WashingtonFirst Bankshares, Inc.
Consolidated Statements of Changes in Shareholders' Equity
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For the Year Ended December 31,
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2016
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2015
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|
2014
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
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($ in thousands, except share data)
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Preferred stock:
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Balance, beginning of period
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—
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$
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—
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13,347
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$
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67
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17,796
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$
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89
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Redemption of preferred stock
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—
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—
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(13,347
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)
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(67
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)
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(4,449
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)
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(22
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)
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Balance, end of period
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—
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$
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—
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—
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$
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—
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13,347
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$
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67
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Additional paid-in capital - preferred:
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Balance, beginning of period
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$
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—
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$
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13,280
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$
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17,707
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Redemption of preferred stock
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—
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(13,280
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)
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(4,427
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)
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Balance, end of period
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$
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—
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$
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—
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$
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13,280
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Common stock:
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Balance, beginning of period
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12,195,823
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$
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121
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9,565,637
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$
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95
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7,648,495
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$
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76
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Exercise of stock options
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87,306
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1
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61,612
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—
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84,942
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1
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Forfeiture of restricted stock award
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(1,586
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)
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—
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(2,836
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)
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—
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(3,601
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)
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—
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Issuance of common stock under restricted stock agreements
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1,200
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—
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—
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—
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72,341
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—
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Common stock dividends
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613,670
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6
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—
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—
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386,241
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5
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Issuance of common stock related to 1
st
Portfolio acquisition
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(28
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)
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—
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916,410
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9
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Issuance of common stock
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—
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—
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1,655,000
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17
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1,377,219
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13
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Balance, end of period
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12,896,385
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$
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128
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12,195,823
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$
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121
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9,565,637
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$
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95
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Additional paid-in capital - common:
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Balance, beginning of period
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$
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160,861
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$
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112,887
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$
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85,636
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Exercise of stock options
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836
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566
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765
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Stock compensation expense
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551
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405
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215
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Tax effect of stock-based awards
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240
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103
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67
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Exercise of warrants
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(47
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)
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—
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—
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Common stock dividends
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15,483
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—
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5,727
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Issuance of common stock, net of offering costs
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—
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31,135
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20,477
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Issuance of common stock related to 1
st
Portfolio Acquisition
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—
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15,616
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—
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Conversion of stock options related to 1
st
Portfolio Acquisition
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—
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149
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—
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Balance, end of period
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$
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177,924
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$
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160,861
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$
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112,887
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Accumulated earnings:
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Balance, beginning of period
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$
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17,740
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$
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7,775
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$
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5,605
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Net income
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18,007
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12,255
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9,424
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Preferred stock dividends
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—
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(74
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)
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(161
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)
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Cash dividends declared
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(3,063
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)
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(2,216
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)
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(1,357
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)
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Common stock dividends
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(15,489
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)
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—
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(5,731
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)
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Common stock cash-in-lieu dividends
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(8
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)
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—
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(5
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)
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Balance, end of period
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$
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17,187
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$
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17,740
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$
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7,775
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Accumulated other comprehensive income/(loss):
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Balance, beginning of period
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$
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(127
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)
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$
|
434
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$
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(1,509
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)
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Other comprehensive income/(loss)
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(2,452
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)
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(561
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)
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1,943
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|
Balance, end of period
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|
$
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(2,579
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)
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|
|
$
|
(127
|
)
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$
|
434
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Total shareholders' equity
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$
|
192,660
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|
|
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$
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178,595
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|
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$
|
134,538
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|
See accompanying notes to audited consolidated financial statements.
WashingtonFirst Bankshares, Inc.
Consolidated Statements of Cash Flows
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For the Year Ended December 31,
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2016
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2015
|
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2014
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($ in thousands)
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Cash flows from operating activities:
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Net income
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$
|
18,007
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$
|
12,255
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$
|
9,424
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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2,071
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1,466
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1,314
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Amortization of deferred loan origination fees and costs
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(555
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)
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|
(1,179
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)
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|
308
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|
|
Net amortization of purchase accounting marks
|
(3,103
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)
|
|
(1,284
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)
|
|
(4,011
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)
|
|
Loss on disposal of fixed assets
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(40
|
)
|
|
19
|
|
|
—
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|
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Gain on sale of other real estate owned
|
(11
|
)
|
|
(231
|
)
|
|
(76
|
)
|
|
Write-down of other real estate owned
|
159
|
|
|
—
|
|
|
332
|
|
|
Gain on sale of investment securities available-for-sale
|
(1,323
|
)
|
|
(10
|
)
|
|
(166
|
)
|
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Provision for loan losses
|
3,880
|
|
|
3,550
|
|
|
3,005
|
|
|
Earnings on bank-owned life insurance
|
(359
|
)
|
|
(374
|
)
|
|
(364
|
)
|
|
Deferred income taxes
|
555
|
|
|
(538
|
)
|
|
1,201
|
|
|
Tax effect on stock options
|
240
|
|
|
102
|
|
|
—
|
|
|
Net amortization on investment securities available-for-sale
|
1,550
|
|
|
843
|
|
|
1,002
|
|
|
Stock based compensation
|
551
|
|
|
405
|
|
|
215
|
|
|
Gain on sale of loans
|
(18,329
|
)
|
|
(4,645
|
)
|
|
(364
|
)
|
|
Originations of loans held-for-sale
|
(772,076
|
)
|
|
(213,449
|
)
|
|
(23,050
|
)
|
|
Proceeds from sales of loans held-for-sale
|
793,566
|
|
|
215,580
|
|
|
22,346
|
|
|
Net change in:
|
|
|
|
|
|
|
Accrued interest receivable
|
(741
|
)
|
|
(650
|
)
|
|
(386
|
)
|
|
Other assets
|
(5,381
|
)
|
|
(2,124
|
)
|
|
1,484
|
|
|
Accrued interest payable
|
35
|
|
|
364
|
|
|
24
|
|
|
Other liabilities
|
4,053
|
|
|
1,224
|
|
|
834
|
|
|
Net cash provided by operating activities
|
22,749
|
|
|
11,324
|
|
|
13,072
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Net cash received in acquisitions
|
—
|
|
|
5,732
|
|
|
59,047
|
|
|
Purchase of investment securities available-for-sale
|
(185,726
|
)
|
|
(97,171
|
)
|
|
(44,656
|
)
|
|
Proceeds from repayment of investment securities available-for-sale
|
45,088
|
|
|
29,422
|
|
|
25,868
|
|
|
Proceeds from sale of investment securities available-for-sale
|
76,551
|
|
|
12,335
|
|
|
19,050
|
|
|
Net increase in loans held-for-investment
|
(228,520
|
)
|
|
(241,232
|
)
|
|
(175,026
|
)
|
|
Proceeds from sale of real estate owned
|
679
|
|
|
682
|
|
|
1,206
|
|
|
Purchase of bank-owned life insurance
|
—
|
|
|
—
|
|
|
(2,500
|
)
|
|
Net increase in restricted stock
|
(5,598
|
)
|
|
(903
|
)
|
|
(1,012
|
)
|
|
Purchases of premises and equipment, net
|
(1,365
|
)
|
|
(1,418
|
)
|
|
(2,027
|
)
|
|
Net cash used in investing activities
|
(298,891
|
)
|
|
(292,553
|
)
|
|
(120,050
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Net increase in deposits
|
189,439
|
|
|
247,133
|
|
|
15,787
|
|
|
Proceeds from FHLB advances
|
231,500
|
|
|
25,500
|
|
|
30,871
|
|
|
Repayments of FHLB advances
|
(106,982
|
)
|
|
(975
|
)
|
|
—
|
|
|
Net increase/(decrease) in other borrowings
|
(1,090
|
)
|
|
(29,054
|
)
|
|
(1,920
|
)
|
|
Net (decrease)/increase in other long-term borrowings
|
—
|
|
|
22,668
|
|
|
—
|
|
|
Proceeds from issuance of common stock, net
|
—
|
|
|
31,153
|
|
|
20,490
|
|
|
Proceeds from exercise of stock options
|
837
|
|
|
566
|
|
|
766
|
|
|
Redemption of preferred stock
|
—
|
|
|
(13,347
|
)
|
|
(4,449
|
)
|
|
Cash dividends paid
|
(2,934
|
)
|
|
(1,894
|
)
|
|
(1,259
|
)
|
|
Dividends paid - cash portion for fractional shares on 5% dividend
|
(8
|
)
|
|
—
|
|
|
(5
|
)
|
|
Preferred stock dividends paid
|
—
|
|
|
(74
|
)
|
|
(161
|
)
|
|
Net cash provided by financing activities
|
310,762
|
|
|
281,676
|
|
|
60,120
|
|
|
Net increase in cash and cash equivalents
|
34,620
|
|
|
447
|
|
|
(46,858
|
)
|
|
Cash and cash equivalents at beginning of period
|
62,753
|
|
|
62,306
|
|
|
109,164
|
|
|
Cash and cash equivalents at end of period
|
$
|
97,373
|
|
|
$
|
62,753
|
|
|
$
|
62,306
|
|
See accompanying notes to audited consolidated financial statements.
WashingtonFirst Bankshares, Inc.
Notes to the Consolidated Financial Statements
In this report, WashingtonFirst Bankshares Inc. is sometimes referred to as “WashingtonFirst,” the “Company,” “we,” “our,” or “us” and these references include the Company’s subsidiaries, WashingtonFirst Bank, 1
st
Portfolio, Inc. and WashingtonFirst Mortgage (a wholly-owned subsidiary of WashingtonFirst Bank), unless the context requires otherwise.
1. ORGANIZATION
The Company is organized under the laws of the Commonwealth of Virginia as a bank holding company. Headquartered in Reston, Virginia, the Company is the parent company of the Bank which operates
19
full-service banking offices throughout the Washington, D.C. metropolitan area. In addition, the Company provides wealth management services through its subsidiary, 1
st
Portfolio, Inc., located in Fairfax, Virginia, and mortgage banking services through the Bank’s wholly owned subsidiary, WashingtonFirst Mortgage which operates in two locations: Fairfax, Virginia, and Rockville, Maryland.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform to U.S. GAAP and follow general practices within the banking industry. All significant intercompany accounts and transactions have been eliminated in consolidation. The following are the significant accounting policies that the Company follows in preparing and presenting its consolidated financial statements:
Use of Estimates
Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the fair values and impairments of financial instruments, the status of contingencies and the valuation of deferred tax assets and goodwill.
Cash and Cash Equivalents and Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents consists of cash and due from banks, interest bearing balances and federal funds sold.
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Table 2: Certain Cash and Non-Cash Transactions
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
$
|
12,436
|
|
|
$
|
8,847
|
|
|
5,473
|
|
|
Income taxes paid
|
9,771
|
|
|
5,452
|
|
|
1,800
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
Loans converted into other real estate owned
|
2,255
|
|
|
90
|
|
|
360
|
|
|
Reclassifications from goodwill to other liabilities
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
Reclassifications from LHFS to LHFI
|
(885
|
)
|
|
—
|
|
|
—
|
|
|
Non-cash activity resulting from acquisitions/transactions:
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
Common shares issued
|
—
|
|
|
15,625
|
|
|
—
|
|
|
Fair value of assets acquired:
|
|
|
|
|
|
|
Investment securities
|
—
|
|
|
—
|
|
|
19,240
|
|
|
Other equity securities
|
—
|
|
|
—
|
|
|
683
|
|
|
Loans held for sale
|
—
|
|
|
32,912
|
|
|
—
|
|
|
Loans held for investment, net of unearned income
|
—
|
|
|
—
|
|
|
51,332
|
|
|
Premises and equipment
|
—
|
|
|
1,164
|
|
|
470
|
|
|
Identifiable intangibles - core deposit
|
—
|
|
|
—
|
|
|
—
|
|
|
Identifiable intangibles - customer list
|
—
|
|
|
1,447
|
|
|
—
|
|
|
Other assets
|
—
|
|
|
1,371
|
|
|
440
|
|
|
Fair value of liabilities assumed:
|
|
|
|
|
|
|
Deposits
|
—
|
|
|
—
|
|
|
121,592
|
|
|
FHLB advances
|
—
|
|
|
—
|
|
|
12,209
|
|
|
Borrowings
|
—
|
|
|
27,759
|
|
|
—
|
|
|
Other liabilities
|
—
|
|
|
4,302
|
|
|
50
|
|
Investment Securities
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
The estimated fair value of the portfolio fluctuates due to changes in market interest rates and other factors. Securities are monitored to determine whether a decline in their value is other-than-temporary. Management evaluates the investment portfolio on a quarterly basis to determine the collectibility of amounts due per the contractual terms of the investment security.
A security is generally defined to be impaired if the carrying value of such security exceeds its estimated fair value. Based on the provisions of ASC 320, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected is less than the security’s amortized cost basis (the difference being defined as the credit loss) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or more-likely-than-not will be required to sell the security before recovery of the security’s amortized cost basis. The charge to earnings is limited to the amount of credit loss if the investor does not intend, and more-likely-than-not will not be required, to sell the security before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive income, net of applicable taxes. In certain instances, as a result of the other-than-temporary impairment analysis, the recognition or accrual of interest will be discontinued and the security will be placed on non-accrual status.
Loans Held for Sale
The Mortgage Company regularly engages in the generation and sale of residential mortgage loans. These loans are generally loans held for sale to outside investors, are made on a pre-sold basis with servicing rights released, and carried at lower of cost or market, determined in the aggregate. Fair value considers commitment agreements with investors and prevailing market prices. Gains and losses on these loans are recognized based on the difference between the selling price and the carrying value of the related loan sold.
Loans Held for Investment
Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. The ability of the Company’s debtors to honor their loan contracts is dependent upon the real estate and general economic conditions in the Company’s market area. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. The accrual of interest on mortgage and commercial loans is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans and other loans typically are charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450-10, which requires that losses be accrued when they are probable of occurring and estimable; and (ii) ASC 310-10, which requires that losses be accrued based on the differences between the net realizable value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
An allowance is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance represents an amount that, in management’s judgment will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components.
The specific component relates to loans that are classified as doubtful, substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
For loans that are classified as impaired, an allowance is established when the net realizable value (or collateral value, observable market price, or discounted cash flows) of the impaired loan is lower than the carrying value of that loan. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer loans for impairment disclosures.
Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Premises and equipment are depreciated over their estimated useful lives; leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Depreciation is computed using the straight-line method over the lesser of the estimated useful life or the remaining term of the lease for leasehold improvements; and
3
to
7 years
for furniture, fixtures, and equipment. Costs of
maintenance and repairs are expensed as incurred; improvements and betterments are capitalized. When items are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in the determination of net income.
Other Real Estate Owned
Real estate properties acquired through loan foreclosures are recorded initially at fair value, less expected sales costs, determined by management. Subsequent valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and current market conditions. Gains or losses on sales of real estate owned are recognized upon disposition.
Leases
The Bank and Mortgage Company lease certain properties under operating leases with terms greater than
one year
and with minimum lease payments associated with these agreements. Rent expense is recognized on a straight-line basis over the expected lease term in accordance with ASC 840. Within the provisions of certain leases, there are predetermined fixed escalations of the minimum rental payments over the base lease term. The effects of the escalations have been reflected in rent expense on a straight-line basis over the lease term, and the difference between the recognized rental expense and the amounts payable under the lease is recorded as deferred lease payments. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter.
Marketing & Advertising
Marketing and advertising costs are generally expensed as incurred.
Income Taxes
The Company employs the liability method of accounting for income taxes as required by ASC Topic 740, "Income
Taxes
." Under the liability method, deferred-tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e. temporary timing differences) and are measured at the enacted rates that will be in effect when these differences reverse. The Company utilizes statutory requirements for its income tax accounting, and avoids risks associated with potentially problematic tax positions that may incur challenge upon audit, where an adverse outcome is more likely than not. Therefore, no provisions are made for either uncertain tax positions nor accompanying potential tax penalties and interest for underpayments of income taxes in the Company's tax reserves.
Valuation of Long-Lived Assets
The Company accounts for the valuation of long-lived assets under ASC 205-20, which requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or the fair value, less costs to sell.
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Derivative Financial Instruments
The Company enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e. interest rate lock commitments). Such interest rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. To protect against the price risk inherent in residential mortgage loan commitments, the Company utilizes both "best efforts" and "mandatory delivery" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Under a "best efforts" contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price that it will purchase the loan from the Company if the loan to the underlying borrower closes. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate
with the intent that the buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates. The market values of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss should occur on the interest rate lock commitments. Under a "mandatory delivery" contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay the investor a "pair-off" fee, based on then-current market prices, to compensate the investor for the shortfall. The Company manages the interest rate risk on interest rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby the Company obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities with changes in fair value recorded in other income within the Consolidated Statement of Income. The period of time between issuance of a loan commitment to the customer and closing and sale of the loan to an investor generally ranges from 30 to 90 days under current market conditions. The gross gains on loan sales are recognized based on new loan commitments with adjustment for price and pair-off activity. Commission expenses on loans held for sale are recognized based on loans closed.
The Company has determined these derivative financial instruments do not meet the hedging criteria required by ASC 815 and has not designated these derivative financial instruments as hedges. Accordingly, changes in fair value are recognized currently in income.
Purchased Credit Impaired Loans
Related to its acquisition activity, the Bank has acquired loans, some of which have shown evidence of credit impairment since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses. Such purchased credit impaired loans are accounted for individually. For each such loan the Bank estimates the amount and timing of expected cash flows, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
Reclassifications
Certain reclassifications of prior year information were made to conf
orm to the
December 31, 2016
presentation. These reclassifications had no material impact of the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
This amends ASC 230 to add or clarify guidance on the classification of eight specific cash receipts and payments in the statement of cash flows. The amendments are effective for public companies for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years and should be be applied using a retrospective transition method to each period where practicable.
The adoption of this pronouncement is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13,
Current Expected Credit Losses (CECL).
This provided new accounting guidance that will require the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that is currently in use. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity (HTM) debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale (AFS) debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. The new guidance is effective on January 1, 2020, with early adoption permitted on January 1, 2019.
While early adoption is permitted, the Company does not expect to elect that option. The Company has begun its evaluation of this pronouncement including the potential impact on its Consolidated Financial Statements. As a result of the required change in approach toward determining estimated credit losses from the current “incurred loss” model to one based on estimated cash flows over a loan’s contractual life, adjusted for prepayments (a “life of loan” model), the Company expects the new guidance will result in an increase in the allowance for loan losses, particularly for longer duration portfolios. The Company also expects the new pronouncement may result in an allowance for debt securities. In both cases, the extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. Further, to date, no guidance has been issued by either the Company’s or the Bank’s primary regulator with respect to how the impact of the amended standard is to be treated for regulatory capital purposes.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting
. The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
The Company assessed the impact this pronouncement will have on its Consolidated Financial Statements and has concluded there is potential for a positive benefit to net income in future periods as a result of tax benefits flowing through tax expense arising from the change in the application of tax accounting for share-based payment award transactions. The aforementioned positive benefit to net income is dependent upon the company’s stock price gradually rising over time so that the fair value assigned to share-based payment awards is less than the future value of the awards upon vesting or exercise date for restricted stock awards and option awards, respectively.
In February 2016, the FASB issued ASU No. 2016-02,
Leases.
From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
The Company continues to evaluate the impact of this pronouncement, including determining whether additional contracts exist that are deemed to be in scope. Further, to date, no guidance has been issued by either the Company’s or the Bank’s primary regulator with respect to how the impact of the amended standard is to be treated for regulatory capital purposes. For more information on leases, refer to Footnote 8 “Premises and Equipment, Net”.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall.
The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fai
r values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The pronouncement is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this pronouncement to have a significant impact on its Consolidated Financial Statements.
FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
The amendments in this update creates a new topic in ASC Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASC 606 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40,
Other Assets and Deferred Costs: Contracts with Customers
, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, and non-monetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company does not expect the adoption of this pronouncement to have a significant impact on its Consolidated Financial Statements.
FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt.
The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. Adoption of this pronouncement by the Company resulted in an entry amounting to
$385 thousand
being made to reclass debt issuance costs from other assets to long-term borrowings in 2016.
FASB issued ASU No. 2014-17,
Business Combinations (Topic 805)-Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force)
, which provides guidance regarding when and how an acquiree that is a business or a non-profit activity can apply pushdown accounting in its separate financial statements. In particular, ASU No. 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon the occurrence of an event in which an acquirer obtains control of the acquiree. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If, however, pushdown accounting is not applied during that reporting period, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. Such an election to apply pushdown accounting in a reporting period after the one in which the change-in-control event occurred should be considered a change in accounting principle, in accordance with ASC Topic 250,
Accounting Changes and Error Corrections
. Additionally, the ASU provides that an acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity. Notably, if pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. The amendments in this pronouncement were effective on November 18, 2014. Following the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The impact of prospective adoption of this pronouncement by the Company was not material to its Consolidated Financial Statements.
3. ACQUISITION ACTIVITIES
The Company completed its acquisition of 1
st
Portfolio Holding Corporation on July 31, 2015. 1
st
Portfolio Holding Corporation’s wholly owned subsidiary, 1
st
Portfolio Wealth Advisors became a wholly owned subsidiary of the Company and wholly owned subsidiary 1
st
Portfolio Lending Corporation (now WashingtonFirst Mortgage Corporation) became a wholly owned subsidiary of the Bank. Under the terms of the 1
st
Portfolio Agreement, accredited shareholders of 1
st
Portfolio Holding Corporation received
916,382
shares of WFBI common stock valued at
$17.05
per share.
|
|
|
|
|
|
|
|
Table 3.1: Goodwill on 1
st
Portfolio Acquisition
|
|
|
Amount
|
|
|
($ in thousands)
|
|
Consideration paid:
|
|
|
Common shares issued (916,382 shares)
|
$
|
15,625
|
|
|
Cash paid to shareholders in lieu of fractional shares
|
1
|
|
|
Fair value of options
|
149
|
|
|
|
15,775
|
|
|
Assets acquired:
|
|
|
Cash and cash equivalents
|
5,732
|
|
|
Loans held for sale
|
32,912
|
|
|
Premises and equipment
|
1,164
|
|
|
Customer list intangible
|
1,447
|
|
|
Other assets
|
1,371
|
|
|
Total assets
|
42,626
|
|
|
Liabilities assumed:
|
|
|
Borrowings
|
27,759
|
|
|
Other liabilities
|
4,272
|
|
|
Total liabilities
|
32,031
|
|
|
Net assets acquired
|
10,595
|
|
|
Goodwill
|
$
|
5,180
|
|
For income tax purposes, the acquired assets and assumed liabilities are recorded at their carry-over basis with no resulting goodwill. Goodwill at the time of closing of the 1
st
Portfolio acquisition was allocated between the Mortgage Company and the Wealth Advisors at
$3.6 million
and
$1.6 million
respectively. The customer list intangible was attributed to the Wealth Advisors and is being amortized straight line over
15
years.
In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was the acquired loans. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20. Those loans for which specific credit-related deterioration since origination was identified were recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.
The following table presents unaudited pro forma information as if the acquisition had occurred at the beginning of
2014
and includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciations expense on property acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of results of operations that would have occurred had the transactions been effected on the assumed dates. The following table does not contain comparative information for
2016
since the 1
st
Portfolio companies were a part of consolidated operations for the full year ended
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
Table 3.2: Proforma Income Statement (Unaudited)
|
|
|
For the Year Ended December 31,
|
|
|
2015
|
|
2014
|
|
|
($ in thousands, except per share data)
|
|
Net Interest Income
|
$
|
54,354
|
|
|
$
|
48,367
|
|
|
Non-Interest income
|
18,607
|
|
|
13,358
|
|
|
Non-Interest Expense
|
47,996
|
|
|
43,081
|
|
|
Net Income - Common
|
13,978
|
|
|
10,577
|
|
|
|
|
|
|
|
EPS - basic
(1)
|
$
|
1.32
|
|
|
$
|
1.14
|
|
|
EPS - diluted
(1)
|
1.30
|
|
|
1.11
|
|
|
(1)
EPS has been adjusted for 5% stock dividend
|
4. CASH AND CASH EQUIVALENTS
Federal Reserve regulations require banks to maintain reserve balances with the FRB based principally on the type and amount of their deposits. During
2016
and
2015
, the Bank maintained balances at the FRB (in addition to vault cash) to meet the reserve requirements as well as balances to partially compensate for services provided by the FRB. The Bank has an interest bearing account with the FHLB and maintains
seven
non-interest bearing accounts with domestic correspondents. In addition, the Bank has short term investments in the form of certificates of deposit with FDIC insured banks, classified as interest bearing balances, as of
December 31, 2016
. All balances are fully insured up to the applicable limits by the FDIC.
The Company maintains deposits with other commercial banks in amounts that may exceed federal deposit insurance coverage. Management regularly evaluates the credit risk associated with these transactions and believes that the Company is not exposed to any significant credit risks on cash and cash equivalents. The Bank is required to maintain certain average reserve balances with the FRB. Those balances include usable vault cash and amounts on deposit with the FRB. The Bank had no compensating balance requirements or required cash reserves with correspondent banks as of
December 31, 2016
and
December 31, 2015
. The Bank maintains interest bearing balances at other banks to help ensure sufficient liquidity and provide additional return compared to overnight Federal
Funds.
5. INVESTMENT SECURITIES
The Bank maintains an investment securities portfolio to help ensure sufficient liquidity and provide additional return versus overnight Federal Funds and interest bearing balances. Securities that management has both the positive intent and ability to hold to maturity are classified as “held to maturity” and are recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of income taxes. As of
December 31, 2016
, and
December 31, 2015
, all investments were classified as available-for-sale. As of
December 31, 2016
, and
December 31, 2015
, the only material component of the balance in accumulated other comprehensive loss on the balance sheet is related to the unrealized gains/losses on available-for-sale investment securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5.1: Available-for-Sale Investment Securities Summary
|
|
|
As of December 31, 2016
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
|
($ in thousands)
|
|
U.S. Treasuries
|
$
|
8,082
|
|
|
$
|
17
|
|
|
$
|
(21
|
)
|
|
$
|
8,078
|
|
|
U.S. Government agencies
|
99,153
|
|
|
135
|
|
|
(812
|
)
|
|
98,476
|
|
|
Mortgage-backed securities
|
69,835
|
|
|
49
|
|
|
(933
|
)
|
|
68,951
|
|
|
Collateralized mortgage obligations
|
80,306
|
|
|
29
|
|
|
(1,517
|
)
|
|
78,818
|
|
|
Taxable state and municipal securities
|
11,690
|
|
|
18
|
|
|
(416
|
)
|
|
11,292
|
|
|
Tax-exempt state and municipal securities
|
15,206
|
|
|
4
|
|
|
(621
|
)
|
|
14,589
|
|
|
Total available-for-sale investment securities
|
$
|
284,272
|
|
|
$
|
252
|
|
|
$
|
(4,320
|
)
|
|
$
|
280,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Estimated
Fair Value
|
|
|
($ in thousands)
|
|
U.S. Treasuries
|
$
|
9,636
|
|
|
$
|
15
|
|
|
$
|
(33
|
)
|
|
$
|
9,618
|
|
|
U.S. Government agencies
|
96,177
|
|
|
229
|
|
|
(390
|
)
|
|
96,016
|
|
|
Mortgage-backed securities
|
59,125
|
|
|
161
|
|
|
(410
|
)
|
|
58,876
|
|
|
Collateralized mortgage obligations
|
40,787
|
|
|
85
|
|
|
(474
|
)
|
|
40,398
|
|
|
Taxable state and municipal securities
|
10,405
|
|
|
448
|
|
|
—
|
|
|
10,853
|
|
|
Tax-exempt state and municipal securities
|
4,282
|
|
|
81
|
|
|
(11
|
)
|
|
4,352
|
|
|
Total available-for-sale investment securities
|
$
|
220,412
|
|
|
$
|
1,019
|
|
|
$
|
(1,318
|
)
|
|
$
|
220,113
|
|
The estimated fair value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes amounted to
$132.9 million
and
$104.5 million
as of
December 31, 2016
, and
December 31, 2015
, respectively.
The Bank did not recognize in earnings any other-than-temporary impairment losses on available-for-sale investment securities during the years ended
2016
,
2015
and 2014. During the year ended
December 31, 2016
, the Bank received proceeds of
$76.6 million
from the sale of securities from its available-for-sale investment portfolio resulting in gross realized gains of
$1.4 million
and gross realized losses of
$52.0 thousand
, compared to proceeds of
$12.3 million
resulting in gross realized gains of
$163.0 thousand
and gross realized losses of
$153.0 thousand
during the year ended
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5.2: Gross Unrealized Loss and Fair Value of Available-for-Sale Securities
|
|
|
As of December 31, 2016
|
|
|
Unrealized loss position for less than 12 months
|
|
Unrealized loss position for more than 12 months
|
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
|
($ in thousands)
|
|
U.S. Treasuries
|
$
|
5,061
|
|
|
$
|
(21
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
60,279
|
|
|
(812
|
)
|
|
—
|
|
|
—
|
|
|
Mortgage-backed securities
|
54,981
|
|
|
(871
|
)
|
|
1,356
|
|
|
(62
|
)
|
|
Collateralized mortgage obligations
|
69,497
|
|
|
(1,395
|
)
|
|
3,754
|
|
|
(122
|
)
|
|
Taxable state and municipal securities
|
7,995
|
|
|
(416
|
)
|
|
—
|
|
|
—
|
|
|
Tax-exempt state and municipal securities
|
13,661
|
|
|
(621
|
)
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
211,474
|
|
|
$
|
(4,136
|
)
|
|
$
|
5,110
|
|
|
$
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Unrealized loss position for less than 12 months
|
|
Unrealized loss position for more than 12 months
|
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
|
($ in thousands)
|
|
U.S. Treasuries
|
$
|
5,101
|
|
|
$
|
(33
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. Government agencies
|
59,175
|
|
|
(382
|
)
|
|
996
|
|
|
(8
|
)
|
|
Mortgage-backed securities
|
36,769
|
|
|
(322
|
)
|
|
2,612
|
|
|
(88
|
)
|
|
Collateralized mortgage obligations
|
19,320
|
|
|
(225
|
)
|
|
10,034
|
|
|
(249
|
)
|
|
Tax-exempt state and municipal securities
|
1,245
|
|
|
(9
|
)
|
|
519
|
|
|
(2
|
)
|
|
Total
|
$
|
121,610
|
|
|
$
|
(971
|
)
|
|
$
|
14,161
|
|
|
$
|
(347
|
)
|
As of
December 31, 2016
, there were
$5.1 million
, or
four
positions, of individual securities that had been in a continuous loss position for more than 12 months with a total unrealized loss of
$184.0 thousand
. As of
December 31, 2015
, there were
$14.2 million
, or
eleven
positions, of individual securities that had been in a continuous loss position for more than 12 months with a total unrealized loss of
$347.0 thousand
. Management has determined these securities are temporarily impaired at
December 31, 2016
for the following reasons:
U.S. Treasuries and Government Agencies. The unrealized losses in this category were caused by interest rate fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has been met for the Company to be required to sell any of these investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other than temporarily impaired,
Mortgage backed securities and collateralized mortgage obligations. The unrealized losses in this category were primarily the result of interest rate fluctuation. Since the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company does not consider these investments to be other than temporarily impaired.
Tax-exempt state and municipal securities. The unrealized losses in the category were generally the result of changes in market interest rates and interest spread relationships since original purchases. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. The Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, therefore the Company does not consider these investments to be other than temporarily impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5.3: Contractual Maturity of Available-For-Sale Securities
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
|
($ in thousands)
|
|
Due within one year
|
$
|
6,856
|
|
|
$
|
6,876
|
|
|
$
|
4,606
|
|
|
$
|
4,624
|
|
|
Due after one year through five years
|
100,102
|
|
|
99,693
|
|
|
99,447
|
|
|
99,685
|
|
|
Due after five years through ten years
|
45,828
|
|
|
44,419
|
|
|
38,697
|
|
|
38,611
|
|
|
Due after ten years
|
131,486
|
|
|
129,216
|
|
|
77,662
|
|
|
77,193
|
|
|
Total
|
$
|
284,272
|
|
|
$
|
280,204
|
|
|
$
|
220,412
|
|
|
$
|
220,113
|
|
In the table above, mortgage-backed securities and collateralized mortgage obligations are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets or mortgages.
6. LOANS HELD FOR INVESTMENT
The Bank and Mortgage Company make several types of loans to its customers including real estate loans (which vary in type between construction and development, commercial, and residential), commercial and industrial loans, and consumer loans. A significant portion of the Bank’s loan portfolio is secured by commercial real estate collateral in the greater Washington, D.C. metropolitan area. Real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower. Under guidance adopted by the federal banking regulators, banks with concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management and, potentially, higher levels of capital.
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.1: Composition of Loans Held for Investment
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Construction and development
|
$
|
288,193
|
|
|
$
|
249,433
|
|
|
Commercial real estate - owner occupied
|
231,414
|
|
|
232,572
|
|
|
Commercial real estate - non-owner occupied
|
557,846
|
|
|
424,538
|
|
|
Residential real estate
|
287,250
|
|
|
241,395
|
|
|
Real estate loans
|
1,364,703
|
|
|
1,147,938
|
|
|
Commercial and industrial
|
165,172
|
|
|
153,860
|
|
|
Consumer
|
4,668
|
|
|
6,285
|
|
|
Total loans held for investment
|
1,534,543
|
|
|
1,308,083
|
|
|
Less: allowance for loan losses
|
13,582
|
|
|
12,289
|
|
|
Total loans held for investment, net of allowance
|
$
|
1,520,961
|
|
|
$
|
1,295,794
|
|
Loans that are 90+ days past due and still accruing are only loans that are well secured and in the process of collection.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.2: Loans Held for Investment Aging Analysis
|
|
|
As of December 31, 2016
|
|
|
Current
Loans
(1)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90+ Days
Past Due (and accruing)
|
|
Non-
Accrual
|
|
Total
Past Due
|
|
Total
Loans
|
|
|
($ in thousands)
|
|
Construction and development
|
$
|
288,035
|
|
|
$
|
158
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
158
|
|
|
$
|
288,193
|
|
|
Commercial real estate - owner occupied
|
226,735
|
|
|
1,837
|
|
|
277
|
|
|
—
|
|
|
2,565
|
|
|
4,679
|
|
|
231,414
|
|
|
Commercial real estate - non-owner occupied
|
555,657
|
|
|
2,189
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,189
|
|
|
557,846
|
|
|
Residential real estate
|
285,035
|
|
|
630
|
|
|
—
|
|
|
—
|
|
|
1,585
|
|
|
2,215
|
|
|
287,250
|
|
|
Commercial and industrial
|
162,904
|
|
|
685
|
|
|
—
|
|
|
—
|
|
|
1,583
|
|
|
2,268
|
|
|
165,172
|
|
|
Consumer
|
4,653
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
13
|
|
|
15
|
|
|
4,668
|
|
|
Balance at end of period
|
$
|
1,523,019
|
|
|
$
|
5,499
|
|
|
$
|
277
|
|
|
$
|
2
|
|
|
$
|
5,746
|
|
|
$
|
11,524
|
|
|
$
|
1,534,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Current
Loans
(1)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90+ Days
Past Due (and accruing)
|
|
Non-
Accrual
|
|
Total
Past Due
|
|
Total
Loans
|
|
|
($ in thousands)
|
|
Construction and development
|
$
|
249,312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
121
|
|
|
$
|
249,433
|
|
|
Commercial real estate - owner occupied
|
229,021
|
|
|
121
|
|
|
—
|
|
|
—
|
|
|
3,430
|
|
|
3,551
|
|
|
232,572
|
|
|
Commercial real estate - non-owner occupied
|
420,164
|
|
|
2,345
|
|
|
—
|
|
|
—
|
|
|
2,029
|
|
|
4,374
|
|
|
424,538
|
|
|
Residential real estate
|
238,831
|
|
|
1,044
|
|
|
—
|
|
|
—
|
|
|
1,520
|
|
|
2,564
|
|
|
241,395
|
|
|
Commercial and industrial
|
149,703
|
|
|
411
|
|
|
617
|
|
|
28
|
|
|
3,101
|
|
|
4,157
|
|
|
153,860
|
|
|
Consumer
|
6,284
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
6,285
|
|
|
Balance at end of period
|
$
|
1,293,315
|
|
|
$
|
3,922
|
|
|
$
|
617
|
|
|
$
|
28
|
|
|
$
|
10,201
|
|
|
$
|
14,768
|
|
|
$
|
1,308,083
|
|
|
(1) For the purpose of this table, loans 1-29 days past due are included in the balance of current loans.
|
As of
December 31, 2016
,
$732.7 million
of loans were pledged as collateral for FHLB advances, compared to
$636.2 million
as of
December 31, 2015
. Loans pledged include qualifying home equity lines of credit, commercial real estate loans, multifamily real estate loans, and residential real estate secured loans. As of
December 31, 2016
, and
December 31, 2015
, there were
$1.5 million
and
$1.6 million
of net unamortized deferred fees, respectively.
The Company divides its loans held for investment into the following categories based on credit quality.
The characteristics of these ratings are as follows:
|
|
|
|
•
|
Pass and pass watch rated loans (risk ratings 1 to 6) are to borrowers with an acceptable financial condition, specified collateral margins, specified cash flow to service the existing loans, and a specified leverage ratio. The borrower has paid all obligations as agreed and it is expected that the borrower will maintain this type of payment history. Acceptable personal guarantors routinely support these loans.
|
|
|
|
|
•
|
Special mention loans (risk rating 7) have a specifically defined weakness in the borrower’s operations and/or the borrower’s ability to generate positive cash flow on a sustained basis. For example, the borrower’s recent payment history may be characterized by late payments. The Company’s risk exposure to special mention loans is partially mitigated by collateral supporting the loan; however, loans in this category have collateral that is considered to be degraded.
|
|
|
|
|
•
|
Substandard loans (risk rating 8) are considered to have specific and well-defined weaknesses that jeopardize the repayment terms as originally structured in the Company’s initial credit extension. The payment history for the loan may have been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan, or the estimated net liquidation value of the collateral pledged and/or ability of the personal guarantors to pay the loan may not adequately protect the Company. For loans in this category, there is a distinct possibility that the Company will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet the Company’s definition of an impaired loan unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable the Company will be unable to collect all amounts due. Substandard non-accrual loans have the same characteristics as substandard loans. However these loans have a non-accrual classification generally because the borrower’s principal or interest payments are 90 days or more past due.
|
|
|
|
|
•
|
Doubtful rated loans (risk rating 9) have all the weakness inherent in a loan that is classified as substandard but with the added characteristic that the weakness makes collection or liquidation in full highly questionable and improbable based upon current existing facts, conditions, and values. The possibility of loss related to doubtful rated loans is extremely high.
|
|
|
|
|
•
|
Loss (risk rating 10) rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.
|
Internal risk ratings of pass (rating numbers 1 to 5), pass watch (rating number 6), and special mention (rating number 7) are deemed to be unclassified assets. Internal risk ratings of substandard (rating number 8), doubtful (rating number 9) and loss (rating number 10) are deemed to be classified assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.3: Risk Categories of Loans Held for Investment
|
|
|
|
As of December 31, 2016
|
|
Internal risk rating grades
|
|
Pass
|
|
Pass Watch
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
Risk rating number
|
|
1 to 5
|
|
6
|
|
7
|
|
8
|
|
9
|
|
|
|
|
|
($ in thousands)
|
|
Construction and development
|
|
$
|
286,959
|
|
|
$
|
1,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
288,193
|
|
|
Commercial real estate - owner occupied
|
|
222,683
|
|
|
5,401
|
|
|
—
|
|
|
3,330
|
|
|
—
|
|
|
231,414
|
|
|
Commercial real estate - non-owner occupied
|
|
551,996
|
|
|
3,331
|
|
|
2,519
|
|
|
—
|
|
|
—
|
|
|
557,846
|
|
|
Residential real estate
|
|
279,953
|
|
|
4,737
|
|
|
849
|
|
|
1,660
|
|
|
51
|
|
|
287,250
|
|
|
Commercial and industrial
|
|
157,076
|
|
|
5,547
|
|
|
743
|
|
|
1,640
|
|
|
166
|
|
|
165,172
|
|
|
Consumer
|
|
4,653
|
|
|
2
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
4,668
|
|
|
Balance at end of period
|
|
$
|
1,503,320
|
|
|
$
|
20,252
|
|
|
$
|
4,111
|
|
|
$
|
6,643
|
|
|
$
|
217
|
|
|
$
|
1,534,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Internal risk rating grades
|
|
Pass
|
|
Pass Watch
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
Risk rating number
|
|
1 to 5
|
|
6
|
|
7
|
|
8
|
|
9
|
|
|
|
|
|
($ in thousands)
|
|
Construction and development
|
|
$
|
248,011
|
|
|
$
|
1,301
|
|
|
$
|
—
|
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
249,433
|
|
|
Commercial real estate - owner occupied
|
|
223,884
|
|
|
4,339
|
|
|
—
|
|
|
4,349
|
|
|
—
|
|
|
232,572
|
|
|
Commercial real estate - non-owner occupied
|
|
414,546
|
|
|
1,612
|
|
|
5,570
|
|
|
2,810
|
|
|
—
|
|
|
424,538
|
|
|
Residential real estate
|
|
234,957
|
|
|
4,447
|
|
|
783
|
|
|
1,208
|
|
|
—
|
|
|
241,395
|
|
|
Commercial and industrial
|
|
144,421
|
|
|
3,732
|
|
|
1,170
|
|
|
4,537
|
|
|
—
|
|
|
153,860
|
|
|
Consumer
|
|
5,905
|
|
|
380
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,285
|
|
|
Balance at end of period
|
|
$
|
1,271,724
|
|
|
$
|
15,811
|
|
|
$
|
7,523
|
|
|
$
|
13,025
|
|
|
$
|
—
|
|
|
$
|
1,308,083
|
|
A loan may be placed on non-accrual status when the loan is specifically determined to be impaired or when principal or interest is delinquent 90 days or more. The Company closely monitors individual loans, and relationship officers are charged with working with customers to resolve potential credit issues in a timely manner with minimum exposure to the Company. The Company maintains a policy of adding an appropriate amount to the allowance for loan losses to ensure an adequate reserve based on the portfolio composition, specific credit extended by it, general economic conditions and other factors and external circumstances identified during the process of estimating probable losses in its loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.4: Non-Accrual Loans
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Construction and development
|
$
|
—
|
|
|
$
|
121
|
|
|
Commercial real estate - owner occupied
|
2,565
|
|
|
3,430
|
|
|
Commercial real estate - non-owner occupied
|
—
|
|
|
2,029
|
|
|
Residential real estate
|
1,585
|
|
|
1,520
|
|
|
Commercial and industrial
|
1,583
|
|
|
3,101
|
|
|
Consumer
|
13
|
|
|
—
|
|
|
Total non-accrual loans
|
$
|
5,746
|
|
|
$
|
10,201
|
|
A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR. When the Company has granted a concession, as a result of the restructuring, it does not expect to collect all amounts due in a timely manner, including interest accrued at the original contract rate. In making its determination of whether a borrower is experiencing financial difficulties, the Company considers several factors, including whether: (1) the borrower has
declared or is in the process of declaring bankruptcy; (2) there is substantial doubt as to whether the borrower will continue to be a going concern; and (3) the borrower can obtain funds from other sources at an effective interest rate at or near a current market interest rate for debt with similar risk characteristics. The Company evaluates TDRs similarly to other impaired loans for purposes of the allowance for loan losses. In some situations a borrower may be experiencing financial distress, but the Company does not provide a concession. These modifications are not considered TDRs. In other cases, the Company might provide a concession, such as a reduction in interest rate, but the borrower is not experiencing financial distress. This could be the case if the Company is matching a competitor’s interest rate. These modifications would also not be considered TDRs. Finally, any renewals at existing terms for borrowers not experiencing financial distress would not be considered TDRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.5: Changes in Troubled Debt Restructurings
|
|
|
Construction
and
Development
|
|
Commercial real estate - owner occupied
|
|
Commercial real estate - non-owner occupied
|
|
Residential
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
|
|
Total
|
|
|
($ in thousands)
|
|
Balance as of January 1, 2015
|
$
|
241
|
|
|
$
|
2,584
|
|
|
$
|
2,035
|
|
|
$
|
1,796
|
|
|
$
|
354
|
|
|
$
|
—
|
|
|
$
|
7,010
|
|
|
New TDRs
|
—
|
|
|
—
|
|
|
—
|
|
|
547
|
|
|
1,675
|
|
|
353
|
|
|
2,575
|
|
|
Increases to existing TDRs
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
16
|
|
|
—
|
|
|
25
|
|
|
Charge-offs post modification
|
—
|
|
|
(128
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(128
|
)
|
|
Sales, principal payments, or other decreases
|
(212
|
)
|
|
(2,456
|
)
|
|
(6
|
)
|
|
(385
|
)
|
|
(96
|
)
|
|
—
|
|
|
(3,155
|
)
|
|
Balance as of December 31, 2015
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
2,029
|
|
|
$
|
1,967
|
|
|
$
|
1,949
|
|
|
$
|
353
|
|
|
$
|
6,327
|
|
|
New TDRs
|
—
|
|
|
—
|
|
|
742
|
|
|
1,788
|
|
|
28
|
|
|
—
|
|
|
2,558
|
|
|
Increases to existing TDRs
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Charge-offs post modification
|
(29
|
)
|
|
—
|
|
|
(544
|
)
|
|
(11
|
)
|
|
(576
|
)
|
|
—
|
|
|
(1,160
|
)
|
|
Sales, principal payments, or other decreases
|
—
|
|
|
—
|
|
|
(2,227
|
)
|
|
(2,679
|
)
|
|
(1,294
|
)
|
|
(4
|
)
|
|
(6,204
|
)
|
|
Balance as of December 31, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
|
$
|
107
|
|
|
$
|
349
|
|
|
$
|
1,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.6: New Troubled Debt Restructurings Details
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
Number of Loans
|
|
Pre-Modification
Outstanding
Recorded
Balance
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
Number of Loans
|
|
Pre-Modification
Outstanding
Recorded
Balance
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
|
($ in thousands)
|
|
Construction and development
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial real estate - owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate - non-owner occupied
|
1
|
|
|
742
|
|
|
742
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
1
|
|
|
1,788
|
|
|
1,788
|
|
|
5
|
|
|
547
|
|
|
547
|
|
|
Commercial and industrial
|
1
|
|
|
28
|
|
|
28
|
|
|
5
|
|
|
1,839
|
|
|
1,675
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
353
|
|
|
353
|
|
|
Total loans
|
3
|
|
|
$
|
2,558
|
|
|
$
|
2,558
|
|
|
11
|
|
|
$
|
2,739
|
|
|
$
|
2,575
|
|
TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if the borrower satisfies a minimum six-month performance requirement; however, it will remain classified as impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.7: Troubled Debt Restructuring in Default in Past Twelve Months
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
Number
of
Loans
|
|
Pre-Modification
Outstanding
Recorded
Balance
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
Number
of
Loans
|
|
Pre-Modification
Outstanding
Recorded
Balance
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
|
($ in thousands)
|
|
Construction and development
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
184
|
|
|
$
|
29
|
|
|
Commercial real estate - owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate - non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2,071
|
|
|
2,029
|
|
|
Residential real estate
|
1
|
|
|
168
|
|
|
144
|
|
|
1
|
|
|
181
|
|
|
181
|
|
|
Commercial and industrial
|
1
|
|
|
931
|
|
|
931
|
|
|
3
|
|
|
809
|
|
|
644
|
|
|
Consumer
|
1
|
|
|
350
|
|
|
166
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total loans
|
3
|
|
|
$
|
1,449
|
|
|
$
|
1,241
|
|
|
7
|
|
|
$
|
3,245
|
|
|
$
|
2,883
|
|
The following is an analysis of new loans modified in a troubled debt restructuring by type of concession for the year ended
December 31, 2016
, and
2015
. There were no modifications that involved forgiveness of debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.8: Troubled Debt Restructuring by Type of Concession
|
|
|
TDRs Entered into During the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
Number
of
Loans
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
Number
of
Loans
|
|
Post-Modification
Outstanding
Recorded
Balance
|
|
|
($ in thousands)
|
|
Extended under forbearance
|
3
|
|
|
$
|
2,558
|
|
|
—
|
|
|
$
|
—
|
|
|
Interest rate modification
|
—
|
|
|
—
|
|
|
2
|
|
|
267
|
|
|
Maturity or payment extension
|
—
|
|
|
—
|
|
|
9
|
|
|
2,308
|
|
|
Total loans
|
3
|
|
|
$
|
2,558
|
|
|
11
|
|
|
$
|
2,575
|
|
The outstanding balances in Table 6.1 include acquired impaired loans with a recorded investment of
$2.7 million
or
0.2%
of total loans as of
December 31, 2016
, compared to
$3.5 million
or
0.3%
of total loans as of
December 31, 2015
. The contractual principal of these acquired loans was
$2.9 million
as of
December 31, 2016
compared to
$3.8 million
as of
December 31, 2015
. For these loans, the allowance for loan losses
decreased
by
$224.0 thousand
and
$23.0 thousand
during the year ended
December 31, 2016
and
2015
, respectively. The balances do not include future accretable net interest on the acquired impaired loans.
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.9: Accretable Yield of Purchased Credit Impaired Loans
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Accretable yield at beginning of period
|
$
|
1,208
|
|
|
$
|
1,484
|
|
|
Accretion (including cash recoveries)
|
(229
|
)
|
|
(309
|
)
|
|
Net reclassifications to accretable from non-accretable
|
18
|
|
|
107
|
|
|
Disposals (including maturities, foreclosures, and charge-offs)
|
(153
|
)
|
|
(74
|
)
|
|
Accretable yield at end of period
|
$
|
844
|
|
|
$
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.10: Non-Performing Assets
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Non-accrual loans
|
$
|
5,746
|
|
|
$
|
10,201
|
|
|
90+ days still accruing
|
2
|
|
|
28
|
|
|
Troubled debt restructurings still accruing
|
1,361
|
|
|
4,269
|
|
|
Other real estate owned
|
1,428
|
|
|
—
|
|
|
Total non-performing assets
|
$
|
8,537
|
|
|
$
|
14,498
|
|
As of
December 31, 2016
, and
2015
, there was
one
loan and
one
loan, respectively, past due more than 90 days that were still accruing. If interest had been earned on the non-accrual loans, interest income on these loans would have been approximately
$0.5 million
,
$0.4 million
and
$0.8 million
for the year ended
December 31, 2016
,
2015
and
2014
, respectively. The Company has no remaining commitment to fund non-performing loans. As of
December 31, 2016
, the Company had approximately
$531.0 thousand
in loans in the process of foreclosure.
7. ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7.1: Changes in Allowance for Loan Losses
|
|
|
Construction
and
Development
|
|
Commercial
Real Estate - Owner Occupied
|
|
Commercial Real Estate - Non-Owner Occupied
|
|
Residential
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
|
|
Total
|
|
|
($ in thousands)
|
|
Balance as of January 1, 2014
|
$
|
681
|
|
|
$
|
1,751
|
|
|
$
|
3,276
|
|
|
$
|
920
|
|
|
$
|
1,801
|
|
|
$
|
105
|
|
|
$
|
8,534
|
|
|
Provision for loan losses
|
447
|
|
|
892
|
|
|
591
|
|
|
518
|
|
|
411
|
|
|
146
|
|
|
3,005
|
|
|
Charge-offs
|
(100
|
)
|
|
(476
|
)
|
|
(462
|
)
|
|
(715
|
)
|
|
(618
|
)
|
|
(232
|
)
|
|
(2,603
|
)
|
|
Recoveries
|
—
|
|
|
1
|
|
|
101
|
|
|
197
|
|
|
18
|
|
|
4
|
|
|
321
|
|
|
Balance as of December 31, 2014
|
$
|
1,028
|
|
|
$
|
2,168
|
|
|
$
|
3,506
|
|
|
$
|
920
|
|
|
$
|
1,612
|
|
|
$
|
23
|
|
|
$
|
9,257
|
|
|
Provision for loan losses
|
1,293
|
|
|
535
|
|
|
53
|
|
|
638
|
|
|
749
|
|
|
282
|
|
|
3,550
|
|
|
Charge-offs
|
—
|
|
|
(128
|
)
|
|
(10
|
)
|
|
(143
|
)
|
|
(224
|
)
|
|
(171
|
)
|
|
(676
|
)
|
|
Recoveries
|
—
|
|
|
1
|
|
|
—
|
|
|
117
|
|
|
35
|
|
|
5
|
|
|
158
|
|
|
Balance as of December 31, 2015
|
$
|
2,321
|
|
|
$
|
2,576
|
|
|
$
|
3,549
|
|
|
$
|
1,532
|
|
|
$
|
2,172
|
|
|
$
|
139
|
|
|
$
|
12,289
|
|
|
Provisions for loan losses
|
662
|
|
|
(168
|
)
|
|
1,921
|
|
|
241
|
|
|
1,168
|
|
|
56
|
|
|
3,880
|
|
|
Charge-offs
|
(31
|
)
|
|
(299
|
)
|
|
(636
|
)
|
|
(65
|
)
|
|
(1,554
|
)
|
|
(171
|
)
|
|
(2,756
|
)
|
|
Recoveries
|
2
|
|
|
20
|
|
|
—
|
|
|
60
|
|
|
83
|
|
|
4
|
|
|
169
|
|
|
Balance as of December 31, 2016
|
$
|
2,954
|
|
|
$
|
2,129
|
|
|
$
|
4,834
|
|
|
$
|
1,768
|
|
|
$
|
1,869
|
|
|
$
|
28
|
|
|
$
|
13,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7.2: Loans Held for Investment and Related Allowance for Loan Losses by Impairment Method and Loan Class
|
|
|
As of December 31, 2016
|
|
|
Construction
and
Development
|
|
Commercial
Real Estate - Owner Occupied
|
|
Commercial Real Estate - Non-Owner Occupied
|
|
Residential
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
|
|
Total
|
|
|
($ in thousands)
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
$
|
288,193
|
|
|
$
|
228,131
|
|
|
$
|
557,846
|
|
|
$
|
283,013
|
|
|
$
|
163,157
|
|
|
$
|
4,653
|
|
|
$
|
1,524,993
|
|
|
Evaluated individually for impairment
|
—
|
|
|
3,283
|
|
|
—
|
|
|
4,237
|
|
|
2,015
|
|
|
15
|
|
|
9,550
|
|
|
|
$
|
288,193
|
|
|
$
|
231,414
|
|
|
$
|
557,846
|
|
|
$
|
287,250
|
|
|
$
|
165,172
|
|
|
$
|
4,668
|
|
|
$
|
1,534,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
$
|
2,954
|
|
|
$
|
2,000
|
|
|
$
|
4,834
|
|
|
$
|
1,533
|
|
|
$
|
952
|
|
|
$
|
15
|
|
|
$
|
12,288
|
|
|
Evaluated individually for impairment
|
—
|
|
|
129
|
|
|
—
|
|
|
235
|
|
|
917
|
|
|
13
|
|
|
1,294
|
|
|
|
$
|
2,954
|
|
|
$
|
2,129
|
|
|
$
|
4,834
|
|
|
$
|
1,768
|
|
|
$
|
1,869
|
|
|
$
|
28
|
|
|
$
|
13,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Construction
and
Development
|
|
Commercial
Real Estate - Owner Occupied
|
|
Commercial Real Estate - Non-Owner Occupied
|
|
Residential
Real Estate
|
|
Commercial
and
Industrial
|
|
Consumer
|
|
Total
|
|
|
($ in thousands)
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
$
|
249,312
|
|
|
$
|
228,224
|
|
|
$
|
415,393
|
|
|
$
|
235,885
|
|
|
$
|
145,217
|
|
|
$
|
5,932
|
|
|
$
|
1,279,963
|
|
|
Evaluated individually for impairment
|
121
|
|
|
3,429
|
|
|
2,029
|
|
|
3,488
|
|
|
5,050
|
|
|
353
|
|
|
14,470
|
|
|
Evaluated individually for impairment but not deemed to be impaired
|
—
|
|
|
919
|
|
|
7,116
|
|
|
2,022
|
|
|
3,593
|
|
|
—
|
|
|
13,650
|
|
|
|
$
|
249,433
|
|
|
$
|
232,572
|
|
|
$
|
424,538
|
|
|
$
|
241,395
|
|
|
$
|
153,860
|
|
|
$
|
6,285
|
|
|
$
|
1,308,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
$
|
2,291
|
|
|
$
|
1,794
|
|
|
$
|
3,196
|
|
|
$
|
1,181
|
|
|
$
|
787
|
|
|
$
|
20
|
|
|
$
|
9,269
|
|
|
Evaluated individually for impairment
|
30
|
|
|
782
|
|
|
190
|
|
|
170
|
|
|
1,209
|
|
|
119
|
|
|
2,500
|
|
|
Evaluated individually for impairment but not deemed to be impaired
|
—
|
|
|
—
|
|
|
163
|
|
|
181
|
|
|
176
|
|
|
—
|
|
|
520
|
|
|
|
$
|
2,321
|
|
|
$
|
2,576
|
|
|
$
|
3,549
|
|
|
$
|
1,532
|
|
|
$
|
2,172
|
|
|
$
|
139
|
|
|
$
|
12,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7.3: Specific Allocation for Impaired Loans
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
Related
Allowance
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
Related
Allowance
|
|
|
($ in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial real estate - owner occupied
|
3,239
|
|
|
3,154
|
|
|
—
|
|
|
317
|
|
|
278
|
|
|
—
|
|
|
Commercial real estate - non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential real estate
|
1,972
|
|
|
1,845
|
|
|
—
|
|
|
2,397
|
|
|
2,297
|
|
|
—
|
|
|
Commercial and industrial
|
213
|
|
|
204
|
|
|
—
|
|
|
407
|
|
|
313
|
|
|
—
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total with no related allowance
|
5,424
|
|
|
5,203
|
|
|
—
|
|
|
3,121
|
|
|
2,888
|
|
|
—
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
—
|
|
|
—
|
|
|
—
|
|
|
291
|
|
|
121
|
|
|
30
|
|
|
Commercial real estate - owner occupied
|
130
|
|
|
129
|
|
|
129
|
|
|
3,242
|
|
|
3,151
|
|
|
782
|
|
|
Commercial real estate - non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
2,071
|
|
|
2,029
|
|
|
190
|
|
|
Residential real estate
|
2,409
|
|
|
2,392
|
|
|
235
|
|
|
1,205
|
|
|
1,191
|
|
|
170
|
|
|
Commercial and industrial
|
2,140
|
|
|
1,811
|
|
|
917
|
|
|
5,146
|
|
|
4,737
|
|
|
1,209
|
|
|
Consumer
|
16
|
|
|
15
|
|
|
13
|
|
|
353
|
|
|
353
|
|
|
119
|
|
|
Total with an allowance recorded
|
4,695
|
|
|
4,347
|
|
|
1,294
|
|
|
12,308
|
|
|
11,582
|
|
|
2,500
|
|
|
Total impaired loans
|
$
|
10,119
|
|
|
$
|
9,550
|
|
|
$
|
1,294
|
|
|
$
|
15,429
|
|
|
$
|
14,470
|
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7.4: Average Impaired Loan Balance
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
|
($ in thousands)
|
|
With no related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Commercial real estate - owner occupied
|
3,407
|
|
|
—
|
|
|
2,578
|
|
|
197
|
|
|
4,199
|
|
|
425
|
|
|
Commercial real estate - non-owner occupied
|
3,047
|
|
|
—
|
|
|
3,879
|
|
|
184
|
|
|
1,812
|
|
|
143
|
|
|
Residential real estate
|
4,608
|
|
|
31
|
|
|
2,436
|
|
|
57
|
|
|
1,596
|
|
|
101
|
|
|
Commercial and industrial
|
4,435
|
|
|
18
|
|
|
590
|
|
|
16
|
|
|
3,874
|
|
|
169
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
240
|
|
|
17
|
|
|
121
|
|
|
5
|
|
|
Total with no related allowance
|
15,619
|
|
|
49
|
|
|
9,754
|
|
|
472
|
|
|
11,602
|
|
|
843
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
—
|
|
|
—
|
|
|
307
|
|
|
—
|
|
|
254
|
|
|
—
|
|
|
Commercial real estate - owner occupied
|
—
|
|
|
—
|
|
|
4,236
|
|
|
50
|
|
|
6,856
|
|
|
242
|
|
|
Commercial real estate - non-owner occupied
|
—
|
|
|
—
|
|
|
4,591
|
|
|
128
|
|
|
10,318
|
|
|
417
|
|
|
Residential real estate
|
1,303
|
|
|
50
|
|
|
2,961
|
|
|
133
|
|
|
2,347
|
|
|
70
|
|
|
Commercial and industrial
|
2,048
|
|
|
4
|
|
|
6,583
|
|
|
244
|
|
|
5,237
|
|
|
263
|
|
|
Consumer
|
13
|
|
|
—
|
|
|
81
|
|
|
7
|
|
|
7
|
|
|
2
|
|
|
Total with an allowance recorded
|
3,364
|
|
|
54
|
|
|
18,759
|
|
|
562
|
|
|
25,019
|
|
|
994
|
|
|
Total average impaired loans
|
$
|
18,983
|
|
|
$
|
103
|
|
|
$
|
28,513
|
|
|
$
|
1,034
|
|
|
$
|
36,621
|
|
|
$
|
1,837
|
|
8. PREMISES AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
Table 8.1: Premises and Equipment
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Furniture and equipment
|
$
|
5,737
|
|
|
$
|
5,451
|
|
|
Leasehold improvements
|
8,069
|
|
|
7,381
|
|
|
Gross premises and equipment
|
13,806
|
|
|
12,832
|
|
|
Less: accumulated depreciation
|
(6,851
|
)
|
|
(5,458
|
)
|
|
Premises and equipment, net
|
$
|
6,955
|
|
|
$
|
7,374
|
|
Depreciation and amortization expense included in premises and equipment expenses for the years ended
December 31, 2016
,
2015
and
2014
was
$1.6 million
,
$1.3 million
, and
$1.2 million
, respectively.
The Bank leases all of its offices and branch facilities under non-cancelable operating lease arrangements. Certain leases contain options, which enable the Bank to renew the leases for additional periods. In addition to minimum rentals, the leases have escalation clauses based upon price indices and include provisions for additional payments to cover real estate taxes and common area maintenance. Rent expense associated with these operating leases for the years ended
December 31, 2016
,
2015
and
2014
totaled
$4.6 million
,
$3.8 million
and
$3.3 million
, respectively.
|
|
|
|
|
|
|
|
Table 8.2: Future Minimum Lease Payment Under Non-Cancelable Lease
|
|
|
As of December 31, 2016
|
|
|
($ in thousands)
|
|
2017
|
$
|
4,746
|
|
|
2018
|
4,657
|
|
|
2019
|
4,022
|
|
|
2020
|
3,860
|
|
|
2021
|
3,738
|
|
|
Thereafter
|
7,340
|
|
|
Total
|
$
|
28,363
|
|
9. OTHER REAL ESTATE OWNED
OREO activity for the twelve months ended
December 31, 2016
,
2015
, and
2014
is presented in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 9.1: Changes in OREO
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
361
|
|
|
$
|
1,463
|
|
|
Properties acquired at foreclosure
|
2,255
|
|
|
90
|
|
|
360
|
|
|
Sales of foreclosed properties
|
(668
|
)
|
|
(451
|
)
|
|
(1,130
|
)
|
|
Write-downs
|
(159
|
)
|
|
—
|
|
|
(332
|
)
|
|
Balance at end of period
|
$
|
1,428
|
|
|
$
|
—
|
|
|
$
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 9.2: OREO Expense
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Write-downs
|
$
|
159
|
|
|
$
|
—
|
|
|
$
|
332
|
|
|
Operating expenses
|
160
|
|
|
21
|
|
|
59
|
|
|
Rental income
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
Net OREO expense
|
$
|
264
|
|
|
$
|
21
|
|
|
$
|
391
|
|
10. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The C
ompany recognized
approximately
$2.6 million
of goodwill as a part of the Millennium Transaction in 2014 and approximately
$5.2 million
of goodwill as part of the 1
st
Portfolio Acquisition in 2015. The remaining
$3.6 million
of goodwill on the balance sheet as of
December 31, 2016
, arose from multiple community banking acquisition activities in years prior.
In connection with the Millennium Transaction in 2014, the Company recorded a
$470 thousand
core deposit intangible, which is presented in the identifiable intangibles line item on the consolidated balance sheet. These are being amortized straight-line over a five year or eight year period, depending on the nature of the deposits underlying the intangible.
Core deposit intangibles arise when an acquired bank or branch has a stable deposit base comprised of funds associated with long-term customer relationships. The intangible asset value derives from customer relationships that provide a low-cost source of funding. The Bank’s core deposit intangibles arising from acquisitions are amortized over a
five
year period for non-interest bearing deposits and interest-bearing NOW accounts. Conversely, core deposit intangibles arising from savings accounts are being amortized over an
eight
year period.
As a part of the 1
st
Portfolio Acquisition that closed on July 31, 2015, the Company recognized
$5.2 million
of goodwill and a client list intangible asset of
$1.4 million
. The client list is being amortized over a
15
year term beginning in August 2015. See Note 3 for further details on the 1
st
Portfolio Acquisition.
There was no impairment of goodwill or identifiable intangible assets during the periods ended
December 31, 2016
, or
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 10: Goodwill and Identifiable Intangibles
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Goodwill:
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
11,431
|
|
|
$
|
6,240
|
|
|
$
|
3,601
|
|
|
Goodwill additions/(reductions)
|
(11
|
)
|
|
5,191
|
|
|
2,639
|
|
|
Balance, end of period
|
$
|
11,420
|
|
|
$
|
11,431
|
|
|
$
|
6,240
|
|
|
|
|
|
|
|
|
|
Identifiable intangibles:
|
|
|
|
|
|
|
Core deposit intangible balance, beginning of period
|
$
|
481
|
|
|
$
|
654
|
|
|
$
|
342
|
|
|
Addition of core deposit intangibles
|
—
|
|
|
—
|
|
|
470
|
|
|
Amortization of core deposit intangibles
|
(172
|
)
|
|
(173
|
)
|
|
(158
|
)
|
|
Core deposit intangible balance, net, end of period
|
$
|
309
|
|
|
$
|
481
|
|
|
$
|
654
|
|
|
|
|
|
|
|
|
|
Client list intangible balance, beginning of period
|
$
|
1,407
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Addition of client list intangibles
|
—
|
|
|
1,447
|
|
|
—
|
|
|
Amortization of client list intangibles
|
(97
|
)
|
|
(40
|
)
|
|
—
|
|
|
Client list intangible balance, net, end of period
|
$
|
1,310
|
|
|
$
|
1,407
|
|
|
$
|
—
|
|
|
Total intangibles, net
|
$
|
13,039
|
|
|
$
|
13,319
|
|
|
$
|
6,894
|
|
11. DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
Table 11.1: Composition of Deposits
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Demand deposit accounts
|
$
|
381,887
|
|
|
$
|
304,425
|
|
|
NOW accounts
|
134,938
|
|
|
115,459
|
|
|
Money market accounts
|
270,794
|
|
|
309,940
|
|
|
Savings accounts
|
209,961
|
|
|
163,289
|
|
|
Time deposits under $100,000
|
77,279
|
|
|
81,771
|
|
|
Time deposits $100,000 through $250,000
|
308,816
|
|
|
242,683
|
|
|
Time deposits over $250,000
|
139,066
|
|
|
115,675
|
|
|
Total deposits
|
$
|
1,522,741
|
|
|
$
|
1,333,242
|
|
Time deposits include CDARS balances. CDARS deposits are customer deposits that are placed in the CDARS network to maximize the FDIC insurance coverage for clients. CDARS balances were
$57.8 million
and
$44.3 million
as of
December 31, 2016
and
2015
, respectively. The Bank did not have any brokered deposits as of
December 31, 2016
or
December 31, 2015
. As of
December 31, 2016
and
2015
, approximately
$515.5 million
and
$644.3 million
, respectively, in deposits were in excess of FDIC insurance limits.
|
|
|
|
|
|
|
|
|
|
|
|
Table 11.2: Scheduled Maturities of Time Deposits
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Within 1 Year
|
$
|
350,854
|
|
|
$
|
295,442
|
|
|
1 - 2 years
|
111,315
|
|
|
75,869
|
|
|
2 - 3 years
|
36,187
|
|
|
32,651
|
|
|
3 - 4 years
|
19,570
|
|
|
21,446
|
|
|
4 - 5 years
|
6,981
|
|
|
14,472
|
|
|
5+ years
|
254
|
|
|
249
|
|
|
Total
|
$
|
525,161
|
|
|
$
|
440,129
|
|
12. OTHER BORROWINGS
Other borrowings consist of
$5.9 million
and
$6.9 million
of customer repurchase agreements as of
December 31, 2016
and
2015
, respectively. Customer repurchase agreements are overnight and continuous standard commercial banking transactions that involve a Bank customer instead of a wholesale bank or broker. The average rate of these repurchase agreements was
0.05%
as of both
December 31, 2016
, and
2015
. As of
December 31, 2016
, these repurchase agreements were backed by
$3.7 million
of collateralized mortgage obligations and
$2.2 million
of mortgage-backed securities, compared to
$3.8 million
and
$3.1 million
, respectively, as of
2015
. In addition, the Bank maintains
$127.0 million
in unsecured lines of credit with a variety of correspondent banks. As of
December 31, 2016
, there were
no
outstanding balances on these lines of credit. The parent company also maintains a
$5.0 million
unsecured line of credit with a bank.
13. FEDERAL HOME LOAN BANK ADVANCES
As a member of the FHLB, the Bank has access to numerous borrowing programs with total credit availability established at
25%
of total quarter-end assets. FHLB advances are fully collateralized by pledges of certain qualifying real estate secured loans (see Note 4 - Cash and Cash Equivalents). The Bank also maintains a secured line of credit with the FHLB up to
25%
of total assets or
$500.7
million
as of
December 31, 2016
based on available collateral. As of
December 31, 2016
, the Bank’s borrowing capacity was
$478.0 million
of which
$232.1 million
was outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
Table 13.1: Composition of FHLB Advances
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
FHLB advances
|
$
|
232,097
|
|
|
$
|
107,579
|
|
|
FHLB purchase accounting mark
|
—
|
|
|
2,508
|
|
|
FHLB total
|
$
|
232,097
|
|
|
$
|
110,087
|
|
|
Weighted average outstanding effective interest rate
|
1.12
|
%
|
|
1.62
|
%
|
In August 2016, the Bank prepaid a long-term FHLB advance that was entered into during late 2015. This
$10.0 million
advance had a coupon rate of
1.67%
and a final maturity of
August 15, 2019
. The cost to terminate the debt instrument was
$155.0 thousand
.
In late June 2016, the Bank prepaid a long-term FHLB advance that was assumed during the Alliance acquisition which was completed in December of 2012. This
$25.0 million
advance had a coupon rate of
3.99%
but an effective cost of
2.04%
after considering the purchase accounting mark on the instrument. The instrument had a final maturity of
February 26, 2021
. The effective cost (prepayment penalty less release of the purchase accounting mark) to terminate the debt instrument was
$1.04 million
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13.2: FHLB Advances Average Balances
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Average FHLB advances during the period
|
$
|
106,882
|
|
|
$
|
109,967
|
|
|
$
|
63,108
|
|
|
Average effective interest rate paid during the period
|
1.48
|
%
|
|
1.48
|
%
|
|
1.67
|
%
|
|
Maximum month-end balance outstanding
|
$
|
232,097
|
|
|
$
|
127,696
|
|
|
$
|
101,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13.3: Contractual Maturities of FHLB Advances
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Within one year
|
$
|
156,000
|
|
|
$
|
15,000
|
|
|
1 - 2 years
|
7,500
|
|
|
7,500
|
|
|
2 - 3 years
|
9,906
|
|
|
7,500
|
|
|
3 - 4 years
|
15,000
|
|
|
25,869
|
|
|
4 - 5 years
|
6,556
|
|
|
15,000
|
|
|
5+ years
|
37,135
|
|
|
36,710
|
|
|
Total FHLB advances
|
$
|
232,097
|
|
|
$
|
107,579
|
|
14. LONG-TERM BORROWINGS
|
|
|
|
|
|
|
|
|
|
|
|
Table 14: Long-term Borrowings Detail
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Subordinated debt
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
Less: debt issuance costs
|
(385
|
)
|
|
—
|
|
|
Trust preferred capital notes
|
10,310
|
|
|
10,310
|
|
|
Trust preferred capital notes purchase accounting mark
|
(2,287
|
)
|
|
(2,426
|
)
|
|
Long-term borrowings
|
$
|
32,638
|
|
|
$
|
32,884
|
|
In October 2015, the Company issued
$25.0 million
in Subordinated Debt. As part of the use of proceeds, the Company paid off
$2.5 million
of existing subordinate debt at the Bank. The Subordinated Debt has a maturity of
ten
years, is due in full on
October 15, 2025
, and bears interest at
6.00%
per annum, payable quarterly. As of
December 31, 2015
, there was
$483.0 thousand
of debt issuance costs carried in other assets.
Under current regulatory guidelines, the Subordinated Debt may constitute no more than
25%
of total Tier 1 Capital. Any amount not eligible to be counted as Tier 1 Capital is considered to be Tier 2 Capital. As of
December 31, 2016
and
December 31, 2015
, the entire amount of Subordinated Debt was considered Tier 2 Capital.
On June 30, 2003, Alliance invested
$310.0 thousand
as common equity into a wholly-owned Delaware statutory business trust (the “Trust”). Simultaneously, the Trust privately issued
$10.0 million
face amount of
thirty
-year floating rate trust preferred capital securities (the “Trust Preferred Capital Notes”) in a pooled trust preferred capital securities offering. The Trust used the offering proceeds, plus the equity, to purchase
$10.3 million
principal amount of Alliance’s floating rate junior subordinated debentures due
2033
(the “Subordinated Debentures”). Both the Trust Preferred Capital Notes and the Subordinated Debentures are callable at any time, without penalty. The interest rate associated with the Trust Preferred Capital Notes is three month LIBOR plus
3.15%
subject to quarterly interest rate adjustments. The interest rates as of
December 31, 2016
and
December 31, 2015
were
4.11%
and
3.66%
, respectively. The Trust Preferred Capital Notes are guaranteed by the Company on a subordinated basis, and were recorded on the Company’s books at the time of the Alliance acquisition at a discounted amount of
$7.5 million
, which was the fair value of the instruments at the time of the acquisition. The
$2.5 million
discount is being expensed monthly over the life of the obligation. Under the indenture governing the Trust Preferred Capital Notes, the Company has the right to defer payments of interest for up to twenty consecutive quarterly periods. As of
December 31, 2016
, the Company was current on all interest payments.
Under current regulatory guidelines, the Trust Preferred Capital Notes may constitute no more than
25%
of total Tier 1 Capital. Any amount not eligible to be counted as Tier 1 Capital is considered to be Tier 2 Capital.
15. SHAREHOLDERS’ EQUITY
In August 2011, the Company elected to participate in the SBLF, and issued
17,796
shares of its Series D Preferred Stock to the United States Treasury for
$17.8 million
. Under the terms of the SBLF transaction, during the first ten quarters (ended December 31, 2013) in which the Series D Preferred Stock was outstanding, the preferred shares earned dividends at a rate that could fluctuate on a quarterly basis. From the eleventh dividend period (ended March 31, 2014) through the year
4.5 years
after the closing of the SBLF transaction, because the Company’s qualified small business lending (“QSBL”) as of December 31, 2013 had increased sufficiently as compared with the QSBL baseline, the annual dividend rate is fixed at a rate of
1%
.
In February 2015, the Company redeemed
$4.4 million
(
4,449
shares), or
25%
of the initial
$17.8 million
of the outstanding Series D Preferred Stock issued to the U.S. Treasury under the SBLF Program. The shares were redeemed at their liquidation value of
$1,000
per share plus accrued dividends, for a total redemption price of
$4.5 million
. In October 2015, the Company redeemed the remaining
$8.9 million
(
8,898
shares) or
50%
of the initial
$17.8 million
outstanding of the Series D Preferred Stock. These shares were redeemed at their liquidation value of $1,000 per share plus accrued dividends, fo
r a total redemption price of
$8.9 million
. As of
December 31, 2016
and
2015
, there were
no
shares of Series D Preferred Stock outstanding.
On December 8, 2015, WashingtonFirst completed an underwritten public offering of 1,655,000 shares of its voting common stock, which included 215,000 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at a price of $20.00 per share to the public (“Public Offering”). WashingtonFirst received aggregate proceeds, after deducting the underwriting discount and estimated offering expenses, of approximately $31.1 million. The voting common stock was offered pursuant to a
prospectus supplement dated December 3, 2015 filed with the Securities and Exchange Commission as part of the Company’s shelf registration statement on Form S-3 (Registration File No. 333-202318; effective on March 11, 2015).
The Company has warrants outstanding to purchase
63,689
shares of common stock at a share price equal to
$10.30
. These warrants have been retroactively adjusted to reflect the effect of all stock dividends and expire if not exercised on or before
June 15, 2020
.
In connection with the 1
st
Portfolio Acquisition, on July 31, 2015, the Company issued
916,382
shares of the Company’s common stock at a value of
$17.05
as merger consideration to former stockholders of 1
st
Portfolio Holding Corporation. In accordance with the Agreement and Plan of Reorganization (the “Merger Agreement”),
47,895
of these shares were held in escrow until July 31, 2016 as security for the indemnification obligations of the FP Indemnity Security Holders as more particularly described in the Merger Agreement, and to make any payments to the Company as provided in therein. On August 1, 2016, all
47,895
shares held in escrow for indemnification obligations were released to their respective owners as per the agreement.
The Company commenced paying cash dividends in 2014. In the fourth quarter 2016, the Company increased the quarterly cash dividend to seven cents (
$0.07
)
per share, which was paid on January 3, 2017. Although the Company expects to declare and pay quarterly cash dividends in the future, any such dividend would be at the discretion of the Board of Directors of the Company and would be subject to various federal and state regulatory limit
ations.
On November 22, 2016, the Company declared a five percent (5%) stock dividend on the Company’s outstanding shares of voting and non-voting common stock. The dividend shares were issued on December 28, 2016 to stockholders of record at the close of business on December 13, 2016. The Company paid cash in lieu of fractional shares.
16. SHARE BASED COMPENSATION
The Company maintains the 2010 Equity Compensation Plan (the “2010 Equity Plan”). Pursuant to the terms of the 2010 Equity Plan, all shares of common stock of the Company remaining unissued under the prior plans were canceled, and an identical number of shares of the Company’s common stock were reserved for issuance under the 2010 Equity Plan. The 2010 Equity Plan gives the Personnel/Compensation Committee of the Company the ability to grant Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, and Stock Awards to employees and non-employee directors.
Under ASC 718, the Company recognizes compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides services in exchange for the award. Compensation cost is measured based on the fair value of the equity instrument issued at the date of grant. Option awards are granted with an exercise price equal to the market price at the date of grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The Company expects that all options granted will vest and become exercisable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
For the year ended
December 31, 2016
, the Company recognized
$551.0 thousand
in expense, compared to
$405.0 thousand
and
$215.0 thousand
in expenses for
2015
and
2014
, respectively, related to these awards. The total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan as of
December 31, 2016
was
$1.5 million
, compared to
$1.4 million
and
$0.5 million
for
2015
and
2014
, respectively. The cost is expected to be recognized over a weighted average period of
3.6
years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 16.1: Stock Options
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
(1)
|
|
2014
(1)
|
|
|
Stock Options
|
|
Weighted-Average
Exercise Price
|
|
Stock Options
|
|
Weighted-Average
Exercise Price
|
|
Stock Options
|
|
Weighted-Average
Exercise Price
|
|
Outstanding, beginning of year
|
663,648
|
|
|
$
|
11.56
|
|
|
575,079
|
|
|
$
|
10.44
|
|
|
670,768
|
|
|
$
|
10.19
|
|
|
Options granted or exchanged
|
87,450
|
|
|
20.04
|
|
|
156,643
|
|
|
14.70
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
(91,671
|
)
|
|
11.19
|
|
|
(64,693
|
)
|
|
8.74
|
|
|
(89,189
|
)
|
|
8.59
|
|
|
Canceled or forfeited
|
(23,217
|
)
|
|
14.72
|
|
|
(3,381
|
)
|
|
12.41
|
|
|
(6,500
|
)
|
|
9.75
|
|
|
Outstanding, end of period
|
636,210
|
|
|
$
|
12.71
|
|
|
663,648
|
|
|
$
|
11.56
|
|
|
575,079
|
|
|
$
|
10.44
|
|
|
Exercisable at end of period
|
260,010
|
|
|
$
|
11.68
|
|
|
319,152
|
|
|
$
|
11.30
|
|
|
320,439
|
|
|
$
|
10.81
|
|
|
(1)
Adjusted for 5% stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 16.2: Fair Value Assumptions for Stock Option Awards
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
Weighted-average risk-free interest rate
|
1.46
|
%
|
|
2.20
|
%
|
|
Expected dividend yield
|
1.14
|
%
|
|
1.24
|
%
|
|
Weighted-average expected volatility
|
52.45
|
%
|
|
59.75
|
%
|
|
Weighted-average expected life (in years)
|
7.0 years
|
|
|
10.0 years
|
|
|
Weighted-average fair value of each option granted
|
$
|
9.55
|
|
|
$
|
9.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 16.3: Stock Options Outstanding
|
|
|
As of December 31, 2016
|
|
|
Outstanding
|
|
Exercisable
|
|
Range of Exercise Prices
|
Stock
Options
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Stock
Options
|
|
Weighted-Average
Remaining
Contractual Life
|
|
Weighted-Average
Exercise Price
|
|
$8.00 - $9.99
|
199,939
|
|
|
5.2
|
|
17,618
|
|
|
2.9
|
|
$
|
8.27
|
|
|
$10.00 - $10.99
|
99,098
|
|
|
5.4
|
|
66,482
|
|
|
5.0
|
|
10.10
|
|
|
$11.00 - $11.99
|
97,812
|
|
|
0.9
|
|
97,812
|
|
|
0.9
|
|
11.50
|
|
|
$13.00 - $13.99
|
56,000
|
|
|
0.7
|
|
51,944
|
|
|
0.5
|
|
13.21
|
|
|
$14.00 - $14.99
|
6,340
|
|
|
2.1
|
|
4,230
|
|
|
2.1
|
|
14.89
|
|
|
$15.00 - $15.99
|
78,073
|
|
|
7.5
|
|
19,309
|
|
|
6.5
|
|
15.23
|
|
|
$18.00 - $21.99
|
98,948
|
|
|
9.2
|
|
2,615
|
|
|
8.9
|
|
19.71
|
|
|
|
636,210
|
|
|
5.1
|
|
260,010
|
|
|
2.5
|
|
$
|
11.68
|
|
As of
December 31, 2016
,
2015
, and
2014
, the intrinsic value of stock options outstanding was
$10.2 million
,
$6.5 million
, and
$2.2 million
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 16.4: Non-Vested Restricted Stock
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Non-vested
Restricted Stock
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Non-vested
Restricted Stock
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Non-vested
Restricted Stock
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Outstanding, beginning of year
|
44,496
|
|
|
$
|
8.91
|
|
|
64,479
|
|
|
$
|
9.13
|
|
|
34,599
|
|
|
$
|
9.09
|
|
|
Granted
|
—
|
|
|
—
|
|
|
1,260
|
|
|
19.71
|
|
|
42,173
|
|
|
13.63
|
|
|
Canceled
|
(1,199
|
)
|
|
13.45
|
|
|
(2,978
|
)
|
|
13.49
|
|
|
(3,781
|
)
|
|
8.68
|
|
|
Vested and issued
|
(15,090
|
)
|
|
10.44
|
|
|
(18,265
|
)
|
|
10.04
|
|
|
(8,512
|
)
|
|
9.00
|
|
|
Outstanding, end of period
|
28,207
|
|
|
$
|
7.90
|
|
|
44,496
|
|
|
$
|
8.91
|
|
|
64,479
|
|
|
$
|
9.13
|
|
17. COMMITMENTS AND CONTINGENCIES
Credit Extension Commitments
Various commitments to extend credit are made in the normal course of banking business. Letters of credit are also issued for the benefit of customers. These commitments are subject to loan underwriting standards and geographic boundaries consistent with the Company's loans outstanding. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
As of
December 31, 2016
, the Bank has
$15.7 million
in fixed rate commitments and
$392.2 million
in variable rate commitments.
|
|
|
|
|
|
|
|
|
|
|
|
Table 17: Outstanding Commitments to Extend Credit
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Unused lines of credit as of period ended:
|
|
|
|
|
Loans held for sale
|
$
|
2,746
|
|
|
$
|
3,613
|
|
|
Commercial
|
197,750
|
|
|
109,143
|
|
|
Commercial real estate
|
158,972
|
|
|
145,022
|
|
|
Residential real estate
|
727
|
|
|
772
|
|
|
Home equity
|
45,782
|
|
|
42,036
|
|
|
Personal lines of credit
|
1,940
|
|
|
2,799
|
|
|
Total outstanding commitments to extend credit
|
$
|
407,917
|
|
|
$
|
303,385
|
|
Litigation
In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. In each pending matter, the Company contests liability or the amount of claimed damages. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages, or where investigation or discovery have yet to be completed, the Company is unable to reasonably estimate a range of possible losses on its remaining outstanding legal proceedings; however, in the opinion of management and after consultation with legal counsel, the Company believes that the ultimate disposition of these matters is not expected to have a material adverse effect on the financial condition of the Company.
Investment in Affordable Housing Project
The Bank has committed
$1.0 million
to VCDC, a non-profit organization that seeks to gather capital from investors to build and operate low income housing programs. The Bank’s commitment is split evenly between two funds: the Housing Equity Fund of Virginia XVII, L.L.C (“Fund XVII”) and the Housing Equity Fund of Virginia XVIII, L.L.C. (“Fund XVIII”). The expected return on these two funds is in the form of tax credits and tax deductions from operating losses. The principal risk associated with such an investment results from potential noncompliance with the conditions in the tax law to qualify for the tax benefits, which could result in recapture of the tax benefits. As of
December 31, 2016
, the Bank had disbursed
$491 thousand
and
$111 thousand
to Fund XVII and Fund XVIII, respectively, as a result of investor capital calls. The Bank expects to make additional capital investments of
$10 thousand
by the end of 2017 for Fund XVII and additional capital investments of
$390 thousand
by the end of 2018 for Fund XVIII. The Bank accounts for the capital already disbursed in Other Assets on the balance sheet, and records related income using the effective interest method.
Representations and Warranties for Mortgage Loans Sold
The Mortgage Company maintains a reserve for the potential repurchase of residential mortgage loans, which amounted to
$309 thousand
as of
December 31, 2016
and
$313 thousand
as of
December 31, 2015
. These amounts are included in other liabilities in the accompanying Consolidated Balance Sheets. Changes in the balance of the reserve are a component of other expenses in the accompanying Consolidated Statements of Operations. The reserve is available to absorb losses on the repurchase of loans sold related to document and other fraud, early payment default and early payoff. Through
December 31, 2016
, no reserve charges have occurred related to fraud.
Other Contractual Arrangements
The Bank is party to a contract dated October 7, 2010, with Fiserv, for core data processing and item processing services integral to the operations of the Bank. Under the terms of the agreement, the Bank may cancel the agreement subject to a substantial cancellation penalty based on the current monthly billing and remaining term of the contract. The initial term of services provided shall end
seven years
following the date services are first used. Services were first provided beginning May 16, 2011 and will expire on
May 15, 2018
. The Bank expects to pay Fiserv approximately
$2.0 million
over the remaining life of the contract.
Mortgage Banking Interest Rate Locks
During the normal course of business, the Mortgage Company enters into commitments to originate mortgage loans with end customers whereby the interest rate on the loan is determined prior to funding or closing such a loan in a transaction referred to as an IRLOC. The IRLOC are considered derivatives. The Mortgage Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments. The Mortgage Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer of the loan has assumed the interest rate risk on the loan. The correlation between the IRLOC and the best efforts contracts is very high due to their similarity and timing of entering into an IRLOC with the customer and the best efforts delivery commitment entered into with the buyer of the loan.
The market values of the IRLOC are not readily ascertainable with precision because the IRLOC is not an actively traded instrument in a stand-alone market. The Mortgage Company determines the fair value of the IRLOC by considering the difference between the wholesale and retail mortgage values and the expected premium for service and release fees offset by direct production costs of the underlying loans. In addition, we apply an estimated pull through rate to the valuation which recognizes the likelihood that some loans that have an IRLOC will not ultimately result in a funded mortgage loan.
The Mortgage Company also originates mortgage loans which are sold to investors on mandatory basis. These loans are hedged via forward sales contracts of MBS. The forward sales contracts of the MBS securities provide a natural hedge against changes in interest rates when mortgage loans are locked with customers. Certain additional risks arise from these forward delivery contracts in that the counterparties to the contract may fail to meet their contractual obligations. The Mortgage Company does not expect the counterparties to fail to meet their respective obligations. If the Mortgage Company fails to close loans required under mandatory delivery requirements, the Mortgage Company could incur additional costs to acquire additional loans to meet the commitment and/or MBS securities to comply with its contractual obligations. These costs could adversely impact the financial performance of the Mortgage Company. The forward sales contracts of MBS securities are recorded at fair value with the changes in fair value recorded in non-interest income.
Since the derivative instruments are not designated as hedging instruments, the fair value of the derivatives are recorded by the Mortgage Company as a freestanding asset or liability with the change in value being recognized in current net income during the period of change. As of
December 31, 2016
, and
December 31, 2015
, the Mortgage Company had open forward contracts with a notional value of
$36.5 million
and
$35.0 million
, respectively. The open forward delivery contracts are composed of forward sales of MBS. The fair value of these open forward contracts was an asset of
$17.1 thousand
and a liability of
$27.7 thousand
as of
December 31, 2016
and
December 31, 2015
, respectively. Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Mortgage Company does not expect any counterparty to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that if the Mortgage Company does not close the loans subject to interest rate risk lock commitments, they will be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Mortgage Company could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations in future periods.
IRLCs totaled
$29.6 million
and
$35.4 million
(notional amount) as of
December 31, 2016
, and
December 31, 2015
, respectively. Fair values of these best efforts commitments were
$0.2 million
and
$0.1 million
as of
December 31, 2016
, and
December 31, 2015
, respectively.
Loans Held for Sale Loss Contingencies
The Mortgage Company makes representations and warranties that loans sold to investors meet its program’s guidelines and that the information provided by the borrowers is accurate and complete. In the event of a default on a loan sold, the investor may make a claim for losses due to document deficiencies, program c
ompliance, early payment default, and fraud or borrower misrepresentations. The Mortgage Company maintains a reserve in other liabilities for potential losses on mortgage loans sold. Management performs a quarterly analysis to determine the adequacy of the
reserve. As of
December 31, 2016
, and
December 31, 2015
, the balance in this reserve totaled
$0.3 million
and
$0.3 million
, respectively.
18. RELATED PARTY TRANSACTIONS
The aggregate amount of loans outstanding to employees, officers, directors, and to companies in which the Company’s directors were principal owners, amounted to
$23.5 million
, or
1.5%
of total loans, and
$23.7 million
, or
1.8%
of total loans, as of
December 31, 2016
and
December 31, 2015
, respectively. For the year ended
December 31, 2016
, principal advances to related parties totaled
$5.5 million
and principal repayments and other reductions totaled
$6.0 million
.
Total deposit accounts with related parties totaled
$29.9 million
and
$26.7 million
as of
December 31, 2016
and
December 31, 2015
, respectively.
19. INCOME TAXES
The Company and its subsidiaries are subject to U.S. federal income tax and state income tax in those jurisdictions where they operate. The Bank is not subject to state income tax in its primary place of business (Virginia), rat
her it is subject to Virgina franchise tax. The Company is no longer subject to examination by Federal or State taxing authorities for the years before December 31, 2013. As of
December 31, 2016
and
December 31, 2015
the Company did
no
t have any unrecognized tax benefits. The Company does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other non-interest expense. As of
December 31, 2016
and
December 31, 2015
, the Company does
no
t have any amounts accrued for interest and/or penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 19.1: Components of Income Tax Expense
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
8,707
|
|
|
$
|
6,519
|
|
|
$
|
2,903
|
|
|
State
|
869
|
|
|
488
|
|
|
249
|
|
|
Total current tax expense (benefit)
|
$
|
9,576
|
|
|
$
|
7,007
|
|
|
$
|
3,152
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
$
|
881
|
|
|
$
|
(525
|
)
|
|
$
|
1,142
|
|
|
State
|
(326
|
)
|
|
(13
|
)
|
|
59
|
|
|
Total deferred tax expense (benefit)
|
$
|
555
|
|
|
$
|
(538
|
)
|
|
$
|
1,201
|
|
|
Total income tax expense (benefit)
|
$
|
10,131
|
|
|
$
|
6,469
|
|
|
$
|
4,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 19.2: Components of Income Tax Expense (Benefit)
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Current tax expense (benefit)
|
$
|
9,576
|
|
|
$
|
7,007
|
|
|
$
|
3,152
|
|
|
Deferred tax expense (benefit)
|
555
|
|
|
(538
|
)
|
|
1,201
|
|
|
Tax expense (benefit) recorded in OCI
|
(1,383
|
)
|
|
(351
|
)
|
|
1,061
|
|
|
Total income tax expense/(benefit)
|
$
|
8,748
|
|
|
$
|
6,118
|
|
|
$
|
5,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 19.3: Reconciliation of Income Tax Expense at Statutory Tax Rate to Actual Tax Expense
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Tax expense at statutory rate
|
$
|
9,848
|
|
|
$
|
6,553
|
|
|
$
|
4,684
|
|
|
Increase (decrease) due to:
|
|
|
|
|
|
|
State income tax, net of federal tax benefit
|
353
|
|
|
305
|
|
|
97
|
|
|
Deferred income tax expense rate change
|
35
|
|
|
(211
|
)
|
|
—
|
|
|
Earnings on bank-owned life insurance
|
(126
|
)
|
|
(131
|
)
|
|
(124
|
)
|
|
Tax-exempt interest, net
|
(35
|
)
|
|
(26
|
)
|
|
(35
|
)
|
|
Tax credits
|
(90
|
)
|
|
—
|
|
|
—
|
|
|
Nondeductible expenses
|
89
|
|
|
20
|
|
|
16
|
|
|
Stock option expense
|
135
|
|
|
56
|
|
|
29
|
|
|
Change in valuation allowance
|
(264
|
)
|
|
64
|
|
|
(432
|
)
|
|
Other
|
186
|
|
|
(161
|
)
|
|
118
|
|
|
Income tax expense
|
$
|
10,131
|
|
|
$
|
6,469
|
|
|
$
|
4,353
|
|
|
Statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
34.0
|
%
|
|
Effective tax rate
|
36.0
|
%
|
|
34.5
|
%
|
|
31.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 19.4: Components of Deferred Tax Assets and Liabilities
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carry forwards
|
$
|
2,120
|
|
|
$
|
2,987
|
|
|
Tax credit carry forwards
|
251
|
|
|
251
|
|
|
Unrealized losses on available-for-sale securities
|
1,492
|
|
|
110
|
|
|
Bad debts
|
5,018
|
|
|
4,507
|
|
|
Other real estate owned
|
59
|
|
|
—
|
|
|
Acquisition fair value adjustments
|
—
|
|
|
435
|
|
|
Nonaccrual loan interest
|
321
|
|
|
651
|
|
|
Compensation related
|
1,614
|
|
|
971
|
|
|
Deferred rent
|
940
|
|
|
574
|
|
|
Other
|
209
|
|
|
80
|
|
|
Valuation allowance
|
—
|
|
|
(264
|
)
|
|
Total deferred tax assets
|
12,024
|
|
|
10,302
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Deferred loan costs
|
(1,795
|
)
|
|
(1,446
|
)
|
|
Acquisition fair value adjustments
|
(517
|
)
|
|
—
|
|
|
Depreciation
|
(653
|
)
|
|
(671
|
)
|
|
Intangibles amortization
|
(115
|
)
|
|
(69
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
Total deferred tax liabilities
|
(3,080
|
)
|
|
(2,186
|
)
|
|
Net deferred tax assets
|
$
|
8,944
|
|
|
$
|
8,116
|
|
The net operating loss carry forward acquired in conjunction with the First Liberty Bancorp acquisition in 2006 is subject to annual limits under Section 382 of the Internal Revenue Code of
$0.3 million
and expires in
2025
. In conjunction with the acquisition of Alliance in 2012, the net operating loss carry forward is subject to annual limits under Section 382 of the Internal Revenue Code of
$0.8 million
and begins to expire in
2029
.
In accordance with ASC Topic 740, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain, although no such reserves exist at
December 31, 2016
.
20. REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements of federal banking agencies. Failure to meet minimum capital requirements can result in mandatory—and possibly additional discretionary—actions by regulators that could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital requirements that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Common Equity Tier 1 and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, in each case as those terms are defined in the regulations. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios, as set forth in the table below. Additionally, under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016.
We have included the 0.625% increase for 2016 in our minimum capital adequacy ratios in the table below. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019.
As of
December 31, 2016
, management believes the Company and Bank satisfied all capital adequacy requirements to which it was subject to and that the Company and Bank were “well capitalized” under the regulatory framework for prompt corrective action. As of
December 31, 2016
, the Company and Bank would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if all such requirements were currently in effect. The capital buffer provisions as of
December 31, 2016
, are presented in the table below as well.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 20: Capital Amounts, Ratios and Regulatory Requirements Summary
|
|
|
Actual
|
|
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
|
|
For Minimum Capital Adequacy Purposes
|
|
For Minimum Capital Adequacy Purposes with Capital Buffer
(1)
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
($ in thousands)
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
228,383
|
|
|
13.99
|
%
|
|
n/a
|
|
|
n/a
|
|
$
|
130,612
|
|
|
>8.0%
|
|
$
|
140,816
|
|
|
>8.625%
|
|
Bank
|
214,512
|
|
|
13.15
|
%
|
|
$
|
163,182
|
|
|
>10.0%
|
|
130,545
|
|
|
>8.0%
|
|
140,744
|
|
|
>8.625%
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
189,492
|
|
|
11.61
|
%
|
|
n/a
|
|
|
n/a
|
|
97,959
|
|
|
>6.0%
|
|
108,163
|
|
|
>6.625%
|
|
Bank
|
200,621
|
|
|
12.29
|
%
|
|
130,545
|
|
|
>8.0%
|
|
97,909
|
|
|
>6.0%
|
|
108,108
|
|
|
>6.625%
|
|
Common Equity Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
182,021
|
|
|
11.15
|
%
|
|
n/a
|
|
|
n/a
|
|
73,469
|
|
|
>4.5%
|
|
83,673
|
|
|
>5.125%
|
|
Bank
|
200,621
|
|
|
12.29
|
%
|
|
106,068
|
|
|
>6.5%
|
|
73,432
|
|
|
>4.5%
|
|
83,631
|
|
|
>5.125%
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
189,492
|
|
|
10.14
|
%
|
|
n/a
|
|
|
n/a
|
|
74,718
|
|
|
>4.0%
|
|
n/a
|
|
|
n/a
|
|
Bank
|
200,621
|
|
|
10.74
|
%
|
|
93,373
|
|
|
>5.0%
|
|
74,699
|
|
|
>4.0%
|
|
n/a
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
$
|
209,962
|
|
|
14.86
|
%
|
|
n/a
|
|
|
n/a
|
|
$
|
113,022
|
|
|
>8.0%
|
|
n/a
|
|
|
n/a
|
|
Bank
|
193,214
|
|
|
13.70
|
%
|
|
$
|
141,050
|
|
|
>10.0%
|
|
112,840
|
|
|
>8.0%
|
|
n/a
|
|
|
n/a
|
|
Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
172,673
|
|
|
12.22
|
%
|
|
n/a
|
|
|
n/a
|
|
84,766
|
|
|
>6.0%
|
|
n/a
|
|
|
n/a
|
|
Bank
|
180,925
|
|
|
12.83
|
%
|
|
112,840
|
|
|
>8.0%
|
|
84,630
|
|
|
>6.0%
|
|
n/a
|
|
|
n/a
|
|
Common Equity Tier 1 risk-based capital ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
164,789
|
|
|
11.66
|
%
|
|
n/a
|
|
|
n/a
|
|
63,575
|
|
|
>4.5%
|
|
n/a
|
|
|
n/a
|
|
Bank
|
180,925
|
|
|
12.83
|
%
|
|
91,683
|
|
|
>6.5%
|
|
63,473
|
|
|
>4.5%
|
|
n/a
|
|
|
n/a
|
|
Tier 1 leverage ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
172,673
|
|
|
10.67
|
%
|
|
n/a
|
|
|
n/a
|
|
64,730
|
|
|
>4.0%
|
|
n/a
|
|
|
n/a
|
|
Bank
|
180,925
|
|
|
11.19
|
%
|
|
80,808
|
|
|
>5.0%
|
|
64,646
|
|
|
>4.0%
|
|
n/a
|
|
|
n/a
|
|
(1)
Capital Buffer is not applicable to Tier 1 leverage ratio or any periods prior to January 1, 2016
|
21. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of voting and non-voting restricted common shares outstanding during the period. Diluted earnings per common share is computed by dividing applicable net income by the weighted average number of common shares outstanding plus any dilutive potential common shares and dilutive stock options. It is assumed that all dilutive stock options were exercised at the beginning of each period and that the proceeds were used to purchase shares of the Company’s common stock at the average market price during the period.
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock. Potential dilutive common stock has no effect on income available to common shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 21: Basic and Dilutive Earnings Per Share
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands, except for per share amounts)
|
|
Net income
|
$
|
18,007
|
|
|
$
|
12,255
|
|
|
$
|
9,424
|
|
|
Less: SBLF dividends
|
—
|
|
|
(74
|
)
|
|
(161
|
)
|
|
Net income available to common shareholders
|
$
|
18,007
|
|
|
$
|
12,181
|
|
|
$
|
9,263
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
(2)
|
12,854,011
|
|
|
10,593,573
|
|
|
8,508,958
|
|
|
Effect of dilutive shares
(1)
(2)
|
254,236
|
|
|
187,861
|
|
|
198,320
|
|
|
Diluted weighted average number of shares outstanding
(2)
|
13,108,247
|
|
|
10,781,434
|
|
|
8,707,278
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
(2)
|
$
|
1.40
|
|
|
$
|
1.15
|
|
|
$
|
1.09
|
|
|
Diluted earnings per share
(2)
|
$
|
1.37
|
|
|
$
|
1.13
|
|
|
$
|
1.06
|
|
|
(1)
All restricted stock, stock options and warrants were dilutive for the periods presented
|
|
(2)
Prior periods adjusted for stock dividend
|
22. EMPLOYEE BENEFITS
The Company has a 401(k) Plan designed to qualify under section 401 of the IRS Code of 1986 that allows employees to defer a
portion of their salary compensation as savings for retirement. All full-time employees are eligible to participate after three months of
employment. The Company reserves the right to make an annual discretionary contribution to the account of each eligible employee
based in part on the Company’s profitability for a given year, and on each participant’s yearly earnings up to IRS limitations.
Participants are vested in the Company’s discretionary matching contributions evenly over a
3
year period and are fully vested in
future Company matching contributions after three years of employment. The company incurred expenses of
$0.8 million
,
$0.7 million
and
$0.5 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively, under the 401(k). The Company also provides a benefit package which includes health, dental and optical insurance, 401K plan, life and long term disability insurance. Additionally, WashingtonFirst maintains a stock-based compensation plan for employees of WashingtonFirst.
In August 2013, the Compensation Committee of the Company approved the terms of a SERP for certain of the Bank’s executive
officers. The intent of the SERP is to provide retirement benefits to selected executives upon retirement or other qualifying separation
from service. In 2014 the Bank entered into separate agreements under the SERP (the “SERP Agreements”) with six of its executive
officers. Generally, the SERP Agreements provide retirement benefits computed as a percentage of the executive’s annual
compensation at a defined retirement age or earlier separation from service, and payable in monthly installments over a specified
period of time. The SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits
and comply with Section 409A of the IRS Code. For the year ended
December 31, 2016
,
2015
and
2014
, the Company recorded
benefit expense of
$0.4 million
,
$0.3 million
and
$0.2 million
respectively for this post retirement benefit.
23. OTHER OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 23: Consolidated Statement of Operations - Other Operating Expenses Detail
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Other real estate owned expenses
|
$
|
319
|
|
|
$
|
21
|
|
|
$
|
391
|
|
|
Business and franchise tax
|
1,358
|
|
|
1,005
|
|
|
824
|
|
|
Advertising and promotional expenses
|
1,070
|
|
|
801
|
|
|
665
|
|
|
FDIC premiums
|
1,002
|
|
|
862
|
|
|
866
|
|
|
Postage, printing and supplies
|
216
|
|
|
179
|
|
|
213
|
|
|
Directors' fees
|
415
|
|
|
362
|
|
|
289
|
|
|
Insurance
|
224
|
|
|
217
|
|
|
114
|
|
|
Amortization of intangibles
|
269
|
|
|
213
|
|
|
158
|
|
|
Other
|
1,327
|
|
|
892
|
|
|
994
|
|
|
Other expenses
|
$
|
6,200
|
|
|
$
|
4,552
|
|
|
$
|
4,514
|
|
24. FAIR VALUE DISCLOSURES
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on-and off-balance sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments.
Fair value is defined in FASB ASC 820-10 as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Transfers between levels of the fair value hierarchy are recognized on the actual dates of the event or circumstances that caused the transfer, which generally coincides with the Corporation’s monthly and or quarterly valuation process. The standard describes three levels of inputs that may be used to measure fair values:
|
|
|
|
|
|
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
|
|
|
Level 2
|
|
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
|
|
|
|
|
|
Level 3
|
|
Prices or valuations that require unobservable inputs that are significant to the fair value measurement.
|
The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of such instruments pursuant to the valuation hierarchy described above. Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as non-recurring fair value measurements.
Recurring Fair Value Measurements and Classification
Investment Securities Available for Sale
The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets. The Company classifies these fair value measurements as Level 1.
For a significant portion of the Company’s investment portfolio, including most asset-backed securities, corporate debt securities, senior agency debt securities, and Government/GSE guaranteed mortgage-backed securities, fair value is determined using a reputable and nationally recognized third party pricing service. The prices obtained are non-binding and generally representative of recent
market trades. The Company corroborates its primary valuation source by obtaining a secondary price from another independent third party pricing service. The Company classifies these fair value measurements as Level 2.
For certain investment securities that are thinly traded or not quoted, the Company estimates fair value using internally-developed models that employ a discounted cash flow approach. The Company maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. The Company generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is a limited availability of public market information. The Company classifies these fair value measurements as Level 3.
Net transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no transfers within the fair value hierarchy for fair value measurements of the Company's investment securities during the year end
ed
December 31, 2016
or
2015
.
Financial Derivatives
The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups.
Nonrecurring Fair Value Measurements and Classification
Loans Held for Investment
Certain loans in the Company's loan portfolio are measured at fair value when they are determined to be impaired. Impaired loans are reported at fair value less estimated cost to sell. The fair value of the loan generally is based on the fair value of the underlying property, which is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties. The Company classifies these fair values as Level 3 measurements.
Other Real Estate Owned
The Company initially records OREO properties at fair value less estimated costs to sell and subsequently records them at the lower of carrying value or fair value less estimated costs to sell. The fair value of OREO is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties.
Fair Value Classification and Transfers
Fair values estimated by management in the absence of readily determinable fair values are classified as Level 3. As of
December 31, 2016
, the Company's Level 3 assets and liabilities recorded were
$10.1 million
or approximately
0.5%
of total assets and
3.5%
of financial instruments measured at fair value. As of
December 31, 2015
, level 3 assets and liabilities were at
$16.6 million
or approximately
1.0%
of total assets and
7.0%
of financial instruments measured at fair value.
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of
December 31, 2016
and
December 31, 2015
, respectively, and indicate the fair value hierarchy of the valuation techniques used by the Company to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 24.1: Summary of Assets and Liabilities Measured at Fair Value
|
|
|
As of December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
8,078
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,078
|
|
|
U.S. Government agencies
|
—
|
|
|
98,476
|
|
|
—
|
|
|
98,476
|
|
|
Mortgage-backed securities
|
—
|
|
|
68,951
|
|
|
—
|
|
|
68,951
|
|
|
Collateralized mortgage obligations
|
—
|
|
|
78,818
|
|
|
—
|
|
|
78,818
|
|
|
Taxable state and municipal securities
|
—
|
|
|
11,292
|
|
|
—
|
|
|
11,292
|
|
|
Tax-exempt state and municipal securities
|
—
|
|
|
14,589
|
|
|
—
|
|
|
14,589
|
|
|
Financial derivatives
|
—
|
|
|
—
|
|
|
318
|
|
|
318
|
|
|
Total recurring assets at fair value
|
$
|
8,078
|
|
|
$
|
272,126
|
|
|
$
|
318
|
|
|
$
|
280,522
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Financial derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
Total recurring liabilities at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Loans held for investment
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,256
|
|
|
$
|
8,256
|
|
|
Other real estate owned
|
—
|
|
|
—
|
|
|
1,428
|
|
|
1,428
|
|
|
Total nonrecurring assets at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,684
|
|
|
$
|
9,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
($ in thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
9,618
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,618
|
|
|
U.S. Government agencies
|
—
|
|
|
96,016
|
|
|
—
|
|
|
96,016
|
|
|
Mortgage-backed securities
|
—
|
|
|
58,876
|
|
|
—
|
|
|
58,876
|
|
|
Collateralized mortgage obligations
|
—
|
|
|
40,398
|
|
|
—
|
|
|
40,398
|
|
|
Taxable state and municipal securities
|
—
|
|
|
10,853
|
|
|
—
|
|
|
10,853
|
|
|
Tax-exempt state and municipal securities
|
—
|
|
|
4,352
|
|
|
—
|
|
|
4,352
|
|
|
Financial derivatives
|
—
|
|
|
—
|
|
|
93
|
|
|
93
|
|
|
Total recurring assets at fair value
|
$
|
9,618
|
|
|
$
|
210,495
|
|
|
$
|
93
|
|
|
$
|
220,206
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Financial derivatives
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
|
Total recurring liabilities at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
27
|
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Loans held for investment
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,521
|
|
|
$
|
16,521
|
|
|
Other real estate owned
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total nonrecurring assets at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,521
|
|
|
$
|
16,521
|
|
|
(1)
Represents the impaired loans, net of allowance, that have been individually evaluated and reserved for.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 24.2: Fair Value Inputs, Assets, Quantitative Information
|
|
|
As of December 31, 2016
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
|
($ in thousands)
|
|
Loans held for investment
(1)
|
$
|
8,256
|
|
|
Appraisal
|
|
Appraisal Adjustments
|
|
0%-43% (6%)
|
|
|
|
|
|
|
Cost to Sell
|
|
0%-10% (6%)
|
|
|
|
|
|
|
Time to Liquidate (Mo.)
|
|
0-12 mo (9 mo.)
|
|
|
|
|
|
|
Probability of Default
|
|
5%-100% (51%)
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
1,428
|
|
|
Appraisal
|
|
Appraisal Adjustment
|
|
0%-10% (10%)
|
|
|
|
|
|
|
Cost to Sell
|
|
0-5% (5%)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range
(Weighted Average)
|
|
|
($ in thousands)
|
|
Loans held for investment
(1)
|
$
|
16,521
|
|
|
Appraisal
|
|
Appraisal Adjustments
|
|
0%-43% (12%)
|
|
|
|
|
|
|
Cost to Sell
|
|
0%-10% (7%)
|
|
|
|
|
|
|
Probability of Default
|
|
1%-100% (51%)
|
|
|
|
|
|
|
Time to Liquidate (Mo.)
|
|
0-12 mo (9 mo.)
|
|
(1)
Represents the impaired loans, net of allowance, that have been individually evaluated and reserved for.
|
The recurring Level 3 assets and liabilities are related to the fair value of the interest rate locks recorded by the Mortgage Company (acquired in July 2015). These derivatives represent the fair value of the interest rate locks and forward sales contracts of mortgage backed securities. The fair value utilizes market pricing for the valuation with the unobservable inputs being the estimated pull-through p
ercentages which ranges from
70%
to
90%
. For more information on these derivatives, see Part II, Note 15 - Commitments and Contingencies. There were no significant transfers in or out of level 3 as of
December 31, 2016
, and
December 31, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 24.3: Estimated Fair Values and Carrying Values for Financial Assets, Liabilities and Commitments
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
|
($ in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
97,373
|
|
|
$
|
97,373
|
|
|
$
|
62,753
|
|
|
$
|
62,753
|
|
|
Investment securities
|
280,204
|
|
|
280,204
|
|
|
220,113
|
|
|
220,113
|
|
|
Restricted Stock
|
11,726
|
|
|
11,726
|
|
|
6,128
|
|
|
6,128
|
|
|
Loans held for sale
|
32,109
|
|
|
32,985
|
|
|
36,494
|
|
|
37,389
|
|
|
Loans held for investment, net
|
1,520,961
|
|
|
1,546,652
|
|
|
1,295,794
|
|
|
1,334,205
|
|
|
Bank-owned life insurance
|
13,880
|
|
|
13,880
|
|
|
13,521
|
|
|
13,521
|
|
|
Derivatives
|
318
|
|
|
318
|
|
|
93
|
|
|
93
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Time deposits
|
525,161
|
|
|
525,149
|
|
|
440,129
|
|
|
440,584
|
|
|
Other borrowings
|
5,852
|
|
|
5,852
|
|
|
6,942
|
|
|
6,942
|
|
|
FHLB advances
|
232,097
|
|
|
232,264
|
|
|
110,087
|
|
|
112,994
|
|
|
Long-term borrowings
|
32,638
|
|
|
44,188
|
|
|
32,884
|
|
|
44,309
|
|
|
Derivatives
|
105
|
|
|
105
|
|
|
27
|
|
|
27
|
|
|
Off-balance sheet instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The following methods and assumptions not previously presented were used in estimating the fair value of financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis:
Cash and cash equivalents.
The carrying amount of cash and cash equivalents approximates fair value.
Restricted Stock.
It is not practical to determine the fair value of restricted stock due to the restrictions placed on transferability therefore the carrying amount is assumed to be the fair value.
Loans Held for Sale.
Loans held for sale are carried at the lower of cost or fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of these loans are recorded as a component of non-interest income in the consolidated statements of operations. As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation.
Loans Held for Investment, net (including impaired loans).
For certain homogeneous categories of loans, such as some residential mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics resulting in a Level 3 classification. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities resulting in a Level 3 classification.
Accounting pronouncements require disclosure of the estimated fair value of financial instruments. Fair value is defined in accordance with ASC 820-10 as disclosed above. Given market conditions, a portion of our loan portfolio is not readily marketable and market prices do not exist. We have not attempted to market our loans to potential buyers, if any exist, to determine the fair value of those instruments in accordance with the definition of ASC 820-10. Since negotiated prices in illiquid markets depends upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Accordingly, the fair value measurements for loans included in the table above are unlikely to represent the instruments’ liquidation values.
Bank-owned life insurance.
The fair value of bank-owned life insurance is based on the cash surrender value provide by the insurance provider, resulting in a Level 3 classification.
Deposits.
The fair value of deposits with no stated maturity, such as demand, interest checking and money market, and savings accounts, is equal to the amount payable on demand at year-end, resulting in a Level 1 classification. The fair value of time deposits is based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities thereby resulting in a Level 2 classification.
Other borrowings.
The carrying value of other borrowing, which consists of customer repurchase agreements, approximates the fair value as of the reporting date, therefore resulting in a Level 2 classification.
FHLB advances.
The fair value of FHLB advances is based on the discounted value of future cash flows using interest rates currently being offered for FHLB advances with similar terms and characteristics thereby resulting in a Level 2 classification.
Long-term borrowings.
The fair value of long-term borrowing, which consists of subordinated debt and trust preferred securities are based on the discounted value of future cash flows using interest rates currently being offered for FHLB advances with similar terms and characteristics thereby resulting in a Level 2 classification.
Off-balance sheet instruments.
The fair value of off-balance-sheet lending commitments is equal to the amount of commitments outstanding. This is based on the fact that the Company generally does not offer lending commitments or standby letters of credit to its customers for long periods, and therefore, the underlying rates of the commitments approximate market rates, resulting in a Level 2 classification.
25. FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
|
|
|
|
|
|
|
|
|
|
|
|
Table 25.1: WashingtonFirst Bankshares, Inc. (PARENT ONLY) - Condensed Balance Sheets
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
($ in thousands)
|
|
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,408
|
|
|
$
|
16,398
|
|
|
Investment in bank subsidiary
|
212,553
|
|
|
195,405
|
|
|
Other assets
|
2,119
|
|
|
1,767
|
|
|
Total Assets
|
$
|
228,080
|
|
|
$
|
213,570
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accrued interest payable
|
$
|
344
|
|
|
$
|
384
|
|
|
Long-term borrowings
|
32,638
|
|
|
32,884
|
|
|
Deferred tax liability, net
|
724
|
|
|
909
|
|
|
Other liabilities
|
1,714
|
|
|
798
|
|
|
Total Liabilities
|
35,420
|
|
|
34,975
|
|
|
Shareholders' Equity:
|
|
|
|
|
Total Shareholders’ Equity
|
192,660
|
|
|
178,595
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
228,080
|
|
|
$
|
213,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 25.2: WashingtonFirst Bankshares, Inc. (PARENT ONLY) - Condensed Statement of Operations and Comprehensive Income
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Interest income:
|
|
|
|
|
|
|
Dividends from subsidiary
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other interest income
|
41
|
|
|
70
|
|
|
59
|
|
|
Total interest income
|
41
|
|
|
70
|
|
|
59
|
|
|
Interest expense
|
2,131
|
|
|
867
|
|
|
480
|
|
|
Net interest income
|
(2,090
|
)
|
|
(797
|
)
|
|
(421
|
)
|
|
Non-interest income:
|
|
|
|
|
|
|
Other income
|
66
|
|
|
—
|
|
|
—
|
|
|
Total non-interest income
|
66
|
|
|
—
|
|
|
—
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
Merger expenses
|
—
|
|
|
4
|
|
|
—
|
|
|
Other operating expenses
|
1,638
|
|
|
2,532
|
|
|
2,254
|
|
|
Total other expenses
|
1,638
|
|
|
2,536
|
|
|
2,254
|
|
|
(Loss)/income before provision income taxes
|
(3,662
|
)
|
|
(3,333
|
)
|
|
(2,675
|
)
|
|
Income tax benefit
|
1,343
|
|
|
1,192
|
|
|
957
|
|
|
Net (loss)/income before undistributed income of subsidiaries
|
(2,319
|
)
|
|
(2,141
|
)
|
|
(1,718
|
)
|
|
Equity in earnings of subsidiaries
|
20,326
|
|
|
14,396
|
|
|
11,142
|
|
|
Net income
|
18,007
|
|
|
12,255
|
|
|
9,424
|
|
|
Accumulated other comprehensive income in subsidiary
|
(2,452
|
)
|
|
(561
|
)
|
|
1,943
|
|
|
Comprehensive Income
|
$
|
15,555
|
|
|
$
|
11,694
|
|
|
$
|
11,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 25.3: WashingtonFirst Bankshares, Inc. (PARENT ONLY) - Condensed Statements of Cash Flows
|
|
|
For the Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
($ in thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
18,007
|
|
|
$
|
12,255
|
|
|
$
|
9,424
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
Undistributed income of subsidiaries
|
(20,326
|
)
|
|
(14,396
|
)
|
|
(11,142
|
)
|
|
Amortization
|
139
|
|
|
138
|
|
|
139
|
|
|
Bank to parent dividend
|
1,470
|
|
|
275
|
|
|
—
|
|
|
Net change in:
|
|
|
|
|
|
|
Other assets
|
84
|
|
|
4,825
|
|
|
(2,970
|
)
|
|
Other liabilities
|
(259
|
)
|
|
(1,089
|
)
|
|
744
|
|
|
Net cash (used in) / provided by operating activities
|
(885
|
)
|
|
2,008
|
|
|
(3,805
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Investment in subsidiaries
|
—
|
|
|
(50,500
|
)
|
|
1,128
|
|
|
Net cash (used in) / provided by investing activities
|
—
|
|
|
(50,500
|
)
|
|
1,128
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from stock issuance - private placement
|
—
|
|
|
—
|
|
|
20,490
|
|
|
Proceeds from issuance of common stock, net
|
—
|
|
|
31,153
|
|
|
—
|
|
|
Proceeds from exercise of stock options
|
837
|
|
|
566
|
|
|
766
|
|
|
Net increase / (decrease) in long-term borrowings
|
—
|
|
|
25,000
|
|
|
—
|
|
|
Repurchase of Preferred Stock
|
—
|
|
|
(13,347
|
)
|
|
(4,449
|
)
|
|
Cash dividends paid
|
(2,934
|
)
|
|
(1,894
|
)
|
|
(1,259
|
)
|
|
Dividends paid - cash portion for fractional shares on 5% dividend
|
(8
|
)
|
|
—
|
|
|
(5
|
)
|
|
Preferred stock dividends paid
|
—
|
|
|
(74
|
)
|
|
(161
|
)
|
|
Net cash provided by financing activities
|
(2,105
|
)
|
|
41,404
|
|
|
15,382
|
|
|
Net increase / (decrease) in cash and cash equivalents
|
(2,990
|
)
|
|
(7,088
|
)
|
|
12,705
|
|
|
Cash and cash equivalents at beginning of period
|
16,398
|
|
|
23,486
|
|
|
10,781
|
|
|
Cash and cash equivalents at end of period
|
$
|
13,408
|
|
|
$
|
16,398
|
|
|
$
|
23,486
|
|
26. QUARTERLY FINANCIAL INFORMATION (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 26.1: Quarterly Income Statements - 2016
|
|
|
2016 Quarter Ended
|
|
|
Dec. 31
|
|
Sept. 30
|
|
Jun. 30
|
|
Mar. 31
|
|
|
($ in thousands, except per share amounts)
|
|
Interest income
|
$
|
19,185
|
|
|
$
|
18,936
|
|
|
$
|
18,182
|
|
|
$
|
17,544
|
|
|
Interest expense
|
3,206
|
|
|
3,093
|
|
|
3,181
|
|
|
2,991
|
|
|
Net interest income
|
15,979
|
|
|
15,843
|
|
|
15,001
|
|
|
14,553
|
|
|
Provision for loan losses
|
1,240
|
|
|
1,035
|
|
|
980
|
|
|
625
|
|
|
Net interest income after provision for loan losses
|
14,739
|
|
|
14,808
|
|
|
14,021
|
|
|
13,928
|
|
|
Non-interest (loss)/income
|
5,568
|
|
|
8,666
|
|
|
8,490
|
|
|
4,781
|
|
|
Non-interest expense
|
13,216
|
|
|
15,611
|
|
|
15,535
|
|
|
12,501
|
|
|
Income before income taxes
|
7,091
|
|
|
7,863
|
|
|
6,976
|
|
|
6,208
|
|
|
Provision for income taxes
|
2,347
|
|
|
2,922
|
|
|
2,578
|
|
|
2,284
|
|
|
Net income
|
$
|
4,744
|
|
|
$
|
4,941
|
|
|
$
|
4,398
|
|
|
$
|
3,924
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.37
|
|
|
$
|
0.38
|
|
|
$
|
0.34
|
|
|
$
|
0.31
|
|
|
Fully diluted earnings per common share
|
$
|
0.36
|
|
|
$
|
0.37
|
|
|
$
|
0.34
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 26.2: Quarterly Income Statements - 2015
|
|
|
2015 Quarter Ended
|
|
|
Dec. 31
|
|
Sept. 30
|
|
Jun. 30
|
|
Mar. 31
|
|
|
($ in thousands, except per share amounts)
|
|
Interest income
|
$
|
17,159
|
|
|
$
|
16,462
|
|
|
$
|
15,252
|
|
|
$
|
14,310
|
|
|
Interest expense
|
2,827
|
|
|
2,300
|
|
|
2,080
|
|
|
2,004
|
|
|
Net interest income
|
14,332
|
|
|
14,162
|
|
|
13,172
|
|
|
12,306
|
|
|
Provision for loan losses
|
1,075
|
|
|
925
|
|
|
850
|
|
|
700
|
|
|
Net interest income after provision for loan losses
|
13,257
|
|
|
13,237
|
|
|
12,322
|
|
|
11,606
|
|
|
Non-interest (loss)/income
|
3,806
|
|
|
2,922
|
|
|
606
|
|
|
557
|
|
|
Non-interest expense
|
11,914
|
|
|
11,229
|
|
|
8,601
|
|
|
7,845
|
|
|
Income before income taxes
|
5,149
|
|
|
4,930
|
|
|
4,327
|
|
|
4,318
|
|
|
Provision for income taxes
|
1,607
|
|
|
1,774
|
|
|
1,560
|
|
|
1,528
|
|
|
Net income
|
$
|
3,542
|
|
|
$
|
3,156
|
|
|
$
|
2,767
|
|
|
$
|
2,790
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.31
|
|
|
$
|
0.29
|
|
|
$
|
0.28
|
|
|
$
|
0.27
|
|
|
Fully diluted earnings per common share
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
27. SEGMENT REPORTING
Beginning in 2015, the Company has
three
reportable segments: traditional commercial banking, a mortgage banking business, and a wealth management business. The basis of segmentation is driven by the respective lines of business within the Company. Revenues from commercial banking operations consist primarily of interest earned on loans and investment securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary market, and loan origination fee income. Wealth management operating revenues consist of fees for portfolio asset management and transactional fees charged to clients. The commercial banking segment provides the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on a premium over their cost to borrow funds. These transactions are eliminated in the consolidation process. The following table presents segment information for the year ended
December 31, 2016
. The Company did not have mortgage banking and wealth management segments prior to the acquisition of 1
st
Portfolio Holding Corporation in July 2015 - see Note 3
Acquisition Activities for more information. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process. A management fee for operations and administrative support services is charged to amongst subsidiaries and eliminated in the consolidated totals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 27.1: Segment Reporting - 2016 (YTD)
|
|
|
For the Year Ended December 31, 2016
|
|
|
Commercial Bank
|
|
Mortgage Bank
|
|
Wealth Management
|
|
Other
(1)
|
|
Consolidated Totals
|
|
|
($ in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
73,340
|
|
|
$
|
1,790
|
|
|
$
|
—
|
|
|
$
|
(1,283
|
)
|
|
$
|
73,847
|
|
|
Gain on sale of loans
|
—
|
|
|
18,329
|
|
|
—
|
|
|
—
|
|
|
18,329
|
|
|
Other revenue
|
3,008
|
|
|
4,265
|
|
|
1,837
|
|
|
66
|
|
|
9,176
|
|
|
Total revenue
|
$
|
76,348
|
|
|
$
|
24,384
|
|
|
$
|
1,837
|
|
|
$
|
(1,217
|
)
|
|
$
|
101,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
10,378
|
|
|
$
|
1,283
|
|
|
$
|
3
|
|
|
$
|
807
|
|
|
$
|
12,471
|
|
|
Salaries and employee benefits
|
18,376
|
|
|
14,961
|
|
|
974
|
|
|
872
|
|
|
35,183
|
|
|
Other expenses
|
21,084
|
|
|
3,306
|
|
|
431
|
|
|
739
|
|
|
25,560
|
|
|
Total expenses
|
$
|
49,838
|
|
|
$
|
19,550
|
|
|
$
|
1,408
|
|
|
$
|
2,418
|
|
|
$
|
73,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before provision for income taxes
|
$
|
26,510
|
|
|
$
|
4,834
|
|
|
$
|
429
|
|
|
$
|
(3,635
|
)
|
|
$
|
28,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,952,964
|
|
|
$
|
46,185
|
|
|
$
|
3,868
|
|
|
$
|
(106
|
)
|
|
$
|
2,002,911
|
|
|
(1)
Includes parent company and intercompany eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 27.2: Segment Reporting - 2015 (YTD)
|
|
|
For the Year Ended December 31, 2015
|
|
|
Commercial Bank
|
|
Mortgage Bank
|
|
Wealth Management
|
|
Other
(1)
|
|
Consolidated Totals
|
|
|
($ in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
62,960
|
|
|
$
|
401
|
|
|
$
|
—
|
|
|
$
|
(178
|
)
|
|
$
|
63,183
|
|
|
Gain on sale of loans
|
174
|
|
|
4,471
|
|
|
—
|
|
|
—
|
|
|
4,645
|
|
|
Other revenue
|
4,379
|
|
|
760
|
|
|
695
|
|
|
(2,588
|
)
|
|
3,246
|
|
|
Total revenue
|
$
|
67,513
|
|
|
$
|
5,632
|
|
|
$
|
695
|
|
|
$
|
(2,766
|
)
|
|
$
|
71,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
8,373
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
619
|
|
|
$
|
9,211
|
|
|
Salaries and employee benefits
|
19,117
|
|
|
3,671
|
|
|
334
|
|
|
—
|
|
|
23,122
|
|
|
Other expenses
|
18,498
|
|
|
818
|
|
|
181
|
|
|
520
|
|
|
20,017
|
|
|
Total expenses
|
$
|
45,988
|
|
|
$
|
4,708
|
|
|
$
|
515
|
|
|
$
|
1,139
|
|
|
$
|
52,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before provision for income taxes
|
$
|
21,525
|
|
|
$
|
924
|
|
|
$
|
180
|
|
|
$
|
(3,905
|
)
|
|
$
|
18,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,673,612
|
|
|
$
|
47,801
|
|
|
$
|
3,010
|
|
|
$
|
(49,957
|
)
|
|
$
|
1,674,466
|
|
|
(1)
Includes parent company and intercompany eliminations
|
During the year ended
December 31, 2016
, the mortgage subsidiary originated
$772.1 million
of total loan volume compared to
$213.4 million
for the year ended
December 31, 2015
. Wealth Advisors’ assets under management grew to
$297.4 million
as of
December 31, 2016
, from
$226.7 million
as of
December 31, 2015
.
28. SUBSEQUENT EVENTS
On December 19, 2016, the Bank’s application to become a member of the Federal Reserve Bank of Richmond was approved. As a member bank of the Federal Reserve, the Bank is required to subscribe to Federal Reserve Stock in the amount equivalent to six percent of its capital and surplus. In conjunction with this requirement, the Company purchased
93,310
shares of Federal Reserve Stock at a cost of
$4.7 million
on January 6, 2017. As a result of becoming a member of the Federal Reserve, the Company’s primary federal regulator is now the Federal Reserve.
On February 22, 2017, the Company, entered into an Exchange Agreement with Castle Creek Capital Partners IV, LP (“Castle Creek”) providing for the exchange of
591,898
shares of the Company’s Non-Voting Common Stock, Series A, par value
$.01
per share (“Non-Voting Common Stock”), for
591,898
shares of the Company’s voting common stock, par value
$.01
per share (“Voting Common Stock”). The Company also entered into an Exchange Agreement with Endicott Opportunity Partners III, L.P. (“Endicott”) providing for the exchange of
500,000
shares of the Company’s Non-Voting Common Stock for
500,000
shares of the Company’s Voting Common Stock. The Non-Voting Common Stock was originally issued to Castle Creek and Endicott (referred to herein together as the “Investors”) in a private placement transaction that was completed on December 21, 2012, and was issued to enable the equity ownership of Castle Creek and Endicott to comply with applicable banking laws and regulations. Pursuant to the terms of the Company’s Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) the Non-Voting Common Stock was convertible into Voting Common Stock, subject to certain limitations. The number of shares that the Investors received pursuant to the Exchange Agreements is equal to the number of shares of Voting Common Stock that the Investors would have received upon conversion of the Non-Voting Common Stock. The exchange transactions were effected because the Non-Voting Common Stock could only be converted at the time of a transfer or sale of the Non-Voting Common Stock that satisfied certain conditions set forth in the Articles of Incorporation. The Voting Common Stock issued upon exchange of the Non-Voting Common Stock was offered and exchanged in reliance on exemptions from registration provided by the Securities Act of 1933, as amended (the “Securities Act”). Upon completion of the exchange transactions, Castle Creek had
591,898
shares of Voting Common Stock issued and outstanding, including unvested stock awards, and Endicott had
1,199,032
shares of Voting Common Stock issued and outstanding, including unvested stock awards. Copies of the Exchange Agreements are attached as Exhibits 10.21 and 10.22 to Form 8-K filed with the SEC on February 28, 2017. The foregoing description of the Exchange Agreements is a summary and is qualified in its entirety by reference to the complete text of the Exchange Agreements.
On February 28, 2017, the Company announced that its Board of Directors declared a cash dividend of seven cents (
$0.07
) per share payable on April 3, 2017, to stockholders of record as of
March 13, 2017. The dividend payout will be approximately
$904 thousand
on
12.9 million
shares of voting and non-voting common stock.