7 million.

NOTE 20. Trust Preferred Capital Notes

In September 2007, Eagle Financial Statutory Trust II (the “Trust II”), a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable capital securities. On September 20, 2007, Trust II issued $7.0 million of trust preferred securities and $217 thousand in common equity. On July 29, 2015, the pool to which the Company's $7.0 million in outstanding trust preferred capital notes belonged was liquidated by means of auction. The Company was successful in purchasing the outstanding notes at a price of 65.375% of par or $4.6 million in cash, resulting in a gain on the redemption of $2.4 million. On August 7, 2015, the Trust II was dissolved.

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NOTE 21. Quarterly Condensed Statements of Income - Unaudited

The Company’s quarterly net income, net income per common share and dividends per common share during 2017, 2016 and 2015 are summarized as follows:

	2017 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,566	$	7,004	$	7,458	$	7,323
Net interest income after (recovery of) loan losses	6,890		6,985		7,109		6,838
Noninterest income	1,673		1,598		1,617		1,892
Noninterest expenses	5,711		5,747		5,909		5,823
Income before income taxes	2,852		2,836		2,817		2,907
Net income	2,042		2,027		2,007		1,710
Net income per common share, basic	0.59		0.58		0.58		0.49
Net income per common share, diluted	0.59		0.58		0.58		0.49
Dividends per common share	0.22		0.22		0.22		0.22
	2016 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,421	$	6,642	$	6,279	$	6,443
Net interest income after (recovery of) loan losses	6,035		6,345		6,162		6,364
Noninterest income	1,635		1,738		1,687		1,609
Noninterest expenses	5,554		5,832		5,871		5,395
Income before income taxes	2,116		2,251		1,978		2,578
Net income	1,525		1,610		1,430		1,805
Net income per common share, basic	0.43		0.46		0.40		0.52
Net income per common share, diluted	0.43		0.46		0.40		0.52
Dividends per common share	0.20		0.20		0.20		0.22
	2015 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	5,938	$	6,121	$	6,265	$	6,169
Net interest income after (recovery of) loan losses	5,408		5,494		6,354		6,117
Noninterest income	1,629		1,644		3,830		1,335
Noninterest expenses	5,058		6,131		5,518		5,774
Income before income taxes	1,979		1,007		4,666		1,678
Net income	1,455		798		3,289		1,355
Net income per common share, basic	0.42		0.23		0.94		0.38
Net income per common share, diluted	0.42		0.23		0.94		0.38
Dividends per common share	0.20		0.20		0.20		0.20

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NOTE 22. Fair Value Measurements

GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

•	Level 1	Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•	Level 2	Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following sections provide a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

87

The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and December 31, 2016:

			Fair Value Measurements at
			December 31, 2017
			Using
	Balance as of		Quoted Prices in  Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	21,520	$	—	$	21,520	$	—
Mortgage-backed securities	61,244		—		61,244		—
Obligations of states and political subdivisions	49,802		—		49,259		543
Total assets at fair value	$	132,566	$	—	$	132,023	$	543
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—
			Fair Value Measurements at
			December 31, 2016
			Using
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	30,441	$	—	$	30,441	$	—
Mortgage-backed securities	42,372		—		42,372		—
Obligations of states and political subdivisions	46,449		—		45,835		614
Total assets at fair value	$	119,262	$	—	$	118,648	$	614
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—

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The table below presents a reconciliation for all assets measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended December 31, 2017 and 2016.

	Level 3 Recurring Fair Value Measurements
	As of and for the Year Ended
	December 31, 2017			December 31, 2016
	(in thousands)
Beginning balance	$	614		$	684
Purchases	—			—
Sales	—			—
Issuances	—			—
Settlements	(71		)	(70		)
Total assets at fair value	$	543		$	614

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on the present value of its expected future cash flows discounted at the loan's coupon rate, or at the loans' observable market price or the fair value of the collateral securing the loans, if they are collateral dependent. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data within the last twelve months (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than one year old and not solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise,

values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as impaired loans described above. We believe that the fair value component in its valuation follows the provisions of GAAP.

89

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for December 31, 2017 and December 31, 2016:

	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2017
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	6% - 12%	7%
Impaired loans	Present value of cash flows	Discount rate	4% - 10%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%
	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2016
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	12%	12%
Impaired loans	Present value of cash flows	Discount rate	4% - 7%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%

The following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2017 and December 31, 2016:

			Carrying value at
			December 31, 2017
	Balance as of		Identical Assets		Observable Inputs		Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,248	$	—	$	—	$	2,248
Nonfinancial Assets:
Other real estate owned	106		—		—		106
			Carrying value at
			December 31, 2016
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,671	$	—	$	—	$	2,671
Nonfinancial Assets:
Other real estate owned	370		—		—		370

90

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments:

Cash and short-term investments/restricted investments/accrued interest: The fair value was equal to the carrying amount.

Securities: The fair value, excluding restricted securities, was based on quoted market prices. The fair value of restricted securities approximated the carrying amount based on the redemption provisions of the issuers.

Loans: The fair value of variable rate loans, which reprice frequently and with no significant change in credit risk, was equal to the carrying amount. The fair value of all other loans was determined using discounted cash flow analysis. The discount rate was equal to the current interest rate on similar products.

Bank owned life insurance: The carrying amount of bank owned life insurance was a reasonable estimate of fair value.

Deposits and borrowings: The fair value of demand deposits, savings accounts, and certain money market deposits was equal to the carrying amount. The fair value of all other deposits and borrowings was determined using discounted cash flow analysis. The discount rate was equal to the current interest rate on similar products.

Off-balance-sheet financial instruments: The fair value of commitments to extend credit was estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the credit worthiness of the counterparties. The fair value of fixed rate loan commitments also considered the difference between current interest rates and the committed interest rates. The fair value of standby letters of credit was estimated using the fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties.

The carrying amount and fair value of the Company’s financial instruments at December 31, 2017 and 2016 were as follows:

	Fair Value Measurements at
	December 31, 2017
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)		December 31, 2017
	(in thousands)
Financial Assets:
Cash and short-term investments	$	35,848	$	35,848	$	—	$	—	$	35,848
Securities	132,566		—		132,023		543		132,566
Restricted Investments	1,107		—		1,107		—		1,107
Loans, net	564,406		—		—		559,665		559,665
Bank owned life insurance	486		—		486		—		486
Accrued interest receivable	1,955		—		1,955		—		1,955
Financial Liabilities:
Deposits	$	663,414	$	—	$	662,696	$	—	$	662,696
Accrued interest payable	44		—		44		—		44

91

	Fair Value Measurements at
	December 31, 2016
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)		December 31, 2016
	(in thousands)
Financial assets:
Cash and short-term investments	$	35,281	$	35,281	$	—	$	—	$	35,281
Securities	119,262		—		118,648		614		119,262
Restricted Investments	1,068		—		1,068		—		1,068
Loans, net	512,437		—		—		512,181		512,181
Bank owned life insurance	1,769		—		1,769		—		1,769
Accrued interest receivable	588		—		588		—		588
Financial liabilities:
Deposits	$	603,877	$	—	$	603,516	$	—	$	603,516
Accrued interest payable	34		—		34		—		34

The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities in order to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay their principal balance in a rising rate environment and more likely to do so in a falling rate environment. Conversely, depositors who are receiving fixed rate interest payments are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

NOTE 23. Change in Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes unrealized gains and losses on available for sale securities, change in fair value of interest rate swaps and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive income (loss) are presented net of tax effect as a component of equity. Reclassifications out of accumulated other comprehensive income (loss) are recorded in the Consolidated Statements of Income either as a gain or loss.

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Changes to accumulated other comprehensive income (loss) by components are shown in the following tables for the years ended December 31, 2017, 2016, and 2015:

	Twelve Months Ended
	December 31,
	2017									2016								2015
	Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan			Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Fair Value of Interest Rate Swap			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total
	(dollars in thousands)
January 1	$	(63	)	$	39		$	(24	)	$	1,012		$	39	$	1,051		$	1,466		$	(190	)	$	39	$	1,315
Other comprehensive income (loss) before reclassifications	422			4			426			(1,531		)	—		(1,531		)	(564		)	52			—		(512		)
Reclassifications from other comprehensive income (loss)	10			(7		)	3			(98		)	—		(98		)	(124		)	237			—		113
Reclassification of stranded tax effects from change in tax rate	44			7			51			—			—		—			—			—			—		—
Tax effect of current period changes	(147		)	1			(146		)	554			—		554			234			(99		)	—		135
Current period changes net of taxes	329			5			334			(1,075		)	—		(1,075		)	(454		)	190			—		(264		)
December 31	$	266		$	44		$	310		$	(63	)	$	39	$	(24	)	$	1,012		$	—		$	39	$	1,051

For the years ended December 31, 2017, 2016, and 2015, $(10) thousand, $98 thousand, and $124 thousand, respectively, was reclassified out of comprehensive income and appeared as (Loss) Gain on Sale of Securities in the Consolidated Statement of Income. The tax (benefit) expense related to these reclassifications was $(4) thousand, $33 thousand, and $42 thousand for the years ended December 31, 2017, 2016, and 2015, respectively. The tax is included in Income Tax Expense in the Consolidated Statements of Income.

For the twelve months ended December 31, 2017, $7 thousand was reclassified out of accumulated other comprehensive income related to the Company's postretirement benefit plan. This reclassification is a component of net periodic benefit cost and was reflected in Salaries and Employee Benefits in the Consolidated Statements of Income. Tax related to this reclassification was $2 thousand and was included in Income Tax Expense in the Consolidated Statements of Income.

For the twelve months ended December 31, 2015, $237 thousand was reclassified out of accumulated other comprehensive income related to the Company's derecognition of it's cash flow hedge. This loss was recorded in Other operating income in the Consolidated Statements of Income. Tax related to this reclassification was $81 thousand and was included in Income Tax Expense in the Consolidated Statements of Income. There were no reclassifications related to cash flow hedges during the twelve months ended December 31, 2017 and 2016.

93

NOTE 24. Condensed Financial Information – Parent Company Only

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Balance Sheets

December 31, 2017 and 2016

(dollars in thousands)

	2017		2016
Assets
Cash held in subsidiary bank	$	426	$	391
Loans, net of allowance	2,825		2,881
Investment in subsidiaries, at cost, plus undistributed net income	80,459		76,099
Other assets	107		45
Total assets	$	83,817	$	79,416
Liabilities and Shareholders’ Equity
Total liabilities	$	—	$	—
Shareholders’ Equity
Preferred stock	$	—	$	—
Common stock	8,587		8,633
Surplus	12,075		12,642
Retained earnings	62,845		58,165
Accumulated other comprehensive income (loss)	310		(24		)
Total shareholders’ equity	$	83,817	$	79,416
Total liabilities and shareholders’ equity	$	83,817	$	79,416

94

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Income

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Income
Dividends from subsidiary bank	$	3,800		$	4,350		$	6,576
Interest and fees on loans	106			97			52
Other interest and dividends	—			2			11
Gain on redemption of trust preferred debt	—			—			2,424
Other income (loss)	—			149			(121		)
Total income	$	3,906		$	4,598		$	8,942
Expenses
Interest expense on borrowings	$	—		$	143		$	260
Other operating expenses	255			211			260
Total expenses	$	255		$	354		$	520
Income before income tax (benefit) expense and equity (deficit) in undistributed earnings of subsidiary bank	$	3,651		$	4,244		$	8,422
Income Tax (Benefit) Expense	(58		)	(36		)	629
Income before equity (deficit) in undistributed earnings of subsidiary bank	$	3,709		$	4,280		$	7,793
Equity (Deficit) in Undistributed Net Income of Subsidiary Bank	4,077			2,090			(896		)
Net income	$	7,786		$	6,370		$	6,897
Comprehensive income	$	8,069		$	5,295		$	6,633

95

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Cash Flows

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Cash Flows from Operating Activities
Net Income	$	7,786		$	6,370		$	6,897
Adjustments to reconcile net income to net cash provided by operating activities
(Recovery of) Provision for loan losses	(2		)	(2		)	23
(Gain) on the sale of securities	—			—			(27		)
(Gain) on the redemption of trust preferred capital notes	—			—			(2,424		)
Loss on derecognition of cash flow hedge	—			—			237
Fair value adjustment on derivative contract	—			(149		)	(88		)
Stock-based compensation expense	382			314			328
Undistributed earnings of subsidiary bank	(4,077		)	(2,090		)	896
Changes in assets and liabilities:
(Increase) decrease in other assets	(62		)	(39		)	294
(Decrease) increase in other liabilities	—			(568		)	814
Net cash provided by operating activities	$	4,027		$	3,836		$	6,950
Cash Flows from Investing Activities
Proceeds from the sale of securities available for sale	$	—		$	—		$	1,009
Proceeds from maturities of securities available for sale	—			—			385
Net decrease (increase) in loans	58			62			(2,963		)
Net cash provided by (used in) investing activities	$	58		$	62		$	(1,569	)
Cash Flows from Financing Activities
Redemption of trust preferred capital notes	$	—		$	—		$	(4,793	)
Cash dividends paid	(2,652		)	(2,354		)	(2,064		)
Issuance of common stock, employee benefit plan	166			81			187
Retirement of common stock	(1,564		)	(2,143		)	—
Net cash (used in) financing activities	$	(4,050	)	$	(4,416	)	$	(6,670	)
Increase (decrease) in cash	$	35		$	(518	)	$	(1,289	)
Cash
Beginning	$	391		$	909		$	2,198
Ending	$	426		$	391		$	909

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NOTE 25. Other Real Estate Owned

The following table is a summary of other real estate owned (OREO) activity for the twelve months ended December 31, 20172016:

	Year Ended			Year Ended
	December 31,			December 31,
	2017			2016
Balance, beginning	$	370		$	571
Net loans transferred to OREO	53			666
Sales	(317		)	(890		)
Valuation adjustments	—			23
Balance, ending	$	106		$	370

The major classifications of other real estate owned in the consolidated balance sheets at December 31, 2017 and 2016 were as follows:

	As of
	December 31, 2017		December 31, 2016
	(in thousands)
Construction and Farmland	$	106	$	155
Residential Real Estate	—		215
Commercial Real Estate	—		—
Subtotal	$	106	$	370
Less valuation allowance	—		—
Total	$	106	$	370

There was one consumer mortgage loan totaling $4.1 million collateralized by residential real estate in the process of foreclosure at December 31, 2017. There were no consumer mortgage loans collateralized by residential real estate in the process of foreclosure at December 31, 2016.

NOTE 26. Qualified Affordable Housing Project Investments    

The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.

At December 31, 2017 and 2016, the balance of the investment for qualified affordable housing projects was $2.5 million and $2.6 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $1.9 million and $2.0 million at December 31, 2017 and 2016, respectively. These balances are reflected in Other liabilities on the Consolidated Balance Sheets. The Company expects to fulfill these commitments by December 31, 2020, in accordance with the terms of the individual agreements.

During the twelve months ended December 31, 2017 and 2016, the Company recognized amortization expense of $172 thousand and $138 thousand, respectively. The amortization expense was included in Other operating expenses on the Consolidated Statements of Income.

Total estimated credits to be received during 2017 are $165 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during 2017 and 2016 were $219 thousand and $172 thousand, respectively.

97

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management has conducted an assessment of the design and effectiveness of its internal controls over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Management maintains a comprehensive system of internal control 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. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees. Those policies and procedures: 1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the Company, 2) provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors, 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control system, including the possibility of human error and the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Changes in conditions will also impact the internal control effectiveness over time. Eagle Financial Services, Inc. and subsidiaries maintains an internal auditing program, under the supervision of the Audit Committee of the Board of Directors, which independently assesses the effectiveness of the system of internal control and recommends possible improvements.

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2017, using the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded as of December 31, 2017, the Company’s internal control over financial reporting is adequate and effective and meets the criteria of the Internal Control – Integrated Framework.

Management’s assessment did not determine any material weaknesses within the Company’s internal control structure. There were no changes in the Company’s internal control over financial reporting during the Company’s quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2017 has been audited by Yount, Hyde& Barbour, P.C., the independent registered public accounting firm which also audited the Company's consolidated financial statements included in this Annual Report on Form 10-K. Yount, Hyde & Barbour's attestation report on the Company's internal control over financial reporting is included in Item 8 "Financial Statements and Supplementary Data" of this Form 10-K.

Item 9B. Other Information

None.

98

PART III

Item 10. Directors, Executives Officers and Corporate Governance

The information required by Part III, Item 10. is incorporated herein by reference to the Proxy Statement for the 2018 Annual Meeting of Shareholders to be held May 15, 2018.

Item 11. Executive Compensation

The information required by Part III, Item 11. is incorporated herein by reference to the Proxy Statement for the 2018 Annual Meeting of Shareholders to be held May 15, 2018.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Part III, Item 12. is incorporated herein by reference to the Proxy Statement for the 2018 Annual Meeting of Shareholders to be held May 15, 2018.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Part III, Item 13. is incorporated herein by reference to the Proxy Statement for the 2018 Annual Meeting of Shareholders to be held May 15, 2018.

Item 14. Principal Accounting Fees and Services

The information required by Part III, Item 14. is incorporated herein by reference to the Proxy Statement for the 2018 Annual Meeting of Shareholders to be held May 15, 2018.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1) Financial Statements

The financial statements are filed as part of this Annual Report on Form 10-K within Item 8.

(a)(2) Financial Statement Schedules

All financial statement schedules are omitted since they are not required, or are not applicable, or the required information is given in the financial statements or notes thereto.

99

(a)(3) Exhibits

The following exhibits, as applicable, are filed with this Form 10-K or incorporated by reference to previous filings.

100

Exhibit No.	Description
3.1	Articles of Incorporation of the Company, restated in electronic format only as of March 1, 2006 (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 1, 2006).
3.2	Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-4, Registration No. 33-43681).
10.1	Description of Executive Supplemental Income Plan (incorporated by reference to Exhibit 10.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996).*
10.2	Amended and Restated Employment Agreement of John R. Milleson (incorporated herein by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).*
10.3	Amended and Restated Employment Agreement of James W. McCarty, Jr. (incorporated herein by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).*
10.4	Eagle Financial Services, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8, Registration No. 333-118319).*
10.5	Eagle Financial Services, Inc. 2014 Stock Incentive Plan, incorporated by reference to Exhibit A of the Proxy Statement for the Annual Meeting of Shareholders held on May 21, 2014, filed in April 21, 2014.
10.6	Employment Agreement of John E. Hudson. *
10.7	Amended and Restated Employment Agreement of Kaley P. Crosen (incorporated herein by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).*
10.9	Employment Agreement of Kathleen J. Chappell (incorporated herein by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013).*
10.10	Eagle Financial Services, Inc. Dividend Investment Plan (incorporated herein by reference to to the Company’s Registration Statement on Form S-3, File No. 333-209460, filed on February 10, 2016).*
10.11	Employment Agreement of Carl A. Esterhay.*
10.12	Employment Agreement of Joseph T. Zmitrovich.*
21.1	Subsidiary of the Company.
23.1	Consent of Yount, Hyde & Barbour, P.C.
31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

101

32.1

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from the Eagle Financial Service, Inc. Annual Report on Form 10-K for the year ended December 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders” Equity, (v) Consolidated Statements of Cash Flows and (vi) notes to Consolidated Financial Statements.

* Management contracts and compensatory plans and arrangements.

(b) See Item 15(a)(3) above.

(c) See Item 15(a)(2) above.

102

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Eagle Financial Services, Inc.
By:	/s/ JOHN R. MILLESON
	John R. Milleson
	President and Chief Executive Officer

Date: March 15, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 15, 2018.

103

Signature	Title
/s/ JOHN R. MILLESON	President, Chief Executive Officer, and Director (principal executive officer)
John R. Milleson
/s/ KATHLEEN J. CHAPPELL	Vice President and Chief Financial Officer (principal financial and accounting officer)
Kathleen J. Chappell
/s/ THOMAS T. GILPIN	Chairman of the Board and Director
Thomas T. Gilpin
/s/ ROBERT W. SMALLEY, JR.	Vice Chairman of the Board and Director
Robert W. Smalley, Jr.
/s/ THOMAS T. BYRD	Director
Thomas T. Byrd
/s/ CARY R. CLAYTOR	Director
Cary R. Claytor
/s/ MARY BRUCE GLAIZE	Director
Mary Bruce Glaize
/s/ SCOTT HAMBERGER	Director
Scott Hamberger
/s/ DOUGLAS C. RINKER	Director
Douglas C. Rinker
/s/ ROBERT E. SEVILA	Director
Robert E. Sevila
/s/ JOHN D. STOKELY, JR.	Director
John D. Stokely, Jr.
/s/ RANDALL G. VINSON	Director
Randall G. Vinson
/s/ JAMES R. WILKINS, JR	Director
James R. Wilkins, Jr.

104

Item 16.    Form 10-K Summary

Not applicable.

105

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made and entered into as of the 3^rd day of January, 2017 by and between Eagle Financial Services, Inc., a Virginia corporation, hereinafter called the "Corporation", and John E. Hudson, hereinafter called "Employee", and provides as follows:

RECITALS

WHEREAS, the Corporation is a bank holding company engaged in the operation of a bank; and

WHEREAS, Employee has been involved in the management of the business and affairs of the Corporation and, therefore, possesses managerial experience, knowledge, skills and expertise in such type of business; and

WHEREAS, the employment of Employee by the Corporation is in the best interests of the Corporation and Employee;

WHEREAS, the parties have mutually agreed upon the terms and conditions of Employee's continued employment by the Corporation as hereinafter set forth; and

WHEREAS, the parties intend that this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulations thereunder.

TERMS OF AGREEMENT

NOW, THEREFORE, for and in consideration of the premises and of the mutual promises and undertakings of the parties as hereinafter set forth, the parties covenant and agree as follows:

Section 1. Employment. (a)Employee shall be employed as an executive officer of the Corporation. He shall perform such services for the Corporation and/or one or more Affiliates as may be assigned to Employee by the Corporation from time to time and that are commensurate with his training and experience upon the terms and conditions hereinafter set forth.

(b)References in this Agreement to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any Affiliate. References in this Agreement to the “Corporation” also shall mean and refer to each Affiliate for which Employee performs services. References in this Agreement to “Affiliate” shall mean any business entity that, directly or indirectly, through one or more intermediaries, is controlled by the Corporation.

Section 2. Term and Renewal. The initial term of this Agreement shall end December 31, 2017. However, on each December 31, beginning with December 31, 2017, the term of this Agreement shall be renewed and extended by one year unless Employee or the Corporation gives prior notice to the other in writing that the term shall not be renewed and extended. This Agreement shall terminate at the end of its term.

Section 3. Exclusive Service. Employee shall devote his best efforts and full time to rendering services on behalf of the Corporation in furtherance of its best interests. Employee shall comply with all policies, standards and regulations of the Corporation now or hereafter promulgated, and shall perform his duties under this Agreement to the best of his abilities and in accordance with standards of conduct applicable to officers of banks.

Section 4. Salary. (a) As compensation while employed hereunder, Employee, during his faithful performance of this Agreement, in whatever capacity rendered, shall receive an annual base salary of $130,250 payable on such terms and in such installments as the parties may from time to time mutually agreed upon. The Board of Directors, in its discretion, may increase Employee's base salary during the term of this Agreement.

(b)The Corporation shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Employee and the Corporation. The Corporation shall also withhold and remit to the proper party any amounts agreed to in writing by the Corporation and Employee for participation in any corporate sponsored benefit plans for which a contribution is required.

(c)Except as otherwise expressly set forth hereunder, no compensation shall be paid pursuant to this Agreement in respect of any month or portion thereof subsequent to any termination of Employee's employment by the Corporation.

Section 5. Corporate Benefit Plans. Employee shall be entitled to participate in or become a participant in all cash and non-cash employee benefit plans maintained by the Corporation for its executive officers.

Section 6. Bonuses. Employee shall receive only such bonuses as the Board of Directors, in its discretion, decides to pay to Employee.

Section 7. Expense Account. The Corporation shall reimburse Employee for reasonable and customary business expenses incurred in the conduct of the Corporation's business. Such expenses will include business meals, out-of-town lodging and travel expenses and other items identified in written rules and policies of the Corporation. Employee agrees to timely submit records and receipts of reimbursable items and agrees that the Corporation can adopt reasonable rules and policies regarding such reimbursement. The Corporation agrees to make prompt payment to Employee following receipt and verification of such reports. No reimbursement provided under this Section during one calendar year shall affect the expenses eligible for reimbursement during another calendar year.

Section 8. Paid Time Off. Employee shall be entitled to the same paid time off policies as the Board of Directors may from time to time designate for all full-time employees of the Corporation.

Section 9. Termination. (a) Notwithstanding the termination of Employee's employment pursuant to any provision of this Agreement, the parties shall be required to carry out any provisions of this Agreement which contemplate performance by them subsequent to such termination. In addition, no termination shall affect any liability or other obligation of either party which shall have accrued prior to such termination, including, but not limited to, any liability, loss or damage on account of breach. No termination of employment shall terminate the obligation of the Corporation to make payments of any vested benefits provided hereunder or the obligations of Employee under Sections 10, 11 and 12.

(b) Employee's employment hereunder may be terminated by Employee upon thirty (30) days written notice to the Corporation or at any time by mutual agreement in writing.

(c) This Agreement shall terminate upon death of Employee; provided, however, that in such event the Corporation shall pay to the estate of Employee the compensation including salary and accrued bonus, if any, which otherwise would be payable to Employee through the end of the month in which his death occurs.

(d)(1) The Corporation may terminate Employee’s employment other than for “Cause”, as defined in Section 9(e), at any time upon written notice to Employee, which termination shall be effective immediately. Employee may resign thirty (30) days after notice to the Corporation for "Good Reason", as hereafter defined. In the event the Employee's employment terminates pursuant to this Section 9(d);

(i)Employee shall receive a monthly amount equal to one-twelfth (1/12) his rate of annual base salary in effect immediately preceding such termination in each month for the remainder of the term of this Agreement at the times such payments would have been made in accordance with Section 4(a);

(ii)Employee shall receive a payment in cash on the date his employment terminates equal to the greater of (a) the amount of the highest cash bonus paid or payable to him in respect of any of the three (3) fiscal years of the Corporation prior to the fiscal year in which his employment terminates, and (b) the amount of cash bonus Employee was designated to receive under the Corporation’s annual incentive plan;

(iii)To the to the extent required because Employee is a “specified employee” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), on the date of his termination, the payments described in Section (d)(1)(i) and (ii), above, shall be made or commence, as the case may be, on the first day of the month following the six-month anniversary of Employee’s date of termination. The first payment shall include the payments, if any, required to be delayed under this sentence; and

(iv)The Corporation shall maintain in full force and effect for the continued benefit of the Employee for the remainder of the then current term of this Agreement all employee welfare benefit plans and programs or arrangements in which the Employee was entitled to participate immediately prior to such termination, provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such or program is barred, the Corporation shall arrange to provide the Employee with benefits substantially similar to those which the Employee was entitled to receive under such plans and programs. To the extent required by Code Section 409A and Treasury Regulations thereunder, (i) no reimbursement or in-kind benefit provided under this Section 9(d)(2)(iv) in one calendar year shall affect the expenses eligible for reimbursement or in-kind benefits provided during another calendar year; and (ii) any such reimbursement shall be paid by December 31 of the calendar year following the calendar year in which the reimbursed expense was incurred. It is intended and anticipated that benefits under this Section will qualify as medical reimbursements exempt from Code Section 409A or as payments made on a specified date or fixed schedule. Nonetheless, to the extent required by Code Section 409A and Treasury Regulations thereunder, benefits (whether through plan participation, reimbursement, in-kind benefits or otherwise) shall commence on the first day of the month following the six-month anniversary of the Employee’s termination or resignation, with any reimbursements or other payments delayed under this sentence payable in a single sum on such delayed commencement date; and

(2) Notwithstanding anything in this Agreement to the contrary:

(i) If Employee breaches Section 10 or 11, Employee will not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 9(d); and

(ii) If, while he is receiving payments under this Section 9(d), Employee engages in a Competitive Business within the area described in Section 11(i), such payments will cease and he will not thereafter be entitled to receive any compensation or benefits pursuant to this Section 9(d) even though such conduct occurs after the covenants contained in Section 11 have expired.

(3) The Corporation shall not be required to make payment of the Termination Compensation or any portion thereof to the extent such payment is prohibited by the terms of the regulations presently found at 12 C.F.R. part 359 or to the extent that any other governmental approval of the payment required by law is not received.

(4) Except as set forth in Sections 9(d)(2) and 9(d)(3), the Corporation's obligation to pay the Employee the compensation provided in Section 9(d)(1) shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against him or anyone else. All amounts payable by the Corporation hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Corporation shall be final and the Corporation will not seek to recover all or any part of such payment from the Employee or from whosoever may be entitled thereto, for any reason whatsoever. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise.

(5) For purposes of this Agreement, "Good Reason" shall mean:

(i) The assignment of duties to the Employee by the Corporation which result in the Employee having significantly less authority or responsibility than he has on the date hereof, without his express written consent;

(ii) Requiring the Employee to maintain his principal office outside a 25 mile radius of Clarke County, Virginia unless the Corporation moves its principal executive offices to a place to which the Employee is required to move;

(iii) A reduction by the Corporation of the Employee's base salary, as the same may have been increased from time to time;

(iv) The failure of the Corporation to provide the Employee with substantially the same fringe benefits that are provided to him at the inception of this agreement;

(v) The Corporation’s failure to comply with any material term of this Agreement; or

(vi) The failure of the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 13 hereof.

(e)The Corporation shall have the right to terminate Employee’s employment under this Agreement at any time for Cause, within 30 days of the occurrence, which termination shall be effective immediately. Termination for “Cause” shall include termination for Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, conviction of a felony or of a misdemeanor involving moral turpitude, misappropriation of the Corporation’s assets (determined on a reasonable basis) or those of its Affiliates, or material breach of any other provision of this Agreement. In the event Employee’s employment under this Agreement is terminated for Cause, Employee shall thereafter have no right to receive compensation or other benefits under this Agreement.

(f)The Corporation may terminate Employee's employment under this Agreement, after having established the Employee's disability by giving to Employee written notice of its intention to terminate his employment for disability and his employment with the Corporation shall terminate effective on the 90th day after receipt of such notice if within 90 days after such receipt Employee shall fail to return to the full-time performance of the essential functions of his position (and if Employee's disability has been established pursuant to the definition of "disability" set forth below). For purposes of this Agreement, "disability" means either (i) disability which after the expiration of more than 13 consecutive weeks after its commencement is determined to be total and permanent by a physician selected and paid for by the Corporation or its insurers, and acceptable to Employee or his legal representative, which consent shall not be unreasonably withheld or (ii) disability as defined in the policy of disability insurance maintained by the Corporation or its Affiliates for the benefit of Employee, whichever shall be more favorable to Employee. Notwithstanding any other provision of this Agreement, the Corporation shall comply with all requirements of the Americans with Disabilities Act, 42 U.S.C. § 12101 et.seq.

(g) If Employee is suspended and/or temporarily prohibited from participating in the conduct of the Corporation's affairs by a notice served pursuant to the Federal Deposit Insurance Act, the Corporation's obligations under this Employment Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Corporation may in its discretion (i) pay Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended with any such payment made by March 15 following the calendar year in which such charges are dismissed.

(h) If Employee is removed and/or permanently prohibited from participating in the conduct of the Corporation's affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of the Corporation under this Employment Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(i)(1) If Employee’s employment is terminated without Cause or if he resigns for Good Reason within one year after a Change of Control shall have occurred, then on or within thirty (30) days before Employee's last day of employment with the Corporation, the Corporation shall pay to Employee as compensation for services rendered to the Corporation and its Affiliates a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to the excess, if any, of 299% of Employee’s “annualized includable compensation for the base period”, as defined in Section 280G of the Internal Revenue Code of 1986 (the “Code”), over the total amount payable to Employee under Section 9(d). Notwithstanding the foregoing, to the to the extent required because Employee is a “specified employee” for purposes of Code Section 409A, on the date of his termination, the payment described in this Section (i)(1), above, shall be made on the first day of the month following the six-month anniversary of Employee’s date of termination.

(2) For purposes of this Agreement, a Change of Control occurs if, after the date of this Agreement, (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Corporation securities having 50% or more of the combined voting power of the then outstanding Corporation securities that may be cast for the election of the Corporation's directors other than a result of an issuance of securities initiated by the Corporation, or open market purchases approved by the Board of Directors, as long as the majority of the Board of Directors approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Corporation before such events cease to constitute a majority of the Corporation's Board, or any successor's board, within one year of the last of such transactions. For purposes of this Agreement, a Change of Control occurs on the date on which an event described in (i) or (ii) occurs. If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events.

(3)It is the intention of the parties that no payment be made or benefit provided to Employee pursuant to this Agreement that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code and any regulations thereunder, thereby resulting in a loss of an income tax deduction by the Corporation or the imposition of an excise tax on Employee under Section 4999 of the Code. If the independent accountants serving as auditors for the Corporation on the date of a Change of Control (or any other accounting firm designated by the Corporation) determine that some or all of the payments or benefits scheduled under this Agreement, as well as any other payments or benefits on a Change of Control, would be nondeductible by the Company under Section 280G of the Code, then the payments scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid without causing any such payment or benefit to be nondeductible. The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties.

Section 10. Confidentiality/Nondisclosure. Employee covenants and agrees that any and all information concerning the customers, businesses and services of the Corporation of which he has knowledge or access as a result of his association with the Corporation in any capacity, shall be deemed confidential in nature and shall not, without the proper written consent of the Corporation, be directly or indirectly used, disseminated, disclosed or published by Employee to third parties other than in connection with the usual conduct of the business of the Corporation. Such information shall expressly include, but shall not be limited to, information concerning the Corporation's trade secrets, business operations, business records, customer lists or other customer information. Upon termination of employment Employee shall deliver to the Corporation all originals and copies of documents, forms, records or other information, in whatever form it may exist, concerning the Corporation or its business, customers, products or services. In construing this provision it is agreed that it shall be interpreted broadly so as to provide the Corporation with the maximum protection. This Section 10 shall not be applicable to any information which, through no misconduct or negligence of Employee, has previously been disclosed to the public by anyone other than Employee.

Section 11. Covenant Not to Compete. During the term of this Agreement and throughout any further period that he is an officer or employee of the Corporation, and for a period of twelve (12) months from and after the date that Employee is (for any reason) no longer employed by the Corporation or for a period of twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, whichever is later, Employee covenants and agrees that he will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder, co-partner or in any other individual or representative capacity whatsoever: (i) engage in a Competitive Business anywhere within a fifty (50) mile radius of the location of the Corporation's principal executive offices on the date Employee’s employment terminates; or (ii) solicit, or assist any other person or business entity in soliciting, any depositors or other customers of the Corporation to make deposits in or to become customers of any other financial institution conducting a Competitive Business; or (iii) induce any individuals to terminate their employment with the Corporation or its Affiliates. As used in this Agreement, the term “Competitive Business” means all banking and financial products and services that are substantially similar to those offered by the Corporation on the date that Employee’s employment terminates. Employee's obligations under this Section 11 shall terminate on the date a Change of Control occurs.

Section 12. Injunctive Relief, Damages, Etc. Employee agrees that given the nature of the positions held by Employee with the Corporation, that each and every one of the covenants and restrictions set forth in Sections 10 and 11 above are reasonable in scope, length of time and geographic area and are necessary for the protection of the significant investment of the Corporation in developing, maintaining and expanding its business. Accordingly, the parties hereto agree that in the event of any breach by Employee of any of the provisions of Sections 10 or 11 that monetary damages alone will not adequately compensate the Corporation for its losses and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief and Employee shall be liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and actual attorneys' fees, incurred by the Corporation as a result of taking action to enforce, or recover for any breach of, Section 10 or Section 11. The covenants contained in Sections 10 and 11 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law. Should a court of competent jurisdiction determine that any provision of the covenants and restrictions set forth in Section 11 above is unenforceable as being overbroad as to time, area or scope, the court may strike the offending provision or reform such provision to substitute such other terms as are reasonable to protect the Corporation's legitimate business interests.

Section 13. Binding Effect/Assignability. This Employment Agreement shall be binding upon and inure to the benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns, but neither this Agreement, nor any of the rights hereunder, shall be assignable by Employee or any beneficiary or beneficiaries designated by Employee. The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business, stock or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Employee, to expressly assume and agree to perform this Agreement in its entirety. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Corporation" shall include any successor to its business, stock or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

Section 14. Governing Law. This Employment Agreement shall be subject to and construed in accordance with the laws of Virginia.

Section 15. Invalid Provisions. The invalidity or unenforceability of any particular provision of this Employment Agreement shall not affect the validity or enforceability of any other provisions hereof, and this Employment Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

Section 16. Notices. Any and all notices, designations, consents, offers, acceptance or any other communications provided for herein shall be given in writing and shall be deemed properly delivered if delivered in person or by registered or certified mail, return receipt requested, addressed in the case of the Corporation to its registered office or in the case of Employee to his last known address.

Section 17. Entire Agreement.

(a) This Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof.

(b)This Employment Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement, but all of which together shall evidence only one agreement.

Section 18. Amendment and Waiver. This Employment Agreement may not be amended except by an instrument in writing signed by or on behalf of each of the parties hereto. No waiver of any provision of this Employment Agreement shall be valid unless in writing and signed by the person or party to be charged.

Section 19. Case and Gender. Wherever required by the context of this Employment Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

Section 20. Captions. The captions used in this Employment Agreement are intended for descriptive and reference purposes only and are not intended to affect the meaning of any Section hereunder.

Section 21. Code Section 409A. Any benefit, payment or other right provided by this Agreement shall be provided and made in a manner, and at such time, and in such form, as complies with the applicable requirements of Code Section 409A to avoid a plan failure described in Code Section 409A(a)(1), including without limitation, deferring payment until the occurrence of a specified payment event described in Code Section 409A(a)(2). Notwithstanding any other provision hereof or document pertaining hereto, this Agreement shall be so construed and interpreted.

IN WITNESS WHEREOF, the Corporation has caused this Employment Agreement to be signed by its duly authorized officer and Employee has hereunto set his hand and seal on the day and year first above written.

EAGLE FINANCIAL SERVICES, INC.

By: /s/ John R. Milleson

Title: John R. Milleson, President & CEO

ATTEST:

/s/ Kaley P. Crosen

EMPLOYEE

/s/ John E. Hudson(SEAL)

John E. Hudson

ATTEST:

/s/ Kaley P. Crosen

EX-10.11

Exhibit 10.11

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made and entered into as of the 15^th day of April, 2015 by and between Eagle Financial Services, Inc., a Virginia corporation, hereinafter called the "Corporation", and Carl A. Esterhay, hereinafter called "Employee", and provides as follows:

RECITALS

WHEREAS, the Corporation is a bank holding company engaged in the operation of a bank; and

WHEREAS, Employee has been involved in the management of the business and affairs of the Corporation and, therefore, possesses managerial experience, knowledge, skills and expertise in such type of business; and

WHEREAS, the employment of Employee by the Corporation is in the best interests of the Corporation and Employee;

WHEREAS, the parties have mutually agreed upon the terms and conditions of Employee's continued employment by the Corporation as hereinafter set forth; and

WHEREAS, the parties intend that this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulations thereunder.

TERMS OF AGREEMENT

NOW, THEREFORE, for and in consideration of the premises and of the mutual promises and undertakings of the parties as hereinafter set forth, the parties covenant and agree as follows:

Section 1. Employment. (a)Employee shall be employed as an executive officer of the Corporation. He shall perform such services for the Corporation and/or one or more Affiliates as may be assigned to Employee by the Corporation from time to time and that are commensurate with his training and experience upon the terms and conditions hereinafter set forth.

(b)References in this Agreement to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any Affiliate. References in this Agreement to the “Corporation” also shall mean and refer to each Affiliate for which Employee performs services. References in this Agreement to “Affiliate” shall mean any business entity that, directly or indirectly, through one or more intermediaries, is controlled by the Corporation.

Section 2. Term and Renewal. The initial term of this Agreement shall end December 31, 2015. However, on each December 31, beginning with December 31, 2015, the term of this Agreement shall be renewed and extended by one year unless Employee or the Corporation gives prior notice to the other in writing that the term shall not be renewed and extended. This Agreement shall terminate at the end of its term.

Section 3. Exclusive Service. Employee shall devote his best efforts and full time to rendering services on behalf of the Corporation in furtherance of its best interests. Employee shall comply with all policies, standards and regulations of the Corporation now or hereafter promulgated, and shall perform his duties under this Agreement to the best of his abilities and in accordance with standards of conduct applicable to officers of banks.

Section 4. Salary. (a) As compensation while employed hereunder, Employee, during his faithful performance of this Agreement, in whatever capacity rendered, shall receive an annual base salary of $161,000 payable on such terms and in such installments as the parties may from time to time mutually agreed upon. The Board of Directors, in its discretion, may increase Employee's base salary during the term of this Agreement.

(b)The Corporation shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Employee and the Corporation. The Corporation shall also withhold and remit to the proper party any amounts agreed to in writing by the Corporation and Employee for participation in any corporate sponsored benefit plans for which a contribution is required.

(c)Except as otherwise expressly set forth hereunder, no compensation shall be paid pursuant to this Agreement in respect of any month or portion thereof subsequent to any termination of Employee's employment by the Corporation.

Section 5. Corporate Benefit Plans. Employee shall be entitled to participate in or become a participant in all cash and non-cash employee benefit plans maintained by the Corporation for its executive officers.

Section 6. Bonuses. Employee shall receive only such bonuses as the Board of Directors, in its discretion, decides to pay to Employee.

Section 7. Expense Account. The Corporation shall reimburse Employee for reasonable and customary business expenses incurred in the conduct of the Corporation's business. Such expenses will include business meals, out-of-town lodging and travel expenses and other items identified in written rules and policies of the Corporation. Employee agrees to timely submit records and receipts of reimbursable items and agrees that the Corporation can adopt reasonable rules and policies regarding such reimbursement. The Corporation agrees to make prompt payment to Employee following receipt and verification of such reports. No reimbursement provided under this Section during one calendar year shall affect the expenses eligible for reimbursement during another calendar year.

Section 8. Paid Time Off. Employee shall be entitled to the same paid time off policies as the Board of Directors may from time to time designate for all full-time employees of the Corporation.

Section 9. Termination. (a) Notwithstanding the termination of Employee's employment pursuant to any provision of this Agreement, the parties shall be required to carry out any provisions of this Agreement which contemplate performance by them subsequent to such termination. In addition, no termination shall affect any liability or other obligation of either party which shall have accrued prior to such termination, including, but not limited to, any liability, loss or damage on account of breach. No termination of employment shall terminate the obligation of the Corporation to make payments of any vested benefits provided hereunder or the obligations of Employee under Sections 10, 11 and 12.

(b) Employee's employment hereunder may be terminated by Employee upon thirty (30) days written notice to the Corporation or at any time by mutual agreement in writing.

(c) This Agreement shall terminate upon death of Employee; provided, however, that in such event the Corporation shall pay to the estate of Employee the compensation including salary and accrued bonus, if any, which otherwise would be payable to Employee through the end of the month in which his death occurs.

(d)(1) The Corporation may terminate Employee’s employment other than for “Cause”, as defined in Section 9(e), at any time upon written notice to Employee, which termination shall be effective immediately. Employee may resign thirty (30) days after notice to the Corporation for "Good Reason", as hereafter defined. In the event the Employee's employment terminates pursuant to this Section 9(d);

(i)Employee shall receive a monthly amount equal to one-twelfth (1/12) his rate of annual base salary in effect immediately preceding such termination in each month for the remainder of the term of this Agreement at the times such payments would have been made in accordance with Section 4(a);

(ii)Employee shall receive a payment in cash on the date his employment terminates equal to the greater of (a) the amount of the highest cash bonus paid or payable to him in respect of any of the three (3) fiscal years of the Corporation prior to the fiscal year in which his employment terminates, and (b) the amount of cash bonus Employee was designated to receive under the Corporation’s annual incentive plan;

(iii)To the to the extent required because Employee is a “specified employee” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), on the date of his termination, the payments described in Section (d)(1)(i) and (ii), above, shall be made or commence, as the case may be, on the first day of the month following the six-month anniversary of Employee’s date of termination. The first payment shall include the payments, if any, required to be delayed under this sentence; and

(iv)The Corporation shall maintain in full force and effect for the continued benefit of the Employee for the remainder of the then current term of this Agreement all employee welfare benefit plans and programs or arrangements in which the Employee was entitled to participate immediately prior to such termination, provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such or program is barred, the Corporation shall arrange to provide the Employee with benefits substantially similar to those which the Employee was entitled to receive under such plans and programs. To the extent required by Code Section 409A and Treasury Regulations thereunder, (i) no reimbursement or in-kind benefit provided under this Section 9(d)(2)(iv) in one calendar year shall affect the expenses eligible for reimbursement or in-kind benefits provided during another calendar year; and (ii) any such reimbursement shall be paid by December 31 of the calendar year following the calendar year in which the reimbursed expense was incurred. It is intended and anticipated that benefits under this Section will qualify as medical reimbursements exempt from Code Section 409A or as payments made on a specified date or fixed schedule. Nonetheless, to the extent required by Code Section 409A and Treasury Regulations thereunder, benefits (whether through plan participation, reimbursement, in-kind benefits or otherwise) shall commence on the first day of the month following the six-month anniversary of the Employee’s termination or resignation, with any reimbursements or other payments delayed under this sentence payable in a single sum on such delayed commencement date; and

(2) Notwithstanding anything in this Agreement to the contrary:

(i) If Employee breaches Section 10 or 11, Employee will not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 9(d); and

(ii) If, while he is receiving payments under this Section 9(d), Employee engages in a Competitive Business within the area described in Section 11(i), such payments will cease and he will not thereafter be entitled to receive any compensation or benefits pursuant to this Section 9(d) even though such conduct occurs after the covenants contained in Section 11 have expired.

(3) The Corporation shall not be required to make payment of the Termination Compensation or any portion thereof to the extent such payment is prohibited by the terms of the regulations presently found at 12 C.F.R. part 359 or to the extent that any other governmental approval of the payment required by law is not received.

(4) Except as set forth in Sections 9(d)(2) and 9(d)(3), the Corporation's obligation to pay the Employee the compensation provided in Section 9(d)(1) shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against him or anyone else. All amounts payable by the Corporation hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Corporation shall be final and the Corporation will not seek to recover all or any part of such payment from the Employee or from whosoever may be entitled thereto, for any reason whatsoever. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise.

(5) For purposes of this Agreement, "Good Reason" shall mean:

(i) The assignment of duties to the Employee by the Corporation which result in the Employee having significantly less authority or responsibility than he has on the date hereof, without his express written consent;

(ii) Requiring the Employee to maintain his principal office outside a 25 mile radius of Clarke County, Virginia unless the Corporation moves its principal executive offices to a place to which the Employee is required to move;

(iii) A reduction by the Corporation of the Employee's base salary, as the same may have been increased from time to time;

(iv) The failure of the Corporation to provide the Employee with substantially the same fringe benefits that are provided to him at the inception of this agreement;

(v) The Corporation’s failure to comply with any material term of this Agreement; or

(vi) The failure of the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 13 hereof.

(e)The Corporation shall have the right to terminate Employee’s employment under this Agreement at any time for Cause, within 30 days of the occurrence, which termination shall be effective immediately. Termination for “Cause” shall include termination for Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, conviction of a felony or of a misdemeanor involving moral turpitude, misappropriation of the Corporation’s assets (determined on a reasonable basis) or those of its Affiliates, or material breach of any other provision of this Agreement. In the event Employee’s employment under this Agreement is terminated for Cause, Employee shall thereafter have no right to receive compensation or other benefits under this Agreement.

(f)The Corporation may terminate Employee's employment under this Agreement, after having established the Employee's disability by giving to Employee written notice of its intention to terminate his employment for disability and his employment with the Corporation shall terminate effective on the 90th day after receipt of such notice if within 90 days after such receipt Employee shall fail to return to the full-time performance of the essential functions of his position (and if Employee's disability has been established pursuant to the definition of "disability" set forth below). For purposes of this Agreement, "disability" means either (i) disability which after the expiration of more than 13 consecutive weeks after its commencement is determined to be total and permanent by a physician selected and paid for by the Corporation or its insurers, and acceptable to Employee or his legal representative, which consent shall not be unreasonably withheld or (ii) disability as defined in the policy of disability insurance maintained by the Corporation or its Affiliates for the benefit of Employee, whichever shall be more favorable to Employee. Notwithstanding any other provision of this Agreement, the Corporation shall comply with all requirements of the Americans with Disabilities Act, 42 U.S.C. § 12101 et.seq.

(g) If Employee is suspended and/or temporarily prohibited from participating in the conduct of the Corporation's affairs by a notice served pursuant to the Federal Deposit Insurance Act, the Corporation's obligations under this Employment Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Corporation may in its discretion (i) pay Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended with any such payment made by March 15 following the calendar year in which such charges are dismissed.

(h) If Employee is removed and/or permanently prohibited from participating in the conduct of the Corporation's affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of the Corporation under this Employment Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(i)(1) If Employee’s employment is terminated without Cause or if he resigns for Good Reason within one year after a Change of Control shall have occurred, then on or within thirty (30) days before Employee's last day of employment with the Corporation, the Corporation shall pay to Employee as compensation for services rendered to the Corporation and its Affiliates a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to the excess, if any, of 299% of Employee’s “annualized includable compensation for the base period”, as defined in Section 280G of the Internal Revenue Code of 1986 (the “Code”), over the total amount payable to Employee under Section 9(d). Notwithstanding the foregoing, to the to the extent required because Employee is a “specified employee” for purposes of Code Section 409A, on the date of his termination, the payment described in this Section (i)(1), above, shall be made on the first day of the month following the six-month anniversary of Employee’s date of termination.

(2) For purposes of this Agreement, a Change of Control occurs if, after the date of this Agreement, (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Corporation securities having 50% or more of the combined voting power of the then outstanding Corporation securities that may be cast for the election of the Corporation's directors other than a result of an issuance of securities initiated by the Corporation, or open market purchases approved by the Board of Directors, as long as the majority of the Board of Directors approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Corporation before such events cease to constitute a majority of the Corporation's Board, or any successor's board, within one year of the last of such transactions. For purposes of this Agreement, a Change of Control occurs on the date on which an event described in (i) or (ii) occurs. If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events.

(3)It is the intention of the parties that no payment be made or benefit provided to Employee pursuant to this Agreement that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code and any regulations thereunder, thereby resulting in a loss of an income tax deduction by the Corporation or the imposition of an excise tax on Employee under Section 4999 of the Code. If the independent accountants serving as auditors for the Corporation on the date of a Change of Control (or any other accounting firm designated by the Corporation) determine that some or all of the payments or benefits scheduled under this Agreement, as well as any other payments or benefits on a Change of Control, would be nondeductible by the Company under Section 280G of the Code, then the payments scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid without causing any such payment or benefit to be nondeductible. The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties.

Section 10. Confidentiality/Nondisclosure. Employee covenants and agrees that any and all information concerning the customers, businesses and services of the Corporation of which he has knowledge or access as a result of his association with the Corporation in any capacity, shall be deemed confidential in nature and shall not, without the proper written consent of the Corporation, be directly or indirectly used, disseminated, disclosed or published by Employee to third parties other than in connection with the usual conduct of the business of the Corporation. Such information shall expressly include, but shall not be limited to, information concerning the Corporation's trade secrets, business operations, business records, customer lists or other customer information. Upon termination of employment Employee shall deliver to the Corporation all originals and copies of documents, forms, records or other information, in whatever form it may exist, concerning the Corporation or its business, customers, products or services. In construing this provision it is agreed that it shall be interpreted broadly so as to provide the Corporation with the maximum protection. This Section 10 shall not be applicable to any information which, through no misconduct or negligence of Employee, has previously been disclosed to the public by anyone other than Employee.

Section 11. Covenant Not to Compete. During the term of this Agreement and throughout any further period that he is an officer or employee of the Corporation, and for a period of twelve (12) months from and after the date that Employee is (for any reason) no longer employed by the Corporation or for a period of twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, whichever is later, Employee covenants and agrees that he will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder, co-partner or in any other individual or representative capacity whatsoever: (i) engage in a Competitive Business anywhere within a fifty (50) mile radius of the location of the Corporation's principal executive offices on the date Employee’s employment terminates; or (ii) solicit, or assist any other person or business entity in soliciting, any depositors or other customers of the Corporation to make deposits in or to become customers of any other financial institution conducting a Competitive Business; or (iii) induce any individuals to terminate their employment with the Corporation or its Affiliates. As used in this Agreement, the term “Competitive Business” means all banking and financial products and services that are substantially similar to those offered by the Corporation on the date that Employee’s employment terminates. Employee's obligations under this Section 11 shall terminate on the date a Change of Control occurs.

Section 12. Injunctive Relief, Damages, Etc. Employee agrees that given the nature of the positions held by Employee with the Corporation, that each and every one of the covenants and restrictions set forth in Sections 10 and 11 above are reasonable in scope, length of time and geographic area and are necessary for the protection of the significant investment of the Corporation in developing, maintaining and expanding its business. Accordingly, the parties hereto agree that in the event of any breach by Employee of any of the provisions of Sections 10 or 11 that monetary damages alone will not adequately compensate the Corporation for its losses and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief and Employee shall be liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and actual attorneys' fees, incurred by the Corporation as a result of taking action to enforce, or recover for any breach of, Section 10 or Section 11. The covenants contained in Sections 10 and 11 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law. Should a court of competent jurisdiction determine that any provision of the covenants and restrictions set forth in Section 11 above is unenforceable as being overbroad as to time, area or scope, the court may strike the offending provision or reform such provision to substitute such other terms as are reasonable to protect the Corporation's legitimate business interests.

Section 13. Binding Effect/Assignability. This Employment Agreement shall be binding upon and inure to the benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns, but neither this Agreement, nor any of the rights hereunder, shall be assignable by Employee or any beneficiary or beneficiaries designated by Employee. The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business, stock or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Employee, to expressly assume and agree to perform this Agreement in its entirety. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Corporation" shall include any successor to its business, stock or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

Section 14. Governing Law. This Employment Agreement shall be subject to and construed in accordance with the laws of Virginia.

Section 15. Invalid Provisions. The invalidity or unenforceability of any particular provision of this Employment Agreement shall not affect the validity or enforceability of any other provisions hereof, and this Employment Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

Section 16. Notices. Any and all notices, designations, consents, offers, acceptance or any other communications provided for herein shall be given in writing and shall be deemed properly delivered if delivered in person or by registered or certified mail, return receipt requested, addressed in the case of the Corporation to its registered office or in the case of Employee to his last known address.

Section 17. Entire Agreement.

(a) This Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof.

(b)This Employment Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement, but all of which together shall evidence only one agreement.

Section 18. Amendment and Waiver. This Employment Agreement may not be amended except by an instrument in writing signed by or on behalf of each of the parties hereto. No waiver of any provision of this Employment Agreement shall be valid unless in writing and signed by the person or party to be charged.

Section 19. Case and Gender. Wherever required by the context of this Employment Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

Section 20. Captions. The captions used in this Employment Agreement are intended for descriptive and reference purposes only and are not intended to affect the meaning of any Section hereunder.

Section 21. Code Section 409A. Any benefit, payment or other right provided by this Agreement shall be provided and made in a manner, and at such time, and in such form, as complies with the applicable requirements of Code Section 409A to avoid a plan failure described in Code Section 409A(a)(1), including without limitation, deferring payment until the occurrence of a specified payment event described in Code Section 409A(a)(2). Notwithstanding any other provision hereof or document pertaining hereto, this Agreement shall be so construed and interpreted.

IN WITNESS WHEREOF, the Corporation has caused this Employment Agreement to be signed by its duly authorized officer and Employee has hereunto set his hand and seal on the day and year first above written.

EAGLE FINANCIAL SERVICES, INC.

By: /s/ John R. Milleson

Title: John R. Milleson, President & CEO

ATTEST:

/s/ Kaley P. Crosen

EMPLOYEE

/s/ Carl A. Esterhay(SEAL)

Carl A. Esterhay

ATTEST:

/s/ Kaley P. Crosen

EX-10.12

Exhibit 10.12

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made and entered into as of the 17^th day of August, 2016 by and between Eagle Financial Services, Inc., a Virginia corporation, hereinafter called the "Corporation", and Joseph T. Zmitrovich, hereinafter called "Employee", and provides as follows:

RECITALS

WHEREAS, the Corporation is a bank holding company engaged in the operation of a bank; and

WHEREAS, Employee has been involved in the management of the business and affairs of the Corporation and, therefore, possesses managerial experience, knowledge, skills and expertise in such type of business; and

WHEREAS, the employment of Employee by the Corporation is in the best interests of the Corporation and Employee;

WHEREAS, the parties have mutually agreed upon the terms and conditions of Employee's continued employment by the Corporation as hereinafter set forth; and

WHEREAS, the parties intend that this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulations thereunder.

TERMS OF AGREEMENT

NOW, THEREFORE, for and in consideration of the premises and of the mutual promises and undertakings of the parties as hereinafter set forth, the parties covenant and agree as follows:

Section 1. Employment. (a)Employee shall be employed as an executive officer of the Corporation. He shall perform such services for the Corporation and/or one or more Affiliates as may be assigned to Employee by the Corporation from time to time and that are commensurate with his training and experience upon the terms and conditions hereinafter set forth.

(b)References in this Agreement to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any Affiliate. References in this Agreement to the “Corporation” also shall mean and refer to each Affiliate for which Employee performs services. References in this Agreement to “Affiliate” shall mean any business entity that, directly or indirectly, through one or more intermediaries, is controlled by the Corporation.

Section 2. Term and Renewal. The initial term of this Agreement shall end December 31, 2017. However, on each December 31, beginning with December 31, 2017, the term of this Agreement shall be renewed and extended by one year unless Employee or the Corporation gives prior notice to the other in writing that the term shall not be renewed and extended. This Agreement shall terminate at the end of its term.

Section 3. Exclusive Service. Employee shall devote his best efforts and full time to rendering services on behalf of the Corporation in furtherance of its best interests. Employee shall comply with all policies, standards and regulations of the Corporation now or hereafter promulgated, and shall perform his duties under this Agreement to the best of his abilities and in accordance with standards of conduct applicable to officers of banks.

Section 4. Salary. (a) As compensation while employed hereunder, Employee, during his faithful performance of this Agreement, in whatever capacity rendered, shall receive an annual base salary of $190,000 payable on such terms and in such installments as the parties may from time to time mutually agreed upon. The Board of Directors, in its discretion, may increase Employee's base salary during the term of this Agreement.

(b)The Corporation shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Employee and the Corporation. The Corporation shall also withhold and remit to the proper party any amounts agreed to in writing by the Corporation and Employee for participation in any corporate sponsored benefit plans for which a contribution is required.

(c)Except as otherwise expressly set forth hereunder, no compensation shall be paid pursuant to this Agreement in respect of any month or portion thereof subsequent to any termination of Employee's employment by the Corporation.

Section 5. Corporate Benefit Plans. Employee shall be entitled to participate in or become a participant in all cash and non-cash employee benefit plans maintained by the Corporation for its executive officers.

Section 6. Bonuses. Employee shall receive only such bonuses as the Board of Directors, in its discretion, decides to pay to Employee.

Section 7. Expense Account. The Corporation shall reimburse Employee for reasonable and customary business expenses incurred in the conduct of the Corporation's business. Such expenses will include business meals, out-of-town lodging and travel expenses and other items identified in written rules and policies of the Corporation. Employee agrees to timely submit records and receipts of reimbursable items and agrees that the Corporation can adopt reasonable rules and policies regarding such reimbursement. The Corporation agrees to make prompt payment to Employee following receipt and verification of such reports. No reimbursement provided under this Section during one calendar year shall affect the expenses eligible for reimbursement during another calendar year.

Section 8. Paid Time Off. Employee shall be entitled to the same paid time off policies as the Board of Directors may from time to time designate for all full-time employees of the Corporation.

Section 9. Termination. (a) Notwithstanding the termination of Employee's employment pursuant to any provision of this Agreement, the parties shall be required to carry out any provisions of this Agreement which contemplate performance by them subsequent to such termination. In addition, no termination shall affect any liability or other obligation of either party which shall have accrued prior to such termination, including, but not limited to, any liability, loss or damage on account of breach. No termination of employment shall terminate the obligation of the Corporation to make payments of any vested benefits provided hereunder or the obligations of Employee under Sections 10, 11 and 12.

(b) Employee's employment hereunder may be terminated by Employee upon thirty (30) days written notice to the Corporation or at any time by mutual agreement in writing.

(c) This Agreement shall terminate upon death of Employee; provided, however, that in such event the Corporation shall pay to the estate of Employee the compensation including salary and accrued bonus, if any, which otherwise would be payable to Employee through the end of the month in which his death occurs.

(d)(1) The Corporation may terminate Employee’s employment other than for “Cause”, as defined in Section 9(e), at any time upon written notice to Employee, which termination shall be effective immediately. Employee may resign thirty (30) days after notice to the Corporation for "Good Reason", as hereafter defined. In the event the Employee's employment terminates pursuant to this Section 9(d);

(i)Employee shall receive a monthly amount equal to one-twelfth (1/12) his rate of annual base salary in effect immediately preceding such termination in each month for the remainder of the term of this Agreement at the times such payments would have been made in accordance with Section 4(a);

(ii)Employee shall receive a payment in cash on the date his employment terminates equal to the greater of (a) the amount of the highest cash bonus paid or payable to him in respect of any of the three (3) fiscal years of the Corporation prior to the fiscal year in which his employment terminates, and (b) the amount of cash bonus Employee was designated to receive under the Corporation’s annual incentive plan;

(iii)To the to the extent required because Employee is a “specified employee” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), on the date of his termination, the payments described in Section (d)(1)(i) and (ii), above, shall be made or commence, as the case may be, on the first day of the month following the six-month anniversary of Employee’s date of termination. The first payment shall include the payments, if any, required to be delayed under this sentence; and

(iv)The Corporation shall maintain in full force and effect for the continued benefit of the Employee for the remainder of the then current term of this Agreement all employee welfare benefit plans and programs or arrangements in which the Employee was entitled to participate immediately prior to such termination, provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such or program is barred, the Corporation shall arrange to provide the Employee with benefits substantially similar to those which the Employee was entitled to receive under such plans and programs. To the extent required by Code Section 409A and Treasury Regulations thereunder, (i) no reimbursement or in-kind benefit provided under this Section 9(d)(2)(iv) in one calendar year shall affect the expenses eligible for reimbursement or in-kind benefits provided during another calendar year; and (ii) any such reimbursement shall be paid by December 31 of the calendar year following the calendar year in which the reimbursed expense was incurred. It is intended and anticipated that benefits under this Section will qualify as medical reimbursements exempt from Code Section 409A or as payments made on a specified date or fixed schedule. Nonetheless, to the extent required by Code Section 409A and Treasury Regulations thereunder, benefits (whether through plan participation, reimbursement, in-kind benefits or otherwise) shall commence on the first day of the month following the six-month anniversary of the Employee’s termination or resignation, with any reimbursements or other payments delayed under this sentence payable in a single sum on such delayed commencement date; and

(2) Notwithstanding anything in this Agreement to the contrary:

(i) If Employee breaches Section 10 or 11, Employee will not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 9(d); and

(ii) If, while he is receiving payments under this Section 9(d), Employee engages in a Competitive Business within the area described in Section 11(i), such payments will cease and he will not thereafter be entitled to receive any compensation or benefits pursuant to this Section 9(d) even though such conduct occurs after the covenants contained in Section 11 have expired.

(3) The Corporation shall not be required to make payment of the Termination Compensation or any portion thereof to the extent such payment is prohibited by the terms of the regulations presently found at 12 C.F.R. part 359 or to the extent that any other governmental approval of the payment required by law is not received.

(4) Except as set forth in Sections 9(d)(2) and 9(d)(3), the Corporation's obligation to pay the Employee the compensation provided in Section 9(d)(1) shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against him or anyone else. All amounts payable by the Corporation hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Corporation shall be final and the Corporation will not seek to recover all or any part of such payment from the Employee or from whosoever may be entitled thereto, for any reason whatsoever. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise.

(5) For purposes of this Agreement, "Good Reason" shall mean:

(i) The assignment of duties to the Employee by the Corporation which result in the Employee having significantly less authority or responsibility than he has on the date hereof, without his express written consent;

(ii) Requiring the Employee to maintain his principal office outside a 25 mile radius of Clarke County, Virginia unless the Corporation moves its principal executive offices to a place to which the Employee is required to move;

(iii) A reduction by the Corporation of the Employee's base salary, as the same may have been increased from time to time;

(iv) The failure of the Corporation to provide the Employee with substantially the same fringe benefits that are provided to him at the inception of this agreement;

(v) The Corporation’s failure to comply with any material term of this Agreement; or

(vi) The failure of the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 13 hereof.

(e)The Corporation shall have the right to terminate Employee’s employment under this Agreement at any time for Cause, within 30 days of the occurrence, which termination shall be effective immediately. Termination for “Cause” shall include termination for Employee’s personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, conviction of a felony or of a misdemeanor involving moral turpitude, misappropriation of the Corporation’s assets (determined on a reasonable basis) or those of its Affiliates, or material breach of any other provision of this Agreement. In the event Employee’s employment under this Agreement is terminated for Cause, Employee shall thereafter have no right to receive compensation or other benefits under this Agreement.

(f)The Corporation may terminate Employee's employment under this Agreement, after having established the Employee's disability by giving to Employee written notice of its intention to terminate his employment for disability and his employment with the Corporation shall terminate effective on the 90th day after receipt of such notice if within 90 days after such receipt Employee shall fail to return to the full-time performance of the essential functions of his position (and if Employee's disability has been established pursuant to the definition of "disability" set forth below). For purposes of this Agreement, "disability" means either (i) disability which after the expiration of more than 13 consecutive weeks after its commencement is determined to be total and permanent by a physician selected and paid for by the Corporation or its insurers, and acceptable to Employee or his legal representative, which consent shall not be unreasonably withheld or (ii) disability as defined in the policy of disability insurance maintained by the Corporation or its Affiliates for the benefit of Employee, whichever shall be more favorable to Employee. Notwithstanding any other provision of this Agreement, the Corporation shall comply with all requirements of the Americans with Disabilities Act, 42 U.S.C. § 12101 et.seq.

(g) If Employee is suspended and/or temporarily prohibited from participating in the conduct of the Corporation's affairs by a notice served pursuant to the Federal Deposit Insurance Act, the Corporation's obligations under this Employment Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Corporation may in its discretion (i) pay Employee all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended with any such payment made by March 15 following the calendar year in which such charges are dismissed.

(h) If Employee is removed and/or permanently prohibited from participating in the conduct of the Corporation's affairs by an order issued under the Federal Deposit Insurance Act or the Code of Virginia, all obligations of the Corporation under this Employment Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(i)(1) If Employee’s employment is terminated without Cause or if he resigns for Good Reason within one year after a Change of Control shall have occurred, then on or within thirty (30) days before Employee's last day of employment with the Corporation, the Corporation shall pay to Employee as compensation for services rendered to the Corporation and its Affiliates a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to the excess, if any, of 299% of Employee’s “annualized includable compensation for the base period”, as defined in Section 280G of the Internal Revenue Code of 1986 (the “Code”), over the total amount payable to Employee under Section 9(d). Notwithstanding the foregoing, to the to the extent required because Employee is a “specified employee” for purposes of Code Section 409A, on the date of his termination, the payment described in this Section (i)(1), above, shall be made on the first day of the month following the six-month anniversary of Employee’s date of termination.

(2) For purposes of this Agreement, a Change of Control occurs if, after the date of this Agreement, (i) any person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Corporation securities having 50% or more of the combined voting power of the then outstanding Corporation securities that may be cast for the election of the Corporation's directors other than a result of an issuance of securities initiated by the Corporation, or open market purchases approved by the Board of Directors, as long as the majority of the Board of Directors approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Corporation before such events cease to constitute a majority of the Corporation's Board, or any successor's board, within one year of the last of such transactions. For purposes of this Agreement, a Change of Control occurs on the date on which an event described in (i) or (ii) occurs. If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events.

(3)It is the intention of the parties that no payment be made or benefit provided to Employee pursuant to this Agreement that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code and any regulations thereunder, thereby resulting in a loss of an income tax deduction by the Corporation or the imposition of an excise tax on Employee under Section 4999 of the Code. If the independent accountants serving as auditors for the Corporation on the date of a Change of Control (or any other accounting firm designated by the Corporation) determine that some or all of the payments or benefits scheduled under this Agreement, as well as any other payments or benefits on a Change of Control, would be nondeductible by the Company under Section 280G of the Code, then the payments scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid without causing any such payment or benefit to be nondeductible. The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties.

Section 10. Confidentiality/Nondisclosure. Employee covenants and agrees that any and all information concerning the customers, businesses and services of the Corporation of which he has knowledge or access as a result of his association with the Corporation in any capacity, shall be deemed confidential in nature and shall not, without the proper written consent of the Corporation, be directly or indirectly used, disseminated, disclosed or published by Employee to third parties other than in connection with the usual conduct of the business of the Corporation. Such information shall expressly include, but shall not be limited to, information concerning the Corporation's trade secrets, business operations, business records, customer lists or other customer information. Upon termination of employment Employee shall deliver to the Corporation all originals and copies of documents, forms, records or other information, in whatever form it may exist, concerning the Corporation or its business, customers, products or services. In construing this provision it is agreed that it shall be interpreted broadly so as to provide the Corporation with the maximum protection. This Section 10 shall not be applicable to any information which, through no misconduct or negligence of Employee, has previously been disclosed to the public by anyone other than Employee.

Section 11. Covenant Not to Compete. During the term of this Agreement and throughout any further period that he is an officer or employee of the Corporation, and for a period of twelve (12) months from and after the date that Employee is (for any reason) no longer employed by the Corporation or for a period of twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, whichever is later, Employee covenants and agrees that he will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder, co-partner or in any other individual or representative capacity whatsoever: (i) engage in a Competitive Business anywhere within a fifty (50) mile radius of the location of the Corporation's principal executive offices on the date Employee’s employment terminates; or (ii) solicit, or assist any other person or business entity in soliciting, any depositors or other customers of the Corporation to make deposits in or to become customers of any other financial institution conducting a Competitive Business; or (iii) induce any individuals to terminate their employment with the Corporation or its Affiliates. As used in this Agreement, the term “Competitive Business” means all banking and financial products and services that are substantially similar to those offered by the Corporation on the date that Employee’s employment terminates. Employee's obligations under this Section 11 shall terminate on the date a Change of Control occurs.

Section 12. Injunctive Relief, Damages, Etc. Employee agrees that given the nature of the positions held by Employee with the Corporation, that each and every one of the covenants and restrictions set forth in Sections 10 and 11 above are reasonable in scope, length of time and geographic area and are necessary for the protection of the significant investment of the Corporation in developing, maintaining and expanding its business. Accordingly, the parties hereto agree that in the event of any breach by Employee of any of the provisions of Sections 10 or 11 that monetary damages alone will not adequately compensate the Corporation for its losses and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief and Employee shall be liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and actual attorneys' fees, incurred by the Corporation as a result of taking action to enforce, or recover for any breach of, Section 10 or Section 11. The covenants contained in Sections 10 and 11 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law. Should a court of competent jurisdiction determine that any provision of the covenants and restrictions set forth in Section 11 above is unenforceable as being overbroad as to time, area or scope, the court may strike the offending provision or reform such provision to substitute such other terms as are reasonable to protect the Corporation's legitimate business interests.

Section 13. Binding Effect/Assignability. This Employment Agreement shall be binding upon and inure to the benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns, but neither this Agreement, nor any of the rights hereunder, shall be assignable by Employee or any beneficiary or beneficiaries designated by Employee. The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business, stock or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Employee, to expressly assume and agree to perform this Agreement in its entirety. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, "Corporation" shall include any successor to its business, stock or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

Section 14. Governing Law. This Employment Agreement shall be subject to and construed in accordance with the laws of Virginia.

Section 15. Invalid Provisions. The invalidity or unenforceability of any particular provision of this Employment Agreement shall not affect the validity or enforceability of any other provisions hereof, and this Employment Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

Section 16. Notices. Any and all notices, designations, consents, offers, acceptance or any other communications provided for herein shall be given in writing and shall be deemed properly delivered if delivered in person or by registered or certified mail, return receipt requested, addressed in the case of the Corporation to its registered office or in the case of Employee to his last known address.

Section 17. Entire Agreement.

(a) This Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof.

(b)This Employment Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement, but all of which together shall evidence only one agreement.

Section 18. Amendment and Waiver. This Employment Agreement may not be amended except by an instrument in writing signed by or on behalf of each of the parties hereto. No waiver of any provision of this Employment Agreement shall be valid unless in writing and signed by the person or party to be charged.

Section 19. Case and Gender. Wherever required by the context of this Employment Agreement, the singular or plural case and the masculine, feminine and neuter genders shall be interchangeable.

Section 20. Captions. The captions used in this Employment Agreement are intended for descriptive and reference purposes only and are not intended to affect the meaning of any Section hereunder.

Section 21. Code Section 409A. Any benefit, payment or other right provided by this Agreement shall be provided and made in a manner, and at such time, and in such form, as complies with the applicable requirements of Code Section 409A to avoid a plan failure described in Code Section 409A(a)(1), including without limitation, deferring payment until the occurrence of a specified payment event described in Code Section 409A(a)(2). Notwithstanding any other provision hereof or document pertaining hereto, this Agreement shall be so construed and interpreted.

IN WITNESS WHEREOF, the Corporation has caused this Employment Agreement to be signed by its duly authorized officer and Employee has hereunto set his hand and seal on the day and year first above written.

EAGLE FINANCIAL SERVICES, INC.

By: /s/ John R. Milleson

Title: John R. Milleson, President & CEO

ATTEST:

/s/ Kaley P. Crosen

EMPLOYEE

/s/ Joseph T. Zmitrovich(SEAL)

Joseph T. Zmitrovich

ATTEST:

/s/ Kaley P. Crosen

EX-21.1

EXHIBIT 21.1

SUBSIDIARY OF THE COMPANY

Bank of Clarke County is a wholly-owned subsidiary of the Company. Bank of Clarke County is a Virginia banking corporation, headquartered in Berryville, Virginia within the County of Clarke.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements (No. 333-209460, 333-172264, and 333-131877) on Form S-3 and Registration Statements (No. 333-198325 and 333-118319) on Form S-8 of Eagle Financial Services, Inc. of our reports dated March 15, 2018, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of Eagle Financial Services, Inc., which appear in this Annual Report on Form 10-K of Eagle Financial Services, Inc. for the year ended December 31, 2017.

/s/ Yount, Hyde & Barbour, P.C.

Winchester, Virginia

March 15, 2018

EX-31.1

EXHIBIT 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John R. Milleson, certify that:

1. I have reviewed this annual report on Form 10-K of Eagle Financial Services, Inc. for the year ended December 31, 2017;

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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the 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 officer 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: March 15, 2018

/S/ JOHN R. MILLESON

John R. Milleson

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kathleen J. Chappell, certify that:

1. I have reviewed this annual report on Form 10-K of Eagle Financial Services, Inc. for the year ended December 31, 2017;

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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the 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 officer 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: March 15, 2018

/S/ KATHLEEN J. CHAPPELL

Kathleen J. Chappell

Vice President and 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 annual report on Form 10-K of Eagle Financial Services, Inc. (the “Company”) for the period ended December 31, 2017 to be filed with the Securities and Exchange Commission (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. Code Section 1350, as adopted pursuant to Code Section 906 of the Sarbanes-Oxley Act of 2002 that, to our knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ JOHN R. MILLESON

John R. Milleson

President and Chief Executive Officer

/S/ KATHLEEN J. CHAPPELL

Kathleen J. Chappell

Vice President and Chief Financial Officer

Date: March 15, 2018

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Mar. 08, 2018	Jun. 30, 2017
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2017
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2017
Entity Registrant Name	EAGLE FINANCIAL SERVICES INC
Entity Central Index Key	0000880641
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		3,466,158
Entity Public Float			$ 84,967,563
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Assets
Cash and due from banks	$ 10,578	$ 12,515
Interest-bearing deposits with other institutions	22,094	22,610
Federal funds sold	3,176	156
Total cash and cash equivalents	35,848	35,281
Securities available for sale, at fair value	132,566	119,262
Restricted investments	1,107	1,068
Loans	568,817	516,942
Allowance for loan losses	(4,411)	(4,505)
Net Loans	564,406	512,437
Bank premises and equipment, net	19,579	20,169
Other real estate owned, net of allowance	106	370
Other assets	12,139	11,562
Total assets	765,751	700,149
Liabilities and Shareholders’ Equity
Noninterest bearing demand deposits	234,990	208,948
Savings and interest bearing demand deposits	322,948	306,847
Time deposits	105,476	88,082
Total deposits	663,414	603,877
Other liabilities	18,520	16,856
Total liabilities	681,934	620,733
Shareholders’ Equity
Preferred stock, $10 par value; 500,000 shares authorized and unissued	0	0
Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2017, 3,449,027 including 14,401 unvested restricted stock; issued and outstanding 2016, 3,468,243 including 14,901 unvested restricted stock	8,587	8,633
Surplus	12,075	12,642
Retained earnings	62,845	58,165
Accumulated other comprehensive income (loss)	310	(24)
Total shareholders’ equity	83,817	79,416
Total liabilities and shareholders’ equity	$ 765,751	$ 700,149

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Preferred stock, par value (in USD per share)	$ 10	$ 10
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	0	0
Common stock, par value (in USD per share)	$ 2.50	$ 2.50
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,449,027	3,468,243

XML

Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest and Dividend Income
Interest and fees on loans	$ 24,821	$ 23,037	$ 21,751
Interest and dividends on securities available for sale:
Taxable interest income	2,278	1,669	1,645
Interest income exempt from federal income taxes	1,034	925	972
Dividends	61	81	99
Interest on deposits in banks	157	73	26
Total interest and dividend income	28,351	25,785	24,493
Interest Expense
Interest on deposits	1,084	787	741
Interest on federal funds purchased and securities sold under agreements to repurchase	13	1	10
Interest on Federal Home Loan Bank advances	57	136	336
Interest on trust preferred capital notes	0	0	78
Interest on interest rate swap	0	143	182
Total interest expense	1,154	1,067	1,347
Net interest income	27,197	24,718	23,146
(Recovery Of) Loan Losses	(625)	(188)	(227)
Net interest income after (recovery of) loan losses	27,822	24,906	23,373
Noninterest Income
Income from fiduciary activities	1,238	1,356	1,338
Service charges on deposit accounts	1,223	1,227	1,244
Other service charges and fees	3,878	3,713	3,375
(Loss) on the sale and disposal of premises and equipment	(12)	(10)	(76)
(Loss) gain on sale of securities	(10)	98	124
Gain on redemption of trust preferred capital notes	0	0	2,424
Other operating income	463	285	9
Total noninterest income	6,780	6,669	8,438
Noninterest Expenses
Salaries and employee benefits	13,643	13,015	12,318
Occupancy expenses	1,473	1,486	1,563
Equipment expenses	955	889	751
Advertising and marketing expenses	731	633	612
Stationery and supplies	173	201	242
ATM network fees	816	903	805
Other real estate owned expense	11	73	336
(Gain) loss on foreclosure and sale of other real estate owned	(1)	90	(46)
FDIC assessment	222	304	439
Computer software expense	647	623	696
Bank franchise tax	534	501	505
Professional fees	1,007	949	996
Data processing fees	564	444	380
Other bank service charges	66	209	71
Cost to terminate operating lease	0	0	520
Other operating expenses	2,349	2,332	2,293
Total noninterest expenses	23,190	22,652	22,481
Income before income taxes	11,412	8,923	9,330
Income Tax Expense	3,626	2,553	2,433
Net income	$ 7,786	$ 6,370	$ 6,897
Earnings Per Share
Net income per common share, basic (in US dollars per share)	$ 2.24	$ 1.81	$ 1.97
Net income per common share, diluted (in US dollars per share)	$ 2.24	$ 1.81	$ 1.97

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 7,786	$ 6,370	$ 6,897
Other comprehensive income (loss):
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of ($1), $0 and $0 for the years ended December 31, 2017, 2016, and 2015, respectively	(2)	0	0
Unrealized gain (loss) on available for sale securities, net of reclassification adjustments, net of deferred income tax of $147, ($554), and ($234) for the years ended December 31, 2017, 2016, and 2015, respectively	285	(1,075)	(454)
Change in fair value of interest rate swap, net of deferred income tax of $0, $0, and $99 for the years ended December 31, 2017, 2016 and 2015, respectively	0	0	190
Total other comprehensive income (loss)	283	(1,075)	(264)
Total comprehensive income	$ 8,069	$ 5,295	$ 6,633

XML

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Changes in benefit obligations and plan assets for defined benefit and postretirement benefit plans, deferred income taxes	$ (1)	$ 0	$ 0
Unrealized gain (loss) on available for sale securities, deferred income taxes	147	(554)	(234)
Change in fair value of interest rate swap, deferred income taxes	$ 0	$ 0	$ 99

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]
Beginning Balance at Dec. 31, 2014	$ 73,132	$ 8,621	$ 12,618	$ 50,578	$ 1,315
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	6,897			6,897
Other comprehensive income (loss)	(264)				(264)
Restricted stock awards, stock incentive plan		36	(36)
Income tax benefit on vesting restricted stock	5		5
Stock-based compensation expense	328		328
Issuance of common stock, dividend investment plan	729	81	648
Issuance of common stock, employee benefit plan	187	20	167
Dividends declared	(2,793)			(2,793)
Ending Balance at Dec. 31, 2015	78,221	8,758	13,730	54,682	1,051
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	6,370			6,370
Other comprehensive income (loss)	(1,075)				(1,075)
Restricted stock awards, stock incentive plan		33	(33)
Income tax benefit on vesting restricted stock	2		2
Stock-based compensation expense	314		314
Issuance of common stock, dividend investment plan	533	58	475
Issuance of common stock, employee benefit plan	81	8	73
Retirement of common stock	(2,143)	(224)	(1,919)
Dividends declared	(2,887)			(2,887)
Ending Balance at Dec. 31, 2016	79,416	8,633	12,642	58,165	(24)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	7,786			7,786
Other comprehensive income (loss)	283				283
Reclassification of stranded tax effects from change in tax rate	51			(51)	51
Restricted stock awards, stock incentive plan		36	(36)
Stock-based compensation expense	382		382
Issuance of common stock, dividend investment plan	403	35	368
Issuance of common stock, employee benefit plan	166	15	151
Retirement of common stock	(1,564)	(132)	(1,432)
Dividends declared	(3,055)			(3,055)
Ending Balance at Dec. 31, 2017	$ 83,817	$ 8,587	$ 12,075	$ 62,845	$ 310

XML

Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Stockholders' Equity [Abstract]
Issuance of restricted stock, stock incentive plan, shares	14,493	13,196	14,363
Issuance of common stock, dividend investment plan, shares	13,769	23,180	32,340
Issuance of common stock, employee benefit plan, shares	5,958	3,326	8,030
Stock Repurchased During Period, Shares	52,936	89,607	0
Dividends declared, per share (in USD per share)	$ 0.88	$ 0.82	$ 0.8

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities
Net income	$ 7,786	$ 6,370	$ 6,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	946	932	843
Amortization of intangible and other assets	200	192	198
(Recovery of) loan losses	(625)	(188)	(227)
Provision for other real estate owned	0	12	288
(Gain) loss on foreclosure and sale of other real estate owned	(1)	90	(46)
Loss on the sale and disposal of premises and equipment	12	10	76
Loss on the sale of repossessed assets	6	1	0
Loss (gain) on the sale of securities	10	(98)	(124)
Gain on redemption of trust preferred capital notes	0	0	(2,424)
Loss on derecognition of cash flow hedge	0	0
Fair value adjustment on derivative contract	0	(149)	(88)
Stock-based compensation expense	382	314	328
Premium amortization on securities, net	443	370	210
Deferred tax expense	532	207	432
Changes in assets and liabilities:
(Increase) decrease in other assets	(1,465)	(1,095)	2,085
Increase (decrease) in other liabilities	1,141	2,732	(1,521)
Net cash provided by operating activities	9,367	9,700	7,164
Cash Flows from Investing Activities
Proceeds from maturities, calls, and principal payments of securities available for sale	10,714	23,535	17,368
Proceeds from the sale of securities available for sale	20,283	11,356	3,653
Purchases of securities available for sale	(43,797)	(40,418)	(33,453)
Proceeds from the sale of restricted securities	850	850	1,325
Purchases of restricted securities	(889)	(22)	(413)
Proceeds from the sale of bank premises and equipment	0	0	7
Purchases of bank premises and equipment	(368)	(257)	(2,875)
Proceeds from the sale of other real estate owned	318	564	1,956
Proceeds from the sale of repossessed assets	3	4	10
Net (increase) in loans	(51,401)	(21,995)	(26,317)
Net cash (used in) investing activities	(64,287)	(26,383)	(38,739)
Cash Flows from Financing Activities
Net increase in demand deposits, money market and savings accounts	42,143	57,448	49,690
Net increase (decrease) in certificates of deposit	17,394	(4,289)	(2,788)
Net (decrease) increase in Federal Home Loan Bank advances	0	20,000	20,000
Redemption of trust preferred capital notes	0	0	(4,793)
Issuance of common stock, employee benefit plan	166	81	187
Retirement of common stock	1,564	2,143	0
Cash dividends paid	(2,652)	(2,354)	(2,064)
Net cash provided by financing activities	55,487	28,743	20,232
Increase (decrease) in cash and cash equivalents	567	12,060	(11,343)
Cash and Cash Equivalents
Beginning	35,281	23,221	34,564
Ending	35,848	35,281	23,221
Supplemental Disclosures of Cash Flow Information
Interest	1,144	1,099	1,442
Income taxes	2,744		583
Supplemental Schedule of Noncash Investing and Financing Activities:
Unrealized gain (loss) on securities available for sale	432	(1,629)	(688)
Minimum postretirement liability adjustment	3	0	0
Change in fair value of interest rate swap	0	0	52
Other real estate and repossessed assets acquired in settlement of loans	57	675	870
Loans made to finance the sale of other real estate owned	0	315	200
Issuance of common stock, dividend investment plan	403	533	729
Purchase of securities available for sale settled subsequent to year end	$ 10,346	$ 9,826	$ 0

XML

Nature of Banking Activities and Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Banking Activities and Significant Accounting Policies

Nature of Banking Activities and Significant Accounting Policies

Eagle Financial Services, Inc. (the “Company” or “Corporation”) and Subsidiary grant commercial, financial, agricultural, residential and consumer loans to customers in Virginia and the Eastern Panhandle of West Virginia. The loan portfolio is well diversified and generally is collateralized by assets of the customers. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrowers.

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

Principles of Consolidation

The Company owns 100% of Bank of Clarke County (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Trust Assets

Eagle Investment Group (“EIG”), as a division of the Bank offers both a trust department and investment services. The trust services division of EIG offers a full range of personal and retirement plan services, which include serving as agent for bill paying and custody of assets, as investment manager with full authority or advisor, as trustee or co-trustee for trusts under will or under agreement, as trustee of life insurance trusts, as guardian or committee, as agent under a power of attorney, as executor or co-executor for estates, as custodian or investment advisor for individual retirement plans, and as trustee or trust advisor for corporate retirement plans such as profit sharing and 401(k) plans. The brokerage division of EIG offers a full range of investment services, which include tax-deferred annuities, IRAs and rollovers, mutual funds, retirement plans, 529 college savings plans, life insurance, long term care insurance, fixed income investing, brokerage CDs, and full service or discount brokerage services. Securities and other property held by the Eagle Investment Group in a fiduciary or agency capacity are not assets of the Company and are not included in the accompanying consolidated financial statements.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest bearing deposits. Generally, federal funds are purchased and sold for one-day periods.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be “other than temporary” are reflected in earnings as realized losses. In estimating “other than temporary” impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The Bank is required to maintain an investment in the capital stock of certain correspondent banks. No readily available market exists for this stock and it has no quoted market value. The investment in these securities is recorded at cost and they are reported on the Company’s consolidated balance sheet as restricted investments.

Loans

The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Counties of Clarke, Frederick, and Loudoun, Virginia and the City of Winchester, Virginia. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 120 and 90 days delinquent, respectively, unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Troubled Debt Restructurings (TDR)

In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs are considered impaired loans. Upon designation as a TDR, the Company evaluates the borrower’s payment history, past due status and ability to make payments based on the revised terms of the loan. If a loan was accruing prior to being modified as a TDR and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status. If a loan was on non-accrual status at the time of the TDR, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.

Risks by Loan Portfolio Segments

One-to-Four-Family Residential Real Estate Lending

Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee.

Commercial Real Estate Lending

Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general.

Construction and Land Development Lending

There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished home.

Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of the borrower. Commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

Consumer Lending

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for (recovery of) loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are impaired. An allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience and other qualitative factors. Other qualitative factors considered in the general component include the levels and trends in delinquencies and nonperforming loans, trends in volume and terms of loans, the effects of any changes in lending policies, the experience, ability, and depth of management, national and local economic trends and conditions, concentrations of credit, the quality of the Company’s loan review system, competition and regulatory requirements. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair market value less estimated liquidation costs of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Bank Premises and Equipment

Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from10to39years for buildings and3to10years for furniture and equipment.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less estimated cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in the net expenses from foreclosed assets.

Retirement Plans

The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis. The Company also provides a match to participants in this plan, as described more fully in Note 12.

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, as adopted, authorized the issuance of up to 500,000 shares of common stock. This plan is discussed more fully in Note 11.

Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the applicable taxing authority, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, the Company believes it is “more likely than not” that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the “more likely than not” recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent (50%) likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheet along with any associated interest and penalties that would be payable to the applicable taxing authority upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

Reclassifications

Certain reclassifications have been made to the 2016 financial statements to conform to reporting for 2017. The results of the reclassifications are not considered material and had no effect on prior years' net income or shareholders' equity.

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 the weighted average number of common shares used to compute 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 and the effect on the weighted average number of shares of dilutive potential common stock.

	2017	2016	2015
Weighted average number of common shares outstanding used to calculate basic earnings per share	3,468,275	3,518,848	3,495,334
Effect of dilutive common stock	—	—	—
Weighted average number of common shares outstanding used to calculate diluted earnings per share	3,468,275	3,518,848	3,495,334

There were no potentially dilutive securities outstanding in 2017, 2016 or 2015.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, net of income taxes, are reported within the balance sheet as a separate component of shareholders’ equity. These changes, along with net income, are components of comprehensive income and are reported in the statement of comprehensive income. In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans, unrealized gains or losses on interest rate swaps, and unrealized gains or losses on available for sale securities.

Derivative Financial Instruments

The Company follows GAAP to account for derivative and hedging activities. Accordingly, a derivative is recognized in the balance sheet at its fair value. The fair value of a derivative is determined by quoted market prices and mathematical models using current and historical data. If certain hedging criteria are met, including testing for hedge effectiveness, special hedge accounting may be applied. The Company assesses each hedge, both at inception and on an ongoing basis, to determine whether the derivative used in a hedging transaction is effective in offsetting changes in the fair value or cash flows of the hedged item and whether the derivative is expected to remain effective during subsequent periods. The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting changes in fair value or cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that the forecasted transaction will no longer occur or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued and a derivative remains outstanding, the Company recognizes the derivative in the balance sheet at its fair value and changes in the fair value are recognized in net income.

At inception, the Company designates a derivative as (a) a fair value hedge of recognized assets or liabilities or of unrecognized firm commitments (fair-value hedge) or (b) a hedge of forecasted transactions or variable cash flows to be received or paid in conjunction with recognized assets or liabilities (cash-flow hedge). For a derivative treated as a fair-value hedge, a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For a derivative treated as a cash flow hedge, the effective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized as a component of accumulated other comprehensive income (loss) within shareholders’ equity. For a derivative treated as a cash flow hedge, the ineffective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For more information on derivative financial instruments see Note 14 to the Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of other real estate owned, and the evaluation for other-than-temporary impairment of investment securities.

Stock Repurchase Program

On June 21, 2017, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2018. During 2017, the Company purchased 52,936 shares of its Common Stock under its stock repurchase program at an average price of $29.54. During 2016, the Company purchased 89,607 shares of its Common Stock under its stock repurchase program at an average price of $23.92. All of these shares we retired. There was no repurchase activity during 2015. The maximum number of shares that may yet be purchased under the plan as of December 31, 2017 are 111,115.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and, once effective, will replace significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. Entities can elect to adopt the guidance either on a full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The Company plans to adopt this guidance on the effective date, January 1, 2018 via the modified retrospective approach. The Company has completed its assessment of the adoption of this ASU, noting the standard will result in expanded disclosures related to non-interest income and enhance the qualitative disclosures on the revenues within the scope of the new guidance. The Company has concluded the adoption of ASU 2014-09 will not have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU has been discussed with the Company's current vendor to address updated disclosure requirements of 2016-01. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. The Company has been gathering the lease agreement data and has begun to analyze the monetary impact to the consolidated financial statements. At December 31, 2017, the Company had only one lease.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.The Company formed a CECL committee during 2016 which continues to meet monthly to address the compliance requirements. Historic loan data is currently being gathered and reviewed for completeness and accuracy. In addition, the committee is in the process of selecting a model that will assist in calculating the financial impact of ASU 2016-13 and anticipates running parallel allowance models under the current and new standard well in advance of the required implementation date.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable.Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

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

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this ASU require an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset, when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017‐08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

During May 2017, the FASB issued ASU 2017‐09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.  The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The Company is currently assessing the impact that ASU 2017‐09 will have on its consolidated)financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of ASU 2017-12 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act in the consolidated financial statements for the period ending December 31, 2017. The amount of this reclassification in 2017 was $51 thousand.

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Securities

12 Months Ended

Dec. 31, 2017

Available-for-sale Securities [Abstract]

Securities

Securities

Amortized costs and fair values of securities available for sale at December 31, 2017 and 2016 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	21,565	$	213	$	(258	)	$	21,520
Mortgage-backed securities	61,464		126		(346		)	61,244
Obligations of states and political subdivisions	49,199		789		(186		)	49,802
	$	132,228	$	1,128	$	(790	)	$	132,566
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	30,404	$	316	$	(279	)	$	30,441
Mortgage-backed securities	42,681		147		(456		)	42,372
Obligations of states and political subdivisions	46,271		770		(592		)	46,449
	$	119,356	$	1,233	$	(1,327	)	$	119,262

Carrying amounts of restricted securities at December 31, 2017 and 2016 were as follows:

	December 31, 2017		December 31, 2016
	(in thousands)
Federal Reserve Bank Stock	$	344	$	344
Federal Home Loan Bank Stock	623		584
Community Bankers’ Bank Stock	140		140
	$	1,107	$	1,068

The amortized cost and fair value of securities available for sale at December 31, 2017, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	4,596	$	4,619
Due after one year through five years	14,275		14,597
Due after five years through ten years	44,832		44,927
Due after ten years	68,525		68,423
	$	132,228	$	132,566

During the twelve months endedDecember 31, 2017, the Company sold $20.3 million in available for sale securities with gross gains of $94 thousand and gross losses of $104 thousand. During the twelve months endedDecember 31, 2016, the Company sold $11.4 million in available for sale securities with gross gains of $108 thousand and gross losses of $10 thousand. During the twelve months ended December 31, 2015, the Company sold $3.7 million in available for sale securities with gross gains of $124 thousand.

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 December 31, 2017 and 2016 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
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	4,455	$	58	$	7,810	$	200	$	12,265	$	258
Mortgage-backed securities	11,885		59		17,931		287		29,816		346
Obligations of states and political subdivisions	4,071		27		4,692		159		8,763		186
	$	20,411	$	144	$	30,433	$	646	$	50,844	$	790
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	19,129	$	279	$	—	$	—	$	19,129	$	279
Mortgage-backed securities	28,013		456		—		—		28,013		456
Obligations of states and political subdivisions	16,823		592		—		—		16,823		592
	$	63,965	$	1,327	$	—	$	—	$	63,965	$	1,327

Gross unrealized losses on available for sale securities included fifty-four (54) and eighty (80) debt securities at December 31, 2017 and December 31, 2016, 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. 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. 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 December 31, 2017 and December 31, 2016 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 and management does not intend to sell and it is unlikely that management will be required to sell the securities prior to their anticipated recovery. 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 $2.6 million at December 31, 2017 were pledged for various purposes required by law.

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Loans

12 Months Ended

Dec. 31, 2017

Loans and Leases Receivable Disclosure [Abstract]

Loans

Loans

The composition of loans at December 31, 2017 and 2016 was as follows:

	December 31,
	2017			2016
	(in thousands)
Mortgage loans on real estate:
Construction and land development	$	43,786		$	23,266
Secured by farmland	8,568			8,525
Secured by 1-4 family residential properties	223,210			227,966
Multifamily	4,095			3,566
Commercial	239,915			208,525
Commercial and industrial loans	37,427			30,341
Consumer installment loans	10,187			12,677
All other loans	2,050			2,259
Total loans	$	569,238		$	517,125
Net deferred loan fees	(421		)	(183		)
Allowance for loan losses	(4,411		)	(4,505		)
Net Loans	$	564,406		$	512,437

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Allowance for Loan Losses

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Allowance for Loan Losses

Allowance for Loan Losses

Changes in the allowance for loan losses for the years December 31, 2017, 2016 and 2015 were as follows:

	December 31,
	2017			2016			2015
				(in thousands)
Balance, beginning	$	4,505		$	4,959		$	5,080
(Recovery of) loan losses	(625		)	(188		)	(227		)
Recoveries added to the allowance	901			341			562
Loan losses charged to the allowance	(370		)	(607		)	(456		)
Balance, ending	$	4,411		$	4,505		$	4,959

Nonaccrual and past due loans by class at December 31, 2017 and December 31, 2016 were as follows:

	December 31, 2017
	(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	$	75	$	10	$	142	$	227	$	37,200	$	37,427	$	—	$	594
Commercial Real Estate:
Owner Occupied	—		—		—		—		127,018		127,018		—		—
Non-owner occupied	—		368		—		368		112,529		112,897		—		767
Construction and Farmland:
Residential	—		—		—		—		3,214		3,214		—		—
Commercial	187		—		—		187		48,953		49,140		—		—
Consumer:
Installment	17		—		2		19		10,168		10,187		—		13
Residential:
Equity Lines	18		—		—		18		32,820		32,838		—		44
Single family	829		572		4,060		5,461		184,911		190,372		—		4,921
Multifamily	—		—		—		—		4,095		4,095		—		—
All Other Loans	—		—		—		—		2,050		2,050		—		—
Total	$	1,126	$	950	$	4,204	$	6,280	$	562,958	$	569,238	$	—	$	6,339

	December 31, 2016
	(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	$	69	$	49	$	—	$	118	$	30,223	$	30,341	$	—	$	278
Commercial Real Estate:
Owner Occupied	150		384		—		534		114,820		115,354		—		431
Non-owner occupied	—		54		135		189		92,982		93,171		—		1,066
Construction and Farmland:
Residential	50		—		—		50		4,627		4,677		—		—
Commercial	499		—		—		499		26,615		27,114		—		—
Consumer:
Installment	23		2		11		36		12,641		12,677		8		8
Residential:
Equity Lines	66		—		—		66		31,240		31,306		—		132
Single family	444		51		166		661		195,999		196,660		—		5,076
Multifamily	—		—		—		—		3,566		3,566		—		—
All Other Loans	—		—		—		—		2,259		2,259		—		—
Total	$	1,301	$	540	$	312	$	2,153	$	514,972	$	517,125	$	8	$	6,991

Allowance for loan losses by segment at December 31, 2017, December 31, 2016 and December 31, 2015 were as follows:

	As of and for the Twelve Months Ended
	December 31, 2017
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	450		$	1,992		$	1,522		$	235		$	69		$	22		$	215		$	4,505
Charge-Offs	(19		)	(55		)	(1		)	(187		)	(59		)	(49		)	—			(370		)
Recoveries	535			212			65			44			40			5			—			901
Provision (recovery)	(634		)	(395		)	41			478			19			51			(185		)	(625		)
Ending balance	$	332		$	1,754		$	1,627		$	570		$	69		$	29		$	30		$	4,411
Ending balance: Individually evaluated for impairment	$	—		$	195		$	59		$	195		$	9		$	—		$	—		$	458
Ending balance: collectively evaluated for impairment	$	332		$	1,559		$	1,568		$	375		$	60		$	29		$	30		$	3,953
Loans:
Ending balance	$	52,354		$	227,305		$	239,915		$	37,427		$	10,187		$	2,050		$	—		$	569,238
Ending balance individually evaluated for impairment	$	315		$	8,315		$	1,904		$	858		$	34		$	—		$	—		$	11,426
Ending balance collectively evaluated for impairment	$	52,039		$	218,990		$	238,011		$	36,569		$	10,153		$	2,050		$	—		$	557,812

	As of and for the Twelve Months Ended
	December 31, 2016
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate		Commercial		Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	775		$	2,322		$	1,268	$	211	$	109		$	53		$	221		$	4,959
Charge-Offs	—			(535		)	—		—		(30		)	(42		)	—			(607		)
Recoveries	144			124			8		11		49			5			—			341
Provision (recovery)	(469		)	81			246		13		(59		)	6			(6		)	(188		)
Ending balance	$	450		$	1,992		$	1,522	$	235	$	69		$	22		$	215		$	4,505
Ending balance: Individually evaluated for impairment	$	—		$	268		$	102	$	15	$	—		$	—		$	—		$	385
Ending balance: collectively evaluated for impairment	$	450		$	1,724		$	1,420	$	220	$	69		$	22		$	215		$	4,120
Loans:
Ending balance	$	31,791		$	231,532		$	208,525	$	30,341	$	12,677		$	2,259		$	—		$	517,125
Ending balance individually evaluated for impairment	$	1,320		$	8,608		$	2,864	$	581	$	7		$	—		$	—		$	13,380
Ending balance collectively evaluated for impairment	$	30,471		$	222,924		$	205,661	$	29,760	$	12,670		$	2,259		$	—		$	503,745

	As of and for the Twelve Months Ended
	December 31, 2015
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			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	(166		)	(152		)	(47		)	—			(66		)	(25		)	—		(456		)
Recoveries	75			142			115			181			33			16			—		562
Provision (recovery)	(85		)	355			(147		)	(434		)	39			20			25		(227		)
Ending balance	$	775		$	2,322		$	1,268		$	211		$	109		$	53		$	221	$	4,959
Ending balance: Individually evaluated for impairment	$	10		$	423		$	141		$	2		$	—		$	—		$	—	$	576
Ending balance: collectively evaluated for impairment	$	765		$	1,899		$	1,127		$	209		$	109		$	53		$	221	$	4,383
Loans:
Ending balance	$	41,569		$	233,626		$	175,172		$	29,366		$	13,530		$	2,413		$	—	$	495,676
Ending balance individually evaluated for impairment	$	1,392		$	7,209		$	4,555		$	847		$	—		$	—		$	—	$	14,003
Ending balance collectively evaluated for impairment	$	40,177		$	226,417		$	170,617		$	28,519		$	13,530		$	2,413		$	—	$	481,673

Impaired loans by class at December 31, 2017 and December 31, 2016 were as follows:

	As of and for the Year Ended
	December 31, 2017
	(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	$	626	$	304	$	—	$	342	$	23
Commercial Real Estate:
Owner Occupied	330		331		—		336		15
Non-owner occupied	805		767		—		785		20
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	362		316		—		330		28
Consumer:
Installment	25		25		—		27		1
Residential:
Equity lines	—		—		—		—		—
Single family	7,371		6,985		—		7,069		124
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	9,519	$	8,728	$	—	$	8,889	$	211
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	595	$	556	$	195	$	567	$	17
Commercial Real Estate:
Owner Occupied	—		—		—		—		—
Non-owner occupied	806		809		59		817		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	9		9		9		9		—
Residential:
Equity lines	217		44		44		45		—
Single family	1,349		1,299		151		1,315		57
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	2,976	$	2,717	$	458	$	2,753	$	111
Total:
Commercial	$	1,221	$	860	$	195	$	909	$	40
Commercial Real Estate	1,941		1,907		59		1,938		72
Construction and Farmland	362		316		—		330		28
Consumer	34		34		9		36		1
Residential	8,937		8,328		195		8,429		181
Other	—		—		—		—		—
Total	$	12,495	$	11,445	$	458	$	11,642	$	322

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs.

	As of and for the Year Ended
	December 31, 2016
	(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	$	311	$	299	$	—	$	356	$	21
Commercial Real Estate:
Owner Occupied	869		772		—		778		15
Non-owner occupied	1,298		1,066		—		1,137		13
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	1,320		1,324		—		1,358		75
Consumer:
Installment	8		8		—		9		—
Residential:
Equity lines	17		17		—		18		—
Single family	7,072		6,849		—		6,930		170
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	10,895	$	10,335	$	—	$	10,586	$	294
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	283	$	283	$	15	$	298	$	14
Commercial Real Estate:
Owner Occupied	203		203		37		205		10
Non-owner occupied	824		826		65		834		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	—		—		—		—		—
Residential:
Equity lines	458		115		56		120		—
Single family	1,678		1,638		212		1,676		60
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	3,446	$	3,065	$	385	$	3,133	$	121
Total:
Commercial	$	594	$	582	$	15	$	654	$	35
Commercial Real Estate	3,194		2,867		102		2,954		75
Construction and Farmland	1,320		1,324		—		1,358		75
Consumer	8		8		—		9		—
Residential	9,225		8,619		268		8,744		230
Other	—		—		—		—		—
Total	$	14,341	$	13,400	$	385	$	13,719	$	415

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs.

For the year ended December 31, 2015, the average recorded investment of impaired loans was $14.4 million. The interest income recognized on impaired loans was $404 thousand in 2015.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in nonaccrual loans is the actual principal balance reduced by payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method.

The Company uses a rating system for evaluating the risks associated with non-consumer loans. Consumer loans are not evaluated for risk unless the characteristics of the loan fall within classified categories. Descriptions of these ratings are as follows:

Pass	Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Pass Monitored	Pass monitored loans may be experiencing income and cash volatility, inconsistent operating trends, nominal liquidity and/or a leveraged balance sheet. A higher level of supervision is required for these loans as the potential for a negative event could impact the borrower’s ability to repay the loan.
Special mention	Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Substandard	Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
Doubtful	Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
Loss	Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.

Credit quality information by class at December 31, 2017 and December 31, 2016 was as follows:

	As of
	December 31, 2017
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	33,279	$	1,788	$	1,748	$	612	$	—	$	—	$	37,427
Commercial Real Estate:
Owner Occupied	112,649		10,893		3,146		330		—		—		127,018
Non-owner occupied	82,050		17,992		12,088		767		—		—		112,897
Construction and Farmland:
Residential	2,614		600		—		—		—		—		3,214
Commercial	30,093		17,069		1,663		315		—		—		49,140
Residential:
Equity Lines	32,495		299		—		—		44		—		32,838
Single family	177,829		5,869		155		6,327		192		—		190,372
Multifamily	3,588		—		507		—		—		—		4,095
All other loans	2,050		—		—		—		—		—		2,050
Total	$	476,647	$	54,510	$	19,307	$	8,351	$	236	$	—	$	559,051

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	10,168	$	19

	As of
	December 31, 2016
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	25,951	$	3,858	$	170	$	362	$	—	$	—	$	30,341
Commercial Real Estate:
Owner Occupied	99,365		13,050		1,766		742		431		—		115,354
Non-owner occupied	60,259		30,515		891		1,506		—		—		93,171
Construction and Farmland:
Residential	4,627		50		—		—		—		—		4,677
Commercial	21,105		5,349		314		346		—		—		27,114
Residential:
Equity Lines	30,791		382		—		17		116		—		31,306
Single family	182,404		6,850		724		6,533		149		—		196,660
Multifamily	3,032		534		—		—		—		—		3,566
All other loans	2,259		—		—		—		—		—		2,259
Total	$	429,793	$	60,588	$	3,865	$	9,506	$	696	$	—	$	504,448

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	12,641	$	36

Three consumer loans totaling $13 thousand were rated below Pass at December 31, 2017. One consumer loan totaling $5 thousand was rated below Pass at December 31, 2016.

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Troubled Debt Restructurings

12 Months Ended

Dec. 31, 2017

Troubled Debt Restructuring Note, Debtor [Abstract]

Troubled Debt Restructurings

Troubled Debt Restructurings

All loans deemed a troubled debt restructuring, or “TDR”, are considered impaired, and are evaluated for collateral and cash-flow sufficiency. A loan is considered a TDR when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. All of the following factors are indicators that the Bank has granted a concession (one or multiple items may be present):

• The borrower receives a reduction of the stated interest rate to a rate less than the institution is willing to accept at the time of the restructure for a new loan with comparable risk.

• The borrower receives an extension of the maturity date or dates at a stated interest rate lower than the current market interest rate for new debt with similar risk characteristics.

• The borrower receives a reduction of the face amount or maturity amount of the debt as stated in the instrument or other agreement.

• The borrower receives a deferral of required payments (principal and/or interest).

• The borrower receives a reduction of the accrued interest.

There were twenty-one (21) troubled debt restructured loans totaling $4.4 million at December 31, 2017. At December 31, 2016, there were twenty-six (26) troubled debt restructured loans totaling $7.3 million. One loan, totaling $44 thousand, was in nonaccrual status at December 31, 2017. Six loans, totaling $1.6 million, were in nonaccrual status at December 31, 2016. There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at December 31, 2017 or December 31, 2016.

The following tables set forth information on the Company’s troubled debt restructurings by class of financing receivable occurring during the years ended December 31, 2017, 2016 and 2015:

		For the Year Ended
		December 31, 2017
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Consumer:
Installment	1	$	22	$	22
Total	1	$	22	$	22
		For the Year Ended
		December 31, 2016
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate
Non-owner occupied	1	$	736	$	736
Residential:
Single family	4	560		463
Total	5	$	1,296	$	4
		For the Year Ended
		December 31, 2015
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential:
Single family	3	$	794	$	794
Total	3	$	794	$	794

During the twelve months ended December 31, 2017 , the Company restructured one loan by granting a concession to borrowers experiencing financial difficulties. One consumer installment loan was modified by consolidating debt and reducing the interest rate.

During the twelve months ended December 31, 2016, the Company restructured five loans by granting concessions to borrowers experiencing financial difficulties. One residential loan and one commercial real estate loan was modified by extending the amortization period and reducing the interest rate. Two residential loans were modified by reducing the payments to be affordable for the borrower. One residential loan was modified by changing payments to interest-only in order to reduce the monthly payment for a period of time.

During the twelve months ended December 31, 2015, the Company restructured three loans by granting concessions to borrowers experiencing financial difficulties. Two single family residential loans were modified by changing the amortization period. One single family residential loan was modified by changing the amortization period and interest rate in order to reduce the monthly payments.

Loans by class of financing receivable modified as TDRs within the previous 12 months and for which there was a payment default during the stated periods were:

	For the Year Ended
	December 31, 2017
	(in thousands)
	Number of Contracts	Recorded Investment
Total	—	$	—
	For the Year Ended
	December 31, 2016
	(in thousands)
	Number of Contracts	Recorded Investment
Residential:
Single family	2	$	588
Total	2	$	588
	For the Year Ended
	December 31, 2015
	(in thousands)
	Number of Contracts	Recorded Investment
Commercial - Non Real Estate:
Commercial & Industrial	1	$	267
Residential:
Equity	1	60
Single family	2	627
Total	4	$	954

Management defines default as over 30 days contractually past due under the modified terms or the foreclosure and repossession of the collateral and charge-off of the loan during the twelve month period subsequent to the modification.

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Bank Premises and Equipment, Net

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

Bank Premises and Equipment, Net

Bank Premises and Equipment, Net

The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2017 and 2016 were as follows:

	December 31,
	2017		2016
	(in thousands)
Land	$	6,729	$	6,729
Buildings and improvements	17,970		17,928
Furniture and equipment	7,100		6,876
	$	31,799	$	31,533
Less accumulated depreciation	12,220		11,364
Bank premises and equipment, net	$	19,579	$	20,169

Depreciation expense on buildings and improvements was $484 thousand, $484 thousand, and $470 thousand for the years ended 2017, 2016, and 2015, respectively. Depreciation expense on furniture and equipment was $462 thousand, $448 thousand, and $373 thousand for the years ended 2017, 2016, and 2015, respectively.

As of December 31, 2017, one facility was under an operating lease, which expires in 2030. This lease requires payment of certain operating expenses and contains renewal options. The total minimum rental commitment at December 31, 2017 under this lease was due as follows:

	December 31, 2017
	(in thousands)
2018	$	200
2019	200
2020	213
2021	220
2022	220
Thereafter	1,724
	$	2,777

The total building and equipment rental expense was $232 thousand, $236 thousand, and $271 thousand in 2017, 2016, and 2015, respectively.

On June 10, 2015, the Company purchased the land on which one of its retail branches resides. The land was purchased subject to an existing lease and subsequently recorded at fair value, resulting in a write down of the total purchase price. This write down appears in the Consolidated Statement of Income as a Cost to terminate operating lease.

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Deposits

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

Deposits

Deposits

The composition of deposits at December 31, 2017 and December 31, 2016 was as follows:

	December 31,
	2017		2016
	(in thousands)
Noninterest bearing demand deposits	$	234,990	$	208,948
Savings and interest bearing demand deposits:
NOW accounts	$	91,288	$	85,944
Money market accounts	129,497		126,632
Regular savings accounts	102,163		94,271
	$	322,948	$	306,847
Time deposits:
Balances of less than $250,000	$	62,681	$	67,159
Balances of $250,000 and more	42,795		20,923
	$	105,476	$	88,082
	$	663,414	$	603,877

Time deposits with balances of less than $250,000 include $210 thousand and $2.2 million in brokered certificates of deposit at December 31, 2017 and 2016, respectively. There were no time deposits with balances of $250,000 or more in brokered certificates of deposit at December 31, 2017 and 2016, respectively.

The outstanding balance of time deposits at December 31, 2017 was due as follows:

	December 31, 2017
	(in thousands)
2018	$	89,860
2019	7,324
2020	2,032
2021	4,583
2022	1,656
Thereafter	21
	$	105,476

Deposit overdrafts reclassified as loans totaled $115 thousand and $272 thousand at December 31, 2017 and 2016, respectively.

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Borrowings

12 Months Ended

Dec. 31, 2017

Advances from Federal Home Loan Banks [Abstract]

Borrowings

Borrowings

The Company, through its subsidiary bank, borrows funds in the form of federal funds purchased and Federal Home Loan Bank advances.

Federal fund lines of credit are extended to the Bank by nonaffiliated banks with which a correspondent banking relationship exists. The line of credit amount is determined by the creditworthiness of the Bank and, in particular, its regulatory capital ratios, which are discussed in Note 16. Federal funds purchased generally mature each business day. The following table summarizes information related to federal funds purchased for the years ended December 31, 2017 and 2016:

	December 31,
	2017			2016
	(dollars in thousands)
Balance at year-end	$	—		$	—
Average balance during the year	$	823		$	73
Average interest rate during the year	1.64		%	0.81		%
Maximum month-end balance during the year	$	3,413		$	1,302
Gross lines of credit at year-end	$	28,000		$	36,000
Unused lines of credit at year-end	$	28,000		$	36,000

As of December 31, 2017, the Company also had a $5.0 million unused line of credit, in addition to the $28.0 million in federal funds lines of credit listed in the table above.

As of December 31, 2017, Company had remaining credit availability in the amount of $162.6 million with the Federal Home Loan Bank of Atlanta. This line may be utilized for short and/or long-term borrowing. Advances on the line are secured by all of the Company’s eligible first lien residential real estate loans on one-to-four-unit, single-family dwellings; multi-family dwellings; home equity lines of credit; and commercial real estate loans. The amount of the available credit is limited to a percentage of the estimated market value of the loans as determined periodically by the FHLB of Atlanta. The amount of the available credit is also limited to 20% of total Bank assets.

The Company had no long-term borrowings with the FHLB at December 31, 2017. The Company also had no short-term borrowings with the FHLB at December 31, 2017. The Company had a $20.0 million irrevocable letter of credit at December 31, 2017 with the FHLB to secure public deposits. The Company had no borrowings with the FHLB at December 31, 2016.

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Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company files income tax returns with the United States of America,the Commonwealth of Virginia and West Virginia. With few exceptions, the Company is no longer subject to federal, state, or local income tax examinations for years prior to 2014.

The net deferred tax asset at December 31, 2017 and 2016 consisted of the following components:

	December 31,
	2017		2016
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	922	$	1,525
Deferred compensation	72		117
Accrued postretirement benefits	23		40
Home equity origination costs	46		73
Nonaccrual interest	101		151
Securities available for sale	—		32
Other	53		193
	$	1,217	$	2,131
Deferred tax liabilities:
Property and equipment	$	506	$	814
Securities available for sale	71		—
	$	577	$	814
Net deferred tax asset	$	640	$	1,317

The Company has not recorded a valuation allowance for deferred tax assets because management believes that it is more likely than not that they will be ultimately realized.

Income tax expense for the years ended December 31, 2017, 2016 and 2015 consisted of the following components:

	December 31,
	2017		2016		2015
	(in thousands)
Current tax expense	$	3,094	$	2,346	$	2,001
Deferred tax expense	135		207		432
Deferred tax adjustment for enacted rate change	397		—		—
	$	3,626	$	2,553	$	2,433

The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2017, 2016 and 2015.

	December 31,
	2017			2016			2015
	(in thousands)
Statutory federal corporate tax amount	$	3,880		$	3,034		$	3,172
Tax-exempt interest (income)	(417		)	(387		)	(404		)
Officer insurance (income) loss	(92		)	15			11
Net tax credits	(165		)	(126		)	(105		)
Corporate tax rate change	397			—			—
Other, net	23			17			(241		)
	$	3,626		$	2,553		$	2,433

The effective tax rates were 31.77%, 28.62%, and 26.08%, for years ended December 31, 2017, 2016, and 2015, respectively. This increase in the effective tax rate resulted mostly from the Tax Cuts and Jobs Act that was signed into law on December 22, 2017. The Company's deferred tax assets and liabilities were adjusted at December 31, 2017, for the reduction of our applicable corporate income tax rate from 34% to 21%, effective January 1, 2018. This adjustment resulted in a write-down of our net deferred tax assets and an increase in our federal income tax expense of $397 thousand.

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Pension and Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2017

Defined Benefit Plan [Abstract]

Pension and Postretirement Benefit Plans

Postretirement Benefit Plans

The Company provides certain health care and life insurance benefits for nine retired employees who have met certain eligibility requirements. All other employees retiring after reaching age 65 and having at least 15 years of service with the Company will be allowed to stay on the Company’s group life and health insurance policies, but will be required to pay premiums. The Company’s share of the estimated costs that will be paid after retirement is generally being accrued by charges to expense over the employees’ active service periods to the dates they are fully eligible for benefits.

Generally Accepted Accounting Principles (“GAAP”) requires the Company to recognize the funded status (i.e. the difference between the fair value of plan assets and the projected benefit obligations) of its postretirement benefit plans in the consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of taxes.

The following amounts that have not been recognized in the net periodic benefit cost of the postretirement benefit plan for the year ended December 31, 2017 but are included in other comprehensive income: unrecognized net actuarial gain of $44 thousand. The actuarial gain included in other comprehensive income and expected to be recognized in the net periodic benefit cost of the postretirement benefit plan during 2018 is $7 thousand.

The following tables provide a reconciliation of the changes in the benefit obligations and fair value of assets for 2017, 2016, and 2015 and a statement of the funded status at December 31, 2017, 2016 and 2015 for the postretirement benefit plans of the Company. The Company uses a December 31st measurement date for its plans.

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Change in Benefit Obligation:
Benefit obligation, beginning	$	118		$	128		$	137
Service cost	—			—			—
Interest cost	3			4			4
Actuarial (gain) loss	(4		)	(7		)	(6		)
Benefits paid	(8		)	(7		)	(7		)
Settlement loss	—			—			—
Benefit obligation, ending	$	109		$	118		$	128
Change in Plan Assets:
Fair value of plan assets, beginning	$	—		$	—		$	—
Actual return on plan assets	—			—			—
Employer contributions	8			7			7
Benefits paid	(8		)	(7		)	(7		)
Fair value of plan assets, ending	$	—		$	—		$	—
	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Funded Status:
Funded status	$	(109	)	$	(118	)	$	(128	)
Unrecognized net actuarial loss	—			—			—
Unrecognized net transition obligation	—			—			—
Unrecognized prior service cost	—			—			—
Accrued benefits	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Consolidated Balance Sheets:
Prepaid benefit cost	$	—		$	—		$	—
Accrued liability	(109		)	(118		)	(128		)
	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net actuarial (gain)	$	(54	)	$	(58	)	$	(58	)
Net transition obligation	—			—			—
Deferred tax liability	10			19			19
	$	(44	)	$	(39	)	$	(39	)

The following tables provide the components of net periodic benefit cost of the postretirement benefit plan for the years ended December 31, 2017, 2016, and 2015:

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Components of Net Periodic Benefit Cost:
Service cost	$	—		$	—		$	—
Interest cost	3			4			4
Expected return on plan assets	—			—			—
Amortization of prior service costs	—			—			—
Amortization of transition obligation	—			—			—
Recognized net loss due to settlement	—			—			—
Amortization of net actuarial gain	(7		)	(6		)	(6		)
Net periodic benefit cost	$	(4	)	$	(2	)	$	(2	)

The benefit obligation for the postretirement benefit plan was calculated using a weighted average discount rate of 2.75% for 2017, 3.00% for 2016, and 3.25% for 2015. For measurement purposes, a 8.00% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2018 and 2019, 7.00% for 2020 and 2021, and 5.00% for 2022 and thereafter. If these rates were increased by 1.00% in each year, the benefit obligation at December 31, 2017 would have increased by $3 thousand and the net periodic benefit cost for 2017 would have increased by less than $1 thousand. If these rates were decreased by 1.00% in each year, the benefit obligation at December 31, 2017 would have decreased by $3 thousand and the net periodic benefit cost for 2017 would have decreased by less than $1 thousand.

Estimated future benefit payments at December 31, 2017, which reflect expected future service, as appropriate, were as follows:

	Postretirement Benefits
	(in thousands)
2018	$	15
2019	14
2020	14
2021	13
2022	12
2023 - 2027	39

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2017

Share-based Compensation [Abstract]

Stock-Based Compensation

Stock-Based Compensation

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. Outside directors are periodically granted restricted shares which vest over a period of less than nine months. During 2017, executive officers were granted restricted shares which vest over a three year service period and restricted shares which vest based on meeting performance measures over a one year period. Vesting schedules were unchanged from the two prior years. The following table presents the activity for Restricted Stock for the years ended December 31, 2017, 2016 and 2015:

	Twelve Months Ended
	December 31,
	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested, beginning of period	14,901		$	23.05	14,401		$	22.98	15,151		$	22.27
Granted	14,650		27.46		14,650		23.07		14,650		23.85
Vested	(14,493	)	25.90		(13,196	)	23.00		(14,363	)	23.09
Forfeited	(657	)	23.00		(954	)	23.00		(1,037	)	23.50
Nonvested, end of period	14,401		$	24.68	14,901		$	23.05	14,401		$	22.98

The Company recognizes compensation expense over the vesting period based on the fair value of the Company's stock on the grant date. Compensation expense was $382 thousand, $314 thousand, and $328 thousand during December 31, 2017, 2016, and 2015, respectively. The total grant date fair value of Restricted Stock which vested was $375 thousand and $303 thousand for the years ended December 31, 2017 and 2016, respectively. Unrecognized compensation cost related to unvested Restricted Stock was $69 thousand at December 31, 2017. This amount is expected to be recognized over a weighted average period of one year. The Company's policy is to recognize forfeitures as they occur.

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Employee Benefits

12 Months Ended

Dec. 31, 2017

Defined Contribution Plan [Abstract]

Employee Benefits

Employee Benefits

The Company has established an Employee Stock Ownership Plan (ESOP) to provide additional retirement benefits to substantially all employees. Contributions can be made to the Bank of Clarke County Employee Retirement Trust to be used to purchase the Company’s common stock. There were no contributions in 2017, 2016, and 2015.

The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of salary on a pretax basis, subject to certain IRS limits. Prior to January 1, 2007, the Company matched 50 percent of employee contributions, on a maximum of six percent of salary deferred, with Company common stock or cash, as elected by each employee. The shares for this purpose are provided principally by the Company’s employee stock ownership plan (ESOP), supplemented, as needed, by newly issued shares. In conjunction with amending the pension plan, the 401(k) plan was amended, effective January 1, 2007, to include a non-elective safe-harbor employer contribution and an age-weighted employer contribution. Each December 31^st, qualifying employees will receive a non-elective safe-harbor contribution equal to three percent of their salary for that year. Also, each December 31^st, qualifying employees will receive an additional contribution based on their age and years of service. The percentage of salary for the age-weighted contribution increases on both factors, age and years of service, with a minimum of one percent of salary and a maximum of ten percent of salary. Contributions under the plan amounted to $1.0 million in 2017, $990 thousand in 2016, and $956 thousand in 2015.

The Company has established an Executive Supplemental Income Plan for certain key employees. Benefits are to be paid in monthly installments following retirement or death. The agreement provides that if employment is terminated for reasons other than death or disability prior to age 65, the amount of benefits could be reduced or forfeited. The executive supplemental income benefit liability was $56 thousand and $64 thousand at December 31, 2017 and 2016, respectively. The executive supplemental income benefit expense, based on the present value of the retirement benefits, was $29 thousand in 2017, $29 thousand in 2016, and $29 thousand in 2015. The plan is unfunded; however, life insurance has been acquired on the lives of these employees in amounts sufficient to discharge the plan’s obligations.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments.

During the normal course of business, various legal claims arise from time to time which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

As a member of the Federal Reserve System, the Bank is required to maintain certain average reserve balances. These reserve balances include usable vault cash and amounts on deposit with the Federal Reserve Bank. For the final weekly reporting period in the years ended December 31, 2017 and 2016, the amount of daily average required balances were approximately $1.5 million and $1.3 million, respectively. For both periods, these required amounts were met by vault cash and no additional amount was required to be on deposit with the Federal Reserve Bank. In addition, the Bank was required to maintain a total compensating balance on deposit with two correspondent banks in the amount of $250 thousand at December 31, 2017 and 2016.

See Note 19 with respect to financial instruments with off-balance-sheet risk.

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Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2017

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Company has used interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converts floating rate debt into fixed rate debt, or alternatively, converts fixed rate debt into floating rate debt. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense. These interest rate swap agreements are derivative instruments that qualify for hedge accounting as discussed in Note 1. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

On December 4, 2008, the Company entered into an interest rate swap agreement related to the outstanding trust preferred capital notes. The swap agreement became effective on December 1, 2008. The notional amount of the interest rate swap was $7.0 million and had an expiration date of December 1, 2016. Under the terms of the agreement, the Company paid interest quarterly at a fixed rate of 2.85% and received interest quarterly at a variable rate of three month LIBOR. The variable rate reset on each interest payment date. This agreement was designated as a cash-flow hedge at inception of the contract until the redemption of the trust preferred capital notes on July 29, 2015. As a result of the redemption, the derivative contract was no longer classified as a cash flow hedge and was recorded in the balance sheet at its fair value with changes in fair value recorded in Other operating income in the Consolidated Statements of Income.

The following tables present the effect of the derivative instrument on the Consolidated Statements of Income for December 31, 2017, 2016, and 2015:

Derivatives not designated as hedging instruments under GAAP	Location of Gain  (Loss) Recognized in Income	Amount of Gain  (Loss) Recognized in Income
		2017		2016		2015
		(dollars in thousands)
Interest rate swap contracts, net of tax	Other operating income	$	—	$	149	88

The balance of the interest rate swap liability was $237 thousand at the time of the redemption of the Company's trust preferred debt on July 29, 2015. The total amount recorded in accumulated other comprehensive income at that date was reclassified to earnings due to the derecognition of the cash flow hedge. Subsequent to the redemption of the debt and reclassification, the interest rate swap derivative was adjusted to its fair value resulting in a $149 thousand and $88 thousand gain recorded in Other operating income in the Consolidated Statements of Income for the twelve months ended December 31, 2016 and 2015, respectively.

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Transactions with Directors and Officers

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

Transactions with Directors and Officers

Transactions with Directors and Officers

The Bank grants loans to and accepts deposits from its directors, principal officers and related parties of such persons during the ordinary course of business. The aggregate balance of loans to directors, principal officers and their related parties was $4.1 million and $4.7 million at December 31, 2017 and 2016, respectively. These balances reflect total principal additions of $9.4 million and total principal payments of $10.0 million, during 2017. The aggregate balance of deposits from directors, principal officers and their related parties was $19.4 million and $15.6 million at December 31, 2017 and 2016, respectively. Adjustments were made to prior year amounts for directors and officers that are no longer considered to be related parties.

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Capital Requirements

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

Capital Requirements

Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In July 2013, the Federal Reserve Bank issued a final rule that makes technical changes to its market risk capital rules to align them with the BASEL III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The phase-in period for the final rules began January 1, 2015 with full compliance with the final rules to be phased in by January 1, 2019. As a part of this final rule, the Bank was required to begin calculating and disclosing Common Equity Tier 1 Capital to risk weighted assets in 2015. Although not required by the final rule, the Company also began calculating and disclosing Common Equity Tier 1 Capital to risk weighted assets in 2015. In addition to the minimum regulatory capital required for capital adequacy purposes , the Company is required to maintain a minimum Capital Conservation Buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the Capital Conservation Buffer was 0.625% on January 1, 2016 and will increase by 0.625% each year until it reaches 2.5% on January 1, 2019. The Capital Conservation Buffer is applicable to all ratios except the leverage ratio, which is noted below as Tier 1 Capital to Average Assets. The Bank's institution specific capital conservation buffer at December 31, 2017 was 6.86%.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject at December 31, 2017 and 2016.

At December 31, 2017, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and common equity Tier 1 ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category.

The following table presents the Company’s and the Bank’s actual capital amounts and ratios at December 31, 2017 and 2016:

									Minimum To Be Well
					Minimum Capital				Capitalized Under Prompt Corrective
	Actual				Requirement				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
December 31, 2017:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	83,507	14.45	%	$	26,003	4.50	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	25,622	4.50	%	$	37,009	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	87,959	15.22	%	$	46,228	8.00	%	N/A
Bank of Clarke County	$	84,583	14.86	%	$	45,550	8.00	%	$	56,938	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	83,507	14.45	%	$	34,671	6.00	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	34,163	6.00	%	$	45,550	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	83,507	11.21	%	$	29,810	4.00	%	N/A
Bank of Clarke County	$	80,150	10.86	%	$	29,511	4.00	%	$	36,889	5.00	%
December 31, 2016:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	79,440	15.68	%	$	22,798	4.50	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	22,666	4.50	%	$	32,740	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	83,977	16.58	%	$	40,531	8.00	%	N/A
Bank of Clarke County	$	80,640	16.01	%	$	40,295	8.00	%	$	50,369	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	79,440	15.68	%	$	30,398	6.00	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	30,221	6.00	%	$	40,295	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	79,440	11.84	%	$	26,848	4.00	%	N/A
Bank of Clarke County	$	76,124	11.40	%	$	26,711	4.00	%	$	33,389	5.00	%

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Restrictions On Dividends, Loans, and Advances

12 Months Ended

Dec. 31, 2017

Disclosure of Restrictions on Dividends, Loans and Advances Disclosure [Abstract]

Restrictions On Dividends, Loans and Advances

Restrictions On Dividends, Loans and Advances

Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The total amount of dividends which may be paid at any date is generally limited to the lesser of the Bank’s retained earnings or the three preceding years’ undistributed net income of the Bank. Loans or advances are limited to 10% of the Bank’s capital stock and surplus on a secured basis. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.

At December 31, 2017, the Bank’s retained earnings available for the payment of dividends to the Company was $5.3 million. Accordingly, $75.2 million of the Company’s equity in the net assets of the Bank was restricted at December 31, 2017. Funds available for loans or advances by the Bank to the Company amounted to $1.1 million at December 31, 2017.

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Dividend Investment Plan

12 Months Ended

Dec. 31, 2017

Dividend Investment Plan [Abstract]

Dividend Investment Plan

Dividend Investment Plan

The Company has a Dividend Investment Plan, which allows participants’ dividends to purchase additional shares of common stock at its fair market value on each dividend record date. During 2016, the Company amended the Plan to provide that shares of common stock purchased through the Plan would be purchased at a price equal to the market price of the shares. Prior to this date, the Plan allowed participants' dividends to purchase additional shares of common stock at 95% of its fair market value. Our board of directors determined to eliminate the discount for purchases of shares in order to reflect current best practices and market standards for dividend reinvestment plans generally and among our peers.  No other changes have been made to the operation of the dividend reinvestment features of the Plan, and current participants will remain enrolled in the Plan under their current methods of participation unless they choose to alter their enrollment following the procedures described in this prospectus.

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Financial Instruments with Off-Balance-Sheet Risk

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments with Off-Balance-Sheet Risk

Financial Instruments with Off-Balance-Sheet Risk

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

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

At December 31, 2017 and 2016, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2017		2016
	(dollar in thousands)
Commitments to extend credit	$	3,959	$	27,144
Unfunded commitments under lines of credit	108,483		100,530
Commercial and standby letters of credit	8,437		5,897

Commitments to extend credit are agreements to lend to a customer as long as the terms offered are acceptable and certain other conditions are met. Commitments generally have fixed expiration dates or other termination clauses. Since these commitments may expire or terminate, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, with regards to these commitments, is based on management’s credit evaluation of the customer.

Unfunded commitments under lines of credit are contracts for possible future extensions of credit to existing customers. Unfunded commitments under lines of credit include, but are not limited to, home equity lines of credit, overdraft protection lines of credit, credit cards, and unsecured and secured commercial lines of credit. The terms and conditions of these commitments vary depending on the line of credit’s purpose, collateral, and maturity. The amount disclosed above represents total unused lines of credit for which a contract with the Bank has been established.

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in granting loans to customers. The Bank holds collateral supporting these commitments if it is deemed necessary. At December 31, 2017, $7.5 million of the outstanding letters of credit were collateralized.

The Bank has cash accounts in other commercial banks. The amount on deposit in these banks at December 31, 2017 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $1.7 million.

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Trust Preferred Capital Notes

12 Months Ended

Dec. 31, 2017

Regulatory Capital Requirements [Abstract]

Trust Preferred Capital Notes

Trust Preferred Capital Notes

In September 2007, Eagle Financial Statutory Trust II (the “Trust II”), a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable capital securities. On September 20, 2007, Trust II issued $7.0 million of trust preferred securities and $217 thousand in common equity. On July 29, 2015, the pool to which the Company's $7.0 million in outstanding trust preferred capital notes belonged was liquidated by means of auction. The Company was successful in purchasing the outstanding notes at a price of 65.375% of par or $4.6 million in cash, resulting in a gain on the redemption of $2.4 million. On August 7, 2015, the Trust II was dissolved.

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Quarterly Condensed Statements of Income

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Quarterly Condensed Statements of Income

Quarterly Condensed Statements of Income - Unaudited

The Company’s quarterly net income, net income per common share and dividends per common share during 2017, 2016 and 2015 are summarized as follows:

	2017 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,566	$	7,004	$	7,458	$	7,323
Net interest income after (recovery of) loan losses	6,890		6,985		7,109		6,838
Noninterest income	1,673		1,598		1,617		1,892
Noninterest expenses	5,711		5,747		5,909		5,823
Income before income taxes	2,852		2,836		2,817		2,907
Net income	2,042		2,027		2,007		1,710
Net income per common share, basic	0.59		0.58		0.58		0.49
Net income per common share, diluted	0.59		0.58		0.58		0.49
Dividends per common share	0.22		0.22		0.22		0.22
	2016 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,421	$	6,642	$	6,279	$	6,443
Net interest income after (recovery of) loan losses	6,035		6,345		6,162		6,364
Noninterest income	1,635		1,738		1,687		1,609
Noninterest expenses	5,554		5,832		5,871		5,395
Income before income taxes	2,116		2,251		1,978		2,578
Net income	1,525		1,610		1,430		1,805
Net income per common share, basic	0.43		0.46		0.40		0.52
Net income per common share, diluted	0.43		0.46		0.40		0.52
Dividends per common share	0.20		0.20		0.20		0.22
	2015 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	5,938	$	6,121	$	6,265	$	6,169
Net interest income after (recovery of) loan losses	5,408		5,494		6,354		6,117
Noninterest income	1,629		1,644		3,830		1,335
Noninterest expenses	5,058		6,131		5,518		5,774
Income before income taxes	1,979		1,007		4,666		1,678
Net income	1,455		798		3,289		1,355
Net income per common share, basic	0.42		0.23		0.94		0.38
Net income per common share, diluted	0.42		0.23		0.94		0.38
Dividends per common share	0.20		0.20		0.20		0.20

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Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

•	Level 1	Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•	Level 2	Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•	Level 3	Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following sections provide a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and December 31, 2016:

			Fair Value Measurements at
			December 31, 2017
			Using
	Balance as of		Quoted Prices in  Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	21,520	$	—	$	21,520	$	—
Mortgage-backed securities	61,244		—		61,244		—
Obligations of states and political subdivisions	49,802		—		49,259		543
Total assets at fair value	$	132,566	$	—	$	132,023	$	543
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—
			Fair Value Measurements at
			December 31, 2016
			Using
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	30,441	$	—	$	30,441	$	—
Mortgage-backed securities	42,372		—		42,372		—
Obligations of states and political subdivisions	46,449		—		45,835		614
Total assets at fair value	$	119,262	$	—	$	118,648	$	614
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—

The table below presents a reconciliation for all assets measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended December 31, 2017 and 2016.

	Level 3 Recurring Fair Value Measurements
	As of and for the Year Ended
	December 31, 2017			December 31, 2016
	(in thousands)
Beginning balance	$	614		$	684
Purchases	—			—
Sales	—			—
Issuances	—			—
Settlements	(71		)	(70		)
Total assets at fair value	$	543		$	614

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on the present value of its expected future cash flows discounted at the loan's coupon rate, or at the loans' observable market price or the fair value of the collateral securing the loans, if they are collateral dependent. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data within the last twelve months (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than one year old and not solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise,

values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as impaired loans described above. We believe that the fair value component in its valuation follows the provisions of GAAP.

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for December 31, 2017 and December 31, 2016:

	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2017
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	6% - 12%	7%
Impaired loans	Present value of cash flows	Discount rate	4% - 10%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%
	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2016
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	12%	12%
Impaired loans	Present value of cash flows	Discount rate	4% - 7%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%

The following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2017 and December 31, 2016:

			Carrying value at
			December 31, 2017
	Balance as of		Identical Assets		Observable Inputs		Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,248	$	—	$	—	$	2,248
Nonfinancial Assets:
Other real estate owned	106		—		—		106
			Carrying value at
			December 31, 2016
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,671	$	—	$	—	$	2,671
Nonfinancial Assets:
Other real estate owned	370		—		—		370

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments:

Cash and short-term investments/restricted investments/accrued interest: The fair value was equal to the carrying amount.

Securities: The fair value, excluding restricted securities, was based on quoted market prices. The fair value of restricted securities approximated the carrying amount based on the redemption provisions of the issuers.

Loans: The fair value of variable rate loans, which reprice frequently and with no significant change in credit risk, was equal to the carrying amount. The fair value of all other loans was determined using discounted cash flow analysis. The discount rate was equal to the current interest rate on similar products.

Bank owned life insurance: The carrying amount of bank owned life insurance was a reasonable estimate of fair value.

Deposits and borrowings: The fair value of demand deposits, savings accounts, and certain money market deposits was equal to the carrying amount. The fair value of all other deposits and borrowings was determined using discounted cash flow analysis. The discount rate was equal to the current interest rate on similar products.

Off-balance-sheet financial instruments: The fair value of commitments to extend credit was estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the credit worthiness of the counterparties. The fair value of fixed rate loan commitments also considered the difference between current interest rates and the committed interest rates. The fair value of standby letters of credit was estimated using the fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties.

The carrying amount and fair value of the Company’s financial instruments at December 31, 2017 and 2016 were as follows:

	Fair Value Measurements at
	December 31, 2017
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)		December 31, 2017
	(in thousands)
Financial Assets:
Cash and short-term investments	$	35,848	$	35,848	$	—	$	—	$	35,848
Securities	132,566		—		132,023		543		132,566
Restricted Investments	1,107		—		1,107		—		1,107
Loans, net	564,406		—		—		559,665		559,665
Bank owned life insurance	486		—		486		—		486
Accrued interest receivable	1,955		—		1,955		—		1,955
Financial Liabilities:
Deposits	$	663,414	$	—	$	662,696	$	—	$	662,696
Accrued interest payable	44		—		44		—		44

	Fair Value Measurements at
	December 31, 2016
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)		December 31, 2016
	(in thousands)
Financial assets:
Cash and short-term investments	$	35,281	$	35,281	$	—	$	—	$	35,281
Securities	119,262		—		118,648		614		119,262
Restricted Investments	1,068		—		1,068		—		1,068
Loans, net	512,437		—		—		512,181		512,181
Bank owned life insurance	1,769		—		1,769		—		1,769
Accrued interest receivable	588		—		588		—		588
Financial liabilities:
Deposits	$	603,877	$	—	$	603,516	$	—	$	603,516
Accrued interest payable	34		—		34		—		34

The Company assumes interest rate risk (the risk that general interest rate levels will change) during its normal operations. As a result, the fair value of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities in order to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay their principal balance in a rising rate environment and more likely to do so in a falling rate environment. Conversely, depositors who are receiving fixed rate interest payments are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting the terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

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Change in Accumulated Other Comprehensive Income

12 Months Ended

Dec. 31, 2017

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Change in Accumulated Other Comprehensive Income

Change in Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes unrealized gains and losses on available for sale securities, change in fair value of interest rate swaps and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive income (loss) are presented net of tax effect as a component of equity. Reclassifications out of accumulated other comprehensive income (loss) are recorded in the Consolidated Statements of Income either as a gain or loss.

Changes to accumulated other comprehensive income (loss) by components are shown in the following tables for the years ended December 31, 2017, 2016, and 2015:

	Twelve Months Ended
	December 31,
	2017									2016								2015
	Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan			Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Fair Value of Interest Rate Swap			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total
	(dollars in thousands)
January 1	$	(63	)	$	39		$	(24	)	$	1,012		$	39	$	1,051		$	1,466		$	(190	)	$	39	$	1,315
Other comprehensive income (loss) before reclassifications	422			4			426			(1,531		)	—		(1,531		)	(564		)	52			—		(512		)
Reclassifications from other comprehensive income (loss)	10			(7		)	3			(98		)	—		(98		)	(124		)	237			—		113
Reclassification of stranded tax effects from change in tax rate	44			7			51			—			—		—			—			—			—		—
Tax effect of current period changes	(147		)	1			(146		)	554			—		554			234			(99		)	—		135
Current period changes net of taxes	329			5			334			(1,075		)	—		(1,075		)	(454		)	190			—		(264		)
December 31	$	266		$	44		$	310		$	(63	)	$	39	$	(24	)	$	1,012		$	—		$	39	$	1,051

For the years ended December 31, 2017, 2016, and 2015, $(10) thousand, $98 thousand, and $124 thousand, respectively, was reclassified out of comprehensive income and appeared as (Loss) Gain on Sale of Securities in the Consolidated Statement of Income. The tax (benefit) expense related to these reclassifications was $(4) thousand, $33 thousand, and $42 thousand for the years ended December 31, 2017, 2016, and 2015, respectively. The tax is included in Income Tax Expense in the Consolidated Statements of Income.

For the twelve months ended December 31, 2017, $7 thousand was reclassified out of accumulated other comprehensive income related to the Company's postretirement benefit plan. This reclassification is a component of net periodic benefit cost and was reflected in Salaries and Employee Benefits in the Consolidated Statements of Income. Tax related to this reclassification was $2 thousand and was included in Income Tax Expense in the Consolidated Statements of Income.

For the twelve months ended December 31, 2015, $237 thousand was reclassified out of accumulated other comprehensive income related to the Company's derecognition of it's cash flow hedge. This loss was recorded in Other operating income in the Consolidated Statements of Income. Tax related to this reclassification was $81 thousand and was included in Income Tax Expense in the Consolidated Statements of Income. There were no reclassifications related to cash flow hedges during the twelve months ended December 31, 2017 and 2016.

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Condensed Financial Information - Parent Company Only

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Financial Information - Parent Company Only

Condensed Financial Information – Parent Company Only

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Balance Sheets

December 31, 2017 and 2016

(dollars in thousands)

	2017		2016
Assets
Cash held in subsidiary bank	$	426	$	391
Loans, net of allowance	2,825		2,881
Investment in subsidiaries, at cost, plus undistributed net income	80,459		76,099
Other assets	107		45
Total assets	$	83,817	$	79,416
Liabilities and Shareholders’ Equity
Total liabilities	$	—	$	—
Shareholders’ Equity
Preferred stock	$	—	$	—
Common stock	8,587		8,633
Surplus	12,075		12,642
Retained earnings	62,845		58,165
Accumulated other comprehensive income (loss)	310		(24		)
Total shareholders’ equity	$	83,817	$	79,416
Total liabilities and shareholders’ equity	$	83,817	$	79,416

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Income

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Income
Dividends from subsidiary bank	$	3,800		$	4,350		$	6,576
Interest and fees on loans	106			97			52
Other interest and dividends	—			2			11
Gain on redemption of trust preferred debt	—			—			2,424
Other income (loss)	—			149			(121		)
Total income	$	3,906		$	4,598		$	8,942
Expenses
Interest expense on borrowings	$	—		$	143		$	260
Other operating expenses	255			211			260
Total expenses	$	255		$	354		$	520
Income before income tax (benefit) expense and equity (deficit) in undistributed earnings of subsidiary bank	$	3,651		$	4,244		$	8,422
Income Tax (Benefit) Expense	(58		)	(36		)	629
Income before equity (deficit) in undistributed earnings of subsidiary bank	$	3,709		$	4,280		$	7,793
Equity (Deficit) in Undistributed Net Income of Subsidiary Bank	4,077			2,090			(896		)
Net income	$	7,786		$	6,370		$	6,897
Comprehensive income	$	8,069		$	5,295		$	6,633

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Cash Flows

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Cash Flows from Operating Activities
Net Income	$	7,786		$	6,370		$	6,897
Adjustments to reconcile net income to net cash provided by operating activities
(Recovery of) Provision for loan losses	(2		)	(2		)	23
(Gain) on the sale of securities	—			—			(27		)
(Gain) on the redemption of trust preferred capital notes	—			—			(2,424		)
Loss on derecognition of cash flow hedge	—			—			237
Fair value adjustment on derivative contract	—			(149		)	(88		)
Stock-based compensation expense	382			314			328
Undistributed earnings of subsidiary bank	(4,077		)	(2,090		)	896
Changes in assets and liabilities:
(Increase) decrease in other assets	(62		)	(39		)	294
(Decrease) increase in other liabilities	—			(568		)	814
Net cash provided by operating activities	$	4,027		$	3,836		$	6,950
Cash Flows from Investing Activities
Proceeds from the sale of securities available for sale	$	—		$	—		$	1,009
Proceeds from maturities of securities available for sale	—			—			385
Net decrease (increase) in loans	58			62			(2,963		)
Net cash provided by (used in) investing activities	$	58		$	62		$	(1,569	)
Cash Flows from Financing Activities
Redemption of trust preferred capital notes	$	—		$	—		$	(4,793	)
Cash dividends paid	(2,652		)	(2,354		)	(2,064		)
Issuance of common stock, employee benefit plan	166			81			187
Retirement of common stock	(1,564		)	(2,143		)	—
Net cash (used in) financing activities	$	(4,050	)	$	(4,416	)	$	(6,670	)
Increase (decrease) in cash	$	35		$	(518	)	$	(1,289	)
Cash
Beginning	$	391		$	909		$	2,198
Ending	$	426		$	391		$	909

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Other Real Estate Owned (Notes)

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

Real Estate Owned [Text Block]

NOTE 25. Other Real Estate Owned

The following table is a summary of other real estate owned (OREO) activity for the twelve months ended December 31, 20172016:

	Year Ended			Year Ended
	December 31,			December 31,
	2017			2016
Balance, beginning	$	370		$	571
Net loans transferred to OREO	53			666
Sales	(317		)	(890		)
Valuation adjustments	—			23
Balance, ending	$	106		$	370

The major classifications of other real estate owned in the consolidated balance sheets at December 31, 2017 and 2016 were as follows:

	As of
	December 31, 2017		December 31, 2016
	(in thousands)
Construction and Farmland	$	106	$	155
Residential Real Estate	—		215
Commercial Real Estate	—		—
Subtotal	$	106	$	370
Less valuation allowance	—		—
Total	$	106	$	370

There was one consumer mortgage loan totaling $4.1 million collateralized by residential real estate in the process of foreclosure at December 31, 2017. There were no consumer mortgage loans collateralized by residential real estate in the process of foreclosure at December 31, 2016.

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Qualified Affordable Housing Project Investments (Notes)

12 Months Ended

Dec. 31, 2017

Federal Home Loan Banks [Abstract]

Qualified Affordable Housing Project Investments

NOTE 26. Qualified Affordable Housing Project Investments    

The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.

At December 31, 2017 and 2016, the balance of the investment for qualified affordable housing projects was $2.5 million and $2.6 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $1.9 million and $2.0 million at December 31, 2017 and 2016, respectively. These balances are reflected in Other liabilities on the Consolidated Balance Sheets. The Company expects to fulfill these commitments by December 31, 2020, in accordance with the terms of the individual agreements.

During the twelve months ended December 31, 2017 and 2016, the Company recognized amortization expense of $172 thousand and $138 thousand, respectively. The amortization expense was included in Other operating expenses on the Consolidated Statements of Income.

Total estimated credits to be received during 2017 are $165 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during 2017 and 2016 were $219 thousand and $172 thousand, respectively.

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Nature of Banking Activities and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

Principles of Consolidation

The Company owns 100% of Bank of Clarke County (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

Trust Assets

Trust Assets

Eagle Investment Group (“EIG”), as a division of the Bank offers both a trust department and investment services. The trust services division of EIG offers a full range of personal and retirement plan services, which include serving as agent for bill paying and custody of assets, as investment manager with full authority or advisor, as trustee or co-trustee for trusts under will or under agreement, as trustee of life insurance trusts, as guardian or committee, as agent under a power of attorney, as executor or co-executor for estates, as custodian or investment advisor for individual retirement plans, and as trustee or trust advisor for corporate retirement plans such as profit sharing and 401(k) plans. The brokerage division of EIG offers a full range of investment services, which include tax-deferred annuities, IRAs and rollovers, mutual funds, retirement plans, 529 college savings plans, life insurance, long term care insurance, fixed income investing, brokerage CDs, and full service or discount brokerage services. Securities and other property held by the Eagle Investment Group in a fiduciary or agency capacity are not assets of the Company and are not included in the accompanying consolidated financial statements.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and interest bearing deposits. Generally, federal funds are purchased and sold for one-day periods.

Securities

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be “other than temporary” are reflected in earnings as realized losses. In estimating “other than temporary” impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The Bank is required to maintain an investment in the capital stock of certain correspondent banks. No readily available market exists for this stock and it has no quoted market value. The investment in these securities is recorded at cost and they are reported on the Company’s consolidated balance sheet as restricted investments.

Loans

Loans

The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout the Counties of Clarke, Frederick, and Loudoun, Virginia and the City of Winchester, Virginia. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. Deferred fees and costs are recorded as an adjustment to interest income using a method that approximates a constant yield.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 120 and 90 days delinquent, respectively, unless the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Troubled Debt Restructurings (TDR)

Troubled Debt Restructurings (TDR)

In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs are considered impaired loans. Upon designation as a TDR, the Company evaluates the borrower’s payment history, past due status and ability to make payments based on the revised terms of the loan. If a loan was accruing prior to being modified as a TDR and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status. If a loan was on non-accrual status at the time of the TDR, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.

Risks by Loan Portfolio Segments

Risks by Loan Portfolio Segments

One-to-Four-Family Residential Real Estate Lending

Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee.

Commercial Real Estate Lending

Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general.

Construction and Land Development Lending

There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished home.

Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of the borrower. Commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

Consumer Lending

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

Allowance For Loan Losses

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for (recovery of) loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are impaired. An allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience and other qualitative factors. Other qualitative factors considered in the general component include the levels and trends in delinquencies and nonperforming loans, trends in volume and terms of loans, the effects of any changes in lending policies, the experience, ability, and depth of management, national and local economic trends and conditions, concentrations of credit, the quality of the Company’s loan review system, competition and regulatory requirements. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair market value less estimated liquidation costs of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Bank Premises and Equipment

Bank Premises and Equipment

Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from10to39years for buildings and3to10years for furniture and equipment.

Other Real Estate Owned

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less estimated cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in the net expenses from foreclosed assets.

Retirement Plans

Retirement Plans

The Company sponsors a 401(k) savings plan under which eligible employees may defer a portion of their compensation on a pretax basis. The Company also provides a match to participants in this plan, as described more fully in Note 12.

Stock-Based Compensation Plan

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, as adopted, authorized the issuance of up to 500,000 shares of common stock. This plan is discussed more fully in Note 11.

Income Taxes

Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the applicable taxing authority, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, the Company believes it is “more likely than not” that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the “more likely than not” recognition threshold are measured as the largest amount of tax benefit that is more than fifty percent (50%) likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheet along with any associated interest and penalties that would be payable to the applicable taxing authority upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of income. The Company has no uncertain tax positions.

Advertising

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

Reclassifications

Reclassifications

Certain reclassifications have been made to the 2016 financial statements to conform to reporting for 2017. The results of the reclassifications are not considered material and had no effect on prior years' net income or shareholders' equity.

Earnings Per Common Share

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 the weighted average number of common shares used to compute 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

Comprehensive Income

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, net of income taxes, are reported within the balance sheet as a separate component of shareholders’ equity. These changes, along with net income, are components of comprehensive income and are reported in the statement of comprehensive income. In addition to net income, the Company’s comprehensive income includes changes in the benefit obligations and plan assets for postretirement benefit plans, unrealized gains or losses on interest rate swaps, and unrealized gains or losses on available for sale securities.

Derivative Financial Instruments

Derivative Financial Instruments

The Company follows GAAP to account for derivative and hedging activities. Accordingly, a derivative is recognized in the balance sheet at its fair value. The fair value of a derivative is determined by quoted market prices and mathematical models using current and historical data. If certain hedging criteria are met, including testing for hedge effectiveness, special hedge accounting may be applied. The Company assesses each hedge, both at inception and on an ongoing basis, to determine whether the derivative used in a hedging transaction is effective in offsetting changes in the fair value or cash flows of the hedged item and whether the derivative is expected to remain effective during subsequent periods. The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting changes in fair value or cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that the forecasted transaction will no longer occur or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued and a derivative remains outstanding, the Company recognizes the derivative in the balance sheet at its fair value and changes in the fair value are recognized in net income.

At inception, the Company designates a derivative as (a) a fair value hedge of recognized assets or liabilities or of unrecognized firm commitments (fair-value hedge) or (b) a hedge of forecasted transactions or variable cash flows to be received or paid in conjunction with recognized assets or liabilities (cash-flow hedge). For a derivative treated as a fair-value hedge, a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For a derivative treated as a cash flow hedge, the effective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized as a component of accumulated other comprehensive income (loss) within shareholders’ equity. For a derivative treated as a cash flow hedge, the ineffective portion of a change in fair value is recorded as an adjustment to the hedged item and recognized in net income. For more information on derivative financial instruments see Note 14 to the Consolidated Financial Statements.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of other real estate owned, and the evaluation for other-than-temporary impairment of investment securities.

Stock Repurchase Program

Stock Repurchase Program

On June 21, 2017, the Corporation renewed the stock repurchase program to repurchase up to 150,000 shares of its common stock prior to June 30, 2018. During 2017, the Company purchased 52,936 shares of its Common Stock under its stock repurchase program at an average price of $29.54. During 2016, the Company purchased 89,607 shares of its Common Stock under its stock repurchase program at an average price of $23.92. All of these shares we retired. There was no repurchase activity during 2015. The maximum number of shares that may yet be purchased under the plan as of December 31, 2017 are 111,115.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and, once effective, will replace significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. Entities can elect to adopt the guidance either on a full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The Company plans to adopt this guidance on the effective date, January 1, 2018 via the modified retrospective approach. The Company has completed its assessment of the adoption of this ASU, noting the standard will result in expanded disclosures related to non-interest income and enhance the qualitative disclosures on the revenues within the scope of the new guidance. The Company has concluded the adoption of ASU 2014-09 will not have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU has been discussed with the Company's current vendor to address updated disclosure requirements of 2016-01. The Company does not expect the adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. The Company has been gathering the lease agreement data and has begun to analyze the monetary impact to the consolidated financial statements. At December 31, 2017, the Company had only one lease.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.The Company formed a CECL committee during 2016 which continues to meet monthly to address the compliance requirements. Historic loan data is currently being gathered and reviewed for completeness and accuracy. In addition, the committee is in the process of selecting a model that will assist in calculating the financial impact of ASU 2016-13 and anticipates running parallel allowance models under the current and new standard well in advance of the required implementation date.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied using a retrospective transition method to each period presented. If retrospective application is impractical for some of the issues addressed by the update, the amendments for those issues would be applied prospectively as of the earliest date practicable.Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in this ASU provide a screen to determine when a set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The ASU provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

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

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this ASU require an employer that offers defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 to report the service cost component of net periodic benefit cost in the same line item(s) as other compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. If the other components of net periodic benefit cost are not presented on a separate line or lines, the line item(s) used in the income statement must be disclosed. In addition, only the service cost component will be eligible for capitalization as part of an asset, when applicable. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017‐08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

During May 2017, the FASB issued ASU 2017‐09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.  The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The Company is currently assessing the impact that ASU 2017‐09 will have on its consolidated)financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of ASU 2017-12 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has elected to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act in the consolidated financial statements for the period ending December 31, 2017. The amount of this reclassification in 2017 was $51 thousand.

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Nature of Banking Activities and Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Loans and Leases Receivable, Troubled Debt Restructuring Policy [Policy Text Block]

Troubled Debt Restructurings (TDR)

In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a TDR. TDRs are considered impaired loans. Upon designation as a TDR, the Company evaluates the borrower’s payment history, past due status and ability to make payments based on the revised terms of the loan. If a loan was accruing prior to being modified as a TDR and if the Company concludes that the borrower is able to make such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status. If a loan was on non-accrual status at the time of the TDR, the loan will remain on non-accrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above.

Weighted Average Number Of Shares Used In Computing Earnings Per Share

The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock.

	2017	2016	2015
Weighted average number of common shares outstanding used to calculate basic earnings per share	3,468,275	3,518,848	3,495,334
Effect of dilutive common stock	—	—	—
Weighted average number of common shares outstanding used to calculate diluted earnings per share	3,468,275	3,518,848	3,495,334

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Securities (Tables)

12 Months Ended

Dec. 31, 2017

Available-for-sale Securities [Abstract]

Amortized Costs And Fair Values Of Securities Available For Sale

Amortized costs and fair values of securities available for sale at December 31, 2017 and 2016 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	21,565	$	213	$	(258	)	$	21,520
Mortgage-backed securities	61,464		126		(346		)	61,244
Obligations of states and political subdivisions	49,199		789		(186		)	49,802
	$	132,228	$	1,128	$	(790	)	$	132,566
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	30,404	$	316	$	(279	)	$	30,441
Mortgage-backed securities	42,681		147		(456		)	42,372
Obligations of states and political subdivisions	46,271		770		(592		)	46,449
	$	119,356	$	1,233	$	(1,327	)	$	119,262

Restricted Investments

Carrying amounts of restricted securities at December 31, 2017 and 2016 were as follows:

	December 31, 2017		December 31, 2016
	(in thousands)
Federal Reserve Bank Stock	$	344	$	344
Federal Home Loan Bank Stock	623		584
Community Bankers’ Bank Stock	140		140
	$	1,107	$	1,068

Investments Classified by Contractual Maturity Date

The amortized cost and fair value of securities available for sale at December 31, 2017, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	4,596	$	4,619
Due after one year through five years	14,275		14,597
Due after five years through ten years	44,832		44,927
Due after ten years	68,525		68,423
	$	132,228	$	132,566

Fair Value And Gross Unrealized Losses For Securities Available For Sale

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 December 31, 2017 and 2016 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
	December 31, 2017
	(in thousands)
Obligations of U.S. government corporations and agencies	$	4,455	$	58	$	7,810	$	200	$	12,265	$	258
Mortgage-backed securities	11,885		59		17,931		287		29,816		346
Obligations of states and political subdivisions	4,071		27		4,692		159		8,763		186
	$	20,411	$	144	$	30,433	$	646	$	50,844	$	790
	December 31, 2016
	(in thousands)
Obligations of U.S. government corporations and agencies	$	19,129	$	279	$	—	$	—	$	19,129	$	279
Mortgage-backed securities	28,013		456		—		—		28,013		456
Obligations of states and political subdivisions	16,823		592		—		—		16,823		592
	$	63,965	$	1,327	$	—	$	—	$	63,965	$	1,327

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Loans (Tables)

12 Months Ended

Dec. 31, 2017

Loans and Leases Receivable Disclosure [Abstract]

Schedule Of Composition Of Loans

The composition of loans at December 31, 2017 and 2016 was as follows:

	December 31,
	2017			2016
	(in thousands)
Mortgage loans on real estate:
Construction and land development	$	43,786		$	23,266
Secured by farmland	8,568			8,525
Secured by 1-4 family residential properties	223,210			227,966
Multifamily	4,095			3,566
Commercial	239,915			208,525
Commercial and industrial loans	37,427			30,341
Consumer installment loans	10,187			12,677
All other loans	2,050			2,259
Total loans	$	569,238		$	517,125
Net deferred loan fees	(421		)	(183		)
Allowance for loan losses	(4,411		)	(4,505		)
Net Loans	$	564,406		$	512,437

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Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Changes In Allowance For Loan Losses

Changes in the allowance for loan losses for the years December 31, 2017, 2016 and 2015 were as follows:

	December 31,
	2017			2016			2015
				(in thousands)
Balance, beginning	$	4,505		$	4,959		$	5,080
(Recovery of) loan losses	(625		)	(188		)	(227		)
Recoveries added to the allowance	901			341			562
Loan losses charged to the allowance	(370		)	(607		)	(456		)
Balance, ending	$	4,411		$	4,505		$	4,959

Nonaccrual And Past Due Loans By Class

Nonaccrual and past due loans by class at December 31, 2017 and December 31, 2016 were as follows:

	December 31, 2017
	(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	$	75	$	10	$	142	$	227	$	37,200	$	37,427	$	—	$	594
Commercial Real Estate:
Owner Occupied	—		—		—		—		127,018		127,018		—		—
Non-owner occupied	—		368		—		368		112,529		112,897		—		767
Construction and Farmland:
Residential	—		—		—		—		3,214		3,214		—		—
Commercial	187		—		—		187		48,953		49,140		—		—
Consumer:
Installment	17		—		2		19		10,168		10,187		—		13
Residential:
Equity Lines	18		—		—		18		32,820		32,838		—		44
Single family	829		572		4,060		5,461		184,911		190,372		—		4,921
Multifamily	—		—		—		—		4,095		4,095		—		—
All Other Loans	—		—		—		—		2,050		2,050		—		—
Total	$	1,126	$	950	$	4,204	$	6,280	$	562,958	$	569,238	$	—	$	6,339

	December 31, 2016
	(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	$	69	$	49	$	—	$	118	$	30,223	$	30,341	$	—	$	278
Commercial Real Estate:
Owner Occupied	150		384		—		534		114,820		115,354		—		431
Non-owner occupied	—		54		135		189		92,982		93,171		—		1,066
Construction and Farmland:
Residential	50		—		—		50		4,627		4,677		—		—
Commercial	499		—		—		499		26,615		27,114		—		—
Consumer:
Installment	23		2		11		36		12,641		12,677		8		8
Residential:
Equity Lines	66		—		—		66		31,240		31,306		—		132
Single family	444		51		166		661		195,999		196,660		—		5,076
Multifamily	—		—		—		—		3,566		3,566		—		—
All Other Loans	—		—		—		—		2,259		2,259		—		—
Total	$	1,301	$	540	$	312	$	2,153	$	514,972	$	517,125	$	8	$	6,991

Allowance For Loan Losses By Segment

Allowance for loan losses by segment at December 31, 2017, December 31, 2016 and December 31, 2015 were as follows:

	As of and for the Twelve Months Ended
	December 31, 2017
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	450		$	1,992		$	1,522		$	235		$	69		$	22		$	215		$	4,505
Charge-Offs	(19		)	(55		)	(1		)	(187		)	(59		)	(49		)	—			(370		)
Recoveries	535			212			65			44			40			5			—			901
Provision (recovery)	(634		)	(395		)	41			478			19			51			(185		)	(625		)
Ending balance	$	332		$	1,754		$	1,627		$	570		$	69		$	29		$	30		$	4,411
Ending balance: Individually evaluated for impairment	$	—		$	195		$	59		$	195		$	9		$	—		$	—		$	458
Ending balance: collectively evaluated for impairment	$	332		$	1,559		$	1,568		$	375		$	60		$	29		$	30		$	3,953
Loans:
Ending balance	$	52,354		$	227,305		$	239,915		$	37,427		$	10,187		$	2,050		$	—		$	569,238
Ending balance individually evaluated for impairment	$	315		$	8,315		$	1,904		$	858		$	34		$	—		$	—		$	11,426
Ending balance collectively evaluated for impairment	$	52,039		$	218,990		$	238,011		$	36,569		$	10,153		$	2,050		$	—		$	557,812

	As of and for the Twelve Months Ended
	December 31, 2016
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate		Commercial		Consumer			All Other Loans			Unallocated			Total
Allowance for credit losses:
Beginning Balance	$	775		$	2,322		$	1,268	$	211	$	109		$	53		$	221		$	4,959
Charge-Offs	—			(535		)	—		—		(30		)	(42		)	—			(607		)
Recoveries	144			124			8		11		49			5			—			341
Provision (recovery)	(469		)	81			246		13		(59		)	6			(6		)	(188		)
Ending balance	$	450		$	1,992		$	1,522	$	235	$	69		$	22		$	215		$	4,505
Ending balance: Individually evaluated for impairment	$	—		$	268		$	102	$	15	$	—		$	—		$	—		$	385
Ending balance: collectively evaluated for impairment	$	450		$	1,724		$	1,420	$	220	$	69		$	22		$	215		$	4,120
Loans:
Ending balance	$	31,791		$	231,532		$	208,525	$	30,341	$	12,677		$	2,259		$	—		$	517,125
Ending balance individually evaluated for impairment	$	1,320		$	8,608		$	2,864	$	581	$	7		$	—		$	—		$	13,380
Ending balance collectively evaluated for impairment	$	30,471		$	222,924		$	205,661	$	29,760	$	12,670		$	2,259		$	—		$	503,745

	As of and for the Twelve Months Ended
	December 31, 2015
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate			Commercial			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	(166		)	(152		)	(47		)	—			(66		)	(25		)	—		(456		)
Recoveries	75			142			115			181			33			16			—		562
Provision (recovery)	(85		)	355			(147		)	(434		)	39			20			25		(227		)
Ending balance	$	775		$	2,322		$	1,268		$	211		$	109		$	53		$	221	$	4,959
Ending balance: Individually evaluated for impairment	$	10		$	423		$	141		$	2		$	—		$	—		$	—	$	576
Ending balance: collectively evaluated for impairment	$	765		$	1,899		$	1,127		$	209		$	109		$	53		$	221	$	4,383
Loans:
Ending balance	$	41,569		$	233,626		$	175,172		$	29,366		$	13,530		$	2,413		$	—	$	495,676
Ending balance individually evaluated for impairment	$	1,392		$	7,209		$	4,555		$	847		$	—		$	—		$	—	$	14,003
Ending balance collectively evaluated for impairment	$	40,177		$	226,417		$	170,617		$	28,519		$	13,530		$	2,413		$	—	$	481,673

Impaired Loans By Class

Impaired loans by class at December 31, 2017 and December 31, 2016 were as follows:

	As of and for the Year Ended
	December 31, 2017
	(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	$	626	$	304	$	—	$	342	$	23
Commercial Real Estate:
Owner Occupied	330		331		—		336		15
Non-owner occupied	805		767		—		785		20
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	362		316		—		330		28
Consumer:
Installment	25		25		—		27		1
Residential:
Equity lines	—		—		—		—		—
Single family	7,371		6,985		—		7,069		124
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	9,519	$	8,728	$	—	$	8,889	$	211
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	595	$	556	$	195	$	567	$	17
Commercial Real Estate:
Owner Occupied	—		—		—		—		—
Non-owner occupied	806		809		59		817		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	9		9		9		9		—
Residential:
Equity lines	217		44		44		45		—
Single family	1,349		1,299		151		1,315		57
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	2,976	$	2,717	$	458	$	2,753	$	111
Total:
Commercial	$	1,221	$	860	$	195	$	909	$	40
Commercial Real Estate	1,941		1,907		59		1,938		72
Construction and Farmland	362		316		—		330		28
Consumer	34		34		9		36		1
Residential	8,937		8,328		195		8,429		181
Other	—		—		—		—		—
Total	$	12,495	$	11,445	$	458	$	11,642	$	322

(1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, and any partial charge-offs.

	As of and for the Year Ended
	December 31, 2016
	(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	$	311	$	299	$	—	$	356	$	21
Commercial Real Estate:
Owner Occupied	869		772		—		778		15
Non-owner occupied	1,298		1,066		—		1,137		13
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	1,320		1,324		—		1,358		75
Consumer:
Installment	8		8		—		9		—
Residential:
Equity lines	17		17		—		18		—
Single family	7,072		6,849		—		6,930		170
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	10,895	$	10,335	$	—	$	10,586	$	294
With an allowance recorded:
Commercial - Non Real Estate:
Commercial & Industrial	$	283	$	283	$	15	$	298	$	14
Commercial Real Estate:
Owner Occupied	203		203		37		205		10
Non-owner occupied	824		826		65		834		37
Construction and Farmland:
Residential	—		—		—		—		—
Commercial	—		—		—		—		—
Consumer:
Installment	—		—		—		—		—
Residential:
Equity lines	458		115		56		120		—
Single family	1,678		1,638		212		1,676		60
Multifamily	—		—		—		—		—
Other Loans	—		—		—		—		—
	$	3,446	$	3,065	$	385	$	3,133	$	121
Total:
Commercial	$	594	$	582	$	15	$	654	$	35
Commercial Real Estate	3,194		2,867		102		2,954		75
Construction and Farmland	1,320		1,324		—		1,358		75
Consumer	8		8		—		9		—
Residential	9,225		8,619		268		8,744		230
Other	—		—		—		—		—
Total	$	14,341	$	13,400	$	385	$	13,719	$	415

Credit Quality Information By Class

Credit quality information by class at December 31, 2017 and December 31, 2016 was as follows:

	As of
	December 31, 2017
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	33,279	$	1,788	$	1,748	$	612	$	—	$	—	$	37,427
Commercial Real Estate:
Owner Occupied	112,649		10,893		3,146		330		—		—		127,018
Non-owner occupied	82,050		17,992		12,088		767		—		—		112,897
Construction and Farmland:
Residential	2,614		600		—		—		—		—		3,214
Commercial	30,093		17,069		1,663		315		—		—		49,140
Residential:
Equity Lines	32,495		299		—		—		44		—		32,838
Single family	177,829		5,869		155		6,327		192		—		190,372
Multifamily	3,588		—		507		—		—		—		4,095
All other loans	2,050		—		—		—		—		—		2,050
Total	$	476,647	$	54,510	$	19,307	$	8,351	$	236	$	—	$	559,051

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	10,168	$	19

	As of
	December 31, 2016
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Pass Monitored		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	25,951	$	3,858	$	170	$	362	$	—	$	—	$	30,341
Commercial Real Estate:
Owner Occupied	99,365		13,050		1,766		742		431		—		115,354
Non-owner occupied	60,259		30,515		891		1,506		—		—		93,171
Construction and Farmland:
Residential	4,627		50		—		—		—		—		4,677
Commercial	21,105		5,349		314		346		—		—		27,114
Residential:
Equity Lines	30,791		382		—		17		116		—		31,306
Single family	182,404		6,850		724		6,533		149		—		196,660
Multifamily	3,032		534		—		—		—		—		3,566
All other loans	2,259		—		—		—		—		—		2,259
Total	$	429,793	$	60,588	$	3,865	$	9,506	$	696	$	—	$	504,448

	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	12,641	$	36

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Troubled Debt Restructurings (Tables)

12 Months Ended

Dec. 31, 2017

Troubled Debt Restructuring Note, Debtor [Abstract]

Schedule Of Troubled Debt Restructurings On Financing Receivables

The following tables set forth information on the Company’s troubled debt restructurings by class of financing receivable occurring during the years ended December 31, 2017, 2016 and 2015:

		For the Year Ended
		December 31, 2017
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Consumer:
Installment	1	$	22	$	22
Total	1	$	22	$	22
		For the Year Ended
		December 31, 2016
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Real Estate
Non-owner occupied	1	$	736	$	736
Residential:
Single family	4	560		463
Total	5	$	1,296	$	4
		For the Year Ended
		December 31, 2015
		(in thousands)
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential:
Single family	3	$	794	$	794
Total	3	$	794	$	794

Loans By Class Of Financing Receivable Modified As TDRs

Loans by class of financing receivable modified as TDRs within the previous 12 months and for which there was a payment default during the stated periods were:

	For the Year Ended
	December 31, 2017
	(in thousands)
	Number of Contracts	Recorded Investment
Total	—	$	—
	For the Year Ended
	December 31, 2016
	(in thousands)
	Number of Contracts	Recorded Investment
Residential:
Single family	2	$	588
Total	2	$	588
	For the Year Ended
	December 31, 2015
	(in thousands)
	Number of Contracts	Recorded Investment
Commercial - Non Real Estate:
Commercial & Industrial	1	$	267
Residential:
Equity	1	60
Single family	2	627
Total	4	$	954

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Bank Premises and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

Major Classes Of Bank Premises And Equipment And Total Accumulated Depreciation

The major classes of bank premises and equipment and the total accumulated depreciation at December 31, 2017 and 2016 were as follows:

	December 31,
	2017		2016
	(in thousands)
Land	$	6,729	$	6,729
Buildings and improvements	17,970		17,928
Furniture and equipment	7,100		6,876
	$	31,799	$	31,533
Less accumulated depreciation	12,220		11,364
Bank premises and equipment, net	$	19,579	$	20,169

Schedule Of Total Minimum Rental Commitment On Leased Facilities

The total minimum rental commitment at December 31, 2017 under this lease was due as follows:

	December 31, 2017
	(in thousands)
2018	$	200
2019	200
2020	213
2021	220
2022	220
Thereafter	1,724
	$	2,777

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Deposits (Tables)

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

Composition Of Deposits

The composition of deposits at December 31, 2017 and December 31, 2016 was as follows:

	December 31,
	2017		2016
	(in thousands)
Noninterest bearing demand deposits	$	234,990	$	208,948
Savings and interest bearing demand deposits:
NOW accounts	$	91,288	$	85,944
Money market accounts	129,497		126,632
Regular savings accounts	102,163		94,271
	$	322,948	$	306,847
Time deposits:
Balances of less than $250,000	$	62,681	$	67,159
Balances of $250,000 and more	42,795		20,923
	$	105,476	$	88,082
	$	663,414	$	603,877

Maturities Of Time Deposits

The outstanding balance of time deposits at December 31, 2017 was due as follows:

	December 31, 2017
	(in thousands)
2018	$	89,860
2019	7,324
2020	2,032
2021	4,583
2022	1,656
Thereafter	21
	$	105,476

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2017

Advances from Federal Home Loan Banks [Abstract]

Summary Of Information Related To Federal Funds Purchased

The following table summarizes information related to federal funds purchased for the years ended December 31, 2017 and 2016:

	December 31,
	2017			2016
	(dollars in thousands)
Balance at year-end	$	—		$	—
Average balance during the year	$	823		$	73
Average interest rate during the year	1.64		%	0.81		%
Maximum month-end balance during the year	$	3,413		$	1,302
Gross lines of credit at year-end	$	28,000		$	36,000
Unused lines of credit at year-end	$	28,000		$	36,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Schedule Of Net Deferred Tax Assets

The net deferred tax asset at December 31, 2017 and 2016 consisted of the following components:

	December 31,
	2017		2016
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	922	$	1,525
Deferred compensation	72		117
Accrued postretirement benefits	23		40
Home equity origination costs	46		73
Nonaccrual interest	101		151
Securities available for sale	—		32
Other	53		193
	$	1,217	$	2,131
Deferred tax liabilities:
Property and equipment	$	506	$	814
Securities available for sale	71		—
	$	577	$	814
Net deferred tax asset	$	640	$	1,317

Schedule Of Components Of Income Tax Expense

Income tax expense for the years ended December 31, 2017, 2016 and 2015 consisted of the following components:

	December 31,
	2017		2016		2015
	(in thousands)
Current tax expense	$	3,094	$	2,346	$	2,001
Deferred tax expense	135		207		432
Deferred tax adjustment for enacted rate change	397		—		—
	$	3,626	$	2,553	$	2,433

Schedule Of Income Tax Reconciliation

The following table reconciles income tax expense to the statutory federal corporate income tax amount, which was calculated by applying the federal corporate income tax rate to pre-tax income for the years ended December 31, 2017, 2016 and 2015.

	December 31,
	2017			2016			2015
	(in thousands)
Statutory federal corporate tax amount	$	3,880		$	3,034		$	3,172
Tax-exempt interest (income)	(417		)	(387		)	(404		)
Officer insurance (income) loss	(92		)	15			11
Net tax credits	(165		)	(126		)	(105		)
Corporate tax rate change	397			—			—
Other, net	23			17			(241		)
	$	3,626		$	2,553		$	2,433

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Pension and Postretirement Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2017

Defined Benefit Plan [Abstract]

Reconciliation Of The Changes In The Benefit Obligations

The following tables provide a reconciliation of the changes in the benefit obligations and fair value of assets for 2017, 2016, and 2015 and a statement of the funded status at December 31, 2017, 2016 and 2015 for the postretirement benefit plans of the Company. The Company uses a December 31st measurement date for its plans.

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Change in Benefit Obligation:
Benefit obligation, beginning	$	118		$	128		$	137
Service cost	—			—			—
Interest cost	3			4			4
Actuarial (gain) loss	(4		)	(7		)	(6		)
Benefits paid	(8		)	(7		)	(7		)
Settlement loss	—			—			—
Benefit obligation, ending	$	109		$	118		$	128
Change in Plan Assets:
Fair value of plan assets, beginning	$	—		$	—		$	—
Actual return on plan assets	—			—			—
Employer contributions	8			7			7
Benefits paid	(8		)	(7		)	(7		)
Fair value of plan assets, ending	$	—		$	—		$	—
	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Funded Status:
Funded status	$	(109	)	$	(118	)	$	(128	)
Unrecognized net actuarial loss	—			—			—
Unrecognized net transition obligation	—			—			—
Unrecognized prior service cost	—			—			—
Accrued benefits	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Consolidated Balance Sheets:
Prepaid benefit cost	$	—		$	—		$	—
Accrued liability	(109		)	(118		)	(128		)
	$	(109	)	$	(118	)	$	(128	)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net actuarial (gain)	$	(54	)	$	(58	)	$	(58	)
Net transition obligation	—			—			—
Deferred tax liability	10			19			19
	$	(44	)	$	(39	)	$	(39	)

Net Periodic Benefit Cost Of The Pension Plan And Postretirement Benefit Plan

The following tables provide the components of net periodic benefit cost of the postretirement benefit plan for the years ended December 31, 2017, 2016, and 2015:

	Postretirement Benefits Plan
	2017			2016			2015
	(in thousands)
Components of Net Periodic Benefit Cost:
Service cost	$	—		$	—		$	—
Interest cost	3			4			4
Expected return on plan assets	—			—			—
Amortization of prior service costs	—			—			—
Amortization of transition obligation	—			—			—
Recognized net loss due to settlement	—			—			—
Amortization of net actuarial gain	(7		)	(6		)	(6		)
Net periodic benefit cost	$	(4	)	$	(2	)	$	(2	)

Schedule Of Estimated Future Benefit Payments

Estimated future benefit payments at December 31, 2017, which reflect expected future service, as appropriate, were as follows:

	Postretirement Benefits
	(in thousands)
2018	$	15
2019	14
2020	14
2021	13
2022	12
2023 - 2027	39

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2017

Share-based Compensation [Abstract]

Restricted Stock Activity

The following table presents the activity for Restricted Stock for the years ended December 31, 2017, 2016 and 2015:

	Twelve Months Ended
	December 31,
	2017				2016				2015
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested, beginning of period	14,901		$	23.05	14,401		$	22.98	15,151		$	22.27
Granted	14,650		27.46		14,650		23.07		14,650		23.85
Vested	(14,493	)	25.90		(13,196	)	23.00		(14,363	)	23.09
Forfeited	(657	)	23.00		(954	)	23.00		(1,037	)	23.50
Nonvested, end of period	14,401		$	24.68	14,901		$	23.05	14,401		$	22.98

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Derivative Instruments and Hedging Activities (Tables)

12 Months Ended

Dec. 31, 2017

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Effect Of The Derivative Instrument On The Consolidated Balance Sheet, Consolidated Statements Of Income

The following tables present the effect of the derivative instrument on the Consolidated Statements of Income for December 31, 2017, 2016, and 2015:

Derivatives not designated as hedging instruments under GAAP	Location of Gain  (Loss) Recognized in Income	Amount of Gain  (Loss) Recognized in Income
		2017		2016		2015
		(dollars in thousands)
Interest rate swap contracts, net of tax	Other operating income	$	—	$	149	88

The balance of the interest rate swap liability was $237 thousand at the time of the redemption of the Company's trust preferred debt on July 29, 2015. The total amount recorded in accumulated other comprehensive income at that date was reclassified to earnings due to the derecognition of the cash flow hedge. Subsequent to the redemption of the debt and reclassification, the interest rate swap derivative was adjusted to its fair value resulting in a $149 thousand and $88 thousand gain recorded in Other operating income in the Consolidated Statements of Income for the twelve months ended December 31, 2016 and 2015, respectively.

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Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

Schedule Of Capital Requirements

The following table presents the Company’s and the Bank’s actual capital amounts and ratios at December 31, 2017 and 2016:

									Minimum To Be Well
					Minimum Capital				Capitalized Under Prompt Corrective
	Actual				Requirement				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(dollars in thousands)
December 31, 2017:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	83,507	14.45	%	$	26,003	4.50	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	25,622	4.50	%	$	37,009	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	87,959	15.22	%	$	46,228	8.00	%	N/A
Bank of Clarke County	$	84,583	14.86	%	$	45,550	8.00	%	$	56,938	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	83,507	14.45	%	$	34,671	6.00	%	N/A
Bank of Clarke County	$	80,150	14.08	%	$	34,163	6.00	%	$	45,550	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	83,507	11.21	%	$	29,810	4.00	%	N/A
Bank of Clarke County	$	80,150	10.86	%	$	29,511	4.00	%	$	36,889	5.00	%
December 31, 2016:
Common Equity Tier 1 Capital to Risk
Weighted Assets
Consolidated	$	79,440	15.68	%	$	22,798	4.50	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	22,666	4.50	%	$	32,740	6.50	%
Total Capital to Risk Weighted Assets
Consolidated	$	83,977	16.58	%	$	40,531	8.00	%	N/A
Bank of Clarke County	$	80,640	16.01	%	$	40,295	8.00	%	$	50,369	10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	79,440	15.68	%	$	30,398	6.00	%	N/A
Bank of Clarke County	$	76,124	15.11	%	$	30,221	6.00	%	$	40,295	8.00	%
Tier 1 Capital to Average Assets
Consolidated	$	79,440	11.84	%	$	26,848	4.00	%	N/A
Bank of Clarke County	$	76,124	11.40	%	$	26,711	4.00	%	$	33,389	5.00	%

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Financial Instruments with Off-Balance-Sheet Risk (Tables)

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule Of Financial Instruments

At December 31, 2017 and 2016, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2017		2016
	(dollar in thousands)
Commitments to extend credit	$	3,959	$	27,144
Unfunded commitments under lines of credit	108,483		100,530
Commercial and standby letters of credit	8,437		5,897

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Quarterly Condensed Statements of Income (Tables)

12 Months Ended

Dec. 31, 2017

Quarterly Financial Information Disclosure [Abstract]

Schedule Of Quarterly Condensed Statements Of Income

The Company’s quarterly net income, net income per common share and dividends per common share during 2017, 2016 and 2015 are summarized as follows:

	2017 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,566	$	7,004	$	7,458	$	7,323
Net interest income after (recovery of) loan losses	6,890		6,985		7,109		6,838
Noninterest income	1,673		1,598		1,617		1,892
Noninterest expenses	5,711		5,747		5,909		5,823
Income before income taxes	2,852		2,836		2,817		2,907
Net income	2,042		2,027		2,007		1,710
Net income per common share, basic	0.59		0.58		0.58		0.49
Net income per common share, diluted	0.59		0.58		0.58		0.49
Dividends per common share	0.22		0.22		0.22		0.22
	2016 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	6,421	$	6,642	$	6,279	$	6,443
Net interest income after (recovery of) loan losses	6,035		6,345		6,162		6,364
Noninterest income	1,635		1,738		1,687		1,609
Noninterest expenses	5,554		5,832		5,871		5,395
Income before income taxes	2,116		2,251		1,978		2,578
Net income	1,525		1,610		1,430		1,805
Net income per common share, basic	0.43		0.46		0.40		0.52
Net income per common share, diluted	0.43		0.46		0.40		0.52
Dividends per common share	0.20		0.20		0.20		0.22
	2015 Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
Total interest and dividend income	$	5,938	$	6,121	$	6,265	$	6,169
Net interest income after (recovery of) loan losses	5,408		5,494		6,354		6,117
Noninterest income	1,629		1,644		3,830		1,335
Noninterest expenses	5,058		6,131		5,518		5,774
Income before income taxes	1,979		1,007		4,666		1,678
Net income	1,455		798		3,289		1,355
Net income per common share, basic	0.42		0.23		0.94		0.38
Net income per common share, diluted	0.42		0.23		0.94		0.38
Dividends per common share	0.20		0.20		0.20		0.20

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Financial Assets And Liabilities Measured At Fair Value On A Recurring Basis

The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and December 31, 2016:

			Fair Value Measurements at
			December 31, 2017
			Using
	Balance as of		Quoted Prices in  Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	21,520	$	—	$	21,520	$	—
Mortgage-backed securities	61,244		—		61,244		—
Obligations of states and political subdivisions	49,802		—		49,259		543
Total assets at fair value	$	132,566	$	—	$	132,023	$	543
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—
			Fair Value Measurements at
			December 31, 2016
			Using
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Securities available for sale
Obligations of U.S. government corporations and agencies	$	30,441	$	—	$	30,441	$	—
Mortgage-backed securities	42,372		—		42,372		—
Obligations of states and political subdivisions	46,449		—		45,835		614
Total assets at fair value	$	119,262	$	—	$	118,648	$	614
Liabilities:
Total liabilities at fair value	$	—	$	—	$	—	$	—

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The table below presents a reconciliation for all assets measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended December 31, 2017 and 2016.

	Level 3 Recurring Fair Value Measurements
	As of and for the Year Ended
	December 31, 2017			December 31, 2016
	(in thousands)
Beginning balance	$	614		$	684
Purchases	—			—
Sales	—			—
Issuances	—			—
Settlements	(71		)	(70		)
Total assets at fair value	$	543		$	614

Quantitative Information About Level 3 Fair Value Measurements For Certain Financial Assets

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for December 31, 2017 and December 31, 2016:

	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2017
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	6% - 12%	7%
Impaired loans	Present value of cash flows	Discount rate	4% - 10%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%
	Quantitative information about Level 3 Fair Value Measurements for
	December 31, 2016
	Valuation Technique(s)	Unobservable Input	Range	Weighted Average
Assets:
Impaired loans	Discounted appraised value	Selling cost	12%	12%
Impaired loans	Present value of cash flows	Discount rate	4% - 7%	5%
Other real estate owned	Discounted appraised value	Selling cost	6%	6%

Financial And Nonfinancial Assets Measured At Fair Value On A Nonrecurring Basis

The following table summarizes the Company’s financial and nonfinancial assets that were measured at fair value on a nonrecurring basis at December 31, 2017 and December 31, 2016:

			Carrying value at
			December 31, 2017
	Balance as of		Identical Assets		Observable Inputs		Unobservable Inputs
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,248	$	—	$	—	$	2,248
Nonfinancial Assets:
Other real estate owned	106		—		—		106
			Carrying value at
			December 31, 2016
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Financial Assets:
Impaired loans	$	2,671	$	—	$	—	$	2,671
Nonfinancial Assets:
Other real estate owned	370		—		—		370

Company's Financial Instruments

The carrying amount and fair value of the Company’s financial instruments at December 31, 2017 and 2016 were as follows:

	Fair Value Measurements at
	December 31, 2017
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2017		(Level 1)		(Level 2)		(Level 3)		December 31, 2017
	(in thousands)
Financial Assets:
Cash and short-term investments	$	35,848	$	35,848	$	—	$	—	$	35,848
Securities	132,566		—		132,023		543		132,566
Restricted Investments	1,107		—		1,107		—		1,107
Loans, net	564,406		—		—		559,665		559,665
Bank owned life insurance	486		—		486		—		486
Accrued interest receivable	1,955		—		1,955		—		1,955
Financial Liabilities:
Deposits	$	663,414	$	—	$	662,696	$	—	$	662,696
Accrued interest payable	44		—		44		—		44

	Fair Value Measurements at
	December 31, 2016
	Using
	Carrying Value as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value as of
	December 31, 2016		(Level 1)		(Level 2)		(Level 3)		December 31, 2016
	(in thousands)
Financial assets:
Cash and short-term investments	$	35,281	$	35,281	$	—	$	—	$	35,281
Securities	119,262		—		118,648		614		119,262
Restricted Investments	1,068		—		1,068		—		1,068
Loans, net	512,437		—		—		512,181		512,181
Bank owned life insurance	1,769		—		1,769		—		1,769
Accrued interest receivable	588		—		588		—		588
Financial liabilities:
Deposits	$	603,877	$	—	$	603,516	$	—	$	603,516
Accrued interest payable	34		—		34		—		34

XML

Change in Accumulated Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2017

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Changes To Accumulated Other Comprehensive Income By Components

Changes to accumulated other comprehensive income (loss) by components are shown in the following tables for the years ended December 31, 2017, 2016, and 2015:

	Twelve Months Ended
	December 31,
	2017									2016								2015
	Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan			Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total			Unrealized Gains and Losses on Available for Sale Securities			Change in Fair Value of Interest Rate Swap			Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan		Total
	(dollars in thousands)
January 1	$	(63	)	$	39		$	(24	)	$	1,012		$	39	$	1,051		$	1,466		$	(190	)	$	39	$	1,315
Other comprehensive income (loss) before reclassifications	422			4			426			(1,531		)	—		(1,531		)	(564		)	52			—		(512		)
Reclassifications from other comprehensive income (loss)	10			(7		)	3			(98		)	—		(98		)	(124		)	237			—		113
Reclassification of stranded tax effects from change in tax rate	44			7			51			—			—		—			—			—			—		—
Tax effect of current period changes	(147		)	1			(146		)	554			—		554			234			(99		)	—		135
Current period changes net of taxes	329			5			334			(1,075		)	—		(1,075		)	(454		)	190			—		(264		)
December 31	$	266		$	44		$	310		$	(63	)	$	39	$	(24	)	$	1,012		$	—		$	39	$	1,051

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Condensed Financial Information - Parent Company Only (Tables)

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule Of Condensed Balance Sheets

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Balance Sheets

December 31, 2017 and 2016

(dollars in thousands)

	2017		2016
Assets
Cash held in subsidiary bank	$	426	$	391
Loans, net of allowance	2,825		2,881
Investment in subsidiaries, at cost, plus undistributed net income	80,459		76,099
Other assets	107		45
Total assets	$	83,817	$	79,416
Liabilities and Shareholders’ Equity
Total liabilities	$	—	$	—
Shareholders’ Equity
Preferred stock	$	—	$	—
Common stock	8,587		8,633
Surplus	12,075		12,642
Retained earnings	62,845		58,165
Accumulated other comprehensive income (loss)	310		(24		)
Total shareholders’ equity	$	83,817	$	79,416
Total liabilities and shareholders’ equity	$	83,817	$	79,416

Schedule Of Condensed Income Statement

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Income

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Income
Dividends from subsidiary bank	$	3,800		$	4,350		$	6,576
Interest and fees on loans	106			97			52
Other interest and dividends	—			2			11
Gain on redemption of trust preferred debt	—			—			2,424
Other income (loss)	—			149			(121		)
Total income	$	3,906		$	4,598		$	8,942
Expenses
Interest expense on borrowings	$	—		$	143		$	260
Other operating expenses	255			211			260
Total expenses	$	255		$	354		$	520
Income before income tax (benefit) expense and equity (deficit) in undistributed earnings of subsidiary bank	$	3,651		$	4,244		$	8,422
Income Tax (Benefit) Expense	(58		)	(36		)	629
Income before equity (deficit) in undistributed earnings of subsidiary bank	$	3,709		$	4,280		$	7,793
Equity (Deficit) in Undistributed Net Income of Subsidiary Bank	4,077			2,090			(896		)
Net income	$	7,786		$	6,370		$	6,897
Comprehensive income	$	8,069		$	5,295		$	6,633

Schedule Of Condensed Cash Flows Statement

EAGLE FINANCIAL SERVICES , INC.

(Parent Company Only)

Statements of Cash Flows

Years Ended December 31, 2017, 2016, and 2015

(dollars in thousands)

	2017			2016			2015
Cash Flows from Operating Activities
Net Income	$	7,786		$	6,370		$	6,897
Adjustments to reconcile net income to net cash provided by operating activities
(Recovery of) Provision for loan losses	(2		)	(2		)	23
(Gain) on the sale of securities	—			—			(27		)
(Gain) on the redemption of trust preferred capital notes	—			—			(2,424		)
Loss on derecognition of cash flow hedge	—			—			237
Fair value adjustment on derivative contract	—			(149		)	(88		)
Stock-based compensation expense	382			314			328
Undistributed earnings of subsidiary bank	(4,077		)	(2,090		)	896
Changes in assets and liabilities:
(Increase) decrease in other assets	(62		)	(39		)	294
(Decrease) increase in other liabilities	—			(568		)	814
Net cash provided by operating activities	$	4,027		$	3,836		$	6,950
Cash Flows from Investing Activities
Proceeds from the sale of securities available for sale	$	—		$	—		$	1,009
Proceeds from maturities of securities available for sale	—			—			385
Net decrease (increase) in loans	58			62			(2,963		)
Net cash provided by (used in) investing activities	$	58		$	62		$	(1,569	)
Cash Flows from Financing Activities
Redemption of trust preferred capital notes	$	—		$	—		$	(4,793	)
Cash dividends paid	(2,652		)	(2,354		)	(2,064		)
Issuance of common stock, employee benefit plan	166			81			187
Retirement of common stock	(1,564		)	(2,143		)	—
Net cash (used in) financing activities	$	(4,050	)	$	(4,416	)	$	(6,670	)
Increase (decrease) in cash	$	35		$	(518	)	$	(1,289	)
Cash
Beginning	$	391		$	909		$	2,198
Ending	$	426		$	391		$	909

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Other Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2017

Banking and Thrift [Abstract]

Other Real Estate, Roll Forward

	Year Ended			Year Ended
	December 31,			December 31,
	2017			2016
Balance, beginning	$	370		$	571
Net loans transferred to OREO	53			666
Sales	(317		)	(890		)
Valuation adjustments	—			23
Balance, ending	$	106		$	370

Schedule of Real Estate Properties

	As of
	December 31, 2017		December 31, 2016
	(in thousands)
Construction and Farmland	$	106	$	155
Residential Real Estate	—		215
Commercial Real Estate	—		—
Subtotal	$	106	$	370
Less valuation allowance	—		—
Total	$	106	$	370

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Nature of Banking Activities and Significant Accounting Policies (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jun. 21, 2017
Property, Plant and Equipment [Line Items]
Ownership percentage in subsidiaries	100.00%
Period interest on mortgage loans is discontinued	120 days
Period Interest on commercial loans discontinued	90 days
Credit card loans and other personal loans are charged off	180 days
Limit of the estimated appraised value of the furnished home	80.00%
Authorized issuance of shares of common stock	500,000
"More likely than not" threshold	50.00%
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0
Number of shares of common stock able to be repurchased			150,000
Treasury Stock, Shares, Retired	52,936	89,607
Stock Repurchased and Retired During Period, Value	$ 29.54	$ 23.92
Maximum numbers of shares that may yet be purchased under plan	111,115
Building [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	39 years
Building [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Furniture and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Furniture and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years

XML

Nature of Banking Activities and Significant Accounting Policies (Weighted Average Number of Shares Used In Computing Earnings Per Share) (Details) - shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Weighted average number of common shares outstanding used to calculate basic earnings per share (in shares)	3,468,275	3,518,848	3,495,334
Effect of dilutive common stock (in shares)	0	0	0
Weighted average number of common shares outstanding used to calculate diluted earnings per share (in shares)	3,468,275	3,518,848	3,495,334

XML

Securities (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) security	Dec. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($)
Available-for-sale Securities [Abstract]
Sales and calls of securities available for sale	$ 20,283	$ 11,356	$ 3,653
Available-for-sale Securities, Gross Realized Gain (Loss)	94	108	$ 124
Available-for-sale Securities, Gross Realized Losses	$ 104	$ 10
Debt securities included in gross unrealized losses on available for sale securities | security	54	80
Carrying value of securities pledged as collateral	$ 2,600

XML

Securities (Amortized Costs and Fair Values of Securities Available for Sale) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 132,228	$ 119,356
Gross Unrealized Gains	1,128	1,233
Gross Unrealized (Losses)	(790)	(1,327)
Securities available for sale	132,566	119,262
Obligations of U.S. government corporations and agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	21,565	30,404
Gross Unrealized Gains	213	316
Gross Unrealized (Losses)	(258)	(279)
Securities available for sale	21,520	30,441
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	61,464	42,681
Gross Unrealized Gains	126	147
Gross Unrealized (Losses)	(346)	(456)
Securities available for sale	61,244	42,372
Obligations of states and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	49,199	46,271
Gross Unrealized Gains	789	770
Gross Unrealized (Losses)	(186)	(592)
Securities available for sale	$ 49,802	$ 46,449

XML

Securities (Restricted Investments) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Carrying Value Qualitative Disclosures Related To Election [Line Items]
Restricted securities	$ 1,107	$ 1,068
Federal Reserve Bank Stock [Member]
Carrying Value Qualitative Disclosures Related To Election [Line Items]
Restricted securities	344	344
Federal Home Loan Bank Stock [Member]
Carrying Value Qualitative Disclosures Related To Election [Line Items]
Restricted securities	623	584
Community Bankers' Bank Stock [Member]
Carrying Value Qualitative Disclosures Related To Election [Line Items]
Restricted securities	$ 140	$ 140

XML

Securities (Contractual Maturity of Securities Available for Sale) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale Securities, Debt Maturities, Single Maturity Date, Amortized Cost Basis [Abstract]
Due in one year or less, Amortized Cost	$ 4,596
Due after one year through five years, Amortized Cost	14,275
Due after five years through ten years, Amortized Cost	44,832
Due after ten years, Amortized Cost	68,525
Amortized Cost	132,228	$ 119,356
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Due in one year or less, Fair Value	4,619
Due after one year through five years, Fair Value	14,597
Due after five years through ten years, Fair Value	44,927
Due after ten years, Fair Value	68,423
Fair Value	$ 132,566	$ 119,262

XML

Securities (Fair Value and Gross Unrealized Losses for Securities Available for Sale) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Fair Value, Less than 12 months	$ 20,411	$ 63,965
Fair Value, 12 months or more	30,433	0
Fair Value, Total	50,844	63,965
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Loss [Abstract]
Gross Unrealized Losses, Less than 12 months	144	1,327
Gross Unrealized Losses, 12 months or more	646	0
Gross Unrealized Losses, Total	790	1,327
Obligations of U.S. government corporations and agencies [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Fair Value, Less than 12 months	4,455	19,129
Fair Value, 12 months or more	7,810	0
Fair Value, Total	12,265	19,129
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Loss [Abstract]
Gross Unrealized Losses, Less than 12 months	58	279
Gross Unrealized Losses, 12 months or more	200	0
Gross Unrealized Losses, Total	258	279
Mortgage-backed securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Fair Value, Less than 12 months	11,885	28,013
Fair Value, 12 months or more	17,931	0
Fair Value, Total	29,816	28,013
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Loss [Abstract]
Gross Unrealized Losses, Less than 12 months	59	456
Gross Unrealized Losses, 12 months or more	287	0
Gross Unrealized Losses, Total	346	456
Obligations of states and political subdivisions [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Fair Value, Less than 12 months	4,071	16,823
Fair Value, 12 months or more	4,692	0
Fair Value, Total	8,763	16,823
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Loss [Abstract]
Gross Unrealized Losses, Less than 12 months	27	592
Gross Unrealized Losses, 12 months or more	159	0
Gross Unrealized Losses, Total	$ 186	$ 592

XML

Loans (Schedule of Composition of Loans) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	$ 569,238	$ 517,125	$ 495,676
Net deferred loan fees	(421)	(183)
Less: Allowance for loan losses	(4,411)	(4,505)
Net Loans	564,406	512,437
Construction and land development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	43,786	23,266
Secured by farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	8,568	8,525
Secured by 1-4 family residential properties [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	223,210	227,966
Multifamily [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	4,095	3,566
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	239,915	208,525	$ 175,172
Commercial and industrial loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	37,427	30,341
Consumer installment loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	10,187	12,677
All other loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	$ 2,050	$ 2,259

XML

Allowance for Loan Losses (Narrative) (Details) $ in Thousands	Dec. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($) loan
Financing Receivable, Recorded Investment [Line Items]
Credit Quality Loans And Leases Receivable Gross Carrying Amount	$ 559,051	$ 504,448
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Credit Quality Loans And Leases Receivable Gross Carrying Amount	$ 8,351	$ 9,506
Consumer Installment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Credit Quality Loans And Leases Receivables Number Of Loans | loan	3	1
Credit Quality Loans And Leases Receivable Gross Carrying Amount	$ 13	$ 5

XML

Allowance for Loan Losses (Changes in Allowance for Loan Losses) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 4,505	$ 4,959	$ 5,080
(Recovery Of) Loan Losses	(625)	(188)	(227)
Recoveries added to the allowance	901	341	562
Loan losses charged to the allowance	(370)	(607)	(456)
Ending Balance	$ 4,411	$ 4,505	$ 4,959

XML

Allowance for Loan Losses (Nonaccrual and Past Due Loans By Class) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	$ 6,280	$ 2,153
Current	562,958	514,972
Total Loans	569,238	517,125	$ 495,676
90 or More Days Past Due Still Accruing	0	8
Nonaccrual Loans	6,339	6,991
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,126	1,301
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	950	540
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4,204	312
Commercial - Non Real Estate Commercial And Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	227	118
Current	37,200	30,223
Total Loans	37,427	30,341
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	594	278
Commercial - Non Real Estate Commercial And Industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	75	69
Commercial - Non Real Estate Commercial And Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	10	49
Commercial - Non Real Estate Commercial And Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	142	0
Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	534
Current	127,018	114,820
Total Loans	127,018	115,354
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	0	431
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	150
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	384
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial Real Estate Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	368	189
Current	112,529	92,982
Total Loans	112,897	93,171
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	767	1,066
Commercial Real Estate Non-Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial Real Estate Non-Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	368	54
Commercial Real Estate Non-Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	135
Construction And Farmland Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	50
Current	3,214	4,627
Total Loans	3,214	4,677
90 or More Days Past Due Still Accruing	0	0
Construction And Farmland Residential [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	50
Construction And Farmland Residential [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction And Farmland Residential [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0
Construction And Farmland Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	187	499
Current	48,953	26,615
Total Loans	49,140	27,114
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	0	0
Construction And Farmland Commercial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	187	499
Construction And Farmland Commercial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction And Farmland Commercial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Consumer Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	19	36
Current	10,168	12,641
Total Loans	10,187	12,677
90 or More Days Past Due Still Accruing	0	8
Nonaccrual Loans	13	8
Consumer Installment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	17	23
Consumer Installment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	2
Consumer Installment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2	11
Residential Equity Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	18	66
Current	32,820	31,240
Total Loans	32,838	31,306
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	44	132
Residential Equity Lines [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	18	66
Residential Equity Lines [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Residential Equity Lines [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Residential Single Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	5,461	661
Current	184,911	195,999
Total Loans	190,372	196,660
90 or More Days Past Due Still Accruing	0	0
Nonaccrual Loans	4,921	5,076
Residential Single Family [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	829	444
Residential Single Family [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	572	51
Residential Single Family [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	4,060	166
Residential Multifamily [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	4,095	3,566
Total Loans	4,095	3,566
90 or More Days Past Due Still Accruing	0	0
All Other Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	2,050	2,259
Total Loans	2,050	2,259	$ 2,413
90 or More Days Past Due Still Accruing	$ 0	$ 0

XML

Allowance for Loan Losses (Allowance for Loan Losses By Segment) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	$ 4,505	$ 4,959	$ 5,080
Charge-Offs	(370)	(607)	(456)
Recoveries	901	341	562
(Recovery of) loan losses	(625)	(188)	(227)
Ending Balance	4,411	4,505	4,959
Ending balance: Individually evaluated for impairment	458	385	576
Ending balance: collectively evaluated for impairment	3,953	4,120	4,383
Loans: Ending balance	569,238	517,125	495,676
Ending balance individually evaluated for impairment	11,426	13,380	14,003
Ending balance collectively evaluated for impairment	557,812	503,745	481,673
Construction And Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	450	775	951
Charge-Offs	(19)	0	(166)
Recoveries	535	144	75
(Recovery of) loan losses	(634)	(469)	(85)
Ending Balance	332	450	775
Ending balance: Individually evaluated for impairment	0	0	10
Ending balance: collectively evaluated for impairment	332	450	765
Loans: Ending balance	52,354	31,791	41,569
Ending balance individually evaluated for impairment	315	1,320	1,392
Ending balance collectively evaluated for impairment	52,039	30,471	40,177
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,992	2,322	1,977
Charge-Offs	(55)	(535)	(152)
Recoveries	212	124	142
(Recovery of) loan losses	(395)	81	355
Ending Balance	1,754	1,992	2,322
Ending balance: Individually evaluated for impairment	195	268	423
Ending balance: collectively evaluated for impairment	1,559	1,724	1,899
Loans: Ending balance	227,305	231,532	233,626
Ending balance individually evaluated for impairment	8,315	8,608	7,209
Ending balance collectively evaluated for impairment	218,990	222,924	226,417
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	1,522	1,268	1,347
Charge-Offs	(1)	0	(47)
Recoveries	65	8	115
(Recovery of) loan losses	41	246	(147)
Ending Balance	1,627	1,522	1,268
Ending balance: Individually evaluated for impairment	59	102	141
Ending balance: collectively evaluated for impairment	1,568	1,420	1,127
Loans: Ending balance	239,915	208,525	175,172
Ending balance individually evaluated for impairment	1,904	2,864	4,555
Ending balance collectively evaluated for impairment	238,011	205,661	170,617
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	235	211	464
Charge-Offs	(187)	0	0
Recoveries	44	11	181
(Recovery of) loan losses	478	13	(434)
Ending Balance	570	235	211
Ending balance: Individually evaluated for impairment	195	15	2
Ending balance: collectively evaluated for impairment	375	220	209
Loans: Ending balance	37,427	30,341	29,366
Ending balance individually evaluated for impairment	858	581	847
Ending balance collectively evaluated for impairment	36,569	29,760	28,519
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	69	109	103
Charge-Offs	(59)	(30)	(66)
Recoveries	40	49	33
(Recovery of) loan losses	19	(59)	39
Ending Balance	69	69	109
Ending balance: Individually evaluated for impairment	9	0	0
Ending balance: collectively evaluated for impairment	60	69	109
Loans: Ending balance	10,187	12,677	13,530
Ending balance individually evaluated for impairment	34	7	0
Ending balance collectively evaluated for impairment	10,153	12,670	13,530
All Other Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	22	53	42
Charge-Offs	(49)	(42)	(25)
Recoveries	5	5	16
(Recovery of) loan losses	51	6	20
Ending Balance	29	22	53
Ending balance: Individually evaluated for impairment	0	0	0
Ending balance: collectively evaluated for impairment	29	22	53
Loans: Ending balance	2,050	2,259	2,413
Ending balance individually evaluated for impairment	0	0	0
Ending balance collectively evaluated for impairment	2,050	2,259	2,413
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning Balance	215	221	196
Charge-Offs	0	0	0
Recoveries	0	0	0
(Recovery of) loan losses	(185)	(6)	25
Ending Balance	30	215	221
Ending balance: Individually evaluated for impairment		0	0
Ending balance: collectively evaluated for impairment	30	215	221
Loans: Ending balance	0	0	0
Ending balance individually evaluated for impairment		$ 0	$ 0
Ending balance collectively evaluated for impairment	$ 0

XML

Allowance for Loan Losses (Impaired Loans By Class) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	$ 12,495	$ 14,341
Recorded Investment	11,445	13,400
Related Allowance	458	385
Average Recorded Investment	11,642	13,719	$ 14,400
Interest Income Recognized	322	415	$ 404
Consumer Installment [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	34	8
Recorded Investment	34	8
Related Allowance	9	0
Average Recorded Investment	36	9
Interest Income Recognized	1	0
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,221	594
Recorded Investment	860	582
Related Allowance	195	15
Average Recorded Investment	909	654
Interest Income Recognized	40	35
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,941	3,194
Recorded Investment	1,907	2,867
Related Allowance	59	102
Average Recorded Investment	1,938	2,954
Interest Income Recognized	72	75
Construction And Farmland [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	362	1,320
Recorded Investment	316	1,324
Related Allowance	0	0
Average Recorded Investment	330	1,358
Interest Income Recognized	28	75
Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	8,937	9,225
Recorded Investment	8,328	8,619
Related Allowance	195	268
Average Recorded Investment	8,429	8,744
Interest Income Recognized	181	230
All Other Loans [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized		0
With No Related Allowance [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	9,519	10,895
Recorded Investment	8,728	10,335
Average Recorded Investment	8,889	10,586
Interest Income Recognized	211	294
With No Related Allowance [Member] | Commercial - Non Real Estate Commercial And Industrial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	626	311
Recorded Investment	304	299
Average Recorded Investment	342	356
Interest Income Recognized	23	21
With No Related Allowance [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	330	869
Recorded Investment	331	772
Average Recorded Investment	336	778
Interest Income Recognized	15	15
With No Related Allowance [Member] | Commercial Real Estate Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	805	1,298
Recorded Investment	767	1,066
Average Recorded Investment	785	1,137
Interest Income Recognized	20	13
With No Related Allowance [Member] | Construction And Farmland Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment		0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
With No Related Allowance [Member] | Construction And Farmland Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	362	1,320
Recorded Investment	316	1,324
Average Recorded Investment	330	1,358
Interest Income Recognized	28	75
With No Related Allowance [Member] | Consumer Installment [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	25	8
Recorded Investment	25	8
Average Recorded Investment	27	9
Interest Income Recognized	1	0
With No Related Allowance [Member] | Residential Equity Lines [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	17
Recorded Investment	0	17
Average Recorded Investment	0	18
Interest Income Recognized	0	0
With No Related Allowance [Member] | Residential Single Family [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	7,371	7,072
Recorded Investment	6,985	6,849
Average Recorded Investment	7,069	6,930
Interest Income Recognized	124	170
With No Related Allowance [Member] | Residential Multifamily [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
With No Related Allowance [Member] | All Other Loans [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance		0
Recorded Investment		0
Average Recorded Investment		0
Interest Income Recognized		0
With An Allowance Recorded [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	2,976	3,446
Recorded Investment	2,717	3,065
Related Allowance	458	385
Average Recorded Investment	2,753	3,133
Interest Income Recognized	111	121
With An Allowance Recorded [Member] | Commercial - Non Real Estate Commercial And Industrial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	595	283
Recorded Investment	556	283
Related Allowance	195	15
Average Recorded Investment	567	298
Interest Income Recognized	17	14
With An Allowance Recorded [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	203
Recorded Investment	0	203
Related Allowance	0	37
Average Recorded Investment	0	205
Interest Income Recognized	0	10
With An Allowance Recorded [Member] | Commercial Real Estate Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	806	824
Recorded Investment	809	826
Related Allowance	59	65
Average Recorded Investment	817	834
Interest Income Recognized	37	37
With An Allowance Recorded [Member] | Construction And Farmland Residential [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
With An Allowance Recorded [Member] | Construction And Farmland Commercial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
With An Allowance Recorded [Member] | Consumer Installment [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	9
Recorded Investment	9
Related Allowance	9
Average Recorded Investment	9
Interest Income Recognized	0
With An Allowance Recorded [Member] | Residential Equity Lines [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	217	458
Recorded Investment	44	115
Related Allowance	44	56
Average Recorded Investment	45	120
Interest Income Recognized	0	0
With An Allowance Recorded [Member] | Residential Single Family [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	1,349	1,678
Recorded Investment	1,299	1,638
Related Allowance	151	212
Average Recorded Investment	1,315	1,676
Interest Income Recognized	57	60
With An Allowance Recorded [Member] | Residential Multifamily [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
With An Allowance Recorded [Member] | All Other Loans [Member]
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	0	0
Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Interest Income Recognized	$ 0	$ 0

XML

Allowance for Loan Losses (Credit Quality Information By Class) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 559,051	$ 504,448
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	476,647	429,793
Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	54,510	60,588
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	19,307	3,865
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	8,351	9,506
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	236	696
Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	10,168	12,641
Nonperforming [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	19	36
Commercial - Non Real Estate Commercial And Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	37,427	30,341
Commercial - Non Real Estate Commercial And Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	33,279	25,951
Commercial - Non Real Estate Commercial And Industrial [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,788	3,858
Commercial - Non Real Estate Commercial And Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,748	170
Commercial - Non Real Estate Commercial And Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	612	362
Commercial - Non Real Estate Commercial And Industrial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Commercial - Non Real Estate Commercial And Industrial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Commercial Real Estate Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	127,018	115,354
Commercial Real Estate Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	112,649	99,365
Commercial Real Estate Owner Occupied [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	10,893	13,050
Commercial Real Estate Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,146	1,766
Commercial Real Estate Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	330	742
Commercial Real Estate Owner Occupied [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	431
Commercial Real Estate Owner Occupied [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Commercial Real Estate Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	112,897	93,171
Commercial Real Estate Non-Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	82,050	60,259
Commercial Real Estate Non-Owner Occupied [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	17,992	30,515
Commercial Real Estate Non-Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	12,088	891
Commercial Real Estate Non-Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	767	1,506
Commercial Real Estate Non-Owner Occupied [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Commercial Real Estate Non-Owner Occupied [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Construction And Farmland Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,214	4,677
Construction And Farmland Residential [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,614	4,627
Construction And Farmland Residential [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	600	50
Construction And Farmland Residential [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
Construction And Farmland Residential [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
Construction And Farmland Residential [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
Construction And Farmland Residential [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Construction And Farmland Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	49,140	27,114
Construction And Farmland Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	30,093	21,105
Construction And Farmland Commercial [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	17,069	5,349
Construction And Farmland Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,663	314
Construction And Farmland Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	315	346
Construction And Farmland Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Construction And Farmland Commercial [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Residential Equity Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	32,838	31,306
Residential Equity Lines [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	32,495	30,791
Residential Equity Lines [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	299	382
Residential Equity Lines [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Residential Equity Lines [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	17
Residential Equity Lines [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	44	116
Residential Equity Lines [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Residential Single Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	190,372	196,660
Residential Single Family [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	177,829	182,404
Residential Single Family [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	5,869	6,850
Residential Single Family [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	155	724
Residential Single Family [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,327	6,533
Residential Single Family [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	192	149
Residential Single Family [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
Residential Multifamily [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,095	3,566
Residential Multifamily [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,588	3,032
Residential Multifamily [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	534
Residential Multifamily [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	507	0
Residential Multifamily [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
Residential Multifamily [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
Residential Multifamily [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	0	0
All Other Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,050	2,259
All Other Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,050	2,259
All Other Loans [Member] | Watch [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
All Other Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
All Other Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
All Other Loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		0
All Other Loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 0	$ 0

XML

Troubled Debt Restructurings (Narrative) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2017 USD ($) contract	Dec. 31, 2016 USD ($) contract	Dec. 31, 2015 contract
Financing Receivable, Modifications [Line Items]
Number of troubled debt restructured loans	21	26
Total troubled debt restructured loans | $	$ 4.4	$ 7.3
Number of contracts in nonaccrual status	1	6
Total of loans in nonaccrual status | $	$ 0.0	$ 1.6
Number of contracts	1	5	3
Loan is considered payment default	30 days
Consumer Installment [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts	1
Number of contracts modified by changing the amortization period and lowering the interest rate	1
Residential Single Family [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts modified by changing the amortization period			2
Number of contracts modified by reducing the payment amount		2
Number of contracts modified by changing payments to interest only		1
Number of contracts modified by changing the amortization period and lowering the interest rate		1	1
Commercial Real Estate Non-Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts		1
Number of contracts modified by changing the amortization period and lowering the interest rate		1

XML

Troubled Debt Restructurings (Schedule of Troubled Debt Restructurings on Financing Receivables) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) contract	Dec. 31, 2016 USD ($) contract	Dec. 31, 2015 USD ($) contract
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts | contract	1	5	3
Pre-Modification Outstanding Recorded Investment	$ 22	$ 1,296	$ 794
Post-Modification Outstanding Recorded Investment	$ 22	$ 4	$ 794
Consumer Installment [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts | contract	1
Pre-Modification Outstanding Recorded Investment	$ 22
Post-Modification Outstanding Recorded Investment	$ 22
Commercial Real Estate Non-Owner Occupied [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts | contract		1
Pre-Modification Outstanding Recorded Investment		$ 736
Post-Modification Outstanding Recorded Investment		$ 736
Residential Single Family [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts | contract		4	3
Pre-Modification Outstanding Recorded Investment		$ 560	$ 794
Post-Modification Outstanding Recorded Investment		$ 463	$ 794

XML

Troubled Debt Restructurings (Loans By Class of Financing Receivable Modified as TDRs) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) contract	Dec. 31, 2016 USD ($) contract	Dec. 31, 2015 USD ($) contract
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts	21	26
Troubled Debt Restructurings Within Previous Twelve Months [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts	0	2	4
Financing Receivable, Modifications, Subsequent Default, Recorded Investment | $	$ 0	$ 588	$ 954
Commercial - Non Real Estate Commercial And Industrial [Member] | Troubled Debt Restructurings Within Previous Twelve Months [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts			1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment | $			$ 267
Residential Equity Lines [Member] | Troubled Debt Restructurings Within Previous Twelve Months [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts			1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment | $			$ 60
Residential Single Family [Member] | Troubled Debt Restructurings Within Previous Twelve Months [Member]
Troubled Debt Restructuring, Subsequent Periods [Line Items]
Number of Contracts		2	2
Financing Receivable, Modifications, Subsequent Default, Recorded Investment | $		$ 588	$ 627

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Bank Premises and Equipment, Net (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Depreciation	$ 946	$ 932	$ 843
Total building and equipment rental expense	232	236	271
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Depreciation	484	484	470
Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Depreciation	$ 462	$ 448	$ 373

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Bank Premises and Equipment, Net (Major Classes of Bank Premises and Equipment and Total Accumulated Depreciation) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Bank premises and equipment, gross	$ 31,799	$ 31,533
Less accumulated depreciation	12,220	11,364
Bank premises and equipment, net	19,579	20,169
Land [Member]
Property, Plant and Equipment [Line Items]
Bank premises and equipment, gross	6,729	6,729
Building and improvements [Member]
Property, Plant and Equipment [Line Items]
Bank premises and equipment, gross	17,970	17,928
Furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Bank premises and equipment, gross	$ 7,100	$ 6,876

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Bank Premises and Equipment, Net (Schedule of Total Minimum Rental Commitment on Leased Facilities) (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Property, Plant and Equipment [Abstract]
2018	$ 200
2019	200
2020	213
2021	220
2022	220
Thereafter	1,724
Total	$ 2,777

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Deposits (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deposits [Abstract]
Brokered Time Deposits Less Than $250000 Domestic	$ 210	$ 2,200
Deposit overdrafts reclassified as loans	$ 115	$ 272

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Deposits (Composition of Deposits) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deposits [Abstract]
Noninterest bearing demand deposits	$ 234,990	$ 208,948
Savings and interest bearing demand deposits:
NOW accounts	91,288	85,944
Money market accounts	129,497	126,632
Regular savings accounts	102,163	94,271
Savings and interest bearing demand deposits	322,948	306,847
Time deposits:
Balances of less than $250,000	62,681	67,159
Balances of $250,000 and more	42,795	20,923
Time deposits	105,476	88,082
Total deposits	$ 663,414	$ 603,877

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Deposits (Schedule of Outstanding Balance of Time Deposits) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deposits [Abstract]
2018	$ 89,860
2019	7,324
2020	2,032
2021	4,583
2022	1,656
Thereafter	21
Time deposits	$ 105,476	$ 88,082

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Borrowings (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Schedule of Federal Home Loan Bank Advances [Line Items]
Other unused lines of credit	$ 5,000
Gross lines of credit at year-end	28,000	$ 36,000
FHLB advances short-term	0
Federal Home Loan Bank advances	0	$ 0
FHLB irrevocable letter of credit	20,000
Federal Home Loan Bank of Atlanta [Member]
Schedule of Federal Home Loan Bank Advances [Line Items]
Unused line of credit total	$ 162,600
Available credit to total Bank assets, maximum percentage	20.00%

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Borrowings (Summary of Information Related to Federal Funds Purchased) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Advances from Federal Home Loan Banks [Abstract]
Average balance during the year	$ 823	$ 73
Average interest rate during the year	1.64%	0.81%
Maximum month-end balance during the year	$ 3,413	$ 1,302
Gross lines of credit at year-end	28,000	36,000
Unused lines of credit at year-end	$ 28,000	$ 36,000

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Income Taxes (Schedule of Net Deferred Tax Assets) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Allowance for loan losses	$ 922	$ 1,525
Deferred compensation	72	117
Accrued postretirement benefits	23	40
Home equity origination costs	46	73
Nonaccrual interest	101	151
Securities available for sale	0	32
Other	53	193
Total deferred tax assets	1,217	2,131
Deferred tax liabilities:
Property and equipment	506	814
Securities available for sale	71	0
Total deferred tax liabilities	577	814
Net deferred tax asset	$ 640	$ 1,317

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Income Taxes (Schedule of Components of Income Tax Expense) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Current tax expense	$ 3,094	$ 2,346	$ 2,001
Deferred tax expense	135	207	432
Deferred tax adjustment for enacted rate change	397
Total income tax expense	$ 3,626	$ 2,553	$ 2,433

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Income Taxes (Schedule of Income Tax Reconciliation) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Statutory federal corporate tax amount	$ 3,880	$ 3,034	$ 3,172
Tax-exempt interest (income)	(417)	(387)	(404)
Officer insurance (income) loss	(92)	15	11
Net tax credits	(165)	(126)	(105)
Corporate tax rate change	397
Other, net	23	17	(241)
Total income tax expense	$ 3,626	$ 2,553	$ 2,433
Effective income tax rate	31.77%	28.62%	26.08%

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Pension and Postretirement Benefit Plans (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) employee	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Retired employees receiving health care and life insurance benefits | employee	9
Post retirement benefits, age eligibility requirement	65 years
Post retirement benefits, service eligibility requirement	15 years
Unrecognized net actuarial gain	$ 44
Recognized transition obligation	$ 7
Annual rate of increase in cost of covered health care benefits, next fiscal year	8.00%
Annual rate of increase in cost of covered health care benefits, two fiscal years	8.00%
Annual rate of increase in cost of covered health care benefits, three fiscal years	7.00%
Annual rate of increase in cost of covered health care benefits, four fiscal years	7.00%
Annual rate of increase in cost of covered health care benefits, five fiscal years and thereafter	5.00%
Postretirement Benefits Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Net periodic benefit cost	$ (4)	$ (2)	$ (2)
Unrecognized net actuarial gain	$ 4	$ 7	$ 6
Benefit obligation weighted average discount rate	2.75%	3.00%	3.25%
Effect of 1% rate increase on benefit obligation	$ 3
Effect of 1% rate increase on net periodic benefit cost (less than one thousand)	1
Effect of 1% rate decrease on benefit obligation	(3)
Effect of 1% rate decrease on net periodic benefit cost (less than one thousand)	$ 1

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Pension and Postretirement Benefit Plans (Reconciliation of the Changes in the Benefit Obligations) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward]
Actuarial loss (gain)	$ (44)
Defined Benefit Plan, Change in Fair Value of Plan Assets [Roll Forward]
Employer contributions	1,000	$ 990	$ 956
Postretirement Benefits Plan [Member]
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward]
Benefit obligation, beginning	118	128	137
Interest cost	3	4	4
Actuarial loss (gain)	(4)	(7)	(6)
Benefits paid	(8)	(7)	(7)
Benefit obligation, ending	109	118	128
Defined Benefit Plan, Change in Fair Value of Plan Assets [Roll Forward]
Fair value of plan assets, beginning	0	0
Employer contributions	8	7	7
Benefits paid	(8)	(7)	(7)
Fair value of plan assets, ending	$ 0	$ 0	$ 0

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Pension and Postretirement Benefit Plans (Schedule of Funded Status for the Pension and Postretirement Benefit Plans) (Details) - Postretirement Benefits Plan [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Funded status	$ (109)	$ (118)	$ (128)
Unrecognized net actuarial loss	0	0	0
Unrecognized net transition obligation	0	0	0
Unrecognized prior service cost	0	0	0
Accrued benefits	(109)	(118)	(128)
Accrued liability	(109)	(118)	(128)
Amounts Recognized in Consolidated Balance Sheets	(109)	(118)	(128)
Net actuarial loss (gain)	(54)	(58)	(58)
Net transition obligation	0	0	0
Deferred tax liability	10	19	19
Amounts recognized in Accumulated Other Comprehensive Income	$ (44)	$ (39)	$ (39)

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Pension and Postretirement Benefit Plans (Net Periodic Benefit Cost of the Pension Plan and Postretirement Benefit Plan) (Details) - Postretirement Benefits Plan [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 0	$ 0	$ 0
Interest cost	3	4	4
Expected return on plan assets	0	0	0
Amortization of prior service costs	0	0	0
Amortization of transition obligation	0	0	0
Recognized net loss due to settlement	0	0	0
Amortization of net actuarial gain	(7)	(6)	(6)
Net periodic benefit cost	$ (4)	$ (2)	$ (2)

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Pension and Postretirement Benefit Plans (Schedule of Estimated Future Benefit Payments) (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Defined Benefit Plan [Abstract]
2018	$ 15
2019	14
2020	14
2021	13
2022	12
2023-2027	$ 39

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Stock-Based Compensation (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	$ 382	$ 314	$ 328
Grant date fair value of vested Restricted Stock	375	$ 303
Unrecognized compensation cost related to unvested Restricted Stock	$ 69
Weighted-average period for unrecognized compensation cost to be recognized	1 year
Restricted Stock [Member] | Outside Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting service period of grants	9 months
Restricted Stock [Member] | Executive Officers [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting service period of grants	3 years
Deferred Compensation Arrangement with Individual, Requisite Service Period	1 year

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Stock-Based Compensation (Restricted Stock Activity) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Shares, Nonvested, beginning of period	14,901
Shares, Nonvested, end of period	14,401	14,901
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Shares, Nonvested, beginning of period	14,901	14,401	15,151
Shares, Granted	14,650	14,650	14,650
Shares, Vested	(14,493)	(13,196)	(14,363)
Shares, Forfeited	(657)	(954)	(1,037)
Shares, Nonvested, end of period	14,401	14,901	14,401
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted Average Grant Date Fair Value, Nonvested, beginning of period (in USD per share)	$ 23.05	$ 22.98	$ 22.27
Weighted Average Grant Date Fair Value, Granted (in USD per share)	27.46	23.07	23.85
Weighted Average Grant Date Fair Value, Vested (in USD per share)	25.90	23.00	23.09
Weighted Average Grant Date Fair Value, Forfeited (in USD per share)	23.00	23.00	23.50
Weighted Average Grant Date Fair Value, Nonvested, end of period (in USD per share)	$ 24.68	$ 23.05	$ 22.98

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Employee Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Contribution Plan [Line Items]
Matched percentage by employer	50.00%
Maximum employee percentage of deferred salary matched by employer	6.00%
Non-elective safe-harbor contribution received each December 31st	3.00%
Employer contributions	$ 1,000	$ 990	$ 956
Maximum age benefit could be reduced or forfeited	65 years
Supplemental income benefit liability	$ 56	64
Supplemental income benefit expense	$ 29	$ 29	$ 29
Minimum [Member]
Defined Contribution Plan [Line Items]
Non-elective safe-harbor contribution received each December 31st	1.00%
Maximum [Member]
Defined Contribution Plan [Line Items]
Non-elective safe-harbor contribution received each December 31st	10.00%

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]
Daily average required reserve balance	$ 1,500	$ 1,300
Required compensating balance on deposit	$ 250	$ 250

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Derivative Instruments and Hedging Activities (Narrative) (Details) - Interest Rate Swap [Member] - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Jul. 29, 2015
Derivative [Line Items]
Agreement related to the outstanding trust preferred capital notes, date	Dec. 04, 2008
Agreement effective, date	Dec. 01, 2008
Notional amount of derivatives	$ 7,000,000.0
Agreement expiration date	Dec. 01, 2016
Fixed interest rate of derivative	2.85%
Other Liabilities [Member]
Derivative [Line Items]
Derivative Instruments in Hedges, Liabilities, at Fair Value				$ 237,000
Cash Flow Hedging [Member]
Derivative [Line Items]
Amount of Gain (Loss) Recognized in Income	$ 0	$ 149,000	$ 88,000

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Derivative Instruments and Hedging Activities (Effect of the Derivative Instrument on the Consolidated Balance Sheet, Consolidated Statements of Income) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flow Hedging [Member] | Interest Rate Swap [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain (Loss) Recognized in Income	$ 0	$ 149	$ 88

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Transactions with Directors and Officers (Details) - Directors, Principal Officers, and Other Related Parties [Member] - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Related Party Transaction [Line Items]
Aggregate balance of loans to directors, principal officers, and their related parties	$ 4.1	$ 4.7
Total principal additions	9.4
Total principal payments	10.0
Aggregate balance of deposits from directors, principal officers and their related parties	$ 19.4	$ 15.6

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Capital Requirements (Schedule of Capital Requirements) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
The Company [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Capital	$ 83,507	$ 79,440
Common Equity Tier One Capital to Risk Weighted Assets	14.45%	15.68%
Common Equity Tier One Capital Required for Capital Adequacy	$ 26,003	$ 22,798
Common Equity Tier One Capital For Capital Adequacy To Risk Weighted Assets	4.50%	4.50%
Capital [Abstract]
Total Capital to Risk Weighted Assets, Actual, Amount	$ 87,959	$ 83,977
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Amount	46,228	40,531
Tier One Risk Based Capital [Abstract]
Tier 1 Capital Risk Weighted Assets, Actual, Amount	83,507	79,440
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Amount	34,671	30,398
Tier One Leverage Capital [Abstract]
Tier 1 Capital to Average Assets, Actual, Amount	83,507	79,440
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Amount	$ 29,810	$ 26,848
Risk Based Ratios [Abstract]
Total Capital to Risk Weighted Assets, Actual, Ratio	15.22%	16.58%
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Ratio	8.00%	8.00%
Tier 1 Capital Risk Weighted Assets, Actual, Ratio	14.45%	15.68%
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Ratio	6.00%	6.00%
Tier 1 Capital to Average Assets, Actual, Ratio	11.21%	11.84%
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Ratio	4.00%	4.00%
The Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Capital	$ 80,150	$ 76,124
Common Equity Tier One Capital to Risk Weighted Assets	14.08%	15.11%
Common Equity Tier One Capital Required for Capital Adequacy	$ 25,622	$ 22,666
Common Equity Tier One Capital For Capital Adequacy To Risk Weighted Assets	4.50%	4.50%
Common Equity Tier One Capital Required to be Well-Capitalized	$ 37,009	$ 32,740
Common Equity Tier One Capital Required To Be Well Capitalized To Risk Weighted Assets	6.50%	6.50%
Capital [Abstract]
Total Capital to Risk Weighted Assets, Actual, Amount	$ 84,583	$ 80,640
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Amount	45,550	40,295
Total Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	56,938	50,369
Tier One Risk Based Capital [Abstract]
Tier 1 Capital Risk Weighted Assets, Actual, Amount	80,150	76,124
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Amount	34,163	30,221
Tier 1 Capital Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	45,550	40,295
Tier One Leverage Capital [Abstract]
Tier 1 Capital to Average Assets, Actual, Amount	80,150	76,124
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Amount	29,511	26,711
Tier 1 Capital to Average Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 36,889	$ 33,389
Risk Based Ratios [Abstract]
Total Capital to Risk Weighted Assets, Actual, Ratio	14.86%	16.01%
Total Capital to Risk Weighted Assets, Minimum Capital Requirement, Ratio	8.00%	8.00%
Total Capital to Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 Capital Risk Weighted Assets, Actual, Ratio	14.08%	15.11%
Tier 1 Capital Risk Weighted Assets, Minimum Capital Requirement, Ratio	6.00%	6.00%
Tier 1 Capital Risk Weighted Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	8.00%	8.00%
Tier 1 Capital to Average Assets, Actual, Ratio	10.86%	11.40%
Tier 1 Capital to Average Assets, Minimum Capital Requirement, Ratio	4.00%	4.00%
Tier 1 Capital to Average Assets, Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%	5.00%

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Restrictions On Dividends, Loans, and Advances (Details) $ in Millions	12 Months Ended
	Dec. 31, 2017 USD ($)
Disclosure of Restrictions on Dividends, Loans and Advances Disclosure [Abstract]
Number of years used for undistributed net income of the Bank	3 years
Retained earnings available for the payment of dividends	$ 5.3
Restricted net assets	75.2
Funds available for loans or advances	$ 1.1

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Dividend Investment Plan (Details)	Dec. 31, 2015
Dividend Investment Plan [Abstract]
Percentage of fair market value	95.00%

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Financial Instruments with Off-Balance-Sheet Risk (Schedule of Financial Instruments) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Commitments to extend credit	$ 3,959	$ 27,144
Unfunded commitments under lines of credit	108,483	100,530
Commercial and standby letters of credit	8,437	$ 5,897
Collateralized Letters Of Credit Outstanding	7,500
Excess of insurance limits held in cash accounts	$ 1,700

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Trust Preferred Capital Notes (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Jul. 29, 2015	Sep. 20, 2007
Trust Preferred Capital Notes [Line Items]
Common stock issued	$ 8,587,000	$ 8,633,000
Gain on redemption of trust preferred capital notes	$ 0	$ 0	$ 2,424,000
Trust II [Member]
Trust Preferred Capital Notes [Line Items]
Trust preferred securities issued by subsidiary trust				$ 7,000,000	$ 7,000,000
Common stock issued					$ 217,000
Trust preferred securities purchase price par				0.65375
Trust preferred securities purchase price				$ 4,600,000

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Quarterly Condensed Statements of Income (Schedule of Quarterly Condensed Statements of Income) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Quarterly Financial Information Disclosure [Abstract]
Total interest and dividend income	$ 7,323	$ 7,458	$ 7,004	$ 6,566	$ 6,443	$ 6,279	$ 6,642	$ 6,421	$ 6,169	$ 6,265	$ 6,121	$ 5,938	$ 28,351	$ 25,785	$ 24,493
Net interest income after (recovery of) loan losses	6,838	7,109	6,985	6,890	6,364	6,162	6,345	6,035	6,117	6,354	5,494	5,408	27,822	24,906	23,373
Noninterest income	1,892	1,617	1,598	1,673	1,609	1,687	1,738	1,635	1,335	3,830	1,644	1,629	6,780	6,669	8,438
Noninterest expenses	5,823	5,909	5,747	5,711	5,395	5,871	5,832	5,554	5,774	5,518	6,131	5,058	23,190	22,652	22,481
Income before income taxes	2,907	2,817	2,836	2,852	2,578	1,978	2,251	2,116	1,678	4,666	1,007	1,979	11,412	8,923	9,330
Net income	$ 1,710	$ 2,007	$ 2,027	$ 2,042	$ 1,805	$ 1,430	$ 1,610	$ 1,525	$ 1,355	$ 3,289	$ 798	$ 1,455	$ 7,786	$ 6,370	$ 6,897
Net income per common share, basic (in US dollars per share)	$ 0.49	$ 0.58	$ 0.58	$ 0.59	$ 0.52	$ 0.40	$ 0.46	$ 0.43	$ 0.38	$ 0.94	$ 0.23	$ 0.42	$ 2.24	$ 1.81	$ 1.97
Net income per common share, diluted (in US dollars per share)	0.49	0.58	0.58	0.59	0.52	0.40	0.46	0.43	0.38	0.94	0.23	0.42	2.24	1.81	1.97
Dividends per common share (in USD per share)	$ 0.22	$ 0.22	$ 0.22	$ 0.22	$ 0.22	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.88	$ 0.82	$ 0.8

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Fair Value Measurements (Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	$ 132,566	$ 119,262
Total liabilities at fair value	0	0
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Total liabilities at fair value	0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	132,023	118,648
Total liabilities at fair value	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	543	614
Total liabilities at fair value	0	0
Obligations of U.S. government corporations and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	21,520	30,441
Obligations of U.S. government corporations and agencies [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Obligations of U.S. government corporations and agencies [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	21,520	30,441
Obligations of U.S. government corporations and agencies [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	61,244	42,372
Mortgage-backed securities [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Mortgage-backed securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	61,244	42,372
Mortgage-backed securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Obligations of states and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	49,802	46,449
Obligations of states and political subdivisions [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	0	0
Obligations of states and political subdivisions [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	49,259	45,835
Obligations of states and political subdivisions [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets at fair value	$ 543	$ 614

XML

Fair Value Measurements Fair Value Measurements (Assets Measured on Recurring Basis, Unobservable Input Reconciliation (Details) - Significant Unobservable Inputs (Level 3) [Member] - Obligations of states and political subdivisions [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Value	$ 614	$ 684
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Purchases	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Sales	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Issuances	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Settlements	(71)	(70)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Value	$ 543	$ 614

XML

Fair Value Measurements (Quantitative Information About Level 3 Fair Value Measurements for Certain Financial Assets) (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	7.00%	12.00%
Present value of cash flows discount rate	5.00%	5.00%
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	6.00%	6.00%
Nonrecurring [Member] | Maximum [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	12.00%	12.00%
Present value of cash flows discount rate	10.00%	7.00%
Nonrecurring [Member] | Maximum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	6.00%	6.00%
Nonrecurring [Member] | Minimum [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	6.00%	12.00%
Present value of cash flows discount rate	4.00%	4.00%
Nonrecurring [Member] | Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Quantitative information about level 3 nonrecurring basis	6.00%	6.00%

XML

Fair Value Measurements (Financial and Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	$ 106	$ 370
Nonrecurring [Member] | Financial Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	2,248	2,671
Nonrecurring [Member] | Financial Assets [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring [Member] | Financial Assets [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring [Member] | Financial Assets [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	2,248	2,671
Nonrecurring [Member] | Nonfinancial Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	106	370
Nonrecurring [Member] | Nonfinancial Assets [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	0	0
Nonrecurring [Member] | Nonfinancial Assets [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	0	0
Nonrecurring [Member] | Nonfinancial Assets [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other real estate owned	$ 106	$ 370

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Fair Value Measurements (Company's Financial Instruments) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financial Assets:
Securities available for sale	$ 132,566	$ 119,262
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Financial Assets:
Cash and short-term investments	35,848	35,281
Securities available for sale	0	0
Restricted Investments	0	0
Loans, net	0	0
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Deposits		0
Accrued interest payable	0	0
Significant Other Observable Inputs (Level 2) [Member]
Financial Assets:
Cash and short-term investments	0	0
Securities available for sale	132,023	118,648
Restricted Investments	1,107	1,068
Loans, net	0	0
Bank owned life insurance	486	1,769
Accrued interest receivable	1,955	588
Financial Liabilities:
Deposits	662,696	603,516
Accrued interest payable	44	34
Significant Unobservable Inputs (Level 3) [Member]
Financial Assets:
Cash and short-term investments	0	0
Securities available for sale	543	614
Restricted Investments	0	0
Loans, net	559,665	512,181
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Deposits	0	0
Accrued interest payable	0	0
Carrying Amount [Member]
Financial Assets:
Cash and short-term investments	35,848	35,281
Securities available for sale	132,566	119,262
Restricted Investments	1,107	1,068
Loans, net	564,406	512,437
Bank owned life insurance	486	1,769
Accrued interest receivable	1,955	588
Financial Liabilities:
Deposits	663,414	603,877
Accrued interest payable	44	34
Fair Value [Member]
Financial Assets:
Cash and short-term investments	35,848	35,281
Securities available for sale	132,566	119,262
Restricted Investments	1,107	1,068
Loans, net	559,665	512,181
Bank owned life insurance	486	1,769
Accrued interest receivable	1,955	588
Financial Liabilities:
Deposits	662,696	603,516
Accrued interest payable	$ 44	$ 34

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Change in Accumulated Other Comprehensive Income (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassifications from other comprehensive (loss) income	$ (3)	$ 98	$ (113)
Loss on derecognition of cash flow hedge	0	0
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassifications from other comprehensive (loss) income	(10)	98	124
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Sale of Securities, Tax	(4)	$ 33	42
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassifications from other comprehensive (loss) income	7
Other Comprehensive Income (Loss), Defined Benefit Plan, Gain (Loss), Reclassification Adjustment from AOCI, Tax	$ 2
Change In Fair Value Of Interest Rate Swap [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Reclassifications from other comprehensive (loss) income			(237)
Loss on derecognition of cash flow hedge			237
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax			$ 81

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Change in Accumulated Other Comprehensive Income (Changes to Accumulated Other Comprehensive Income By Components) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] [Roll Forward]
Beginning balance	$ (24)	$ 1,051	$ 1,315
Other comprehensive income (loss) before reclassifications	426	(1,531)	(512)
Reclassifications from other comprehensive income (loss)	3	(98)	113
Reclassification of stranded tax effects from change in tax rate	51
Tax effect of current period changes	(146)	554	135
Total other comprehensive income (loss)	283	(1,075)	(264)
Total other comprehensive income (loss), Including tax cut and jobs act reclassification, net of tax	334
Ending balance	310	(24)	1,051
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] [Roll Forward]
Beginning balance	(63)	1,012	1,466
Other comprehensive income (loss) before reclassifications	422	(1,531)	(564)
Reclassifications from other comprehensive income (loss)	10	(98)	(124)
Reclassification of stranded tax effects from change in tax rate	44
Tax effect of current period changes	(147)	554	234
Total other comprehensive income (loss)	329	(1,075)	(454)
Ending balance	266	(63)	1,012
Change In Fair Value Of Interest Rate Swap [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] [Roll Forward]
Beginning balance		0	(190)
Other comprehensive income (loss) before reclassifications			52
Reclassifications from other comprehensive income (loss)			237
Tax effect of current period changes			(99)
Total other comprehensive income (loss)			190
Ending balance			0
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] [Roll Forward]
Beginning balance	39	39	39
Other comprehensive income (loss) before reclassifications	4	0	0
Reclassifications from other comprehensive income (loss)	(7)
Reclassification of stranded tax effects from change in tax rate	7
Tax effect of current period changes	1	0	0
Total other comprehensive income (loss)	5	0	0
Ending balance	$ 44	$ 39	$ 39

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Condensed Financial Information - Parent Company Only (Schedule of Condensed Balance Sheets) (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Assets
Loans, net of allowance	$ 564,406	$ 512,437
Other assets	12,139	11,562
Total assets	765,751	700,149
Liabilities and Shareholders’ Equity
Total liabilities	681,934	620,733
Stockholders' Equity Attributable to Parent [Abstract]
Preferred stock	0	0
Common stock issued	8,587	8,633
Surplus	12,075	12,642
Retained earnings	62,845	58,165
Accumulated other comprehensive income (loss)	310	(24)	$ 1,051	$ 1,315
Total shareholders’ equity	83,817	79,416	$ 78,221	$ 73,132
Total liabilities and shareholders’ equity	765,751	700,149
Parent Company [Member]
Assets
Cash held in subsidiary bank	426	391
Loans, net of allowance	2,825	2,881
Investment in subsidiaries, at cost, plus undistributed net income	80,459	76,099
Other assets	107	45
Total assets	83,817	79,416
Liabilities and Shareholders’ Equity
Total liabilities	0	0
Stockholders' Equity Attributable to Parent [Abstract]
Preferred stock	0	0
Common stock issued	8,587	8,633
Surplus	12,075	12,642
Retained earnings	62,845	58,165
Accumulated other comprehensive income (loss)	310	(24)
Total shareholders’ equity	83,817	79,416
Total liabilities and shareholders’ equity	$ 83,817	$ 79,416

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Condensed Financial Information - Parent Company Only (Schedule of Condensed Income Statement) (Details) - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest and Dividend Income, Operating [Abstract]
Interest and fees on loans													$ 24,821	$ 23,037	$ 21,751
Gain on redemption of trust preferred capital notes													0	0	2,424
Interest Expense [Abstract]
Interest expense on borrowings													57	136	336
Income Tax (Benefit) Expense													3,626	2,553	2,433
Net income	$ 1,710	$ 2,007	$ 2,027	$ 2,042	$ 1,805	$ 1,430	$ 1,610	$ 1,525	$ 1,355	$ 3,289	$ 798	$ 1,455	7,786	6,370	6,897
Comprehensive income													8,069	5,295	6,633
Parent Company [Member]
Interest and Dividend Income, Operating [Abstract]
Dividends from subsidiary bank													3,800	4,350	6,576
Interest and fees on loans													106	97	52
Other interest and dividends													0	2	11
Gain on redemption of trust preferred capital notes													0	0	2,424
Other income (loss)													0	149	(121)
Total income													3,906	4,598	8,942
Interest Expense [Abstract]
Interest expense on borrowings													0	143	260
Other operating expenses													255	211	260
Total expenses													255	354	520
Income before income tax (benefit) expense and equity (deficit) in undistributed earnings of subsidiary bank													3,651	4,244	8,422
Income Tax (Benefit) Expense													(58)	(36)	629
Income before equity (deficit) in undistributed earnings of subsidiary bank													3,709	4,280	7,793
Equity (Deficit) in Undistributed Net Income of Subsidiary Bank													4,077	2,090	(896)
Net income													7,786	6,370	6,897
Comprehensive income													$ 8,069	$ 5,295	$ 6,633

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Condensed Financial Information - Parent Company Only (Schedule of Condensed Cash Flows Statement) (Details) - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities
Net income	$ 1,710	$ 2,007	$ 2,027	$ 2,042	$ 1,805	$ 1,430	$ 1,610	$ 1,525	$ 1,355	$ 3,289	$ 798	$ 1,455	$ 7,786	$ 6,370	$ 6,897
(Recovery of) loan losses													(625)	(188)	(227)
Adjustments to reconcile net income to net cash provided by operating activities
(Gain) on the sale of securities													10	(98)	(124)
Gain on redemption of trust preferred capital notes													0	0	(2,424)
Loss on derecognition of cash flow hedge													0	0
Fair value adjustment on derivative contract													0	(149)	(88)
Changes in assets and liabilities:
(Increase) decrease in other assets													1,465	1,095	(2,085)
(Decrease) increase in other liabilities													1,141	2,732	(1,521)
Net cash provided by operating activities													9,367	9,700	7,164
Cash Flows from Investing Activities
Proceeds from the sale of securities available for sale													20,283	11,356	3,653
Proceeds from maturities of securities available for sale													10,714	23,535	17,368
Net decrease (increase) in loans													51,401	21,995	26,317
Net cash provided by (used in) investing activities													(64,287)	(26,383)	(38,739)
Cash Flows from Financing Activities
Redemption of trust preferred capital notes													0	0	(4,793)
Cash dividends paid													(2,652)	(2,354)	(2,064)
Issuance of common stock, employee benefit plan													166	81	187
Retirement of common stock													1,564	2,143	0
Net cash used in financing activities													55,487	28,743	20,232
Increase (decrease) in cash													567	12,060	(11,343)
Cash and Cash Equivalents
Beginning				35,281				23,221				34,564	35,281	23,221	34,564
Ending	35,848				35,281				23,221				35,848	35,281	23,221
Parent Company [Member]
Cash Flows from Operating Activities
Net income													7,786	6,370	6,897
(Recovery of) loan losses													(2)	(2)	23
Adjustments to reconcile net income to net cash provided by operating activities
(Gain) on the sale of securities													0	0	(27)
Gain on redemption of trust preferred capital notes													0	0	(2,424)
Loss on derecognition of cash flow hedge													0	0	237
Fair value adjustment on derivative contract													0	(149)	(88)
Stock-based compensation expense													382	314	328
Undistributed earnings of subsidiary bank													(4,077)	(2,090)	896
Changes in assets and liabilities:
(Increase) decrease in other assets													62	39	(294)
(Decrease) increase in other liabilities													0	(568)	814
Net cash provided by operating activities													4,027	3,836	6,950
Cash Flows from Investing Activities
Proceeds from the sale of securities available for sale													0	0	1,009
Proceeds from maturities of securities available for sale													0	0	385
Net decrease (increase) in loans													(58)	(62)	2,963
Net cash provided by (used in) investing activities													58	62	(1,569)
Cash Flows from Financing Activities
Redemption of trust preferred capital notes													0	0	(4,793)
Cash dividends paid													(2,652)	(2,354)	(2,064)
Issuance of common stock, employee benefit plan													166	81	187
Retirement of common stock													1,564	2,143	0
Net cash used in financing activities													(4,050)	(4,416)	(6,670)
Increase (decrease) in cash													35	(518)	(1,289)
Cash and Cash Equivalents
Beginning				$ 391				$ 909				$ 2,198	391	909	2,198
Ending	$ 426				$ 391				$ 909				$ 426	$ 391	$ 909

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Other Real Estate Owned Other Real Estate Owned Roll Forward (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Other Real Estate [Roll Forward]
Balance, beginning	$ 370	$ 571
Net loans transferred to OREO	53	666
Sales	(317)	(890)
Valuation adjustments	0	23
Balance, ending	$ 106	$ 370

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Other Real Estate Owned Major Classifications of Other Real Estate Owned (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Real Estate Properties [Line Items]
Other real estate, gross	$ 106	$ 370
Less valuation allowance	0	0
Total	106	370	$ 571
Construction And Farmland [Member]
Real Estate Properties [Line Items]
Other real estate, gross	106	155
Residential [Member]
Real Estate Properties [Line Items]
Other real estate, gross	0	215
Commercial Real Estate [Member]
Real Estate Properties [Line Items]
Other real estate, gross	$ 0	$ 0

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Other Real Estate Owned Narrative (Details) $ in Millions	Dec. 31, 2017 USD ($) contract	Dec. 31, 2016 contract
Receivables [Abstract]
Mortgage Loans In Process Of Foreclosure Number | contract	1	0
Mortgage Loans in Process of Foreclosure, Amount | $	$ 4.1

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Qualified Affordable Housing Project Investments (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Federal Home Loan Banks [Abstract]
Amortization Method Qualified Affordable Housing Project Investments	$ 2,500	$ 2,600
Qualified Affordable Housing Project Investments, Commitment	1,900	2,000
Amortization Method Qualified Affordable Housing Project Investments, Amortization	172	138
Affordable Housing Tax Credits and Other Tax Benefits Expected to Be Received	165
Affordable Housing Tax Credits and Other Tax Benefits, Amount	$ 219	$ 172