The following graph compares the cumulative total return to the shareholders of the Company for the last five fiscal years with the total return of the Russell 2000 Index and the SNL Bank Index, as reported by SNL Financial, LC, assuming an investment of $100 in the Company’s common stock on December 31, 2009,2010, and the reinvestment of dividends.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides information about the major components of the results of operations and financial condition, liquidity and capital resources of F & M Bank Corp. and its subsidiaries. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Information, of this Form 10-K.
The principal risk associated with each of the categories of loans in our portfolio is the creditworthiness of our borrowers. Within each category, such risk is increased or decreased, depending on prevailing economic conditions. In an effort to manage the risk, our loan policy gives loan amount approval limits to individual loan officers based on their position and level of experience and to our loan committees based on the size of the lending relationship. The risk associated with real estate and construction loans, commercial loans and consumer loans varies, based on market employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay indebtedness. The risk associated with real estate construction loans varies, based on the supply and demand for the type of real estate under construction.
We have written policies and procedures to help manage credit risk. We have a loan review policy that includes regular portfolio reviews to establish loss exposure and to ascertain compliance with our loan policy.
We use a management loan committee and a directors’ loan committee to approve loans. The management loan committee is comprised of members of senior management, and the directors’ loan committee is composed of any four directors, of which at least three are independentsix directors. Both committees approve new, renewed and or modified loans that exceed officer loan authorities. The directors’ loan committee also reviews any changes to our lending policies, which are then approved by our board of directors.
Construction and Development Lending
We make 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 a construction loan is approximately 12 months, and it is typically re-priced as the prime rate of interest changes. The majority of the interest rates charged on these loans float with the market. Construction lending entails significant additional risks, compared with residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Another risk involved in construction lending is attributable to the fact that loan funds are advanced upon the security of the land or home under construction, which value is estimated prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios. To mitigate the risks associated with construction lending, we generally limit loan amounts to 75% to 90% of appraised value, in addition to analyzing the creditworthiness of our borrowers. We also obtain a first lien on the property as security for our construction loans and typically require personal guarantees from the borrower’s principal owners.
PART II, Continuedcontinued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Commercial Real Estate Lending
Commercial real estate loans are secured by various types of commercial real estate in our market area, including multi-family residential buildings, commercial buildings and offices, shopping centers and churches. Commercial real estate lending entails significant additional risks, 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 payment experience on 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 in the economy in general. Our commercial real estate loan underwriting criteria require an examination of debt service coverage ratios and the borrower’s creditworthiness, prior credit history and reputation. We also evaluate the location of the security property and typically require personal guarantees or endorsements of the borrower’s principal owners.
Business Lending
Business loans generally have a higher degree of risk than residential mortgage loans but have higher yields. To manage these risks, we generally obtain appropriate collateral and personal guarantees from the borrower’s principal owners and monitor the financial condition of our business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from his employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, 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 real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.
Consumer Lending
We offer various consumer loans, including personal loans and lines of credit, automobile loans, deposit account loans, installment and demand loans, and home equity lines of credit and loans. Such loans are generally made to clients with whom we have a pre-existing relationship. We currently originate all of our consumer loans in our geographic market area.
The underwriting standards employed by us for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of their 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 additionally from any verifiable secondary income. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount. For home equity lines of credit and loans, our primary consumer loan category, we require title insurance, hazard insurance and, if required, flood insurance.
Residential Mortgage Lending
The Bank makes residential mortgage loans for the purchase or refinance of existing loans with loan to value limits ranging between 80 and 90% depending on the age of the property, borrower’s income and credit worthiness. Loans that are retained in our portfolio generally carry adjustable rates that can change every three to five years, based on amortization periods of twenty to thirty years.
PART II, Continuedcontinued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Loans Held for Sale
The Bank makes fixed rate mortgage loans with terms of typically fifteen or thirty years through its subsidiary VBS Mortgage. These loans are typically on the Bank’s books for two to three weeks prior to being sold to investors in the secondary market. Similarly, the Bank also has a relationship with Gateway Savings Bank in Oakland, CA and NorthPointeNorthpointe Bank in Grand Rapids, MI wherewhereby it purchases fixed rate conforming 1-4 family mortgage loans for short periods of time pending those loans being sold to investors in the secondary market. These loans have an average lifeduration of ten days to two weeks, but occasionally remain on the Bank’s books for up to 60 days. The Bank has maintained a relationship with Gateway Bank since 2003 and began its relationship with NorthPointeNorthpointe Bank in 2014. This relationship allows the Bank to achieve a higher rate of return than it wouldis available on other short term investment opportunities.
Dealer Finance Division
On September 25, 2012, the Bank began operations of a loan production office in Penn Laird, VA which specializes in providing automobile financing through a network of automobile dealers. The new Dealer Finance Division was staffed with three officers that have extensive experience in Dealer Finance. This office is serving the automobile finance needs for customers of dealers throughout the existing geographic footprint of the Bank. Approximately forty dealers have signed contracts to originate loans on behalf of the Bank.
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.
In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of these transactions would be the same, the timing of events that would impact these transactions could change. Following is a summary of the Company’s significant accounting policies that are highly dependent on estimates, assumptions and judgments.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 (formerly SFAS No. 5) “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 (formerly SFAS No. 114), “Receivables”, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to either ASC 450 or ASC 310. Management’s estimate of each ASC 450 component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation includes credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. These factors, as well as historical losses and current economic and business conditions, are used in developing estimated loss factors used in the calculations.
PART II, Continuedcontinued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continuedcontinued
Allowance for Loan Losses, continued
Allowances for loans are determined by applying estimated loss factors to the portfolio based on management’s evaluation and “risk grading” of the loan portfolio. Specific allowances are typically provided on all impaired loans in excess of a defined loan size threshold that are classified in the Substandard or Doubtful risk grades. The specific reserves are determined on a loan-by-loan basis based on management’s evaluation of the Company’s exposure for each credit, given the current payment status of the loan and the value of any underlying collateral.
While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.
Goodwill and Intangibles
In June 2001, the Financial Accounting Standards Board issued ASC 805 (formerly SFAS No. 141), Business Combinations and ASC 350 (formerly SFAS No. 142), Intangibles. ASC 805 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. ASC 350 was effective for fiscal years beginning after December 15, 2001 and prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of ASC 350 discontinue the amortization of goodwill and intangible assets with indefinite lives. Instead, these assets are subject to an annual impairment review and more frequently if certain impairment indicators are in evidence. ASC 350 also requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill.
The Company adopted ASC 350 on January 1, 2002. Goodwill totaled $2,639,000 at January 1, 2002. As of December 31, 2008, the Company recognized $30,000 in additional goodwill related to the purchase of 70% ownership in VBS Mortgage. The goodwill is not amortized but is tested for impairment at least annually. Based on this testing, there were no impairment charges for 2015, 2014 2013 or 2012.2013. Application of the non-amortization provisions of the Statement resulted in additional net income of $120,000 for each of the years ended December 31, 2015, 2014 2013 and 2012.2013.
Core deposit intangibles are amortized on a straight-line basis over a ten year life. The Company adopted ASC 350 on January 1, 2002 and determined that the core deposit intangible will continue to be amortized over its estimated useful life. The core deposit intangible was fully amortized during 2011.
Securities ImpairmentIncome Tax
The determination of income taxes represents results in income and expense being recognized in different periods for financial reporting purposes versus for the purpose of computing income taxes currently payable. Deferred taxes are provided on such temporary differences and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Further, the Company followsseeks strategies that minimize the guidance in ASC 320-10 and SAB Topic 5M, Other Than Temporary Impairment in evaluating if security impairments are temporary or other than temporary in nature. This determination is made on an investment by investment basis and includes all available evidence attax effect of implementing its business strategies. Management makes judgements regarding the timeultimate consequence of the determinationlong-term tax planning strategies, including the following:likelihood of future recognition of deferred tax benefits. As a result, it is considered a significant estimate.
● | The length of time of impairment; |
● | The extent of the impairment relative to the cost of the investment; |
● | Recent volatility in the market value of the investment; |
● | The financial condition and near-term prospects of the issuer, including any specific events which may impair the earnings potential of the issuer; or |
● | The intent and ability of the Company to hold its investment for a period of time sufficient to allow for any anticipated recovery in market value. |
PART II, Continuedcontinued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continuedcontinued
Fair Value
The estimate of fair value involves the use of (1) quoted prices for identical instruments traded in active markets, (2) quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques using significant assumptions that are observable in the market or (3) model-based techniques that use significant assumptions not observable in the market. When observable market prices and parameters are not fully available, management’s judgment is necessary to estimate fair value possibly including estimates that incorporate estimates of current market participant expectations of future cash flows, risk premiums, among other things. Additionally, significant judgment may be required to determine whether certain assets measured at fair value are classified within the fair value hierarchy as Level 2 or Level 3. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
Pension Plan Accounting
The accounting guidance for the measurement and recognition of obligations and expense related to pension plans generally applies the concept that the cost of benefits provided during retirement should be recognized over the employees’ active working life. Inherent in this concept is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Major actuarial assumptions that require significant management judgment and have a material impact on the measurement of benefits expense and accumulated obligation include discount rates, expected return on assets, mortality rates, health care cost trend rates, and projected salary increases, among others. Changes in assumptions or judgments related to any of these variables could result in significant volatility in the Company’s financial condition and results of operations. As a result, accounting for the Company’s pension expense and obligation is considered a significant estimate. The estimation process and the potential materiality of the amounts involved result in this item being identified as critical.
PART II, continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
Overview
The Company’s net income for 20142015 totaled $5,802,000$8,417,000 or $1.82$2.40 per common share, an increase of 23.03%45.07% from $4,716,000$5,802,000 or $1.88$1.82 a share in 2013.2014. Return on average equity decreasedincreased in 2015 to 10.46% versus 8.65% in 2014, to 8.65% versus 9.11% in 2013, whileand the return on average assets increased from .82%1.00% to 1.00%1.31%. The decrease in earnings per share and return on average equity resulted from the increase in shares outstanding following the issuance of additional common stock in March 2014.
See page 1116 for a five-year summary of selected financial data.
Changes in Net Income per Common Share
| | 2014 | | | 2013 | | | 2015 | | | 2014 | |
| | to 2013 | | | to 2012 | | | to 2014 | | | to 2013 | |
Prior Year Net Income Per Common Share | | $ | 1.88 | | | $ | 1.96 | | | $ | 1.82 | | | $ | 1.88 | |
Change from differences in: | | | | | | | | | | | | | | | | |
Net interest income | | | .77 | | | | .10 | | | | 1.02 | | | | .77 | |
Provision for credit losses | | | .61 | | | | .17 | | | | .59 | | | | .61 | |
Noninterest income, excluding securities gains | | | (.18 | ) | | | .12 | | | | .08 | | | | (.18 | ) |
Securities gains | | | - | | | | - | | |
Noninterest expenses | | | (.37 | ) | | | (.54 | ) | | | (.71 | ) | | | (.37 | ) |
Income taxes | | | (.40 | ) | | | .07 | | | | (.18 | ) | | | (.40 | ) |
Effect of common stock raise | | | (.49 | ) | | | - | | | | - | | | | (.49 | ) |
Effect of preferred stock dividend | | | | (.12 | ) | | | - | |
Effect of increase in average shares outstanding | | | | (.10 | ) | | | - | |
Total Change | | | (.06 | ) | | | (.08 | ) | | | .58 | | | | (.06 | ) |
Net Income Per Common Share | | $ | 1.82 | | | $ | 1.88 | | | $ | 2.40 | | | $ | 1.82 | |
Net Interest Income
The largest source of operating revenue for the Company is net interest income, which is calculated as the difference between the interest earned on earning assets and the interest expense paid on interest bearing liabilities. The net interest margin is the net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest earning assets and interest bearing liabilities, along with their yields and rates, have a significant impact on the level of net interest income. Net interest income for 20142015 was $23,124,000$26,477,000 representing an increase of $1,931,000$3,353,000 or 9.11%14.50% over the prior year. A 1.25%9.11% increase in 20132014 versus 20122013 resulted in total net interest income of $21,193,000.$23,124,000.
In this discussion and in the tabular analysis of net interest income performance, entitled “Consolidated Average Balances, Yields and Rates,” (found on page 21)23), the interest earned on tax exempt loans and investment securities has been adjusted to reflect the amount that would have been earned had these investments been subject to normal income taxation. This is referred to as tax equivalent net interest income. For a reconciliation of tax equivalent net interest income to GAAP measures, see the table on page 23.25.
Tax equivalent income on earning assets increased $818,000.$2,610,000. Loans held for investment, expressed as a percentage of total earning assets, increaseddecreased in 20142015 to 91.84%88.60% as compared to 89.17%91.84% in 2013.2014. During 2014,2015, yields on earning assets increased 5decreased 6 basis points (BP), primarily due to a 47BP increase72BP decrease in the yield on installment loans.loans held for sale. This increasedecrease is due to the growth in the Dealer Finance division, which is a higher yielding portfolio.short term participation program with Northpointe Bank. The average cost of interest bearing liabilities decreased 24BP23BP in 2014,2015, following a decrease of 25BP24BP in 2013.2014. The decrease in average cost resulted from maturing liabilities repricingis due to the redemption of subordinated debt agreements at lower rates. Following the recessionend of 2008/20092014 and the Federal Reserve’s Federal Open Market Committee (FOMC) has continued its accommodative monetary policy.low rate environment.
The analysis on the next page reveals an increase in the net interest margin to 4.30%4.43% in 20142015 primarily due to changes in balance sheet leverage as higher rate borrowings decreased, the increase in noninterest bearing deposit accounts and the growth in the Dealer Finance division produced higher yields.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Consolidated Average Balances, Yields and Rates1
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | |
| | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | | | Balance | | | Interest | | | Rate | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 164,666 | | | $ | 7,810 | | | | 4.74 | % | | $ | 169,431 | | | $ | 7,896 | | | | 4.66 | % | | $ | 168,135 | | | $ | 8,204 | | | | 4.88 | % | | $ | 170,272 | | | $ | 8,103 | | | | 4.76 | % | | $ | 164,666 | | | $ | 7,810 | | | | 4.74 | % | | $ | 169,431 | | | $ | 7,896 | | | | 4.66 | % |
Real estate | | | 281,052 | | | | 14,542 | | | | 5.17 | % | | | 268,902 | | | | 14,796 | | | | 5.50 | % | | | 264,400 | | | | 15,122 | | | | 5.72 | % | | | 295,892 | | | | 14,976 | | | | 5.06 | % | | | 281,052 | | | | 14,542 | | | | 5.17 | % | | | 268,902 | | | | 14,796 | | | | 5.50 | % |
Installment | | | 50,695 | | | | 3,960 | | | | 7.81 | % | | | 33,625 | | | | 2,467 | | | | 7.34 | % | | | 23,560 | | | | 2,019 | | | | 8.57 | % | | | 65,870 | | | | 4,981 | | | | 7.56 | % | | | 50,695 | | | | 3,960 | | | | 7.81 | % | | | 33,625 | | | | 2,467 | | | | 7.34 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for investment4 | | | 496,413 | | | | 26,312 | | | | 5.30 | % | | | 471,958 | | | | 25,159 | | | | 5.33 | % | | | 456,095 | | | | 25,345 | | | | 5.56 | % | | | 532,034 | | | | 28,060 | | | | 5.27 | % | | | 496,413 | | | | 26,312 | | | | 5.30 | % | | | 471,958 | | | | 25,159 | | | | 5.33 | % |
Loans held for sale | | | 9,072 | | | | 312 | | | | 3.44 | % | | | 21,298 | | | | 648 | | | | 3.04 | % | | | 50,814 | | | | 1,736 | | | | 3.42 | % | | | 40,450 | | | | 1,099 | | | | 2.72 | % | | | 9,072 | | | | 312 | | | | 3.44 | % | | | 21,298 | | | | 648 | | | | 3.04 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fully taxable | | | 13,392 | | | | 205 | | | | 1.53 | % | | | 11,718 | | | | 194 | | | | 1.66 | % | | | 16,424 | | | | 209 | | | | 1.27 | % | | | 17,372 | | | | 303 | | | | 1.74 | % | | | 13,392 | | | | 205 | | | | 1.53 | % | | | 11,718 | | | | 194 | | | | 1.66 | % |
Partially taxable | | | 116 | | | | - | | | | .- | | | | 107 | | | | - | | | | .- | | | | 108 | | | | 1 | | | | .93 | % | | | 125 | | | | - | | | | .- | | | | 116 | | | | - | | | | .- | | | | 107 | | | | - | | | | .- | |
Tax exempt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total investment securities | | | 13,508 | | | | 205 | | | | 1.53 | % | | | 11,825 | | | | 194 | | | | 1.66 | % | | | 16,532 | | | | 210 | | | | 1.27 | % | | | 17,497 | | | | 303 | | | | 1.74 | % | | | 13,508 | | | | 205 | | | | 1.53 | % | | | 11,825 | | | | 194 | | | | 1.66 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits in banks | | | 896 | | | | - | | | | - | | | | 1,084 | | | | 4 | | | | .37 | % | | | 1,334 | | | | 5 | | | | .37 | % | | | 1,223 | | | | - | | | | - | | | | 896 | | | | - | | | | - | | | | 1,084 | | | | 4 | | | | .37 | % |
Federal funds sold | | | 20,602 | | | | 44 | | | | .21 | % | | | 23,094 | | | | 50 | | | | .22 | % | | | 11,463 | | | | 25 | | | | .22 | % | | | 9,310 | | | | 21 | | | | .23 | % | | | 20,602 | | | | 44 | | | | .21 | % | | | 23,094 | | | | 50 | | | | .22 | % |
Total Earning Assets | | | 540,491 | | | | 26,873 | | | | 4.97 | % | | | 529,259 | | | | 26,055 | | | | 4.92 | % | | | 536,238 | | | | 27,321 | | | | 5.09 | % | | | 600,514 | | | | 29,483 | | | | 4.91 | % | | | 540,491 | | | | 26,873 | | | | 4.97 | % | | | 529,259 | | | | 26,055 | | | | 4.92 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses | | | (8,476 | ) | | | | | | | | | | | (8,384 | ) | | | | | | | | | | | (7,711 | ) | | | | | | | | | | | (8,933 | ) | | | | | | | | | | | (8,476 | ) | | | | | | | | | | | (8,384 | ) | | | | | | | | |
Nonearning assets | | | 47,036 | | | | | | | | | | | | 48,565 | | | | | | | | | | | | 44,002 | | | | | | | | | | | | 52,378 | | | | | | | | | | | | 47,036 | | | | | | | | | | | | 48,565 | | | | | | | | | |
Total Assets | | $ | 579,051 | | | | | | | | | | | $ | 569,440 | | | | | | | | | | | $ | 572,529 | | | | | | | | | | | $ | 643,959 | | | | | | | | | | | $ | 579,051 | | | | | | | | | | | $ | 569,440 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand –interest bearing | | $ | 117,396 | | | $ | 664 | | | | .57 | % | | $ | 120,482 | | | $ | 792 | | | | .66 | % | | $ | 121,209 | | | $ | 1,195 | | | | .99 | % | | $ | 112,334 | | | $ | 539 | | | | .48 | % | | $ | 117,396 | | | $ | 664 | | | | .57 | % | | $ | 120,482 | | | $ | 792 | | | | .66 | % |
Savings | | | 60,460 | | | | 122 | | | | .20 | % | | | 52,714 | | | | 119 | | | | .23 | % | | | 45,120 | | | | 182 | | | | .40 | % | | | 76,491 | | | | 212 | | | | .28 | % | | | 60,460 | | | | 122 | | | | .20 | % | | | 52,714 | | | | 119 | | | | .23 | % |
Time deposits | | | 195,933 | | | | 1,704 | | | | .87 | % | | | 198,786 | | | | 2,331 | | | | 1.17 | % | | | 214,145 | | | | 2,944 | | | | 1.83 | % | | | 171,829 | | | | 1,402 | | | | .82 | % | | | 195,933 | | | | 1,704 | | | | .87 | % | | | 198,786 | | | | 2,331 | | | | 1.17 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest bearing deposits | | | 373,789 | | | | 2,490 | | | | .67 | % | | | 371,982 | | | | 3,242 | �� | | | .87 | % | | | 380,474 | | | | 4,321 | | | | 1.14 | % | | | 360,654 | | | | 2,153 | | | | .60 | % | | | 373,789 | | | | 2,490 | | | | .67 | % | | | 371,982 | | | | 3,242 | | | | .87 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term debt | | | 3,872 | | | | 9 | | | | .23 | % | | | 6,171 | | | | 24 | | | | .39 | % | | | 12,816 | | | | 52 | | | | .41 | % | | | 32,017 | | | | 69 | | | | .22 | % | | | 3,872 | | | | 9 | | | | .23 | % | | | 6,171 | | | | 24 | | | | .39 | % |
Long-term debt | | | 21,501 | | | | 1,149 | | | | 5.34 | % | | | 36,280 | | | | 1,507 | | | | 4.15 | % | | | 55,275 | | | | 1,921 | | | | 3.48 | % | | | 31,856 | | | | 654 | | | | 2.05 | % | | | 21,501 | | | | 1,149 | | | | 5.34 | % | | | 36,280 | | | | 1,507 | | | | 4.15 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest bearing liabilities | | | 399,162 | | | | 3,648 | | | | .91 | % | | | 414,433 | | | | 4,773 | | | | 1.15 | % | | | 448,565 | | | | 6,294 | | | | 1.40 | % | | | 424,527 | | | | 2,876 | | | | .68 | % | | | 399,162 | | | | 3,648 | | | | .91 | % | | | 414,433 | | | | 4,773 | | | | 1.15 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest bearing deposits | | | 107,647 | | | | | | | | | | | | 90,170 | | | | | | | | | | | | 75,983 | | | | | | | | | | | | 125,665 | | | | | | | | | | | | 107,647 | | | | | | | | | | | | 90,170 | | | | | | | | | |
Other liabilities | | | 5,134 | | | | | | | | | | | | 13,074 | | | | | | | | | | | | 199 | | | | | | | | | | | | 13,318 | | | | | | | | | | | | 5,134 | | | | | | | | | | | | 13,074 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 511,943 | | | | | | | | | | | | 517,677 | | | | | | | | | | | | 524,747 | | | | | | | | | | | | 563,510 | | | | | | | | | | | | 511,943 | | | | | | | | | | | | 517,677 | | | | | | | | | |
Stockholders’ equity | | | 67,108 | | | | | | | | | | | | 51,763 | | | | | | | | | | | | 47,782 | | | | | | | | | | | | 80,449 | | | | | | | | | | | | 67,108 | | | | | | | | | | | | 51,763 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 579,051 | | | | | | | | | | | $ | 569,440 | | | | | | | | | | | $ | 572,529 | | | | | | | | | | | $ | 643,959 | | | | | | | | | | | $ | 579,051 | | | | | | | | | | | $ | 569,440 | | | | | | | | | |
| | | | | | $ | 17,508 | | | | | | | | | | | $ | 17,508 | | | | | | | | | | | $ | 17,508 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest earnings | | | | | | $ | 23,225 | | | | | | | | | | | $ | 21,282 | | | | | | | | | | | $ | 21,027 | | | | | | | | | | | $ | 26,607 | | | | | | | | | | | $ | 23,225 | | | | | | | | | | | $ | 21,282 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net yield on interest earning assets (NIM) | | | | | | | | | | | 4.30 | % | | | | | | | | | | | 4.02 | % | | | | | | | | | | | 3.92 | % | | | | | | | | | | | 4.43 | % | | | | | | | | | | | 4.30 | % | | | | | | | | | | | 4.02 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1 | Income and yields are presented on a tax-equivalent basis using the applicable federal income tax rate. |
| 2 | Interest income on loans includes loan fees. |
| 3 | Average balance information is reflective of historical cost and has not been adjusted for changes in market value. |
| 4 | Includes nonaccrual loans. |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
The following table illustrates the effect of changes in volumes and rates.
| | 2014 Compared to 2013 | | | 2013 Compared to 2012 | | | 2015 Compared to 2014 | | | 2014 Compared to 2013 | |
| | Increase (Decrease) | | | Increase (Decrease) | | | Increase (Decrease) | | | Increase (Decrease) | |
| | Due to Change | | | | | | Increase | | | Due to Change | | | | | | Increase | | | Due to Change | | | | | | Increase | | | Due to Change | | | | | | Increase | |
| | in Average: | | | | | | Or | | | in Average: | | | | | | or | | | in Average: | | | | | | Or | | | in Average: | | | | | | or | |
| | Volume | | | Rate | | | (Decrease) | | | Volume | | | Rate | | | (Decrease) | | | Volume | | | Rate | | | (Decrease) | | | Volume | | | Rate | | | (Decrease) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for investment | | $ | 1,303 | | | $ | (150 | ) | | $ | 1,153 | | | $ | 882 | | | $ | (1,068 | ) | | $ | (186 | ) | | $ | 1,888 | | | $ | (140 | ) | | $ | 1,748 | | | $ | 1,303 | | | $ | (150 | ) | | $ | 1,153 | |
Loans held for sale | | | (372 | ) | | | 36 | | | | (336 | ) | | | (1,009 | ) | | | (79 | ) | | | (1,088 | ) | | | 1,079 | | | | (292 | ) | | | 787 | | | | (372 | ) | | | 36 | | | | (336 | ) |
Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 28 | | | | (17 | ) | | | 11 | | | | (60 | ) | | | 45 | | | | (15 | ) | | | 61 | | | | 37 | | | | 98 | | | | 28 | | | | (17 | ) | | | 11 | |
Partially taxable | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | (1 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Tax exempt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits in banks | | | (1 | ) | | | (3 | ) | | | (4 | ) | | | (1 | ) | | | - | | | | (1 | ) | | | - | | | | - | | | | - | | | | (1 | ) | | | (3 | ) | | | (4 | ) |
Federal funds sold | | | (5 | ) | | | (1 | ) | | | (6 | ) | | | 25 | | | | - | | | | 25 | | | | (24 | ) | | | 1 | | | | (23 | ) | | | (5 | ) | | | (1 | ) | | | (6 | ) |
Total Interest Income | | | 953 | | | | (135 | ) | | | 818 | | | | (163 | ) | | | (1,103 | ) | | | (1,266 | ) | | | 3,004 | | | | (394 | ) | | | 2,610 | | | | 953 | | | | (135 | ) | | | 818 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Demand | | | (20 | ) | | | (108 | ) | | | (128 | ) | | | (7 | ) | | | (396 | ) | | | (403 | ) | | | (29 | ) | | | (96 | ) | | | (125 | ) | | | (20 | ) | | | (108 | ) | | | (128 | ) |
Savings | | | 18 | | | | (15 | ) | | | 3 | | | | 30 | | | | (93 | ) | | | (63 | ) | | | 32 | | | | 58 | | | | 90 | | | | 18 | | | | (15 | ) | | | 3 | |
Time deposits | | | (33 | ) | | | (594 | ) | | | (627 | ) | | | (281 | ) | | | (332 | ) | | | (613 | ) | | | (210 | ) | | | (92 | ) | | | (302 | ) | | | (33 | ) | | | (594 | ) | | | (627 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term debt | | | (9 | ) | | | (6 | ) | | | (15 | ) | | | (27 | ) | | | (1 | ) | | | (28 | ) | | | 65 | | | | (5 | ) | | | 60 | | | | (9 | ) | | | (6 | ) | | | (15 | ) |
Long-term debt | | | (613 | ) | | | 255 | | | | (358 | ) | | | (661 | ) | | | 247 | | | | (414 | ) | | | 553 | | | | (1,048 | ) | | | (495 | ) | | | (613 | ) | | | 255 | | | | (358 | ) |
Total Interest Expense | | | (657 | ) | | | (468 | ) | | | (1,125 | ) | | | (946 | ) | | | (575 | ) | | | (1,521 | ) | | | 411 | | | | (1,183 | ) | | | (772 | ) | | | (657 | ) | | | (468 | ) | | | (1,125 | ) |
Net Interest Income | | $ | 1 ,610 | | | $ | 333 | | | $ | 1,943 | | | $ | 783 | | | $ | (528 | ) | | $ | 255 | | | $ | 2,593 | | | $ | 789 | | | $ | 3,382 | | | $ | 1 ,610 | | | $ | 333 | | | $ | 1,943 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Note: Volume changes have been determined by multiplying the prior years’ average rate by the change in average balances outstanding. The rate change is the difference between the total change and the volume change.
Interest Income
Tax equivalent interest income increased $2,610,000 or 9.71% in 2015, after increasing 3.14% or $818,000 or 3.14% in 2014, after decreasing 4.63% or $1,266,000 in 2013.2014. Overall, the yield on earning assets increased .05%decreased .06%, from 4.92%4.97% to 4.97%4.91%. Average loans held for investment grew during 2014,2015, with average loans outstanding increasing $24,455,000$35,621,000 to $496,413,000.$532,034,000. Real estate loans increased 4.52%5.28%, commercial loans decreased 2.81%increased 3.40% and consumer loans increased 50.77%29.93%. The increase in consumer loans is result of the growth in our Dealer Finance division which opened at the end of 2012. As you can see, theThe increase in tax equivalent interest income is primarily due to the growth in the Dealer Finance division which is a higher yielding portfolio.as well as the volume in the short term loan participation program with Northpointe Bank. .
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
The following table provides detail on the components of tax equivalent net interest income:
GAAP Financial Measurements: (Dollars in thousands). | | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | |
Interest Income – Loans | | $ | 26,522 | | | $ | 25,718 | | | $ | 26,984 | | | $ | 29,029 | | | $ | 26,522 | | | $ | 25,718 | |
Interest Income - Securities and Other Interest-Earnings Assets | | | 249 | | | | 248 | | | | 240 | | | | 324 | | | | 249 | | | | 248 | |
Interest Expense – Deposits | | | 2,490 | | | | 3,242 | | | | 4,321 | | | | 2,153 | | | | 2,490 | | | | 3,242 | |
Interest Expense - Other Borrowings | | | 1,158 | | | | 1,531 | | | | 1,973 | | | | 723 | | | | 1,158 | | | | 1,531 | |
Total Net Interest Income | | | 23,123 | | | | 21,193 | | | | 20,930 | | | | 26,477 | | | | 23,123 | | | | 21,193 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-GAAP Financial Measurements: | | | | | | | | | | | | | | | | | | | | | | | | |
Add: Tax Benefit on Tax-Exempt Interest Income – Loans | | | 102 | | | | 89 | | | | 97 | | | | 130 | | | | 102 | | | | 89 | |
Add: Tax Benefit on Tax-Exempt Interest Income - Securities and Other Interest-Earnings Assets | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total Tax Benefit on Tax-Exempt Interest Income | | | 102 | | | | 89 | | | | 97 | | | | 130 | | | | 102 | | | | 89 | |
Tax-Equivalent Net Interest Income | | $ | 23,225 | | | $ | 21,282 | | | $ | 21,027 | | | $ | 26,607 | | | $ | 23,225 | | | $ | 21,282 | |
Interest Expense
Interest expense decreased $1,125,000$772,000 or 23.57%21.16% during 2014,2015, which followed a 24.17%23.57% decrease or $1,521,000$1,125,000 in 2013.2014. The average cost of funds of .91%.68% decreased .24%.23% compared to 2013.2014. Average interest bearing liabilities decreased $15,271,000increased $25,365,000 in 20142015 following decrease of $34,132,000$15,271,000 in 2013.2014. The decreaseincrease in interest bearing liabilities was the result of a decreasean increase in short and long term debt and migration from interest bearing depositsFHLB borrowings to noninterest bearing accounts. Long term debt decreased with the subordinated debt redemption and/or conversion to Preferred Stock.support loan growth. Due to declining rates and the migration into noninterest bearing accounts the expense associated with time deposits decreased $627,000 (26.90%$302,000 (17.72%) in 2014.2015. Changes in the cost of funds attributable to rate and volume variances can be found in the table at the top of page 22.24.
Noninterest Income
Noninterest income continues to be an increasingly important factor in maintaining and growing profitability. Management is conscious of the need to constantly review fee income and develop additional sources of complementary revenue.
Non-interest income decreased 12.45%increased 8.17% ($502,000)235,000) in 20142015 following an increasea decrease of 6.87%6.26% in 2013.2014. The majority of the decreaseincrease is from decreased income fromrecord earnings at VBS mortgage ($384,000), due to increased volume in our mortgagelow interest rate environment and investment subsidiaries ($233,000). Other areasslight economic improvement. Areas of decrease were service charges on deposit accounts ($84,000) and bank owned life insurance ($42,000).71,000), which has experience a steady decline over the past few years with regulatory changes.
There were no security transactions in 2015, 2014 2013 or 20122013 which resulted in a gain or loss.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Noninterest Expense
Noninterest expenses increased from $14,720,000 in 2013 to $15,656,000 in 2014 to $17,986,000 in 2015, a 6.36%14.88% increase. Salary and benefits increased 1.60%14.14% to $8,810,000$10,055,000 in 2014,2015, following an 11.22%a 1.60% increase in 2013.2014. This increase was the result of normal salary increases, additions to staff for new branches and administrative positions as well as increasing benefit costs (primarily(including health insurance)care cost, pension expense and profit sharing expenses). This year the pension expense declined which resulted in a smaller increase than 2013.increased by $185,000 over 2014. Other real estate owned expenses increased $192,000$159,000 or 8.96%3.90% due to costs associated with maintaining the properties and losses from sales or write-downs of property. Other operating expenses increased $562,000$910,000 in 2014,2015, following a $523,000$562,000 increase in 2013.2014. Increases were in advertising and employee appreciation ($38,000)114,000), data processingtechnology expense ($200,000)148,000), Franchise tax expense ($203,000) and supplies and stationarychecking account program expenses ($92,000)103,000). Noninterest expenses continue to be substantially lower than peer group averages. Total noninterest expense as a percentage of average assets totaled 2.61%2.79%, 2.70%, and 2.58%, in 2015, 2014 and 2.33%, in 2014, 2013, and 2012, respectively. Peer group averages (as reported in the most recent Uniform Bank Performance Report) have ranged between 2.89%2.86%, 2.93%2.89% and 2.93% over the same time period.
Provision for Loan Losses
Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and volume of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance for loan losses include internally generated loan review reports, past due reports and historical loan loss experience. This review also considers concentrations of loans in terms of geography, business type and level of risk. Management evaluates nonperforming loans relative to their collateral value and makes the appropriate adjustments to the allowance for loan losses when needed. Based on the factors outlined above, the current year provision for loan losses decreased from $3,775,000 in 2013 to $2,250,000 in 2014.2014 to $300,000 in 2015. The decrease in the provision for loan losses and the current levels of the allowance for loan losses reflect specific reserves related to nonperforming loans, changes in risk rating on loans, net charge-off activity, loan growth, delinquency trends and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses.
Actual net loan charge-offs were $244,000 in 2015 and $1,709,000 in 2014 and $3,745,000 in 2013.2014. Loan losses as a percentage of average loans held for investment totaled .04% and .33% in 2015 and .78% in 2014, and 2013, respectively. As stated in the most recently available Bank Holding Company Performance Report (BHCPR), peer group loss averages were .12% in 2015 and .18% in 2014 and .32% in 2013.2014.
Balance Sheet
Total assets increased 9.50%9.92% during the year to $605,308,000,$665,357,000, an increase of $52,520,000$60,049,000 from $552,788,000$605,308,000 in 2013.2014. Average earning assets increased 2.12%11.10% or $11,232,000$60,023,000 to $540,491,000$600,514,000 at December 31, 2014.2015. The increase in earning assets is due largely to the growth in the short term loan participation program with Northpointe Bank and in the Dealer Finance division in installment loans. Average interest bearing deposits increased $1,807,000decreased $13,135,000 for 20142015 or .49%3.51%, with all thedecreases in both time deposits and interest bearing demand accounts, there was $16,031,000 in growth resulting from an increase in the savings category. The Company continues to utilize its assets well with 90.00%93.25% of average assets consisting of earning assets.
Investment Securities
Average balances in investment securities increased 14.23%29.53% in 20142015 to $13,508,000.$17,497,000. At year end, 2.50%2.91% of average earning assets of the Company were held as investment securities to provide security for public deposits and to secure repurchase agreements. Management strives to match the types and maturities of securities owned to balance projected liquidity needs, interest rate sensitivity and to maximize earnings through a portfolio bearing low credit risk. Portfolio yields averaged 1.74% for 2015, up from 1.53% for 2014, down from 1.66% in 2013.2014.
There were no security gains or losses and no Other Than Temporary Impairment (OTTI) write-downs in 2015, 2014 2013 or 2012. Additional information on the securities impairment write-downs can be found on page 19 under the caption “Securities Impairment”.2013.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Investment Securities, continued
The composition of securities at December 31 was:
(Dollars in thousands) | | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | | | | | | |
Available for Sale1 | | | | | | | | | | | | | | | | | | |
U.S. Treasury, Agency and Government Sponsored Enterprises (GSE) | | $ | 12,058 | | | $ | 29,065 | | | $ | 7,031 | | | $ | 12,095 | | | $ | 12,058 | | | $ | 29,065 | |
Mortgage-backed2 | | | 1,022 | | | | 1,201 | | | | 1,647 | | | | 817 | | | | 1,022 | | | | 1,201 | |
Marketable equity securities | | | 135 | | | | - | | | | - | | | | 135 | | | | 135 | | | | - | |
Total | | | 13,215 | | | | 30,266 | | | | 8,678 | | | | 13,047 | | | | 13,215 | | | | 30,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Held to Maturity | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury and Agency | | | 125 | | | | 106 | | | | 107 | | | | 125 | | | | 125 | | | | 106 | |
Total | | | 125 | | | | 106 | | | | 107 | | | | 125 | | | | 125 | | | | 106 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Equity Investments | | | 8,965 | | | | 8,114 | | | | 10,022 | | | | 12,157 | | | | 8,965 | | | | 8,114 | |
Total Securities | | $ | 22,305 | | | $ | 38,486 | | | $ | 18,807 | | | $ | 25,329 | | | $ | 22,305 | | | $ | c38,486 | |
1 At estimated fair value. See Note 4 to the Consolidated Financial Statements for amortized cost.
2 Issued by a U.S. Government Agency or secured by U.S. Government Agency collateral.
Maturities and weighted average yields of debt securities at December 31, 20142015 are presented in the table below. Amounts are shown by contractual maturity; expected maturities will differ as issuers may have the right to call or prepay obligations. Maturities of Other Investments are not readily determinable due to the nature of the investment; see Note 4 to the Consolidated Financial Statements for a description of these investments.
| | Less | | | One to | | | Five to | | Over | | | | | | | | | Less | | | One to | | | Five to | | | Over | | | | | | | |
| | Than one Year | | | Five Years | | | Ten Years | | Ten Years | | | | | | | | | Than one Year | | | Five Years | | | Ten Years | | | Ten Years | | | | | | | |
(Dollars in thousands) | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | Yield | | Amount | | | Yield | | | Total | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Amount | | | Yield | | | Total | | | Yield | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt Securities Available for Sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury, Agency & GSE | | $ | 2,000 | | | .05 | % | | $ | 10,058 | | | .94 | % | | $ | - | | | | $ | - | | | | | | $ | 12,058 | | | .79 | % | | $ | 4,075 | | | | .99 | % | | $ | 8,020 | | | | .78 | % | | $ | - | | | | | | | $ | - | | | | | | $ | 12,095 | | | | .85 | % |
Mortgage-backed | | | | | | | | | | | | | | | | | | | | | | 1,022 | | | 2.29 | % | | | 1,022 | | | 2.29 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | 817 | | | | 2.35 | % | | | 817 | | | | 2.35 | % |
Marketable equities | | | - | | | | | | | - | | | | | | | - | | | | | 135 | | | | | | | 135 | | | | | | | - | | | | | | | | - | | | | | | | | - | | | | | | | | 135 | | | | | | | | 135 | | | | | |
Total | | $ | 2,000 | | | .05 | % | | $ | 10,058 | | | .94 | % | | $ | - | | | | $ | 1,157 | | | 2.29 | % | | $ | 13,215 | | | .90 | % | | $ | 4,075 | | | | .99 | % | | $ | 8,020 | | | | .78 | % | | $ | - | | | | | | | $ | 952 | | | | 2.29 | % | | $ | 13,047 | | | | .94 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt Securities Held to Maturity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury & Agency | | $ | 125 | | | .38 | % | | | | | | | | | | | | | | | | | | | | | $ | 125 | | | .38 | % | | $ | 125 | | | | .28 | % | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 125 | | | | .28 | % |
Total | | $ | 125 | | | .38 | % | | | | | | | | | | | | | | | | | | | | | $ | 125 | | | .38 | % | | $ | 125 | | | | .28 | % | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 125 | | | | .28 | % |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Analysis of Loan Portfolio
The Company’s market area has a relatively stable economy which tends to be less cyclical than the national economy. Major industries in the market area include agricultural production and processing, higher education, retail sales, services and light manufacturing.
The Company’s portfolio of loans held for investment totaled $518,202,000$544,053,000 at December 31, 20142015 compared with $478,453,000$518,202,000 at the beginning of the year. The Company’s policy has been to make conservative loans that are held for future interest income. Collateral required by the Company is determined on an individual basis depending on the purpose of the loan and the financial condition of the borrower. Commercial loans, including agricultural and multifamily loans, increased 6.62%1.24% during 20142015 to $174,748,000.$176,922,000. Real estate mortgages increased $11,194,000 (5.26%$8,407,000 (3.76%). Growth has included a variety of loan and collateral types including owner occupied residential real estate and residential rental properties.
Construction loans decreased $1,332,000increased $2,579,000 or 1.94%3.84%. The declineincrease in construction loans resulted fromlending is a result of improvement in the slower economy which reduced construction withinin the Bank’s primary market area. The Bank also has loan participation arrangements with several other banks within the region to aid in diversification of the loan portfolio geographically, by collateral type and by borrower.
Consumer installment loans increased $18,972,000$12,624,000 or 61.91%25.44%. This category includes personal loans, auto loans and other loans to individuals. This category began increasing during the fourth quarter of 2012 due to the opening of the Dealer Finance Division in Penn Laird, Virginia; at year end this Division had a loan portfolio of $40,634,000.$54,086,000. Credit card balances increased $25,000$40,000 to $2,705,000$2,745,000 but are a minor component of the loan portfolio. The following table presents the changes in the loan portfolio over the previous five years.
| | December 31 | | | December 31 | |
(Dollars in thousands) | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate – mortgage | | $ | 223,824 | | | $ | 212,630 | | | $ | 204,812 | | | $ | 193,280 | | | $ | 190,162 | | | $ | 232,321 | | | $ | 223,824 | | | $ | 212,630 | | | $ | 204,812 | | | $ | 193,280 | |
Real estate – construction | | | 67,180 | | | | 68,512 | | | | 71,251 | | | | 72,224 | | | | 79,337 | | | | 69,759 | | | | 67,180 | | | | 68,512 | | | | 71,251 | | | | 72,224 | |
Consumer installment | | | 49,615 | | | | 30,643 | | | | 15,753 | | | | 13,015 | | | | 19,043 | | | | 62,239 | | | | 49,615 | | | | 30,643 | | | | 15,753 | | | | 13,015 | |
Commercial | | | 147,599 | | | | 135,835 | | | | 147,089 | | | | 141,014 | | | | 121,490 | | | | 153,691 | | | | 147,599 | | | | 135,835 | | | | 147,089 | | | | 141,014 | |
Agricultural | | | 15,374 | | | | 16,265 | | | | 14,099 | | | | 15,985 | | | | 19,761 | | | | 15,672 | | | | 15,374 | | | | 16,265 | | | | 14,099 | | | | 15,985 | |
Multi-family residential | | | 11,775 | | | | 11,797 | | | | 9,357 | | | | 13,157 | | | | 12,259 | | | | 7,559 | | | | 11,775 | | | | 11,797 | | | | 9,357 | | | | 13,157 | |
Credit cards | | | 2,705 | | | | 2,680 | | | | 2,788 | | | | 2,812 | | | | 2,771 | | | | 2,745 | | | | 2,705 | | | | 2,680 | | | | 2,788 | | | | 2,812 | |
Other | | | 130 | | | | 91 | | | | 670 | | | | 83 | | | | 324 | | | | 67 | | | | 130 | | | | 91 | | | | 670 | | | | 83 | |
Total Loans | | $ | 518,202 | | | $ | 478,453 | | | $ | 465,819 | | | $ | 451,570 | | | $ | 445,147 | | | $ | 544,053 | | | $ | 518,202 | | | $ | 478,453 | | | $ | 465,819 | | | $ | 451,570 | |
The following table shows the Company’s loan maturity and interest rate sensitivity as of December 31, 2014:2015:
| | Less Than | | | | 1-5 | | | Over | | | | | | Less Than | | | 1-5 | | | Over | | | | |
(Dollars in thousands) | | 1 Year | | | Years | | | 5 Years | | | Total | | | 1 Year | | | Years | | | 5 Years | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and | | | | | | | | | | | | | | | | | | | | | | | | | | |
agricultural loans | | $ | 53,878 | | | $ | 104,035 | | | $ | 5,060 | | | $ | 162,973 | | | $ | 42,132 | | | $ | 113,729 | | | $ | 13,503 | | | $ | 169,364 | |
Multi-family residential | | | 2,296 | | | | 8,838 | | | | 641 | | | | 11,775 | | | | 2,078 | | | | 4,883 | | | | 597 | | | | 7,558 | |
Real Estate – mortgage | | | 90,887 | | | | 132,689 | | | | 248 | | | | 223,824 | | | | 84,888 | | | | 147,124 | | | | 309 | | | | 232,321 | |
Real Estate – construction | | | 56,789 | | | | 9,941 | | | | 450 | | | | 67,180 | | | | 53,860 | | | | 15,479 | | | | 420 | | | | 69,759 | |
Consumer – installment/other | | | 7,314 | | | | 45,092 | | | | 44 | | | | 52,450 | | | | 7,519 | | | | 45,811 | | | | 11,721 | | | | 65,051 | |
Total | | $ | 211,164 | | | $ | 300,595 | | | $ | 6,443 | | | $ | 518,202 | | | $ | 190,477 | | | $ | 327,026 | | | $ | 26,550 | | | $ | 544,053 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans with predetermined rates | | $ | 21,555 | | | $ | 64,465 | | | $ | 3,764 | | | $ | 89,784 | | | $ | 28,667 | | | $ | 60,484 | | | $ | 15,062 | | | $ | 104,213 | |
Loans with variable or | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
adjustable rates | | | 189,609 | | | | 236,130 | | | | 2,679 | | | | 428,418 | | | | 161,810 | | | | 266,542 | | | | 11,488 | | | | 439,840 | |
Total | | $ | 211,164 | | | $ | 300,595 | | | $ | 6,443 | | | $ | 518,202 | | | $ | 190,477 | | | $ | 327,026 | | | $ | 26,550 | | | $ | 544,053 | |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Analysis of Loan Portfolio, continued
Residential real estate loans are generally made for a period not to exceed 25 years and are secured by a first deed of trust which normally does not exceed 90% of the appraised value. If the loan to value ratio exceeds 90%, the Company requires additional collateral, guarantees or mortgage insurance. On approximately 94% of the real estate loans, interest is adjustable after each one, three or five year period. The remainder of the portfolio is comprised of fixed rate loans that are generally made for a fifteen-year or a twenty-year period with an interest rate adjustment after ten years.
Since 1992, fixed rate real estate loans have been funded with fixed rate borrowings from the Federal Home Loan Bank, which allows the Company to control its interest rate risk. In addition, the Company makes home equity loans secured by second deeds of trust with total indebtedness not to exceed 90% of the appraised value. Home equity loans are made for three, five or ten year periods at a fixed rate or as a revolving line of credit.
Construction loans may be made to individuals, who have arranged with a contractor for the construction of a residence, or to contractors that are involved in building pre-sold, spec-homes or subdivisions. The majority of commercial loans are made to small retail, manufacturing and service businesses. Consumer loans are made for a variety of reasons; however, approximately 81% of the loans are secured by automobiles and trucks.
Prior to the recession, real estate values in the Company’s market area for commercial, agricultural and residential property increased, on the average, between 5% and 8% annually depending on the location and type of property. However, due to the slowing economy and declining real estate sales it is estimated that values peaked in 2007 or 2008. Depending on a number of factors, including property type, location and price point, the decline in value ranges from relatively modest, perhaps 10%, to more severe, up to 30%. Values appear to have bottomed out in 2011, with modest increases in both 20132014 and 2014.2015. Approximately 84%83% of the Company’s loans are secured by real estate; however, policies relating to appraisals and loan to value ratios are adequate to control the related risk. Unemployment rates in the Company’s market area continue to be below both the national and state averages.
The Bank has identified loan concentrations of greater than 25% of capital in the real estate development category. While the Bank has not developed a formal policy limiting the concentration level to any particular loan type or industry segment, it has established target limits on both a nominal and percentage of capital basis. Concentrations are monitored and reported to the board of directors quarterly. Concentration levels have been used by management to determine how aggressively they may price or pursue new loan requests. At December 31, 2014,2015, there are no industry categories of loans that exceed 10% of total loans.
Nonaccrual and Past Due Loans
Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. The Company would have earned approximately $361,000$267,000 in additional interest income had the loans on nonaccrual status been current and performing. Nonperforming loans totaled $6,526,000 at December 31, 2015 compared to $6,975,000 at December 31, 2014 compared to $12,582,000 at December 31, 2013.2014. At December 31, 2014 $1,0002015 $570,000 of loans (credit cards) 90 days or more past due were not on nonaccrual status. Approximately 97%91% of these nonperforming loans are secured by real estate. Although management expects that there may be additional loan losses, the bank is generally well secured and continues to actively work with its customers to effect payment. As of December 31, 2014,2015, the Company holds $3,507,000$2,128,000 of real estate which was acquired through foreclosure, of which $475,000$125,000 was under contract pending sale in the first quarter of 2015.2016.
Nonperforming loans have decreased approximately $5,607,000$449,000 since December 31, 2013.2014.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Nonaccrual and Past Due Loans, continued
The following is a summary of information pertaining to risk elements and impaired loans:
(Dollars in thousands) | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
Nonaccrual Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate - 2011 includes $1,040 of restructured loans | | $ | 5,481 | | | $ | 9,963 | | | $ | 9,611 | | | $ | 7,671 | | | $ | 5,189 | | | $ | 5,698 | | | $ | 5,481 | | | $ | 9,963 | | | $ | 9,611 | | | $ | 7,671 | |
Commercial - 2011 includes $309 of restructured loans | | | 1,179 | | | | 1,890 | | | | 2,914 | | | | 5,888 | | | | 1,656 | | | | 109 | | | | 1,179 | | | | 1,890 | | | | 2,914 | | | | 5,888 | |
Home Equity | | | 153 | | | | 402 | | | | 740 | | | | 266 | | | | 715 | | | | 40 | | | | 153 | | | | 402 | | | | 740 | | | | 266 | |
Other | | | 161 | | | | - | | | | 121 | | | | 39 | | | | 30 | | | | 108 | | | | 161 | | | | - | | | | 121 | | | | 39 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans past due 90 days or more: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real Estate | | | 0 | | | | 246 | | | | - | | | | 646 | | | | 3021 | | | | 272 | | | | 0 | | | | 246 | | | | - | | | | 646 | |
Commercial | | | 0 | | | | 4 | | | | - | | | | - | | | | 4581 | | | | 25 | | | | 0 | | | | 4 | | | | - | | | | - | |
Home Equity | | | 0 | | | | 61 | | | | - | | | | 260 | | | | 588 | | | | 107 | | | | 0 | | | | 61 | | | | - | | | | 260 | |
Other | | | 1 | | | | 16 | | | | - | | | | 6 | | | | 54 | | | | 167 | | | | 1 | | | | 16 | | | | - | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Nonperforming loans | | $ | 6,975 | | | $ | 12,582 | | | $ | 13,386 | | | $ | 14,776 | | | $ | 15,834 | | | $ | 6,526 | | | $ | 6,975 | | | $ | 12,582 | | | $ | 13,386 | | | $ | 14,776 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restructured Loans: | | | | | | | | | | | | | | | | | | | | | |
Restructured Loans current and performing: | | | | | | | | | | | | | | | | | | | | | |
Real Estate | | | 179 | | | | 50 | | | | 147 | | | | 4,786 | | | | 267 | | | | 8,713 | | | | 3,913 | | | | 7,484 | | | | 6,572 | | | | 4,335 | |
Commercial | | | 22 | | | | 1,450 | | | | 4,628 | | | | 1,292 | | | | 385 | | | | 1,463 | | | | 518 | | | | 3,989 | | | | 3,753 | | | | 1,292 | |
Home Equity | | | | 1,414 | | | | 290 | | | | 727 | | | | 450 | | | | 451 | |
Other | | | | 91 | | | | 22 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonperforming loans as a percentage of loans held for investment | | | 1.35 | % | | | 2.63 | % | | | 2.87 | % | | | 3.27 | % | | | 3.56 | % | | | 1.20 | % | | | 1.35 | % | | | 2.63 | % | | | 2.87 | % | | | 3.27 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Charge Offs to Total Loans Held for Investment(1) | | | 0.33 | % | | | 0.78 | % | | | 0.64 | % | | | 0.63 | % | | | 0.53 | % | | | 0.04 | % | | | 0.33 | % | | | 0.78 | % | | | 0.64 | % | | | 0.63 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan and lease losses to nonperforming loans | | | 125.09 | % | | | 65.04 | % | | | 60.91 | % | | | 46.95 | % | | | 36.54 | % | | | 134.55 | % | | | 125.09 | % | | | 65.04 | % | | | 60.91 | % | | | 46.95 | % |
Potential Problem Loans
Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. Nor do they represent material credits about which management is aware of any information which causes it to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. As of December 31, 2014,2015, management is not aware of any potential problem loans which are not already classified for regulatory purposes or on the watch list as part of the Bank’s internal grading system.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Loan Losses and the Allowance for Loan Losses
In evaluating the portfolio, loans are segregated into loans with identified potential losses, pools of loans by type, with separate weighting for past dues and a general allowance based on a variety of criteria. Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of $500,000 and loans identified as Troubled Debt Restructuring are reviewed individually for impairment under ASC 310. A variety of factors are taken into account when reviewing these credits, including borrower cash flow, payment history, fair value of collateral, company management, industry and economic factors. Loan relationships that are determined to have no impairment are placed back into the appropriate loan pool and reviewed under ASC 450.
Loans that are not impaired are categorized by call report code and an estimate is calculated based on actual loss experience over the last five years. Due to the amount of loan losses in the past two years.years, the Company felt the two year lost history utilized in 2014 and prior would not be indicative of the amount of losses that could occur in our current economic cycle, therefore for 2015 the loss history was expanded to five years to capture a more representative loss history. Dealer finance loans utilize athe highest year within the five year loss history. The Company will monitor the net losses for this division and adjust based on how the portfolio performs since the department was established in 2012. A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio. The general allowance is calculated using eightsix (past dues are now segregated as their own pool) environmental factors (loan growth, unemployment, past due/criticized loans, interest rates, changes in underwriting practices, local real estate industry conditions, and experience of lending staff) with a range for worst and best case.. The general allowance assists in managing recent changes in portfolio risk that may not be captured in individually impaired loans, past dues or in the homogeneous pools based on twofive year loss histories. The Board approves the loan loss provision for each quarter based on this evaluation. An effort is made to keep the actual allowance at or above the midpoint of the range established by the evaluation process.
The allowance for loan losses of $8,725,000$8,781,000 at December 31, 20142015 is equal to 1.68%1.61% of total loans held for investment. This compares to an allowance of $8,184,000 (1.71%$8,725,000 (1.68%) at December 31, 20132014 and 1.75%1.71% at December 31, 2012.2013. Management and the Board of Directors have made a concentrated effort at increasing the allowance during the recent recession to reflect the increased risks within the portfolio. The overall level of the allowance is comparable withabove peer group averages and management feels the current reserve level is appropriate. Management has reached this conclusion based on historical losses, delinquency rates, collateral values of delinquent loans and a thorough review of the loan portfolio.
Loan losses, net of recoveries, totaled $1,709,000$244,000 in 20142015 which is equivalent to .33%.04% of total loans outstanding. Over the preceding three years, the Company has had an average loss rate of .58%.38%, compared to a .33%.20% loss rate for its peer group.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Loan Losses and the Allowance for Loan Losses, continued
A summary of the activity in the allowance for loan losses follows:
(Dollars in thousands) | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 8,184 | | | $ | 8,154 | | | $ | 6,937 | | | $ | 5,786 | | | $ | 3,836 | | | $ | 8,725 | | | $ | 8,184 | | | $ | 8,154 | | | $ | 6,937 | | | $ | 5,786 | |
Provision charged to expenses | | | 2,250 | | | | 3,775 | | | | 4,200 | | | | 4,000 | | | | 4,300 | | | | 300 | | | | 2,250 | | | | 3,775 | | | | 4,200 | | | | 4,000 | |
Loan losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction/land development | | | 1,611 | | | | 2,127 | | | | 1,480 | | | | 1,263 | | | | 249 | | | | 156 | | | | 1,611 | | | | 2,127 | | | | 1,480 | | | | 1,263 | |
Farmland | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Real Estate | | | 208 | | | | 173 | | | | 482 | | | | 474 | | | | 181 | | | | 25 | | | | 208 | | | | 173 | | | | 482 | | | | 474 | |
Multi-family | | | - | | | | - | | | | - | | | | - | | | | 958 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Commercial Real Estate | | | - | | | | 201 | | | | 424 | | | | 381 | | | | 346 | | | | - | | | | - | | | | 201 | | | | 424 | | | | 381 | |
Home Equity – closed end | | | - | | | | 159 | | | | 69 | | | | 222 | | | | 200 | | | | 26 | | | | - | | | | 159 | | | | 69 | | | | 222 | |
Home Equity – open end | | | 80 | | | | 68 | | | | - | | | | 83 | | | | - | | | | 51 | | | | 80 | | | | 68 | | | | - | | | | 83 | |
Commercial & Industrial – Non Real Estate | | | 385 | | | | 986 | | | | 776 | | | | 423 | | | | 332 | | | | - | | | | 385 | | | | 986 | | | | 776 | | | | 423 | |
Consumer | | | 33 | | | | 173 | | | | 45 | | | | 90 | | | | 117 | | | | 32 | | | | 33 | | | | 173 | | | | 45 | | | | 90 | |
Dealer Finance | | | 107 | | | | 17 | | | | - | | | | - | | | | - | | | | 251 | | | | 107 | | | | 17 | | | | - | | | | - | |
Credit Cards | | | 46 | | | | 121 | | | | 71 | | | | 106 | | | | 97 | | | | 60 | | | | 46 | | | | 121 | | | | 71 | | | | 106 | |
Total loan losses | | | 2,470 | | | | 4,025 | | | | 3,347 | | | | 3,042 | | | | 2,483 | | | | 601 | | | | 2,470 | | | | 4,025 | | | | 3,347 | | | | 3,042 | |
Recoveries: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction/land development | | | 223 | | | | 40 | | | | 192 | | | | - | | | | - | | | | 85 | | | | 223 | | | | 40 | | | | 192 | | | | - | |
Farmland | | | - | | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | - | |
Real Estate | | | - | | | | - | | | | - | | | | 8 | | | | 2 | | | | 37 | | | | - | | | | - | | | | - | | | | 8 | |
Multi-family | | | - | | | | - | | | | - | | | | 48 | | | | 52 | | | | - | | | | - | | | | - | | | | - | | | | 48 | |
Commercial Real Estate | | | 108 | | | | 42 | | | | 48 | | | | 16 | | | | 2 | | | | 65 | | | | 108 | | | | 42 | | | | 48 | | | | 16 | |
Home Equity – closed end | | | - | | | | - | | | | - | | | | 3 | | | | - | | | | 6 | | | | - | | | | - | | | | - | | | | 3 | |
Home Equity – open end | | | - | | | | 29 | | | | - | | | | 27 | | | | - | | | | - | | | | - | | | | 29 | | | | - | | | | 27 | |
Commercial & Industrial – Non Real Estate | | | 356 | | | | 127 | | | | 62 | | | | 24 | | | | - | | | | 62 | | | | 356 | | | | 127 | | | | 62 | | | | 24 | |
Consumer | | | 33 | | | | 14 | | | | 27 | | | | 42 | | | | 56 | | | | 32 | | | | 33 | | | | 14 | | | | 27 | | | | 42 | |
Dealer Finance | | | 6 | | | | - | | | | - | | | | - | | | | - | | | | 24 | | | | 6 | | | | - | | | | - | | | | - | |
Credit Cards | | | 35 | | | | 28 | | | | 32 | | | | 25 | | | | 21 | | | | 46 | | | | 35 | | | | 28 | | | | 32 | | | | 25 | |
Total recoveries | | | 761 | | | | 280 | | | | 364 | | | | 193 | | | | 133 | | | | 357 | | | | 761 | | | | 280 | | | | 364 | | | | 193 | |
Net loan losses | | | (1,709 | ) | | | (3,745 | ) | | | (2,983 | ) | | | (2,849 | ) | | | (2,350 | ) | | | (244 | ) | | | (1,709 | ) | | | (3,745 | ) | | | (2,983 | ) | | | (2,849 | ) |
Balance at end of period | | $ | 8,725 | | | $ | 8,184 | | | $ | 8,154 | | | $ | 6,937 | | | $ | 5,786 | | | $ | 8,781 | | | $ | 8,725 | | | $ | 8,184 | | | $ | 8,154 | | | $ | 6,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for loan losses as a | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
percentage of loans | | | 1.68 | % | | | 1.71 | % | | | 1.75 | % | | | 1.54 | % | | | 1.30 | % | | | 1.61 | % | | | 1.68 | % | | | 1.71 | % | | | 1.75 | % | | | 1.54 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loan losses to loans outstanding | | | .33 | % | | | .78 | % | | | .64 | % | | | .63 | % | | | .53 | % | |
Net loan losses to loans held for investment | | | | .04 | % | | | .33 | % | | | .78 | % | | | .64 | % | | | .63 | % |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Loan Losses and the Allowance for Loan Losses, continued
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES | | ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES | |
| | 2014 | | | 2013 | | | 2012 | | | 2011* | | | 2010* | | | 2015 | | | 2014 | | | 2013 | | | 2012* | | | 2011* | |
Allowance for loan losses: (in thousands) | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | | | Balance | | | Percentage of Loans in Each Category | |
Construction/Land Development | | $ | 4,738 | | | | 54.30 | % | | $ | 4,007 | | | | 45.93 | % | | $ | 2,771 | | | | 33.86 | % | | $ | - | | | | - | | | $ | - | | | | - | | | $ | 4,442 | | | | 50.59 | % | | $ | 4,738 | | | | 54.30 | % | | $ | 4,007 | | | | 45.93 | % | | $ | 2,771 | | | | 33.86 | % | | $ | - | | | | - | |
Real Estate | | | 623 | | | | 7.14 | % | | | 400 | | | | 4.58 | % | | | 924 | | | | 11.29 | % | | | - | | | | - | | | | - | | | | - | | | | 806 | | | | 9.18 | % | | | 623 | | | | 7.14 | % | | | 400 | | | | 4.58 | % | | | 924 | | | | 11.29 | % | | | - | | | | - | |
Commercial, Financial and Agricultural | | | 1,337 | | | | 15.33 | % | | | 2,239 | | | | 25.66 | % | | | 3,187 | | | | 38.94 | % | | | 2,984 | | | | 36.60 | | % | | | 2,653 | | | | 38.24 | % | | | 1,666 | | | | 18.97 | % | | | 1,337 | | | | 15.33 | % | | | 2,239 | | | | 25.66 | % | | | 3,187 | | | | 38.94 | % | | | 2,984 | | | | 36.60 | % |
Consumer | | | 1,685 | | | | 19.31 | % | | | 905 | | | | 10.37 | % | | | 253 | | | | 3.09 | % | | | 298 | | | | 3.65 | | % | | | 270 | | | | 3.89 | % | | | 1,059 | | | | 12.06 | % | | | 1,685 | | | | 19.31 | % | | | 905 | | | | 10.37 | % | | | 253 | | | | 3.09 | % | | | 298 | | | | 3.65 | % |
Home Equity | | | 342 | | | | 3.92 | % | | | 633 | | | | 7.26 | % | | | 1,019 | | | | 12.45 | % | | | 920 | | | | 11.28 | | % | | | 578 | | | | 8.33 | % | | | 808 | | | | 9.20 | % | | | 342 | | | | 3.92 | % | | | 633 | | | | 7.26 | % | | | 1,019 | | | | 12.45 | % | | | 920 | | | | 11.28 | % |
Total | | $ | 8,725 | | | | 100.00 | % | | $ | 8,184 | | | | 93.80 | % | | $ | 8,154 | | | | 99.63 | % | | $ | 6,937 | | | | 85.07 | | % | | $ | 5,785 | | | | 83.39 | % | | $ | 8,781 | | | | 100.00 | % | | $ | 8,725 | | | | 100.00 | % | | $ | 8,184 | | | | 93.80 | % | | $ | 8,154 | | | | 99.63 | % | | $ | 6,937 | | | | 85.07 | % |
* Allocation detail for Construction/Land Development verses Real Estate is not easily available. | | |
* Allocation detail for Construction/Land Development verses Real Estate is not readily available. | | * Allocation detail for Construction/Land Development verses Real Estate is not readily available. | |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Deposits and Borrowings
The average deposit balances and average rates paid for 2015, 2014 2013 and 20122013 were as follows:
Average Deposits and Rates Paid (Dollars in thousands)
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | | | 2012 | | | 2015 | | | 2014 | | | 2013 | |
| | Amount | | | Rate | | | Amount | | | Rate | | | Amount | | | Rate | | | Amount | | | Rate | | | Amount | | | Rate | | | Amount | | | Rate | |
Noninterest-bearing | | $ | 119,203 | | | | | | $ | 90,170 | | | | | | $ | 75,983 | | | | | | $ | 125,665 | | | | | | $ | 107,647 | | | | | | $ | 90,170 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Checking | | $ | 117,396 | | | | .57 | % | | $ | 120,482 | | | | .66 | % | | $ | 121,209 | | | | .99 | % | | $ | 112,334 | | | | .48 | % | | $ | 117,396 | | | | .57 | % | | $ | 120,482 | | | | .66 | % |
Savings Accounts | | | 60,460 | | | | .20 | % | | | 52,714 | | | | .23 | % | | | 45,120 | | | | .40 | % | | | 76,491 | | | | .28 | % | | | 60,460 | | | | .20 | % | | | 52,714 | | | | .23 | % |
Time Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDARS | | | 19,771 | | | | .21 | % | | | 8,581 | | | | .53 | % | | | 10,339 | | | | .69 | % | | | 11,247 | | | | .18 | % | | | 19,771 | | | | .21 | % | | | 8,581 | | | | .53 | % |
$100,000 or more | | | 74,743 | | | | .61 | % | | | 69,130 | | | | .87 | % | | | 67,562 | | | | 1.01 | % | | | 66,719 | | | | .55 | % | | | 74,743 | | | | .61 | % | | | 69,130 | | | | .87 | % |
Less than $100,000 | | | 101,419 | | | | 1.19 | % | | | 121,075 | | | | 1.39 | % | | | 136,244 | | | | 1.61 | % | | | 93,863 | | | | 1.08 | % | | | 101,419 | | | | 1.19 | % | | | 121,075 | | | | 1.39 | % |
Total Interest-bearing | | | 373,789 | | | | .67 | % | | | 371,982 | | | | .87 | % | | | 380,474 | | | | 1.14 | % | | | 360,654 | | | | .60 | % | | | 373,789 | | | | .67 | % | | | 371,982 | | | | .87 | % |
Total deposits | | $ | 492,992 | | | | .51 | % | | $ | 462,152 | | | | .70 | % | | $ | 456,457 | | | | .95 | % | | $ | 486,319 | | | | .44 | % | | $ | 481,436 | | | | .52 | % | | $ | 462,152 | | | | .70 | % |
Noninterest-bearing demand deposits, which are comprised of checking accounts, increased $29,033,000$18,018,000 or 32.20%16.74% from $90,170,000$107,647,000 at December 31, 20132014 to $119,203,000$125,665,000 at December 31, 2014.2015. Interest-bearing deposits, which include interest checking accounts, money market accounts, regular savings accounts and time deposits, increased $1,807,000decreased $13,135,000 or .49%3.51% from $371,982,000 at December 31, 2013 to $373,789,000 at December 31, 2014.2014 to $360,654,000 at December 31, 2015. Total interest checking (including money market) account balances decreased $3,086,000$5,062,000 or 2.56%4.31% from $120,482,000 at December 31, 2013 to $117,396,000 at December 31, 2014.2014 to $112,334,000 at December 31, 2015. Total savings account balances increased $7,746,000$16,031,000 or 14.69%26.52% from $52,714,000 at December 31, 2013 to $60,460,000 at December 31, 2014.2014 to $76,491,000 at December 31, 2015.
Time deposits decreased $2,853,000$24,104,000 or 1.44%12.30% from $198,786,000 at December 31, 2013 to $195,933,000 at December 31, 2014.2014 to $171,829,000 at December 31, 2015. This is comprised of an increasedecrease in certificates of deposit of $100,000 and more of $5,613,000$8,024,000 or 8.12%10.74% from $69,130,000 at December 31, 2013 to $74,743,000 at December 31, 2014 to $66,719,000 at December 31, 2015, a decrease in certificates of deposit of less than $100,000 of $19,656,000$7,556,000 or 16.23%7.45% from $121,075,000 at December 31, 2013 to $101,419,000 at December 31, 2014 to $93,863,000 at December 31, 2015 and an increasedecrease in CDARs deposits of $11,190,000$8,524,000 or 130.40%43.11% from $8,581,000 at December 31, 2013 to $19,771,000 at December 31, 2014.2014 to $11,247,000 at December 31, 2015 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 maturity distribution of certificates of deposit of $100,000 or more is as follows:
(Actual Dollars in thousands) | | 2014 | | | 2013 | | | 2015 | | | 2014 | |
| | | | | | | | | | | | |
Less than 3 months | | $ | 32,378 | | | $ | 14,360 | | | $ | 5,238 | | | $ | 32,378 | |
3 to 6 months | | | 6,915 | | | | 5,485 | | | | 12,478 | | | | 6,915 | |
6 to 12 months | | | 7,439 | | | | 15,219 | | | | 8,008 | | | | 7,439 | |
1 year to 5 years | | | 33,080 | | | | 34,610 | | | | 27,901 | | | | 33,080 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 79,812 | | | $ | 69,674 | | | $ | 53,625 | | | $ | 79,812 | |
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Deposits and Borrowings, continued
Non-deposit borrowings include repurchase agreements, federal funds purchased, and Federal Home Loan Bank (FHLB) borrowings, (both short term and long term) and subordinated debt.. Non-deposit borrowings are an important source of funding for the Bank. These sources assist in managing short and long term funding needs, often at rates that are more favorable than raising additional funds within the deposit portfolio.
Borrowings from the Federal Home Loan Bank are used to support the Bank’s lending program and allow the Bank to manage interest rate risk by laddering maturities and matching funding terms to the terms of various loan types in the4the loan portfolio. The Company borrowed $10,000,000$40,000,000 during 2014,2015, with maturities ranging from 5 to 10 years, to replace maturities and lock in lower rates. ThereThe Company borrowed $10,000,000 in 2014 and there were no new long term borrowings in 2013 or 2012.2013. Repayment of amortizing and fixed maturity loans through FHLB totaled $11,625,000$1,714,000 for the year. These loans carry an average rate of 2.33%1.86% at December 31, 2014. The subordinated debt was all redeemed and/or converted to Preferred stock by December 31. 2014.2015.
Contractual Obligations and Scheduled Payments (dollars in thousands)
| | December 31, 2014 | | | December 31, 2015 | |
| | Less than | | | One Year Through | | | Three Years Through | | | More than | | | | | | Less than | | | One Year Through | | | Three Years Through | | | More than | | | | |
| | One Year | | | Three Years | | | Five Years | | | Five Years | | | Total | | | One Year | | | Three Years | | | Five Years | | | Five Years | | | Total | |
Securities sold under agreements to repurchase | | $ | 4,358 | | | | - | | | | - | | | | - | | | $ | 4,358 | | | $ | 3,995 | | | $ | - | | | $ | - | | | $ | - | | | $ | 3,995 | |
FHLB Short term advances | | | 10,000 | | | | - | | | | - | | | | - | | | | 10,000 | | | | 20,000 | | | | - | | | | - | | | | - | | | | 20,000 | |
Federal Funds Purchased | | | - | | | | - | | | | - | | | | - | | | | - | | | | 959 | | | | - | | | | - | | | | - | | | | 959 | |
FHLB long term advances | | | 500 | | | | 1,500 | | | | 3,500 | | | | 4,375 | | | | 9,875 | | | | 3,929 | | | | 12,857 | | | | 20,357 | | | | 11,018 | | | | 48,161 | |
Subordinated Debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Total | | $ | 14,858 | | | $ | 1,500 | | | $ | 3,500 | | | $ | 4,375 | | | $ | 24,233 | | | $ | 28,883 | | | $ | 12,857 | | | $ | 20,357 | | | $ | 11,018 | | | $ | 73,115 | |
See Note 11 (Short Term Debt) and Note 12 (Long Term Debt) to the Consolidated Financial Statements for a discussion of the rates, terms, and conversion features on these advances.
Stockholders’ Equity
Total stockholders' equity increased $23,657,000$5,152,000 or 43.70%6.62% in 2014. This increase includes a common stock raise of $12,000,000 and a new issuance of preferred stock which totaled $9,425,123. In addition, net2015. Net income totaled $5,801,609,$8,417,009, noncontrolling interest net income totaled $45,653,$164,575, other sales of common stock totaled $55,709,$146,418, changes in other comprehensive income decreased $1,401,498,$353,484, and capital was reduced by dividends ($2.2322.915 million), repurchases of common stock of $289,119 and minority interest distributions of $37,516.$18,260. As of December 31, 2014,2015, book value per common share was $21.20$22.38 compared to $21.56$20.77 as of December 31, 2013.2014. Dividends are paid to stockholders on a quarterly basis in uniform amounts unless unexpected fluctuations in net income indicate a change to this policy is needed.
Banking regulators have established a uniform system to address the adequacy of capital for financial institutions. The rules require minimum capital levels based on risk-adjusted assets. Simply stated, the riskier an entity's investments, the more capital it is required to maintain. The Bank, as well as the Company, is required to maintain these minimum capital levels. TheIn March 2015 the Company implemented the Basel III capital requirements, which introduced the Common Equity Tier I ratio in addition to the two types ofprevious capital guidelines areof Tier I capital (referred to as core capital) and Tier II capital (referred to as supplementary capital). At December 31, 2014,2015, the Company had Common Equity Tier I capital of 16.09%12.46%, Tier I capital of 14.13% of risk weighted assets and combined Tier I and II capital of 17.35%15.38% of risk weighted assets. Regulatory minimums at this date were 6% and 8%10%, respectively. The Bank has maintained capital levels far above the minimum requirements throughout the year. In the unlikely event that such capital levels are not met, regulatory agencies are empowered to require the Company to raise additional capital and/or reallocate present capital.
In addition, the regulatory agencies have issued guidelines requiring the maintenance of a capital leverage ratio. The leverage ratio is computed by dividing Tier I capital by average total assets. The regulators have established a minimum of 4%5% for this ratio, but can increase the minimum requirement based upon an institution's overall financial condition. At December 31, 2014,2015, the Company reported a leverage ratio of 12.88%12.18%. The Bank's leverage ratio was also substantially above the minimum.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Market Risk Management
Most of the Company’s net income is dependent on the Bank’s net interest income. Rapid changes in short-term interest rates may lead to volatility in net interest income resulting in additional interest rate risk to the extent that imbalances exist between the maturities or repricing of interest bearing liabilities and interest earning assets. Fortunately the Company’s net interest margin increased .28%.13% in 20142015 following an increase of .10%.28% in 2013.2014. This increase can be attributed to the growth in the Dealer finance division and continued reduction in cost of funds, in addition to the matching of maturities of interest bearing liabilities to interest earning assets. Due to a slowing of the national economy and market turbulence related to the sub-prime mortgage lending crisis,In December 2015, the Federal Reserve began cutting short term interest rates in September 2007. The Federal Reserve has cutOpen Market Committee elected to raise the short term rates a total of 5.00%target .25% to a target of 0.25 to .25%..50% due to expanding economic activity.
Net interest income is also affected by changes in the mix of funding that supports earning assets. For example, higher levels of non-interest bearing demand deposits and leveraging earning assets by funding with stockholder’s equity would result in greater levels of net interest income than if most of the earning assets were funded with higher cost interest-bearing liabilities, such as certificates of deposit.
Liquid assets, which include cash and cash equivalents, federal funds sold, interest bearing deposits and short term investments averaged $27,510,000$17,022,000 for 2014.2015. The Bank historically has had a stable core deposit base and, therefore, does not have to rely on volatile funding sources. Because of the stable core deposit base, changes in interest rates should not have a significant effect on liquidity. The Bank's membership in the Federal Home Loan Bank has historically provided liquidity as the Bank borrows money that is repaid over a five to ten year period and uses the money to make fixed rate loans. The matching of the long-term receivables and liabilities helps the Bank reduce its sensitivity to interest rate changes. The Company reviews its interest rate gap periodically and makes adjustments as needed. There are no off balance sheet items that will impair future liquidity.
The following table depicts the Company’s interest rate sensitivity, as measured by the repricing of its interest sensitive assets and liabilities as of December 31, 2014.2015. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. The analysis indicates an asset sensitive one-year cumulative GAP position of 13.98%15.59% of total earning assets, compared to 15.35%13.98% in 2013.2014. Approximately 43.36%41.20% of rate sensitive assets and 40.91%36.48% of rate sensitive liabilities are subject to repricing within one year. Short term assets (less than one year) increased $6,904,000$10,446,000 during the year, while total earning assets increased $48,547,000.$54,741,000. The increase is attributed to growth in Loans Held for Investment of $39,749,000$25,811,000 as well as Loans Held for Sale of $9,578,000.$44,424,000. Growth in the loan held for investment portfolio was concentrated in real estate secured loans, commercial and the Dealer Finance division. Short term liabilities increased $7,103,000,$10,596,000, while total interest bearing liabilities increased $6,597,000.$29,459,000. The increase in short term liabilities is due to an increase in short term debt of $10,000,000$20,000,000 to fund Loans Held for Sale. Due to the relatively flat yield curve, management has kept deposit rates low. These actions and the increase in total earning assets have resulted in a slightly lower one year cumulative gap than prior year.
PART II, Continued
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Market Risk Management, continued
The following GAP analysis shows the time frames as of December 31, 2014,2015, in which the Company’s assets and liabilities are subject to repricing:
| | | 1-90 | | | 91-365 | | | | 1-5 | | | Over 5 | | | Not | | | | | | 1-90 | | | 91-365 | | | 1-5 | | | Over 5 | | | Not | | | | |
(Dollars in thousands) | | Days | | | Days | | | Years | | | Years | | | Classified | | | Total | | | Days | | | Days | | | Years | | | Years | | | Classified | | | Total | |
Rate Sensitive Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans held for investment | | $ | 110,491 | | | $ | 97,968 | | | $ | 300,595 | | | $ | 6,443 | | | $ | - | | | $ | 515,497 | | | $ | 122,425 | | | $ | 65,307 | | | $ | 327,026 | | | $ | 26,550 | | | $ | - | | | $ | 541,308 | |
Loans held for sale | | | 13,382 | | | | - | | | | - | | | | - | | | | - | | | | 13,382 | | | | 57,806 | | | | - | | | | - | | | | - | | | | - | | | | 57,806 | |
Federal funds sold | | | 16,051 | | | | - | | | | - | | | | - | | | | - | | | | 16,051 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Investment securities | | | 2,000 | | | | 125 | | | | 10,058 | | | | 1,022 | | | | 135 | | | | 13,340 | | | | 125 | | | | 4,075 | | | | 8,020 | | | | 817 | | | | 135 | | | | 13,172 | |
Credit Cards | | | 2,705 | | | | - | | | | - | | | | - | | | | - | | | | 2,705 | | | | 2,745 | | | | - | | | | - | | | | - | | | | - | | | | 2,745 | |
Interest bearing bank deposits | | | 911 | | | | - | | | | - | | | | - | | | | - | | | | 911 | | | | 1,596 | | | | - | | | | - | | | | - | | | | - | | | | 1,596 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 145,540 | | | | 98,093 | | | | 310,653 | | | | 7,465 | | | | 135 | | | | 561,886 | | | | 184,697 | | | | 69,382 | | | | 335,046 | | | | 27,367 | | | | 135 | | | | 616,627 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rate Sensitive Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing demand deposits | | | - | | | | 31,689 | | | | 69,166 | | | | 18,739 | | | | - | | | | 119,594 | | | | - | | | | 29,783 | | | | 62,379 | | | | 16,298 | | | | - | | | | 108,460 | |
Savings deposits | | | - | | | | 12,850 | | | | 38,549 | | | | 12,850 | | | | - | | | | 64,249 | | | | - | | | | 18,076 | | | | 54,230 | | | | 18,077 | | | | - | | | | 90,383 | |
Certificates of deposit $100,000 and over | | | 32,378 | | | | 14,354 | | | | 33,080 | | | | - | | | | - | | | | 79,812 | | | | 5,239 | | | | 20,486 | | | | 27,900 | | | | - | | | | - | | | | 53,625 | |
Other certificates of deposit | | | 20,460 | | | | 38,482 | | | | 56,709 | | | | - | | | | - | | | | 115,651 | | | | 14,683 | | | | 40,827 | | | | 51,905 | | | | - | | | | - | | | | 107,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Deposits | | | 52,838 | | | | 97,375 | | | | 197,504 | | | | 31,589 | | | | - | | | | 379,306 | | | | 19,922 | | | | 109,172 | | | | 196,414 | | | | 34,375 | | | | - | | | | 359,883 | |
Short-term debt | | | 14,358 | | | | - | | | | - | | | | - | | | | - | | | | 14,358 | | | | 24,954 | | | | - | | | | - | | | | - | | | | - | | | | 24,954 | |
Long-term debt | | | 125 | | | | 375 | | | | 5,000 | | | | 4,375 | | | | - | | | | 9,875 | | | | 982 | | | | 2,947 | | | | 33,214 | | | | 11,018 | | | | - | | | | 48,161 | |
Total | | | 67,321 | | | | 97,750 | | | | 202,504 | | | | 35,964 | | | | - | | | | 403,539 | | | | 45,858 | | | | 112,119 | | | | 229,628 | | | | 45,393 | | | | - | | | | 432,998 | |
Discrete Gap | | | 78,219 | | | | 343 | | | | 108,149 | | | | (28,499 | ) | | | 135 | | | | 158,347 | | | | 138,839 | | | | (42,737 | ) | | | 105,418 | | | | (18,026 | ) | | | 135 | | | | 183,629 | |
Cumulative Gap | | | 78,219 | | | | 78,562 | | | | 186,711 | | | | 158,212 | | | | 158,347 | | | | | | | | 138,839 | | | | 96,102 | | | | 201,520 | | | | 183,494 | | | | 183,629 | | | | | |
As a % of Earning Assets | | | 13.92 | % | | | 13.98 | % | | | 33.22 | % | | | 28.16 | % | | | 28.18 | % | | | | | | | 22.52 | % | | | 15.59 | % | | | 32.68 | % | | | 29.76 | % | | | 29.78 | % | | | | |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
The table below lists the Company’s quarterly performance for the years ended December 31, 20142015 and 2013:2014: