100YEARS
STRONG
FARMERS BANK
C E L E B R A T I N G 1 0 0 Y E A R S
A N N U A L R E P O R T 2 0 1 8
Dear Shareholder,
As we commence our one hundredth year
as a community bank we are pleased to
announce record earnings for the fourth
consecutive year. Net income for 2018 grew
to $4,875,252, or $1.59 per share, an increase
of 8.23% from the $4,504,779 or $1.47 per
share reported in 2017. A major contributor
to that increase was net interest income which
was positively impacted by the rise in interest
rates and increased 5.63% when compared
to annualized results of 2017. Offsetting a
portion of the increase in income were the
costs associated with our core conversion
which elevated non-interest expenses by
approximately $457,000, net of tax. Even
with these additional expenses we compare
favorably to our peer banks, posting a return
on average assets of 1.07% and a return on
equity of 10.31%. Our shareholders have
benefited from the increased income by way
of an increased dividend which was $.42
in 2018 compared to $.40 in 2017. This
represents a dividend payout ratio of 26%
and a dividend yield of 2.29% based on our
share price as of March 15, 2019.
From a regulatory perspective, the Company
remains well capitalized and our focus
continues to be on efficiently deploying
capital in a safe and sound manner. Asset
quality is still improving due to positive
market conditions and our commitment to
prudent lending standards. We have made great
strides in this area and plan to grow the loan
portfolio in an intentional way that does not
compromise this progress.
While our staff and customers encountered
challenges in 2018 as we implemented our
technology upgrades, we realized several of
our strategic goals that will position us for
future expansion and competitiveness. We
are beginning to realize efficiencies from our
core conversion that will aid in managing
non-interest expenses in the future. We feel
confident in our product offerings and our
ability to continue to expand the digital
banking experience for our customers.
Our investment in the Chesapeake market is
gaining traction and is producing favorable
results, which is encouraging as we continue to
evaluate further expansion in eastern Tidewater.
We have identified a permanent location for
our Chesapeake office that we believe will
improve visibility and access. This investment is
an indication of our long term commitment to
the eastern Tidewater area.
We continue to concentrate on organic,
balanced growth that we believe will result
in long-term benefits for our shareholders.
Despite recent consolidation, the banking
industry continues to be very competitive
which has put pressure on net interest margins.
Mergers and acquisitions have reduced the
number of banks, increasing the size of many
of those that remain. Fintech companies and
other non-bank entities are encroaching on
market share. While we are experiencing a
financial revolution, we still believe the market
will continue to embrace community banks
that can provide a high level of customization
and flexibility. As we have discussed in previous
communications to you, we have made great
efforts to diversify revenue streams and add
complementary business lines to ensure we do
not depend solely on net interest margin for
profitability. Our investment in Manry Rawls
Insurance continues to provide non-interest
income and we are further developing that
business line through acquisitions of small
agencies in contiguous markets.
This year marks our 100th anniversary as a
community bank. This accomplishment would
not have been possible without the loyalty
and friendship you have so graciously shown
us through the years. As we celebrate this
milestone we want to remain focused on our
core values to ensure we continue to provide
prompt, reliable, secure and courteous service
to our customers and community for the next
one hundred years.
As we embark on our second century, it is a
privilege for us to work alongside a Board of
Directors, management team and staff that
are committed to our mission. We want to
conclude by expressing our genuine gratitude
to them, and you, our loyal shareholders.
Sincerely,
Richard J. Holland, Jr.
Chairman and CEO
Vernon M. Towler
President
C E L E B R A T I N G 1 0 0 Y E A R S
November 12, 1919
Bank is established
with one employee;
Shirley T. Holland
Assets exceeded $2 million – 1946
First drive-in teller facility – 1968
First Computer/Assignment – 1984
of Account Numbers
Richard J. Holland, Jr. named President and CEO – 1994
Bank develops website – 2000
Lakeside Branch Opened – 2002
Harbourview Branch Opened – 2009
Partnership with Manry Rawls, LLC – 2014
November 12, 2019
Farmers Bank
Celebrates 100 Years
The Farmers Bank housed in a modern brick
building located in the thriving Town of
Windsor, is pictured above. The bank was
founded in 1919. The officers were
W. H. Johnson, President; Lorenzo Bailey,
Vice President; S.T. Holland, Cashier.
Shirley T. Holland
Richard J. Holland Sr.
Shirley T. Holland
1922 – First dividend to shareholders
1927 – Second employee hired;
Ida Johnson as a bookkeeper
1951 – Richard J. Holland, Sr. joins the Bank
1967 – Richard J. Holland, Sr. elected President and CEO
1970 – Loans exceeded $5 million
1977 – Richard J. Holland, Jr. joins the bank
1985 – Richard J. Holland, Jr. elected President
1989 – Windsor Branch moves to new location
1994 – First ATM installed & Smithfield Branch opened
1999 – Implemented Online Banking
2004 – Hillpoint Branch Opened
2008 – Remote Deposit Capture available
2013 – Courtland Branch Opened & Implemented
Mobile Banking
2017 – Chesapeake Branch opened
Richard J. Holland, Jr.
Groundbreaking for
the Farmers Bank
Hillpoint Location,
November 10, 2003.
The Ribbon Cutting for the Farmers Bank Smithfield
Location held on January 23rd, 1995.
First Computer/Assignment – 1984
of Account Numbers
BOARD OF DIRECTORS
Richard J. Holland, Jr.*
C h a i r m a n
William A. Gwaltney, Jr.*
V i c e C h a i r m a n
,
I n d i k a F a r m s
I n c .
P r e s i d e n t
,
G. Thomas Alphin, Jr.*
C o m m o n w e a l t h G i n ,
C o - O w n e r
E. Warren Beale, Jr.
R e t i r e d E n t r e p r e n e u r
Harold U. Blythe
R e t i r e d B a n k C E O
William L. Chorey
s o c i a t e s
C h o r e y & A s
R e a l t y ,
L t d .
,
O w n e r / B r o k e r
John T. Orlando
F i n a n c i a l
S e c u r i t y A d v i s o r y ,
I n c .
,
P r e s i d e n t
David T. Owen*
Wa k e fi e l d F a r m S e r v i c e ,
I n c .
,
P r e s i d e n t
Peter D. Pruden, III
Ta s t e U n l i m i t e d ,
C o - O w n e r
William H. Riddick, III*
A t t o r n e y a t L a w - S m i t h fi e l d
Kent B. Spain*
S u ff o l k I n s u r a n c e C o r p o r a t i o n ,
E x e c u t i v e V i c e P r e s i d e n t
O. A. Spady
Retired Entrepreneur
Vernon M. Towler*
President
*Farmers Bankshares, Inc. Board Members
Richard J. Holland, Jr.*
C h a i r m a n
William A. Gwaltney, Jr.*
V i c e C h a i r m a n
I n d i k a F a r m s
,
I n c .
,
P r e s i d e n t
G. Thomas Alphin, Jr.*
C o m m o n w e a l t h G i n ,
C o - O w n e r
E. Warren Beale, Jr.
R e t i r e d E n t r e p r e n e u r
Harold U. Blythe
R e t i r e d B a n k C E O
William L. Chorey
John T. Orlando
F i n a n c i a l
S e c u r i t y A d v i s o r y ,
I n c .
,
P r e s i d e n t
David T. Owen*
Wa k e fi e l d F a r m S e r v i c e ,
I n c .
,
P r e s i d e n t
Peter D. Pruden, III
Ta s t e U n l i m i t e d ,
C o - O w n e r
William H. Riddick, III*
A t t o r n e y a t L a w - S m i t h fi e l d
Kent B. Spain*
O. A. Spady
Retired Entrepreneur
Vernon M. Towler*
President
S u ff o l k I n s u r a n c e C o r p o r a t i o n ,
E x e c u t i v e V i c e P r e s i d e n t
BOARD OF DIRECTORS
SUFFOLK COMMUNITY BOARD
James C. Adams, III
P r e s i d e n t ,
F e a t h e r l i t e C o a c h e s
Brian L. Johnson, M.D.
V i r g i n i a D e r m a t o l o g y
Mark H. Brinkley
C .
P r e s i d e n t ,
C o n s t r u c t i o n
W.
B r i n k l e y ,
I n c .
Richard L. Evans
P r e s i d e n t ,
C h e s a p e a k e C o n t r o l
s
J. Clifton Harrell, Jr.
P r e s i d e n t ,
S u ff o l k I r o n Wo r k s
,
I n c .
Nicole J. Harrell
A t t o r n e y - a t - L a w ,
C a n o l e s
K a u f m a n &
Charles S. Lowder
C e r t i fi e d P u b l i c A c c o u n t a n t ,
C h a r l e s
L o w d e r & C o .
S .
,
L L C
Timothy K. Palmer, Chairman
A t t o r n e y - a t - L a w a n d C e r t i fi e d
P u b l i c A c c o u n t a n t ,
L a w
P a l m e r E l d e r
Roy A. Runyon, III
D i r e c t o r o f
D e v e l o p m e n t ,
L e t t e r ,
L . C .
R e s e a r c h &
Th e G a r t m a n
Joseph Wayne Scott
C e r t i fi e d P u b l i c A c c o u n t a n t ,
R o b b ,
B r a d s h a w & R a w l
S c o t t ,
s
Clay K. White
P r e s i d e n t ,
S t a r r M o t o r s
,
I n c .
H. Hadley Whitlock, Jr.
R e t i r e d C o m m e r c i a l
L e n d e r
C h o r e y & A s
s o c i a t e s
R e a l t y ,
L t d .
,
O w n e r / B r o k e r
EASTERN TIDEWATER COMMUNITY BOARD
James C. Bowen, Sr.
P r e s i d e n t ,
Tr u c k i n g ,
S o u t h N o r f o l k
I n c .
Kelley C. Holland
A t t o r n e y - a t - L a w ,
M u l
l e n
W i l
l i a m s
Gregory P. Marshall
P r e s i d e n t ,
I n c .
Ty m a r D e v e l o p m e n t ,
Rhonda Bridgeman
P r e s i d e n t ,
V i r g i n i a ,
C o m f o r t S y s t e m s
I n c .
o f
Robert R. Kinser
A t t o r n e y - a t - L a w ,
K i n s e r ,
B a s n i g h t ,
L e f t w i c h & N u c k o l
s
,
P. C .
Tracy Colby-Urig
C e r t i fi e d P u b l i c A c c o u n t a n t ,
C o l b y & C o m p a n y
Richard H. Matthews, Chairman
A t t o r n e y - a t - L a w ,
P e n d e r & C o w a r d ,
P. C .
WESTERN TIDEWATER COMMUNITY BOARD
Christopher T. Alphin
C o m m o n w e a l t h G i n
Vincent C. Carollo, Chairman
O w n e r ,
s
A n n a '
M V C H o l d i n g s
R i s t o r a n t e &
L L C
,
P. Milton Cook, Jr., D.D.S.
P.
M i l t o n C o o k ,
P. C .
J r .
,
Tammy W. Edwards
P r e s i d e n t ,
S u p p l y C o .
W i n d s o r H a r d w a r e
Randolph H. Pack
P r e s i d e n t ,
S m i t h fi e l d S t a t i o n
V. S. Pittman, II
P r e s i d e n t ,
M a n r y R a w l
s
,
L L C
John T. Randall
A t t o r n e y - a t - L a w ,
R a n d a l
l
P a g e ,
P C
T. Craig Stallings
C e r t i fi e d P u b l i c A c c o u n t a n t ,
s o c i a t e s
C r a i g S t a l
a n d A s
l i n g s
Sharon C. Stallings
C E O ,
C o n t r a c t i n g ,
H a m p t o n R o a d s
I n c .
OFFICERS
Richard J. Holland, Jr.
C h a i r m a n o f
E x e c u t i v e O ffi c e r
t h e B o a r d & C h i e f
N. F. “Pete” Carr, Jr.
S e n i o r V i c e P r e s i d e n t / D i r e c t o r o f
F i n a n c i a l
S e r v i c e s
Kathy C. Bryant
S e n i o r V i c e P r e s i d e n t / D i r e c t o r o f
H R & R e t a i l
A d m i n i s t r a t i o n
Vernon M. Towler
P r e s i d e n t
Thomas L. Woodward, III
E x e c .
V i c e P r e s i d e n t / C h i e f
L e n d i n g O ffi c e r
Chad A. Rountree
S e n i o r V i c e P r e s i d e n t / We s t e r n
T i d e w a t e r M a r k e t E x e c u t i v e
Kristy E. Dejarnette
E x e c .
F i n a n c i a l
V i c e P r e s i d e n t / C h i e f
O ffi c e r
Jeffrey S. Creekmore
V i c e P r e s i d e n t /
S r .
C h e s a p e a k e M a r k e t E x e c .
P. Kelley Gowen
S r .
V i c e P r e s i d e n t / L o a n s
Lauren P. Harper
S r .
V i c e P r e s i d e n t / L o a n s
Andrew D. Perkins
S r .
O ffi c e r
V i c e P r e s i d e n t / C h i e f
C r e d i t
Charles A. Powers, II
V i c e P r e s i d e n t / L o a n s
S r .
Candace D. Delia
A s
V i c e P r e s i d e n t / R e t a i l
s t .
C. Thomas Eure, Jr.
A s
s t .
S y s t e m s
A n a l y s t
V i c e P r e s i d e n t / B u s i n e s
s
Melanie S. Gwaltney
A s
S u p e r v i s o r
V i c e P r e s i d e n t / O p e r a t i o n s
s t .
Blanche E. Hecker
A s
V i c e P r e s i d e n t / R e t a i l
s t .
Patricia T. Allen
S r .
O p e r a t i o n s
V i c e P r e s i d e n t / D i r e c t o r o f
Susan F. Boone
E x e c u t i v e A s
S e c r e t a r y
s i s t a n t / C o r p o r a t e
Deborah R. Cagle
V i c e P r e s i d e n t / R e t a i l
Kelly M. Clinton
V i c e P r e s i d e n t / P o r t f o l i o M a n a g e r
Kelly D. Dewitt
V i c e P r e s i d e n t / B S A / A M L / OFAC/
S e c u r i t y O ffi c e r
Stephanie J. Dickens
V i c e P r e s i d e n t / P r i v a t e B a n k e r
Kelley T. Healey
V i c e P r e s i d e n t /
S m i t h fi e l d M a r k e t E x e c .
Eric L. Shaffner
V i c e P r e s i d e n t / L o a n s
Sharon A. Smith
V i c e P r e s i d e n t / C o m p l i a n c e O ffi c e r
Pamela N. Ellyson
V i c e P r e s i d e n t / D i r .
M g m t .
S e r v i c e s
O f
Tr e a s u r y
Joanne F. Joyner
A s
V i c e P r e s i d e n t / R e t a i l
s t .
Erin W. Park
A s
s t .
V i c e P r e s i d e n t / C o n t r o l
Meghan D. White
A s
s t .
P r o c e s
s i n g M g r .
V i c e P r e s i d e n t / L o a n
l e r
Marsha C. Winslow
A s
V i c e P r e s i d e n t / R e t a i l
s t .
Donna Renee Scott
A s
V i c e P r e s i d e n t / R e t a i l
s t .
Kara H. Smith
s t .
A s
O ffi c e r
V i c e P r e s i d e n t / Te c h n o l o g y
Financial Highlights
At or for the Years Ended December 31,
2018
2017
2016
Summary of Operations
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Income taxes
Net income attributable to noncontrolling interest
Net income
Per Share and Shares Outstanding (1)
Basic net income
Book value at end of period
Basic weighted average shares outstanding
Dividends per share
Shares outstanding at period end
Balance Sheet Data
Total assets
Total loans, net
Total deposits
Borrowings
Selected Performance Ratios (Bank Only)
Return on average assets
Return on average stockholders’ equity
Net interest margin (2)
Non-interest income as a percentage of total revenue (3)
Efficiency ratio (4)
Asset Quality Ratios
Nonperforming loans to period-end loans
Allowance for loan losses to period-end loans
Net charge-offs to average loans outstanding
Capital (Bank Only)
Tier 1 leverage ratio
Total risk-based capital ratio
Stockholder’s equity
(Dollars in thousands, except per share data)
$18,114
2,811
15,303
-
15,303
6,263
15,851
5,715
619
221
$4,875
$1.59
$16.23
3,071,643
$0.42
3,075,860
$478,211
269,520
386,682
25,000
1.10%
10.05%
3.70%
29.05%
71.49%
0.25%
2.15%
0.00%
$16,637
2,150
14,487
-
14,487
5,091
13,358
6,220
1,451
265
$4,504
$1.47
$15.68
3,063,661
$0.40
3,066,709
$456,583
266,753
370,891
25,000
1.10%
9.46%
3.87%
26.01%
65.21%
0.31%
2.17%
-0.06%
$16,062
2,116
13,946
-
13,946
2,898
11,528
5,316
1,129
-
$4,187
$1.37
$13.98
3,056,830
$0.30
3,056,363
$423,561
260,202
343,911
25,000
1.09%
9.01%
3.82%
17.21%
63.78%
0.75%
2.15%
0.22%
9.68%
13.89%
$52,139
9.52%
14.04%
$50,312
11.64%
16.53%
$49,096
(1) Computed based on the weighted average number of shares outstanding during each period.
(2) Net interest margin is net interest income divided by average interest earning assets.
(3) Total revenue consists of net interest income and non-interest income.
(4) Efficiency ratio is non-interest expense divided by the sum of net interest income and non-interest income.
Return on Assets
Dividends Per Share
Non-Interest Income as a % of Revenue
2016
2017
2018
2016
2017
2018
2016
2017
2018
1.05% 1.08% 1.10% 1.13%
$- $0.10 $0.20 $0.30 $0.40 $0.50
0.00% 10.00% 20.00% 30.00% 40.00%
Farmers Bankshares, Inc.
Consolidated Financial Statements for Years Ended December 31, 2018 and 2017
Contents
Independent Auditor’s Report ........................................................................................................................
Consolidated Balance Sheets ...........................................................................................................................
Consolidated Statements of Operations .........................................................................................................
Page
2
3
4
Consolidated Statements of Comprehensive Income………………………………………………………………………... 5
Consolidated Statements of Changes in Stockholders' Equity ......................................................................
6
Consolidated Statements of Cash Flows .........................................................................................................
7 - 8
Notes to Consolidated Financial Statements ..................................................................................................
9 - 51
Independent Auditor’s Report
To the Board of Directors and Shareholders
Farmers Bankshares, Inc.
Windsor, Virginia
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Farmers Bankshares, Inc. and Subsidiary (the
Company), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related
consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the years
then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Farmers Bankshares, Inc. and Subsidiary as of December 31, 2018 and 2017, and the results of their operations and their
cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of
America.
Raleigh, North Carolina
March 15, 2019
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
Cash and cash equivalents
Assets
Assets
December 31,
December 31,
2018
2016
2017
2015
Cash and cash equivalents
Cash and due from banks
Federal funds sold
Cash and due from banks
Federal Funds sold
Total cash and cash equivalents
Available-for-sale securities (Note 3)
Total cash and cash equivalents
Loans held for investment, net of allowance for loan losses
$
15,353,150
1,137,152
$
16,490,302
157,015,508
8,808,046
2,329,302
11,137,348
of $5,916,359 and $5,922,333, respectively (Note 4)
of $5,755,746 and $6,343,636, respectively (Note 4)
Available-for-sale securities (Note 3)
Premises and equipment, net (Note 5)
Mortgage loans held for sale
Goodwill (Note 6)
Other intangible assets, net (Note 6)
Loans held for investment, net of allowance for loan losses
Other real estate owned
Accrued interest receivable
Premises and equipment, net (Note 5)
Prepaid expenses
Net deferred tax asset (Note 12)
Other real estate owned
Income taxes receivable
Accrued interest
Non-marketable equity securities (Note 7)
Prepaid expenses
Bank-owned annuity contract
Bank-owned life insurance
Net deferred tax asset (Note 11)
Other assets
Income taxes receivable
Non-marketable equity securities (Note 6)
Total assets
Bank-owned annuity contract
Bank-owned life insurance
Other assets
Deposits
Liabilities and Stockholders' Equity
Noninterest-bearing deposits
Interest-bearing deposits (Note 8)
Total assets
Total deposits
269,520,306
2,934,749
4,807,857
3,811,185
672,404
1,978,401
560,160
759,987
3,022
4,130,699
2,961,521
10,851,328
1,713,116
461,720,243
125,746,703
1,443,960
260,202,399
3,477,251
877,278
1,723,019
358,741
476,106
5,219
4,676,091
3,026,890
10,230,912
179,118
412,423,687
$
115,871,109
270,811,346
386,682,455
$
423,561,035
$
478,210,545
Federal Home Loan Bank borrowings (Note 10)
Capital notes (Note 9)
Securities sold under agreements to repurchase (Note 10)
Deferred compensation plans (Note 11)
Accrued interest payable
Noninterest-bearing deposits
Deferred revenue on insurance contracts
Interest-bearing deposits (Note 7)
Other liabilities
Deposits
Liabilities and Stockholders' Equity
Total deposits
Total liabilities
authorized; 3,075,860 and 3,066,709 shares issued and
outstanding at December 31, 2018 and 2017, including
nonvested shares of 17,806 and 13,011 shares, respectively
Stockholders' equity
Common stock, $0.125 par value; 50,000,000 shares
Federal Home Loan Bank borrowings (Note 9)
Capital notes (Note 8)
Securities sold under agreements to repurchase (Note 9)
Deferred compensation plans
Net deferred tax liability (Note 11)
Accrued interest
Other liabilities
Capital surplus
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
Noncontrolling interest
Total liabilities
Total equity
Total liabilities and equity
Stockholders' equity
Common stock, $0.125 par value; 50,000,000 shares
authorized; 3,056,363 and 3,054,092 shares issued and
outstanding at December 31, 2016 and 2015, including
nonvested shares of 8,223 and 13,800 shares, respectively
3
The accompanying notes are an integral part of these consolidated financial statements.
25,000,000
6,000,000
3,848,904
1,520,980
336,608
$
1,228,260
3,681,793
428,299,000
101,552,020
242,359,428
343,911,448
25,000,000
7,888,475
1,125,881
1,323,644
-
183,700
1,401,122
380,834,270
384,484
2,895,515
44,991,893
(383,711)
47,888,181
2,023,364
49,911,545
478,210,545
$
$
18,473,225
440,963
18,914,188
137,803,946
$
14,636,916
1,648,069
16,284,985
266,752,713
2,881,031
4,511,746
3,865,251
742,216
1,787,676
575,618
339,838
112,517
3,569,712
3,028,689
10,544,514
1,153,134
437,668,601
$
456,582,789
$
107,356,868
263,533,769
370,890,637
25,000,000
6,000,000
1,617,766
1,434,054
250,025
1,126,209
2,222,132
408,540,823
383,340
2,841,759
41,399,842
1,394,861
46,019,802
2,022,164
48,041,966
456,582,789
$
134,739,604
911,050
242,031,797
3,547,672
612,798
1,774,430
337,341
-
92,323
4,519,175
-
9,909,100
172,930
398,648,220
$
414,933,205
$
96,420,933
239,456,439
335,877,372
25,000,000
9,928,475
823,102
1,240,929
148,656
198,802
1,108,511
374,325,847
Capital surplus
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
3
382,047
2,775,106
38,344,408
1,225,204
42,726,765
381,763
2,754,141
35,070,594
2,400,860
40,607,358
Total liabilities and stockholders' equity
$
423,561,035
$
414,933,205
The accompanying notes are an integral part of these consolidated financial statements.
3
Farmers Bankshare, Inc.
Farmers Bankshare, Inc.
Consolidated Statements of Operations
Consolidated Statements of Operations
Years Ended December 31,
2018
Years Ended December 31,
2017
Interest income
Interest income
Interest and fees on loans held for investment
Interest on mortgage loans held for sale
Interest on available-for-sale securities
Interest on tax exempt available-for-sale securities
Interest on federal funds sold
Other interest income
Interest and fees on loans held for investment
Interest on mortgage loans held for sale
Interest on available-for-sale securities
Interest on tax exempt available-for-sale securities
Interest on federal funds sold
Other interest income
Total interest and dividend income
Interest expense
Interest on deposits
Total interest and dividend income
Interest on Federal Home Loan Bank advances
Interest on capital notes
Interest on repurchase agreements
Interest on federal funds purchased
Interest on deposits
Total interest expense
Interest on Federal Home Loan Bank advances
Net interest income
Interest on capital notes
Interest on repurchase agreements
Interest on federal funds purchased
Provision of loan losses
Interest expense
Net interest income after provision for loan losses
Total interest expense
Net interest income
Provision of loan losses
Noninterest income
Service charges
Income from automated teller machines and bank card interchange
Insurance commissions
Net gain on disposition of securities
Income on bank owned life insurance
Net interest income after provision for loan losses
Net gain on sale of premises and equipment
Income from investment in Manry Rawls, LLC
Income from mortgage loan sales
Other income
Noninterest income
Service charges
Income from automated teller machines and bank card interchange
Total noninterest income
Net gain on disposition of securities
Noninterest expense
Income on bank owned life insurance
Salaries and employee benefits
Net gain (loss) on sale of premises and equipment
Equipment expense
Occupancy expense
Income from investment in Manry Rawls, LLC
Bank franchise tax
Income from mortgage loan sales
Advertising and marketing
Other income
Data processing
Loan related legal and other expenses
Federal Deposit Insurance Corporation assessment
Net (gain) loss on sale and write-downs of other real estate owned
Noninterest expense
Other
Salaries and employee benefits
Equipment expense
Occupancy expense
Bank franchise tax
Advertising and marketing
Data processing
Loan related legal and other expenses
Federal Deposit Insurance Corporation assessment
Diluted earnings per common share
Net loss (gain) on sale and write-downs of other real estate owned
Other real estate owned
Prepayment penalty on borrowings
Other
Income before income taxes & noncontrolling interest
Income tax expense (Note 12)
Net income
Net income attributable to noncontrolling interest
Net income attributable to Farmers Bankshares, Inc.
Basic earnings per common share (Note 19)
Total noninterest income
Total noninterest expense
Total noninterest expense
Income before income taxes
Income tax expense (Note 11)
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
2016
$
13,289,563
-
-
-
-
$
2,593,586
1,993,818
111,489
125,788
18,114,244
12,275,691
25,016
2,130,933
1,494,852
42,293
93,614
16,062,399
2,087,106
505,981
195,000
14,523
8,501
2,811,111
15,303,133
15,303,133
598,380
560,452
4,452,749
154,773
306,814
1,207,905
458,418
441,847
7,455
135
2,115,760
-
13,946,639
-
13,946,639
660,431
508,393
115,948
321,813
3,901
266,666
595,123
425,360
2,897,635
190,168
6,263,336
8,955,428
937,945
931,434
546,656
453,971
1,632,519
100,636
168,164
8,318
2,116,497
15,851,568
5,714,901
619,132
5,095,769
220,518
4,875,251
$
$
$
1.59
$
1.59
6,283,217
709,078
681,131
421,807
588,225
982,496
170,168
179,079
(18,243)
73,136
-
1,458,511
11,528,605
5,315,669
1,128,983
$
$
12,702,805
11,666
2,068,909
1,663,470
75,025
115,045
16,636,920
1,409,845
470,188
254,702
9,717
5,144
2,149,596
14,487,324
-
14,487,324
606,359
535,445
2,948,887
61,216
313,602
16,665
66,467
164,715
377,943
5,091,299
8,118,119
847,106
801,872
446,039
473,275
1,187,314
132,841
135,617
(490,264)
1,706,369
13,358,288
6,220,335
1,450,815
4,769,520
264,741
4,504,779
$
$
$
1.47
$
1.47
4
2015
12,000,584
21,202
2,512,889
1,376,381
33,505
99,106
16,043,667
1,589,455
618,542
517,478
4,620
3
2,730,098
13,313,569
-
13,313,569
613,468
514,642
422,821
324,118
(58)
437,428
438,471
168,585
2,919,475
6,134,982
646,016
621,718
495,830
321,175
855,719
192,458
246,032
91,469
51,218
4
355,592
1,479,326
11,491,535
4,741,509
967,121
Net income attributable to common shareholders
$
4,186,686
$
3,774,388
Basic earnings per common share (Note 18)
Diluted earnings per common share
Cash dividends declared per common share
$
1.37
$
1.37
$
0.30
$
1.24
$
1.23
$
0.18
The accompanying notes are an integral part of these consolidated financial statements.
4
Farmers Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Preferred
Preferred
Stock
Stock
Common
Series A
Series B
Stock
Capital
Surplus
Retained
Earnings
Income
Total
Accumulated
Other
Comprehensive
8,632,556
457,271
379,323
2,652,804
26,360,240
4,510,249
42,992,443
(8,752,400)
(437,600)
119,844
(19,671)
263
429
14,738
28,071
-
-
-
-
-
-
-
-
-
-
-
3,315,744
(100,173)
(388,226)
(334,113)
-
-
-
-
-
-
-
3,315,744
(3,568,832)
(9,190,000)
15,001
28,500
(388,226)
(334,113)
-
-
(3,568,832)
-
-
-
-
-
-
-
-
-
-
-
2,156
429
(2,156)
29,571
3,360,889
3,360,889
2,078,653
2,078,653
(365,032)
30,000
(365,032)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Farmers Bankshares, Inc.
Consolidated Statements of Comprehensive Income
Farmers Bankshares, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31,
2016
Years Ended December 31,
2015
2018
$
4,186,686
2017
$
3,774,388
$
5,095,769
$
4,769,520
Net income
Other comprehensive loss:
Net income
Other comprehensive loss:
Unrealized holding losses on available-for-sale securities
Tax effect
Net, Unrealized holding (losses) gains on available-for-sale securities
Tax effect
Unrealized holding losses on available-for-sale securities,
net of tax amount
Unrealized holding (losses) gains on available-for-sale securities,
net of tax amount
(1,665,349)
566,219
(2,096,584)
440,283
(1,099,130)
(1,656,301)
318,274
(108,213)
210,061
Reclassification adjustment for realized gains
Tax effect
Reclassification adjustment for net realized gains
Tax effect
Reclassification of accumulated comprehensive loss due to tax rate change
Reclassification adjustment for realized gains, net of tax amount
Reclassification adjustment for net realized gains, net of tax amount
Other comprehensive loss, net of tax
Comprehensive income
Other comprehensive loss, net of tax
Comprehensive income
(154,773)
32,502
-
(115,948)
39,422
(76,526)
(1,175,656)
3,011,030
(122,271)
(1,778,572)
$
3,317,197
$
(61,216)
20,812
(229,534)
(269,938)
(59,877)
4,709,643
(422,821)
143,759
(279,062)
(619,210)
3,155,178
$
$
(515,376)
Balances, December 31, 2012
175,228
(340,148)
Net income
Changes in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect
Repurchase of perferred stock
Issuance of common stock - stock compensation plan
Issuance of common stock - director stock plan
Preferred stock net accretion, (amortization) and costs
Cash dividends declared on preferred shares
Cash dividends declared on common shares, $0.55 per share
Balances, December 31, 2013
$
-
$
-
$
380,015
$
2,695,613
$
28,853,472
$
941,417
$
32,870,517
Net income
Changes in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect
Issurance of restricted common shares
Issuance of common stock - director stock plan
Cash dividends declared on common shares, $0.60 per share
Balances, December 31, 2014
$
-
$
-
$
382,600
$
2,723,028
$
31,849,329
$
3,020,070
$
37,975,027
5
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
5
The accompanying notes are an integral part of these consolidated financial statements.
5
The accompanying notes are an integral part of these consolidated financial statements.
6
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Changes in Stockholders' Equity
Farmers Bankshares, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Preferred
Preferred
Stock
Stock
Series A
Series A
Preferred
Preferred
Stock
Stock
Series B
Series B
Capital
Surplus
Common
Stock
Balances, December 31, 2012
Balances, December 31, 2016
8,632,556
$
8,632,556
-
-
-
(8,752,400)
(8,752,400)
119,844
-
-
-
-
$
$
-
119,844
-
-
-
Balances, December 31, 2012
-
Net income
Changes in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect
Repurchase of perferred stock
Net income
Changes in net unrealized loss on securities available for
sale, net of reclassification adjustment and tax effect
Net income
Changes in net unrealized gain on securities available for
sale, net of reclassification adjustment and tax effect
Repurchase of perferred stock
Distribution of interest in Manry Rawls, LLC
Issuance of common stock - stock compensation plan
Remeasurements of deferred taxes related to tax reform legislation
Investment in Manry Rawls, LLC
Issuance of common stock - director stock plan
Issuance of common stock - director stock plan
Preferred stock net accretion, (amortization) and costs
Issuance of common stock - stock compensation plan
Stock based compensation
Cash dividends declared on preferred shares
Cash dividends declared on common shares, $0.40 per share
Issuance of common stock - director stock plan
Cash dividends declared on common shares, $0.55 per share
Balances, December 31, 2013
Preferred stock net accretion, (amortization) and costs
Cash dividends declared on preferred shares
Net income
Cash dividends declared on common shares, $0.55 per share
Changes in net unrealized gain on securities available for
Distribution of interest in Manry Rawls, LLC
sale, net of reclassification adjustment and tax effect
Issuance of common stock - director stock plan
Net income
Changes in net unrealized loss on securities available for
sale, net of reclassification adjustment and tax effect
Balances, December 31, 2017
-
-
$
-
Issurance of restricted common shares
Stock based compensation
Issuance of common stock - director stock plan
Cash dividends declared on common shares, $0.60 per share
Net income
Changes in net unrealized gain on securities available for
Balances, December 31, 2014
sale, net of reclassification adjustment and tax effect
Balances, December 31, 2018
Cash dividends declared on common shares, $0.42 per share
-
Balances, December 31, 2013
Issurance of restricted common shares
Issuance of common stock - director stock plan
Cash dividends declared on common shares, $0.60 per share
Balances, December 31, 2014
-
-
-
-
$
$
-
-
-
-
-
$
-
Common
Common
Stock
Retained
Stock
Earnings
379,323
$
379,323
-
38,344,408
4,504,779
Capital
Surplus
Accumulated
Other
Capital
Comprehensive
Surplus
Income
2,652,804
$
1,225,204
2,652,804
-
-
Retained
Earnings
Non-
Retained
controlling
Earnings
interest
26,360,240
$
$
-
26,360,240
264,741
3,315,744
Accumulated
Other
Comprehensive
Income
Accumulated
Other
Comprehensive
Total
Income
Total
4,510,249
42,726,765
42,992,443
4,510,249
3,315,744
42,992,443
-
4,769,520
$
$
$
$
$
-
-
-
-
-
-
263
(229,534)
-
-
429
-
-
-
263
-
-
(1,219,811)
429
-
$
41,399,842
380,015
-
-
4,875,251
-
-
380,015
-
-
2,156
-
429
(1,283,200)
-
$
44,991,893
382,600
-
2,156
429
-
-
-
-
-
-
-
-
(59,877)
-
-
-
14,738
229,534
-
28,071
-
-
14,738
-
28,071
-
$
1,394,861
2,695,613
-
-
-
-
(1,778,572)
2,695,613
$
-
$
-
-
-
-
-
-
(2,156)
29,571
-
$
2,723,028
(383,711)
$
-
(2,156)
29,571
-
$
$
$
3,315,744
-
-
-
(292,577)
-
-
2,050,000
-
-
-
-
(100,173)
(388,226)
(334,113)
$
28,853,472
3,360,889
$
2,022,164
220,518
(100,173)
(388,226)
(334,113)
-
28,853,472
(219,318)
-
-
-
3,360,889
-
-
-
(365,032)
$
31,849,329
2,023,364
$
$
(3,568,832)
(59,877)
-
(292,577)
-
-
2,050,000
-
47,500
-
20,446
-
(1,219,811)
-
48,041,966
941,417
(3,568,832)
-
(3,568,832)
(9,190,000)
15,001
28,500
-
-
-
(388,226)
-
(334,113)
32,870,517
-
-
3,360,889
-
5,095,769
-
(1,778,572)
$
(219,318)
2,078,653
24,501
-
30,399
-
-
(1,283,200)
49,911,545
3,020,070
941,417
$
2,078,653
-
-
30,000
(365,032)
37,975,027
$
2,078,653
-
-
-
-
-
-
-
$
382,600
$
2,723,028
(365,032)
31,849,329
$
-
-
-
$
3,020,070
$
37,975,027
Total
3,315,744
(3,568,832)
(9,190,000)
15,001
28,500
(388,226)
(334,113)
32,870,517
3,360,889
2,078,653
30,000
(365,032)
-
-
382,047
2,775,106
457,271
$
457,271
-
-
-
-
-
-
-
-
383,340
-
(437,600)
-
-
-
-
47,230
19,423
-
-
-
-
-
-
-
(437,600)
270
(19,671)
-
1,023
-
-
-
-
$
2,841,759
$
-
(19,671)
-
-
-
$
-
-
-
-
-
-
$
2,895,515
$
-
-
-
-
-
$
-
384,484
24,314
29,442
957
187
-
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
6
6
The accompanying notes are an integral part of these consolidated financial statements.
6
The accompanying notes are an integral part of these consolidated financial statements.
6
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Cash flows from operating activities
2018
2015
Years Ended December 31,
Years Ended December 31,
2017
2014
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
Net income
cash provided by operating activities
Adjustments to reconcile net income to net
cash provided by operating activities
Distribution of interest in Manry Rawls, LLC
Depreciation
Amortization of intangible assets
Depreciation
Provision for deferred income taxes
Recovery of loan losses
Amortization of investment securities premiums
Provision for deferred income taxes
Net gain on disposition of available-for-sale securities
Amortization of investment securities premiums
Net loss on disposition of non-marketable equity securities
Loss (gain) on sales and writedowns on other real estate owned
Net gain on disposition of available-for-sale securities
Gain on sale of premises and equipment
Loss on sales and writedowns on other real estate owned
Gain on sale of mortgages held for sale
(Gain)/loss on sale of premises and equipment
Increase in cash value of bank owned life insurance and annuity
Decrease (increase) in cash value of annuity
(Gain) on mortgages held for sale
Stock based compensation
Increase in cash value of bank owned life insurance
Issuance of stock to directors
Compensation expense for stock issuance
Origination of mortgage loans held for sale
Proceeds from sale of mortgage loans held for sale
Director expense for stock issuance
Change in operating assets and liabilities:
Change in operating assets and liabilities
Interest receivable
Origination of mortgage loans held for sale
Interest payable
Proceeds from sale of mortgage loans held for sale
Prepaid expenses
Income taxes receivable
Interest receivable
Other assets
Interest payable
Deferred compensation
Prepaid expenses
Deferred revenue
Other liabilities
Income taxes receivable
Other assets
Deferred compensation
Other liabilities
Proceeds from sales, prepayments and maturities of
Net cash provided by operating activities
Cash flows from investing activities
available-for-sale securities
Cash flows from investing activities
available-for-sale securities
Proceeds from sales, prepayments and maturities of
Net cash provided by operating activities
Purchase of available-for-sale securities
Proceeds from sale of non-marketable equity securities
Purchase of non-marketable equity securities
Proceeds from sale of other real estate owned
Loan originations, net of repayments
Proceeds from sale of premises and equipment
Purchases of premises and equipment
Acquisition of business, net of cash acquired
Purchase of available-for-sale securities
Purchase of bank owned life insurance
Proceeds from sale of non-marketable equity securities
Purchase of non-marketable equity securities
Cash flows from financing activities
Cash dividends paid on common shares
Proceeds from sale of other real estate owned
Proceeds from issuance of capital notes
Loan originations, net of repayments
Repayment of capital notes
Proceeds from sale of premises and equipment
Repayment of debt related to Manry Rawls, LLC
Net increase in noninterest-bearing deposits
Purchases of premises and equipment
Net increase in interest-bearing deposits
Net increase in securities sold under agreements to repurchase
Net cash used in investing activities
Net cash used in investing activities
Cash flows from financing activities
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash dividends paid on common shares
Cash and cash equivalents
Repurchase of common shares
Beginning of the year
Repayment of capital notes
End of year
Proceeds from FHLB borrowings
7
Repayment of FHLB borrowings
Change in noninterest-bearing deposits
Change in interest-bearing deposits
Change in securities sold under agreements to repurchase
$
5,095,769
$
4,769,520
$
3,774,388
$
3,360,889
(219,318)
511,307
290,945
52,637
660,668
(154,773)
-
8,318
-
-
(306,814)
67,168
30,399
24,501
-
-
454,801
-
92,841
846,954
(422,821)
91,469
58
(210,353)
(324,118)
48,000
40,600
(190,725)
86,583
15,458
109,495
(559,982)
86,926
102,051
1,126,670
6,837,283
(12,170,944)
12,456,247
(49,249)
(50,427)
29,126
574,279
89,488
136,614
55,894
5,462,847
21,890,718
(43,859,532)
10,863
(571,850)
61,494
(2,767,593)
(565,025)
(200,000)
(26,000,925)
(1,283,200)
8,514,241
7,277,577
2,231,138
16,739,756
(2,423,886)
18,914,188
16,490,302
$
28,677,043
-
(28,144,858)
-
425,000
(588,628)
794,531
(2,706,487)
150
(196,235)
(1,739,484)
-
-
-
(595,893)
(58,324)
(1,325,000)
5,000,000
(10,000,000)
10,335,526
(17,266,858)
(1,106,497)
(292,577)
475,504
178,889
167,113
567,255
(61,216)
23,597
(578,828)
(16,665)
(67,009)
(313,602)
(1,799)
20,446
47,500
(4,853,323)
6,364,292
(64,657)
66,325
(216,877)
(107,298)
(286,683)
110,410
-
820,456
6,750,773
26,461,528
(39,115,533)
438,081
(1,452,129)
811,390
(6,677,814)
61,797
(478,630)
(2,491,216)
(22,442,526)
(1,219,256)
6,000,000
(7,888,475)
(894,750)
5,804,848
21,174,341
491,885
23,468,593
7,776,840
11,137,348
18,914,188
$
487,942
(850,000)
360,364
884,280
(288,847)
288,130
(20,404)
-
(240,019)
-
30,000
(2,091,950)
1,105,950
71,685
14,875
22,453
(453,136)
49,301
132,860
184,764
3,049,137
17,521,826
(11,308,586)
(3,500,000)
-
(2,099,458)
1,440,628
(18,251,293)
1,235,085
(470,903)
(15,432,701)
(340,492)
-
-
-
15,045,762
(15,587,545)
(666,177)
8,451,548
(3,932,016)
The accompanying notes are an integral part of these consolidated financial statements.
10,000,000
The accompanying notes are an integral part of these consolidated financial statements.
7
Net cash provided by or (used in) financing activities
Net decrease in cash and cash equivalents
(15,017,046)
(11,293,683)
Cash and cash equivalents
Beginning of the year
End of year
27,578,668
31,510,684
$
16,284,985
$
27,578,668
The accompanying notes are an integral part of these consolidated financial statements.
7
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Consolidated Statements of Cash Flow (concluded)
Consolidated Statements of Cash Flow (concluded)
Supplemental disclosure of cash flow information
Supplemental disclosure of cash flow information
Cash paid for
Income taxes
Interest on deposits and other borrowings
Cash paid for
Income taxes
Interest on deposits and other borrowings
Supplemental schedule of non-cash investing activities
Change in unrealized gains on available-for-sale securities,
net of income tax
Supplemental schedule of non-cash investing activities
Transfer of loans to other real estate owned
Contribution of other real estate owned
Change in unrealized gains on available-for-sale securities,
Income from investment in Manry Rawls, LLC
net of income tax
Income from investment in Manry Rawls, LLC
Transfer of loans to other real estate owned
Contribution of other real estate owned
Acquisitions
Assets acquired
Liabilities assumed
Net assets
Years Ended December 31,
2018
Years Ended December 31,
2017
2015
2014
$
457,000
2,724,528
$
300,000
2,780,525
$
1,391,000
2,083,271
$
1,000,000
3,141,032
$
(19,474)
(127,500)
(30,000)
(66,467)
$
2,078,653
$
(1,778,572)
-
-
$
-
(619,210)
$
568,351
(437,428)
-
-
-
$
568,351
$
10,461,400
4,314,323
6,147,077
$
Goodwill and fair value acquisition adjustments
$
296,111
$
4,511,407
The accompanying notes are an integral part of these consolidated financial statements.
8
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
(175,611)
(1,618,758)
(180,000)
8
8
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 1 - Organization and nature of business
Farmers Bankshares, Inc. (the “Company”) was organized and incorporated under the laws of the Commonwealth of
Virginia on July 26, 2013. On December 31, 2013, the Company was consummated as the Bank Holding Company of
Farmers Bank, Windsor, Virginia (the “Bank”) through a reorganization plan, under the laws of the Commonwealth of
Virginia. As of this date, the Bank became a wholly-owned subsidiary of Farmers Bankshares, Inc. The Bank was formed on
November 12, 1919 and has offices in Windsor, Smithfield, Suffolk, Chesapeake and Courtland, Virginia. Through its
banking subsidiary, the Company provides a wide variety of banking services primarily in southeastern Virginia.
The Bank provides small and mid-sized businesses, professionals, corporate executives and entrepreneurs with banking
services comparable to those of the large national and regional institutions. These services include loans that are priced on a
deposit-based relationship, direct access to the Bank's decision makers, and quick, innovative response to customers’
financial needs. If customers have credit requirements that exceed the Bank's credit limits, the Bank seeks to accommodate
those customers by arranging loans on a participation basis with other financial institutions.
During 2014, the Bank purchased a one-third ownership interest in Manry Rawls, LLC (“Manry Rawls”). Manry Rawls is a
local and independent regional insurance agency offering a wide array of insurance products. In May 2017, the Bank
purchased an additional one-third interest in Manry Rawls. This additional interest made the Bank’s total ownership two-
thirds or approximately 67%. Prior to the additional purchase in 2017, the Bank’s proportionate share of Manry Rawls’
income was recorded as an increase in the investment and other non-interest income. After May 12, 2017 the acquisition
was accounted for as a business combination under the acquisition method of accounting in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC)” 805, Business Combinations. As such,
the assets acquired and liabilities assumed in the transactions were recorded at their respective fair values as of the
acquisition date. The results of operations of the acquired business were included in the Company’s Consolidated
Statements of Operations commencing May 12, 2017.
During 2018, the Company acquired The Lankford Agency, an independent insurance agency, which was merged with the
operations of Manry Rawls. The acquisition was accounted for as a business combination under the acquisition method of
accounting in accordance with ASC 805, Business Combinations, and, as such, the assets acquired were recorded at their
respective fair values as of the acquisition date. There were no liabilities assumed with this purchase. The results of
operations of the acquired business are included in the Company’s Consolidated Statements of Operations commencing
October 1, 2018. The total purchase price for the transaction was $200,000 in cash and contingent future payments with a
net present value of $332,989. The allocation of the purchase price results in goodwill of $296,111 and other intangible
assets including customer lists of $236,879.
Note 2 - Summary of significant accounting policies
Basis of presentation and consolidation - The consolidated financial statements of the Company are prepared in conformity
with accounting principles generally accepted in the United States of America. The consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiary, the Bank and Manry Rawls. All significant intercompany
balances and transactions have been eliminated in consolidation.
Reclassification – Certain amounts in the 2017 consolidated financial statements have been reclassified to conform
to the 2018 presentation. The reclassifications had no effect on net income or shareholders’ equity as previously
reported.
Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts
due from banks, interest-bearing deposits with banks and federal funds sold, all of which mature within 90 days or less. The
Company is required by the Federal Reserve to maintain average reserve balances. For the final quarterly reporting period in
2018 and 2017, the aggregate amount of daily-required balances was $63,000 and $159,000, respectively.
9
9
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Investment securities - Investments in debt securities classified as held-to-maturity, if any, are stated at cost, and adjusted for
amortization of premiums and accretion of discounts using the interest method. The Company held no such securities
during the periods reported in the financial statements. Investments in debt securities classified as trading, if any, are stated
at fair value. Such securities are purchased and held principally for the purpose of selling them in the near term. Unrealized
holding gains and losses for trading securities are included in the Statements of Operations. The Company held no such
securities during the periods reported on in the financial statements.
Investments not classified as either held-to-maturity or trading are classified as available-for-sale. Debt securities classified as
available-for-sale are stated at fair value with unrealized holding gains and losses excluded from earnings and reported as a
component of accumulated other comprehensive income until realized.
The income statement line items impacted by the reclassification of realized gains (losses) on the sale of securities are the
gains (losses) on disposition of securities and income tax expense line items in the Statement of Operations. Gains and
losses on the sale of securities are determined using the specific identification method and are recognized on a trade date
basis. Other than temporary declines in the fair value of individual held-to-maturity and available-for-sale securities below
their cost, if any, are included in earnings as realized losses. Other than temporarily impaired (“OTTI”) guidance for
investments states that an impairment is OTTI if any of the following conditions exist: the entity intends to sell the security;
it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or, the
entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell).
Loans - The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan
portfolio is represented by commercial and consumer mortgage loans throughout Southeastern Virginia. The ability of the
Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.
Loans held for investment that management has the intent and ability to hold for the foreseeable future or until maturity
generally are stated at their outstanding unpaid principal balances. Loans held for sale are originated and intended for sale
in the secondary market. These loans are carried at the lower of cost or market in the aggregate. Net unrealized losses, if
any, are recognized through charges to income. Interest income is accrued on the unpaid principal balance for all loan
classes. Discounts and premiums are amortized to income using the interest method. Net deferred fees and costs are
amortized over the lives of the applicable loans using the effective interest rate method.
Allowance for loan losses - The allowance for loan losses 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 for loan losses is evaluated on a regular basis by management and is based upon management's periodic
review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant
revision as more information becomes available.
The allowance consists of a specific, a historic and a qualitative component. The specific component relates to loans that are
considered impaired. For such loans that are classified as impaired, an allowance is established when the discounted cash
flows (or collateral value or observable market price less selling costs) of an impaired loan are lower than the carrying value of
that loan. The historic component covers non-classified and criticized loans and is based on historical loss experience
adjusted for qualitative factors. The qualitative reserve of the allowance reflects adjustments to historical experience to
account for current conditions impacting the loan portfolio.
10
10
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Allowance for loan losses (concluded) - For all classes, 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 loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral less selling
costs if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. The allowance model is
applied to determine the specific allowance balance for impaired loans and the general allowance balance for unimpaired
loans grouped by loan type.
The Bank’s loan charge-off policy for all loan classes is to charge down loans to net realizable value once a portion of the
loan is determined to be uncollectible, and the underlying collateral shortfall is assessed. Loans are moved to nonaccrual
status when the loan becomes 90 days delinquent or a portion of the loan is determined to be uncollectible and supporting
collateral is not considered to be sufficient to cover potential losses.
Nonaccrual loans are reviewed monthly to determine if all or a portion of the loan is uncollectible. Nonaccrual loans that
are determined to be solely collateral dependent are monitored for possible charge downs to net realizable value upon
determination that they are impaired.
Income recognition on impaired and non-accrual loans - All classes of loans are generally classified as non-accrual if they are
past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-
secured and in the process of collection. All classes of loans that are on a current payment status or past due less than 90
days may also be classified as non-accrual, if repayment in full of principal and/or interest is in doubt.
All classes of loans may be returned to accrual status when all principal and interest amounts contractually due (including
arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of
repayment performance by the borrower, in accordance with the contractual terms of interest and principal.
When all classes of loans are classified as non-accrual and the future collectibility of the recorded loan balance is doubtful,
collections of interest and principal are generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a
non-accrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have
been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.
Other real estate owned - Real estate acquired through, or in lieu of, foreclosure is held for sale and is initially recorded at
fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Principal and interest losses
existing at the time of acquisition of such assets are charged against the allowance for loan losses and interest income,
respectively. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at
the lower of carrying amount or fair value less estimated cost to sell. Costs of significant property improvements are
capitalized, whereas costs relating to holding property are expensed. Revenue and expenses from operations associated with
other real estate owned and the impact of any subsequent changes in the carrying value are included in other expenses.
11
11
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Premises and equipment - Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation.
For financial reporting purposes, assets are depreciated over their estimated useful lives using the straight-line method.
Useful lives for these assets are within the following ranges: buildings from 10-39 years; equipment, furniture and fixtures 3-
15 years; computer equipment 3-7 years and software 3-5 years. For income tax purposes, the accelerated cost recovery
system and the modified accelerated cost recovery system are used.
Goodwill and other intangibles - Goodwill is not subject to amortization, but is subject to an annual assessment for
impairment by applying a fair-value-based test as required by ASC 350, Goodwill and Other Intangible Assets. Additionally,
under ASC 350, acquired intangible assets are separately recognized if the benefit of the assets can be sold, transferred,
licensed, rented, or exchanged, and amortized over their useful life.
Goodwill is tested for impairment at the reporting unit level on an annual basis as of September 30, or more often if events
or circumstances indicate there may be impairment. Testing is conducted in two steps: identifying the potential impairment
and then, if necessary, identifying the amount of impairment. The first step (step 1) compares the fair value of the reporting
unit to its carrying amount. If the fair value is less than the carrying amount, a second test is conducted by comparing the
implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair
value, an impairment loss is recognized in an amount equal to that excess. For our annual impairment testing conducted
during 2018, we identified one reporting unit with goodwill: Manry Rawls. For purposes of performing step 1 of the
goodwill impairment test, the Company primarily uses the income approach to value the reporting unit. The income
approach consists of discounting projected long-term future cash flows, which are derived from internal forecasts and
economic expectations for the respective reporting unit. The significant inputs to the income approach include expected
future cash flows, the long-term target tangible equity to tangible assets ratio, and the discount rate. Discount rates are
unique to the reporting unit and are based upon the cost of capital specific to the industry in which the reporting unit
operates. Management evaluated the sensitivity of the significant assumptions in its impairment analysis, including
consideration of the effect of changes in estimated future cash flows or the discount rate for the reporting unit. Based on our
analysis, we determined there is no goodwill impairment, since the fair value for the reporting unit was in excess of the
respective reporting unit’s carrying value as of September 30, 2018.
The second step (step 2) of impairment testing is necessary only if the reporting unit does not pass step 1. Step 2 compares
the implied fair value of the reporting unit goodwill with the carrying amount of the goodwill for the reporting unit. The
implied fair value of goodwill is determined in the same manner as goodwill that is recognized in a business combination.
Significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the reporting unit.
Since the reporting unit did not fail step 1, step 2 was not applicable during 2018 testing. The Company monitored events
and circumstances during the fourth quarter of 2018, and it determined that there were no triggering events requiring an
updated impairment test as of December 31, 2018.
Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow
projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic
and market conditions, and selecting an appropriate control premium. Selection and weighting of the various fair value
techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings most representative
of fair value.
Intangible assets are amortized or tested for impairment based on whether they have finite or indefinite lives. Intangibles
that have finite lives are amortized on a straight-line basis over their useful life and tested for impairment whenever events or
circumstances indicate the carrying amount of the assets may not be recoverable. The useful life applied to amortize the
customer list intangible, which was created from the acquisition of Manry Rawls, is 15 years. Note 6 provides additional
information related to goodwill and other intangibles.
12
12
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Non-marketable equity securities - Non-marketable equity securities are restricted securities, carried at cost, and periodically
evaluated for impairment. These securities are restricted, do not have a readily determinable fair value, and lack a market.
Because of the redemption provisions of the Federal Reserve Bank and Federal Home Loan Bank stock, the Bank estimated
that the fair value equaled or exceeded the cost of these investments and the investments were not impaired. Equity method
investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
the investment might not be recoverable. No such impairment was identified in 2018 or 2017.
Mergers and acquisitions - Mergers and acquisitions are accounted for using the acquisition method, as required by ASC
805, Business Combinations. Under this method, the cost of the acquired entity will be allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition. The excess of the cost over the fair value of the
acquired net assets is recognized as goodwill.
Income taxes - Income taxes are provided for the tax effects of transactions reported in the financial statements, and consist
of taxes currently due plus deferred taxes related primarily to differences between the basis of investment securities, deferred
loan fees, allowance for loan losses, deferred compensation, interest on non-performing loans and accumulated depreciation
for financial and income tax reporting.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered in income. Deferred tax assets are reduced if it is more likely than not that the tax
benefits will not be realized. Management has evaluated all other tax positions that could have a significant effect on the
financial statements and determined the Company had no uncertain income tax positions at December 31, 2018 and 2017.
The years ending on or after December 31, 2015 remain subject to examination by federal and state tax authorities. The
Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Deferred compensation plans - The Company maintains deferred compensation and retirement arrangements with certain
officers. The Company's policy is to accrue the estimated amounts to be paid under the contracts over the expected period
of active employment. The Company purchased life insurance and annuity contracts to fund the expected liabilities under
the contracts.
Revenue recognition on insurance contracts – Insurance commission income is recorded as of the effective date of insurance
coverage or the billing date, whichever is later. Contingent commissions are recognized when determinable, which is
generally when such commissions are received or when the Company receives data from the insurance companies that allows
the reasonable estimation of these amounts. The income effects of subsequent premium and fee adjustments are recorded
when the adjustments become known.
Earnings per common share - Basic earnings per share (EPS) is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the
potential dilution if restricted stock, or other common stock equivalents, would result in the issuance of additional shares of
common stock that share in earnings. Potential common shares that may be issued by the Company relate solely to
outstanding non-vested restricted stock.
Off-balance sheet financial instruments - In the ordinary course of business, the Company has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commitments under credit card arrangements,
commercial letters of credit, standby letters of credit, and financial guarantees written. Such financial instruments are
generally recorded in the financial statements when they become payable. A reserve for these off-balance sheet financial
instruments is considered immaterial as is the fair value of the financial guarantees.
13
13
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Use of estimates - The preparation of financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Estimation of fair values - The following notes summarize the major methods and assumptions used in estimating the fair
value of financial instruments:
Short-term financial instruments are valued at their carrying amounts included in the Company’s balance sheet, which
are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach
applies to cash and cash equivalents, deposits in other banks, federal funds sold, and short-term borrowings.
Prior to adopting ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Liabilities”, the Company
was allowed to measure fair value under an entry price notion. The entry price notion previously applied by the
Company used a discounted cash flows technique to calculate the present value of expected future cash flows for a
financial instrument. The exit price notion uses the same approach, but also incorporates other factors, such as
enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. As of
December 31, 2018, the technique used by the Company to estimate the exit price of the loan portfolio consists of
similar procedures to those used as of December 31, 2017, but with added emphasis on both illiquidity risk and credit
risk not captured by the previously applied entry price notion.
Investment securities are valued at quoted market prices, if available. The fair value of equity investments in the
restricted stock of the FRB and FHLB approximates the carrying value due to the redemptive provisions of these
securities.
For unquoted securities, the fair value is estimated by the Company on the basis of financial and other information.
The carrying amounts of accrued interest approximate fair value.
The fair value of demand deposits and deposits with no defined maturity is taken to be the amount payable on demand
at the reporting date. The fair value of fixed-maturity deposits is estimated using discounted cash flow analyses and rates
currently offered for deposits of similar remaining maturities. The intangible value of long-term relationships with
depositors is not taken into account in estimating the fair values disclosed.
Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate
characteristics. The impact of the Company’s assessment of its own credit risk is not factored into the fair value of the
notes.
The carrying amounts of federal funds purchased and borrowings under repurchase agreements approximate their fair
values.
The fair values of the Company’s Federal Home Loan Bank advances are estimated using discounted cash flow analyses
based on current rates offered on similar debt instruments.
It is not practicable to separately estimate the fair values for off-balance-sheet credit commitments, including standby
letters of credit and guarantees written, due to the lack of cost-effective, reliable measurement methods for these
instruments.
14
14
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Certain significant estimates - Material estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of other real estate owned. Management uses available
information to recognize losses on loans and other real estate owned. Future additions to the allowance may be necessary
based on changes in local economic conditions and other factors. Management believes the allowance recorded at
December 31, 2018 and 2017 is sufficient to cover inherent losses in the portfolio.
Recent accounting pronouncements - February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU
replaces ASC 840, “Leases” and was issued in order to increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous
GAAP. The ASU requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset for the lease term on the balance sheet. For leases with a term of
twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to
recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases
generally on a straight-line basis over the lease term. The ASU is effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years and early adoption is permitted. The Company expects to adopt
the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow
us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet
recognition for lessees. The Company has started an initial evaluation of our leasing contracts and activities. The Company
expects that the adoption of ASU 2016-02 will result in the recognition of lease liabilities totaling $681,000 and the
recognition of right-of-use assets totaling $724,000, with a corresponding increase to retained earnings of approximately
$43,000. The Company does not expect a material change to the timing of expense recognition. The Company is
evaluating our existing disclosures and may need to provide additional information as a result of adoption of the ASU.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instructions.” This ASU
changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated
credit losses expected to occur over the remaining life. The main objective of this ASU is to provide financial statement
users with more decision-useful information about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments
in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform
credit loss estimates. The changes are effective for annual and interim periods in fiscal years beginning after December 15,
2020. An entity may early adopt the standard for annual and interim periods in fiscal years beginning after December 15,
2018. The Company is currently evaluating the impact of this standard.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the test for
Goodwill Impairment. This ASU is intended to simplify goodwill impairment testing by eliminating the second step of the
analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a
business combination. The update instead requires entities to compare the fair value of a reporting unit with its carrying
amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit’s fair
value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. The
amendments are effective for public business entities for fiscal years beginning after December 15, 2019. Early adoption is
permitted. The Company does not expect the amendments to the standard to have a material effect on its consolidated
financial statements.
15
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Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
In March 2017, the FASB issued ASU No. 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Topic 310-20),
Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization
period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these
qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will
continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon
transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to
retained earnings as of assessing the impact that ASU 2017-08 will have on its consolidated financial statements. The
Company does not expect the amendments to the standard to have a material effect on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting.” The amendments expand the scope of Topic 718 to include share-based
payments issued to non-employees for good or services, which were previously excluded. The amendments will align the
accounting for share-based payments to non-employees and employees more similarly. The amendments are effective for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.
The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement.” The amendments modify the disclosure requirements in Topic
820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement
uncertainty. Certain disclosure requirements in Topic 820 are also removed or modified. The amendments are effective for
fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Certain of the amendments
are to be applied prospectively while others are to be applied retrospectively. Early adoption is permitted. The Company
does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not
expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Accounting Standards Adopted in 2018
In August 2015, the FASB issued Accounting Standards Updated (“ASU”) No. 2015-14, “Revenue from Contracts with
Customers: Topic 606”. This ASU is an update to the original ASU No. 2014-09 and the deferral of the effective date.
Both ASU’s apply to any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or
services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other
standards. The guidance supersedes the current revenue recognition requirements in Topic 605, “Revenue Recognition.”
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. To be in alignment with the core principle, an entity must apply a five-step process including:
identification of the contract(s) with a customer, identification of performance obligations in the contract(s), determination
of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue when
(or as) the entity satisfies a performance obligation. Additionally, the existing requirements for the recognition of a gain or
loss on the transfer of nonfinancial assets that are not in a contract with a customer have also been amended to be consistent
with the guidance on recognition and measurement. The amendments in this ASU became effective for the Company on
January 1, 2018. The Company applied the guidance using a modified retrospective approach. See Note 21 for additional
information.
16
16
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 2 - Summary of significant accounting policies (concluded)
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Subtopic 825-10: Recognition and
Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition,
measurement, presentation and disclosure. The amendments in this ASU (1) require equity investments to be measured at
fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments
without readily determinable fair value; (3) require public business entities to use exit prices, rather than entry prices, when
measuring fair value of financial instruments for disclosure purposes; (4) require separate presentation of financial assets and
financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to
the financial statements; (5) eliminate the requirement to disclose the method(s) and significant assumptions used to
estimate the fair value for financial statements measured at amortized cost on the balance sheet; (6) require separate
presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments; and (7) state that a valuation allowance on deferred tax
assets related to available-for-sale securities should be evaluated in combination with other deferred tax assets. The
Company adopted the accounting standard on January 1, 2018. The adoption of the accounting standard did not have a
material impact on the Company’s Consolidated Financial Statements. In accordance with the new guidance, the Company
began measuring the fair value of its loan portfolio, using an exit price notion. See Note 17 for additional information.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flow.” This ASU is intended to reduce diversity in
practice in how certain transactions are classified in the statement of cash flows. The guidance addresses: (1) debt
prepayment on debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration
payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the
settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received
from equity method investments; (7) beneficial interest in securitizations transactions; and (8) separately identifiable cash
flows and application of the predominance principle. On January 1, 2018, the Company adopted the accounting standard.
The adoption did not have a material impact on the Company’s Consolidated Financial Statements.
In February 2017, the FASB amended the “Other Income Topic of the Accounting Standards Codification” to clarify the
scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets.
The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new
revenue standard. The Company adopted the standard effective January 1, 2018 using the modified retrospective approach.
In February 2018, the FASB Issued (2018-02), “Income Statement (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income”, which requires Companies to reclassify the stranded effects in other
comprehensive income to retained earnings as a result of the change in the tax rates under the Tax Cuts and Jobs Act. The
Company has opted to early adopt this pronouncement in 2017 by retrospective application to each period (or periods) in
which the effect of the change in the tax rate under the Tax Cuts and Jobs Act is recognized. The impact of the
reclassification from other comprehensive income to retained earnings was $229,534.
17
17
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 3 - Available-for-sale securities
At December 31, 2018 and 2017, securities are as follows:
December 31, 2018
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Small Business Administration loan securities
Total
December 31, 2017
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Small Business Administration loan securities
Total
Amortized
Cost
$ 65,906,841
24,754,971
52,982,245
13,857,161
$ 157,501,218
Gross
Unrealized
Gains
$ 698,572
71,749
65,203
417,665
$ 1,253,189
Gross
Unrealized
Losses
$ 441,306
467,297
827,298
2,998
$ 1,738,899
Fair
Value
$ 66,164,107
24,359,423
52,220,150
14,271,828
$ 157,015,508
Amortized
Cost
$ 51,551,857
17,452,768
48,104,162
18,929,512
$ 136,038,299
Gross
Unrealized
Gains
$ 1,539,085
34,034
109,685
813,123
$ 2,495,927
Gross
Unrealized
Losses
$ 51,202
139,739
539,339
-
$ 730,280
Fair
Value
$ 53,039,740
17,347,063
47,674,508
19,742,635
$ 137,803,946
At December 31, 2018 and 2017, gross unrealized losses and fair value by length of time that the individual securities have
been in a continuous unrealized loss position, are as follows:
December 31, 2018
Available-for-sale securities:
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Small Business Administration loan securities
Total temporarily impaired
Losses Existing for:
Fair Value
Less than
12 Months
More than
12 Months
Total
Losses
$ 21,516,251
16,767,519
40,812,165
260,429
$ 357,208
86,217
77,666
2,998
$ 84,098
381,080
749,632
-
$ 441,306
467,297
827,298
2,998
investment securities
$ 79,356,364
$ 524,089
$ 1,214,810
$ 1,738,899
December 31, 2017
Available-for-sale securities:
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Total temporarily impaired
Continuous Unrealized
Losses Existing for:
Fair Value
Less than
12 Months
More than
12 Months
Total
Losses
$ 2,087,083
12,476,225
34,952,462
$ 7,312
61,292
247,227
$ 43,890
78,447
292,112
$ 51,202
139,739
539,339
investment securities
$ 49,515,770
$ 315,831
$ 414,449
$ 730,280
18
18
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 3 - Available-for-sale securities (continued)
State and municipal - The Company’s unrealized losses on state and municipal securities were caused by the interest rate
fluctuations. The severity and duration of these unrealized losses will fluctuate with interest rates in the economy. Based on
the credit quality of the issuers, and because of the Company’s intent to hold the securities until a market price recovery or
maturity, and it is more likely than not that the Company will not be required to sell these securities before their anticipated
recovery, the Company does not consider these investments other than temporarily impaired.
Residential mortgage-backed securities and collateralized mortgage obligations - The Company’s unrealized losses on residential
mortgage-backed securities and collateralized mortgage obligations were caused by the interest rate fluctuations. The severity
and duration of these unrealized losses will fluctuate with interest rates in the economy. Our mortgage-related securities are
backed by the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation
(“FHLMC”), which are Government Sponsored Entities (“GSE”) or are collateralized by securities backed by these agencies.
The Company intends to hold the securities until a market price recovery or maturity, and it is more likely than not that the
Company will not be required to sell these securities before their anticipated recovery. Because of the preceding factors the
Company does not consider these investments other than temporarily impaired.
Small Business Administration loan securities - The Company’s unrealized losses on small business administration loans were
caused by the interest rate fluctuations. The severity and duration of these unrealized losses will fluctuate with interest rates
in the economy. Based on the credit quality of the issuers, and because of the Company’s intent to hold the securities until
a market price recovery or maturity, and it is more likely than not that the Company will not be required to sell these
securities before their anticipated recovery, the Company does not consider these investments other than temporarily
impaired.
At December 31, 2018 and 2017, securities with a carrying value of approximately $50,922,015 and $52,883,572,
respectively, were pledged to the Commonwealth of Virginia to secure public deposits. In addition, at December 31, 2018
and 2017, securities with a carrying value of $13,431,015 and $7,312,036, respectively, were pledged to the Federal Home
Loan Bank to secure advances. Investment securities with carrying values of $5,874,785 and $3,054,577 were pledged to
secure repurchase agreements at December 31, 2018 and 2017, respectively.
At December 31, 2018, the amortized cost and fair value of debt securities by maturity date are as follows:
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Total debt securities
Gross realized gains on available-for-sale securities were:
State and municipal
Collateralized mortgage obligations
Total gross realized gains
19
Amortized
Cost
$ 917,230
5,320,775
15,691,466
135,571,747
$ 157,501,218
Fair
Value
$ 931,863
5,425,199
15,935,846
134,722,600
$ 157,015,508
2018
$ 154,773
-
$ 154,773
2017
$ 116,397
19,733
$ 136,130
19
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 3 - Available-for-sale securities (concluded)
Gross realized losses on available-for-sale securities were:
Residential mortgage-backed securities
Total gross realized gains
2018
$ -
$ -
2017
74,914
$ 74,914
Proceeds from the sale of available-for-sale securities totaled $3,979,003 and $10,446,016 for the years ended December 31,
2018 and 2017, respectively.
Note 4 - Loans and Allowance for Loan Losses
General - The Bank provides to its customers a full range of short- to medium-term commercial, agricultural, Small Business
Administration guaranteed, mortgage, home equity, and personal loans, both secured and unsecured. The Bank also makes
real estate mortgage and construction loans. At December 31, 2018 and 2017, loans held for investment consisted of the
following:
Mortgage loans on real estate:
Construction
Commercial Real Estate:
Non-owner occupied
Owner occupied
Residential 1-4 family
Multifamily
Equity lines of credit
Total mortgage loans on real estate
Commercial and industrial
Agricultural
Individuals
Total loans
Less: Allowance for loan losses
Net deferred loan fees and costs
Loans, net
2018
2017
$ 37,308,602
$ 35,828,855
26,693,164
63,422,601
39,010,134
5,333,956
10,946,435
182,714,892
60,469,780
23,243,498
8,951,568
275,379,738
(5,916,359)
56,927
$ 269,520,306
31,423,300
64,905,599
40,745,349
4,631,773
13,278,388
190,813,264
55,987,931
23,836,897
1,987,347
272,625,439
(5,922,333)
49,607
$ 266,752,713
Real Estate Loans - Real estate loans include construction and land development loans, commercial real estate loans, home
equity lines of credit, multi-family and residential mortgages.
Construction/development lending totaled $37.3 million and $35.8 million at December 31, 2018 and 2017, respectively.
The Bank originates one-to-four family residential construction loans for the construction of custom homes (where the home
buyer is the borrower) and provides financing to builders and consumers for the construction of homes. The Bank generally
receives a pre-arranged permanent financing commitment from an outside banking entity prior to financing the
construction of pre-sold homes. The Bank also makes commercial real estate construction loans, primarily for owner-
occupied properties. The Bank limits its construction lending risk through adherence to established underwriting
procedures. Residential one-to-four family loans amounted to $39.0 million and $40.7 million at December 31, 2018 and
2017, respectively.
20
20
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 – Loans and Allowance for Loan Losses (continued)
Commercial real estate loans totaled $90.1 million and $96.3 million at December 31, 2018 and 2017, respectively. This
lending has involved loans secured by owner-occupied commercial buildings for office, storage and warehouse space, as well
as non-owner occupied commercial buildings. The Bank generally requires the personal guaranty of borrowers and a
demonstrated cash flow capability sufficient to service the debt. Loans secured by commercial real estate may be larger in
size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are
often dependent on successful operation or management of the properties.
Multifamily loans totaled $5.3 million and $4.6 million at December 31, 2018 and 2017, respectively. These loans are
residential housing projects containing five or more rental units. Traditional multifamily projects charge market rents and
are located in both city and suburban markets. Equity lines of credit are open-ended revolving lines of credit secured by the
equity in a borrower’s residence. Equity lines of credit totaled $10.9 million and $13.3 million at December 31, 2018 and
2017, respectively.
Commercial and Industrial Loans - At December 31, 2018 and 2017, the Bank’s commercial loan portfolio totaled $60.5
million and $55.9 million, respectively. Commercial loans include both secured and unsecured loans for working capital,
expansion, and other business purposes. Short-term working capital loans are secured by accounts receivable, inventory
and/or equipment. The Bank also makes term commercial loans secured by equipment and real estate. Lending decisions
are based on an evaluation of the financial strength, cash flow, management and credit history of the borrower, and the
quality of the collateral securing the loan. With few exceptions, the Bank requires personal guarantees and secondary
sources of repayment. Commercial loans generally provide greater yields and re-price more frequently than other types of
loans, such as real estate loans.
Agricultural Loans – Agricultural loans totaled $23.2 million and $23.8 million at December 31, 2018 and 2017, respectively
and include loans secured by farm equipment, inventory and farm land. Lending decisions are based on an evaluation of
the financial strength, cash flow, management and credit history of the borrower, and the quality of the collateral securing
the loan. Payments on such loans are often dependent on successful operation or management of the farming operation.
Loans to Individuals - Loans to individuals (consumer loans) include automobile loans, boat and recreational vehicle
financing, and miscellaneous secured and unsecured personal loans and totaled $8.9 million and $1.9 million at December
31, 2018 and 2017, respectively. Overdrafts totaling $32 thousand and $24 thousand at December 31, 2018 and 2017,
respectively, were reclassified from deposits to loans and are also classified in loans to individual. Consumer loans generally
can carry significantly greater risks than other loans, even if secured, if the collateral consists of rapidly depreciating assets
such as automobiles and equipment. Repossessed collateral securing a defaulted consumer loan may not provide an
adequate source of repayment of the loan. Consumer loan collections are sensitive to job loss, illness and other personal
factors. The Bank manages the risks inherent in consumer lending by following established credit guidelines and
underwriting practices designed to minimize risk of loss.
Loan Approvals - The Bank’s loan policies and procedures establish the basic guidelines governing its lending operations. The
guidelines address the type of loans that the Bank seeks, target markets, underwriting and collateral requirements, terms,
interest rate and yield considerations and compliance with laws and regulations. All loans or credit lines are subject to
approval procedures and amount limitations. These limitations apply to the borrower’s total outstanding indebtedness to
the Bank, including any indebtedness as a guarantor. The policies are reviewed and approved at least annually by the Board
of Directors of the Bank. The Bank supplements its own supervision of the loan underwriting and approval process with
periodic loan reviews by independent, outside professionals experienced in loan review. Responsibility for loan review and
loan underwriting resides with the Chief Credit Officer position. This position is responsible for loan underwriting and
approval. On an annual basis, the Board of Directors of the Bank determines officers’ lending authority. Authorities may
include loans, letters of credit, overdrafts, uncollected funds and such other authorities as determined by the Board of
Directors.
21
21
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Substantially all of the Bank's loans have been granted to customers in the Hampton Roads area of Virginia.
Credit Review and Evaluation - The Bank outsources the credit risk review function which reports to the Board of Directors.
The focus of the engagement is on policy compliance and proper grading of higher credit risk loans as well as new and
existing loans on a sample basis. Additional reporting for problem/criticized assets has been developed along with an after-
the-fact loan review.
The Bank uses a risk grading program to facilitate the evaluation of probable inherent loan losses and the adequacy of the
allowance for loan losses. In this program, risk grades are initially assigned by loan officers, reviewed by the Chief Credit
Officer and reviewed by credit review analysts on a test basis. The Bank strives to maintain the loan portfolio in accordance
with conservative loan underwriting policies that result in loans specifically tailored to the needs of the Bank’s market area.
Every effort is made to identify and minimize the credit risks associated with such lending strategies.
Credit Review and Evaluation (concluded) - All loans are risk graded on a scale from 1 (highest quality) to 9 (loss). Acceptable
loans at inception are grades 1 through 5. These grades have underwriting requirements that at least meet the minimum
requirements of a secondary market source. If borrowers do not meet credit history requirements, other mitigating criteria
such as substantial liquidity and low loan-to-value ratios could be considered and would generally have to be met in order to
make the loan. The Bank’s loan policy states that a guarantor may be necessary if reasonable doubt exists as to the
borrower’s ability to repay.
The Board of Directors has authorized the loan officers to have individual approval authority for risk grade 1 through 5
loans up to maximum exposure limits for each customer. New or renewed loans that are graded 6 (special mention) or lower
must have approval from the Chief Credit Officer and Chief Lending Officer. Any changes in risk assessments as
determined by loan officers, credit administrators, regulatory examiners and management are also considered.
The risk grades, normally assigned by the loan officers when the loan is originated and reviewed by the Chief Credit Officer,
are based on several factors including historical data, current economic factors, composition of the portfolio, and
evaluations of the total loan portfolio and assessments of credit quality within specific loan types. In some cases the risk
grades are assigned by the Chief Credit Officer or the Chief Lending Officer, depending upon dollar exposure. Because
these factors are dynamic, the provision for loan losses can fluctuate. Credit quality reviews are based primarily on analyses
of borrowers’ cash flows, with asset values considered only as a second source of payment. Credit analysts work with lenders
in underwriting, structuring and risk grading the Bank’s credits. The Chief Lending Officer and the Chief Credit Officer
focus on lending policy compliance, credit risk grading, and credit risk reviews on larger dollar exposures. Management uses
the information developed from the procedures above in evaluating and grading the loan portfolio. This continual grading
process is used to monitor the credit quality of the loan portfolio and to assist management in determining the appropriate
levels of the allowance for loan losses. The following is a summary of the credit risk grade definitions for all loan types:
“1” — Prime – Credits in this category are virtually risk-free and are well-collateralized by cash or cash-equivalent instruments
held by the Bank. The repayment program is well-defined and achievable, and repayment sources are numerous. No material
documentation deficiencies or exceptions exist.
“2” — Good – This grade is reserved for loans secured by readily marketable collateral, or loans within guidelines to
borrowers with liquid financial statements. A liquid financial statement is generally a financial statement with substantial
liquid assets, particularly relative to the debts. These loans have excellent sources of repayment, with no significant
identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards, and Federal
and State regulations (no exceptions of any kind).
22
22
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
“3” — Acceptable 1 – This grade is reserved for the Bank’s high-quality loans. These loans have excellent sources of
repayment, with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the
following characteristics:
Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations
(no exceptions of any kind).
Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be
supplemented with verifiable cash flow from other sources.
Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or
liquidation value to the net worth of the borrower or guarantor.
“4” — Acceptable 2 – This grade is given to acceptable loans. These loans have adequate sources of repayment, with little
identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics:
General conformity to the Bank's underwriting requirements, with limited exceptions to the Bank's policy, product
or underwriting guidelines. All exceptions noted have documented mitigating factors that offset any additional risk
associated with the exceptions noted.
Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be
supplemented with verifiable cash flow from other sources.
Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or
liquidation value to the net worth of the borrower or guarantor.
“5” — Weak Pass – This grade is given to acceptable loans that show signs of weakness in either adequate sources of
repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. Loans
assigned this grade may demonstrate some or all of the following characteristics:
Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present
a higher degree of risk to the Bank. Although the combination and/or severity of identified exceptions is greater for
this risk grade, the exceptions may be properly mitigated by other documented factors that offset any additional
risks.
Unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this
time. Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not
historic) performance.
Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral
and liquidation value to the net worth of the borrower or guarantor.
“6” — Special Mention – Special Mention loans include the following characteristics:
Loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors;
Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected,
weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result
of deviations from prudent lending practices; or
Loans where adverse economic conditions have developed subsequent to the loan origination that do not
jeopardize liquidation of the debt, but do substantially increase the level of risk, may also warrant this rating.
“7” — Substandard – A substandard loan is inadequately protected by the current sound net worth and paying capacity of
the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution
will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be
downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of
well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to:
High debt to worth ratios
23
23
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Declining or negative earnings trends
Declining or inadequate liquidity
Questionable repayment sources
Lack of well-defined secondary repayment source, and
Unfavorable competitive comparisons.
Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings
capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan
balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited
excessive overdue status or extensions and/or renewals.
“8” — Doubtful – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added
characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions,
and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may
occur which would salvage the debt. Among these events are:
Injection of capital
Alternative financing
Liquidation of assets or the pledging of additional collateral.
The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on
non-accrual status, and no definite repayment schedule exists. Doubtful is a temporary grade where a loss is expected but is
presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off.
“9” — Loss – Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable
assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather
that it is not practical or desirable to defer writing off the loan even though partial recovery may be effected in the future.
Probable Loss portions of problem assets should be charged against the Allowance for Loan Losses. Loans may reside in this
classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter-end.
The following is a summary of credit quality indicators by class at December 31, 2018 and 2017:
Real Estate Credit Exposure as of December 31, 2018
Commercial Real Estate
Non-owner
Owner
occupied
occupied
Construction
Residential
1-4 Family Multifamily
Equity lines
of credit
(in thousands)
Good
Acceptable 1
Acceptable 2
Weak Pass
Special Mention
Substandard
-
$
2,448
26,393
7,968
500
-
37,309
$
-
$
1,832
11,136
13,432
-
293
26,693
$
$
-
3,263
34,402
24,369
140
1,249
63,423
$
$
15
5,126
20,766
10,476
1,231
1,396
39,010
$
-
$
-
1,931
3,403
-
-
5,334
$
$
-
4,534
5,415
522
60
415
10,946
$
24
24
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Other Credit Exposures as of December 31, 2018
Commerical
and industrial Agricultural
Individuals
Total
Good
Acceptable 1
Acceptable 2
Weak Pass
Special Mention
Substandard
(in thousands)
-
$
7,929
35,930
16,243
350
18
60,470
$
-
$
1,962
12,835
8,446
-
-
23,243
$
-
$
186
1,055
7,427
284
-
8,952
$
Real Estate Credit Exposure as of December 31, 2017
$
15
27,280
149,863
92,286
2,565
3,371
275,380
$
Good
Acceptable 1
Acceptable 2
Weak Pass
Special Mention
Substandard
Construction
$
-
1,927
17,757
13,990
1,902
253
35,829
$
Commercial Real Estate
Owner
occupied
Non-owner
occupied
Residential
1-4 Family Multifamily
Equity lines
of credit
(in thousands)
$
$
$
-
2,876
12,549
13,865
1,815
318
31,423
$
$
-
3,016
33,805
26,085
1,941
59
64,906
$
15
7,083
19,112
10,769
2,764
1,002
40,745
$
-
-
1,125
3,507
-
-
4,632
$
$
$
45
6,238
5,918
744
144
189
13,278
Other Credit Exposures as of December 31, 2017
Commerical
and industrial Agricultural
Individuals
Total
(in thousands)
Good
Acceptable 1
Acceptable 2
Weak Pass
Special Mention
Substandard
-
$
4,175
36,645
14,202
930
36
55,988
$
-
$
5,564
12,281
5,289
703
-
23,837
$
$
$
16
251
1,189
208
323
-
1,987
76
31,130
140,380
88,658
10,523
1,858
272,625
$
$
25
25
Farmers Bankshares, Inc.
Note 4 - Loans and Allowance for Loan Losses (continued)
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Nonaccrual loans and past due loans - Nonperforming assets include loans classified as nonaccrual, foreclosed bank-owned
property and loans past due 90 days or more on which interest is still being accrued. There were no financing receivables
Nonaccrual loans and past due loans - Nonperforming assets include loans classified as nonaccrual, foreclosed bank-owned
past due over 90 days accruing interest as of December 31, 2018 or 2017. Nonaccrual loans as of December 31, 2018
property and loans past due 90 days or more on which interest is still being accrued. There were no financing receivables
totaled $700 thousand, or 0.25% of total loans, compared with $834 thousand, or 0.31% of total loans, as of December 31,
past due over 90 days accruing interest as of December 31, 2018 or 2017. Nonaccrual loans as of December 31, 2018
2017. The Bank aggressively pursues the collection and repayment of all loans. Other nonperforming assets, such as
totaled $700 thousand, or 0.25% of total loans, compared with $834 thousand, or 0.31% of total loans, as of December 31,
repossessed and foreclosed collateral are aggressively liquidated by the Bank’s management. The total number of loans on
2017. The Bank aggressively pursues the collection and repayment of all loans. Other nonperforming assets, such as
nonaccrual status as of December 31, 2018 and 2017 was 10 and 9, respectively.
repossessed and foreclosed collateral are aggressively liquidated by the Bank’s management. The total number of loans on
nonaccrual status as of December 31, 2018 and 2017 was 10 and 9, respectively.
For the years ended December 31, 2018 and 2017, the Bank recognized $-0- in interest income on nonaccrual loans. If
interest on those loans had been accrued in accordance with the original terms, interest income would have increased by
For the years ended December 31, 2018 and 2017, the Bank recognized $-0- in interest income on nonaccrual loans. If
approximately $38,829 and $59,263 for the years ended December 31, 2018 and 2017, respectively.
interest on those loans had been accrued in accordance with the original terms, interest income would have increased by
approximately $38,829 and $59,263 for the years ended December 31, 2018 and 2017, respectively.
The following is a breakdown of nonaccrual loans as of December 31, 2018 and 2017:
The following is a breakdown of nonaccrual loans as of December 31, 2018 and 2017:
December 31,
Mortgage loans on real estate:
Construction
Mortgage loans on real estate:
Commercial real estate:
Construction
Non-owner occupied
Commercial real estate:
Residential 1-4 family
Non-owner occupied
Residential 1-4 family
Equity lines of credit
Equity lines of credit
Commerical and industrial
Commerical and industrial
Total
Total
2018
December 31,
2017
2018
$
-
2017
$
252,743
$
-
$
252,743
151,523
327,853
204,887
15,341
699,604
151,523
327,853
204,887
15,341
699,604
$
$
166,192
189,863
188,924
36,327
834,049
166,192
189,863
188,924
36,327
834,049
$
$
Nonaccrual loans and past due loans (concluded) - All classes of loans are considered past due if the required principal and
Nonaccrual loans and past due loans (concluded) - All classes of loans are considered past due if the required principal and
interest income have not been received as of the date such payments were due. The following tables present the Bank’s aged
interest income have not been received as of the date such payments were due. The following tables present the Bank’s aged
analysis of past due loans as of December 31, 2018 and 2017:
analysis of past due loans as of December 31, 2018 and 2017:
December 31, 2018
December 31, 2018
Mortgage loans on real estate:
Mortgage loans on real estate:
Construction
Construction
Commercial real estate:
Commercial real estate:
Non-owner occupied
Non-owner occupied
Owner occupied
Owner occupied
Residential 1-4 family
Residential 1-4 family
Multifamily
Multifamily
Equity lines of credit
Equity lines of credit
Commercial and industrial
Commercial and industrial
Agricultural
Agricultural
Individuals
Individuals
Total
Total
84
84
-
-
523
-
-
$
523
$
30-59 Days
30-59 Days
Past Due
Past Due
60-89 Days
60-89 Days
Past Due
Past Due
Greater Than
Greater Than
90 Days
90 Days
Greater Than
Greater Than
90 Days Still
90 Days Still
Accruing
Accruing
(in thousands)
(in thousands)
Total Past
Total Past
Due
Due
Current
Total Loans
Current
Total Loans
$
$
248
248
$
-
$
-
$
-
$
-
$
-
$
-
$
248
$
248
$
$
37,061
37,061
$
$
37,309
37,309
-
-
49
49
142
142
-
-
-
-
-
-
-
-
12
12
-
-
-
-
-
$
12
-
-
-
-
-
$
70
70
-
-
193
193
-
-
-
-
-
-
-
-
-
-
$
263
263
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
$
-
12
$
70
49
347
-
-
70
49
347
-
-
84
84
26,623
63,374
38,663
5,334
10,946
60,386
23,243
8,952
$
274,582
26,623
63,374
38,663
5,334
10,946
60,386
23,243
8,952
274,582
26,693
63,423
39,010
5,334
10,946
60,470
23,243
8,952
$
275,380
26,693
63,423
39,010
5,334
10,946
60,470
23,243
8,952
275,380
$
-
-
$
798
-
-
798
$
$
26
26
26
30-59 Days
30-59 Days
30-59 Days
Past Due
30-59 Days
Past Due
Past Due
Past Due
60-89 Days
60-89 Days
60-89 Days
Past Due
60-89 Days
Past Due
Past Due
Past Due
Greater Than
Greater Than
Greater Than
90 Days
Greater Than
90 Days
90 Days
90 Days
Total Past
Total Past
Total Past
Due
Total Past
Due
Due
Due
Current
Current
Current
Current
Total Loans
Total Loans
Total Loans
Total Loans
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
For Years Ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Note 4 - Loans and Allowance for Loan Losses (continued)
Note 4 - Loans and Allowance for Loan Losses (continued)
Note 4 - Loans and Allowance for Loan Losses (continued)
December 31, 2017
December 31, 2017
December 31, 2017
Mortgage loans on real estate:
December 31, 2017
Mortgage loans on real estate:
Mortgage loans on real estate:
Mortgage loans on real estate:
Construction
Construction
Construction
Commercial real estate:
Commercial real estate:
Construction
Commercial real estate:
Non-owner occupied
Non-owner occupied
Commercial real estate:
Non-owner occupied
Owner occupied
Owner occupied
Non-owner occupied
Owner occupied
Residential 1-4 family
Residential 1-4 family
Owner occupied
Residential 1-4 family
Multifamily
Multifamily
Residential 1-4 family
Multifamily
Equity lines of credit
Equity lines of credit
Multifamily
Equity lines of credit
Commercial and industrial
Commercial and industrial
Equity lines of credit
Commercial and industrial
Agricultural
Agricultural
Commercial and industrial
Agricultural
Individuals
Individuals
Agricultural
Individuals
Total
Total
Individuals
Total
Total
$
-
$
-
-
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
9
-
9
9
$
$
9
9
9
$
$
9
-
-
$
-
$
-
-
$
$
-
4
-
-
15
-
-
-
24
-
-
-
-
-
-
-
-
-
43
$
-
$
$
-
-
-
$
4
4
4
15
15
15
24
24
24
43
43
43
$
-
-
-
-
-
73
73
73
$
-
$
-
$
-
73
-
-
-
-
-
-
-
-
-
-
-
36
-
-
-
-
-
-
-
-
109
109
-
109
109
$
$
$
36
36
36
$
Greater Than
Greater Than
Greater Than
90 Days Still
Greater Than
90 Days Still
90 Days Still
Accruing
90 Days Still
Accruing
Accruing
(in thousands)
Accruing
(in thousands)
(in thousands)
(in thousands)
$
-
$
-
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
$
-
$
-
77
$
-
-
-
15
24
36
$
$
35,829
$
$
31,346
64,906
40,730
4,632
13,254
55,952
23,837
1,978
272,464
$
$
$
35,829
35,829
35,829
31,346
31,346
64,906
31,346
64,906
40,730
64,906
40,730
4,632
40,730
4,632
13,254
4,632
13,254
55,952
13,254
55,952
23,837
55,952
23,837
1,978
23,837
1,978
272,464
1,978
272,464
272,464
-
-
-
-
-
-
77
77
77
15
15
15
24
24
36
24
36
-
36
-
9
-
9
$
161
9
161
161
$
35,829
$
$
31,423
64,906
40,745
4,632
13,278
55,988
23,837
1,987
272,625
$
$
$
35,829
35,829
35,829
31,423
31,423
64,906
31,423
64,906
40,745
64,906
40,745
4,632
40,745
4,632
13,278
4,632
13,278
55,988
13,278
55,988
23,837
55,988
23,837
1,987
23,837
1,987
272,625
1,987
272,625
272,625
$
$
9
161
$
$
$
Troubled Debt Restructurings - In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts
Troubled Debt Restructurings - In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts
Troubled Debt Restructurings - In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts
on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized where
on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized where
Troubled Debt Restructurings - In order to maximize the collection of loan balances, the Bank evaluates troubled loan accounts
on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized where
there is a reasonable chance that an appropriate modification would allow the Bank’s customers to continue servicing debt.
there is a reasonable chance that an appropriate modification would allow the Bank’s customers to continue servicing debt.
on a case-by-case basis to determine if a loan modification would be appropriate. Loan modifications may be utilized where
there is a reasonable chance that an appropriate modification would allow the Bank’s customers to continue servicing debt.
A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) a creditor has granted a concession to the
A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) a creditor has granted a concession to the
there is a reasonable chance that an appropriate modification would allow the Bank’s customers to continue servicing debt.
A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) a creditor has granted a concession to the
debtor, and, 2) the debtor is experiencing financial difficulties. Non-accruing loans that are modified can be placed back on
debtor, and, 2) the debtor is experiencing financial difficulties. Non-accruing loans that are modified can be placed back on
A loan is a troubled debt restructuring (“TDR”) if both of the following exist: 1) a creditor has granted a concession to the
debtor, and, 2) the debtor is experiencing financial difficulties. Non-accruing loans that are modified can be placed back on
accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all
accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all
debtor, and, 2) the debtor is experiencing financial difficulties. Non-accruing loans that are modified can be placed back on
accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all
amounts due (both principal and interest) according to the terms of the loan agreement and a sustained period of payment
amounts due (both principal and interest) according to the terms of the loan agreement and a sustained period of payment
accrual status when both principal and interest are current and it is probable that the Bank will be able to collect all
amounts due (both principal and interest) according to the terms of the loan agreement and a sustained period of payment
performance is demonstrated. Interest on troubled debt restructured loans is accrued at the restructured rates when it is
performance is demonstrated. Interest on troubled debt restructured loans is accrued at the restructured rates when it is
amounts due (both principal and interest) according to the terms of the loan agreement and a sustained period of payment
performance is demonstrated. Interest on troubled debt restructured loans is accrued at the restructured rates when it is
anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. For the
anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. For the
performance is demonstrated. Interest on troubled debt restructured loans is accrued at the restructured rates when it is
anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. For the
years ended December 31, 2018 and 2017, the following table presents a breakdown of the types of concession made by loan
years ended December 31, 2018 and 2017, the following table presents a breakdown of the types of concession made by loan
anticipated that no loss of original principal will occur and a sustained payment performance period is obtained. For the
years ended December 31, 2018 and 2017, the following table presents a breakdown of the types of concession made by loan
class:
class:
years ended December 31, 2018 and 2017, the following table presents a breakdown of the types of concession made by loan
class:
class:
Year ended December 31, 2018
Year ended December 31, 2018
Post-
Year ended December 31, 2018
Post-
Post-
Year ended December 31, 2018
Modification
Modification
Post-
Modification
Outstanding
Outstanding
Modification
Recorded
Outstanding
Recorded
Outstanding
Investment
Recorded
Investment
Recorded
Investment
Investment
Pre-Modification
Pre-Modification
Pre-Modification
Outstanding
Outstanding
Pre-Modification
Recorded
Outstanding
Recorded
Outstanding
Investment
Recorded
Investment
Recorded
Investment
Investment
Number
Number
of loans
Number
of loans
Number
of loans
of loans
Year ended December 31, 2017
Year ended December 31, 2017
Post-
Year ended December 31, 2017
Post-
Post-
Year ended December 31, 2017
Modification
Modification
Post-
Modification
Outstanding
Outstanding
Modification
Recorded
Outstanding
Recorded
Outstanding
Investment
Recorded
Investment
Recorded
Investment
Investment
Pre-Modification
Pre-Modification
Pre-Modification
Outstanding
Outstanding
Pre-Modification
Recorded
Outstanding
Recorded
Outstanding
Investment
Recorded
Investment
Recorded
Investment
Investment
Number
Number
of loans
Number
of loans
of loans
Number
of loans
Extended payment terms
Extended payment terms
Extended payment terms
Extended payment terms
Mortgage loans on real estate:
Mortgage loans on real estate:
Mortgage loans on real estate:
Mortgage loans on real estate:
Construction
Construction
Commercial real estate:
Construction
Construction
Commercial real estate:
Non-owner occupied
Commercial real estate:
Commercial real estate:
Residential 1-4 family
Non-owner occupied
Non-owner occupied
Equity lines of credit
Non-owner occupied
Residential 1-4 family
Residential 1-4 family
Residential 1-4 family
Equity lines of credit
Equity lines of credit
Equity lines of credit
Total
Total
Total
Total
-
$
-
$
-
1
2
3
6
-
-
-
1
1
1
2
2
2
3
3
3
6
6
6
$
-
$
-
$
-
47,157
163,607
373,039
583,803
47,157
47,157
47,157
163,607
163,607
163,607
373,039
373,039
373,039
583,803
583,803
583,803
$
$
$
$
$
-
$
-
$
-
47,157
163,607
373,039
583,803
47,157
47,157
47,157
163,607
163,607
163,607
373,039
373,039
373,039
583,803
583,803
583,803
$
$
$
$
1
1
-
-
2
$
252,743
$
1
1
1
$
$
$
252,743
252,743
252,743
102,103
252,743
$
$
$
102,103
252,743
252,743
252,743
1
1
1
-
-
$
-
-
-
-
2
2
2
-
102,103
102,103
102,103
-
-
102,103
102,103
-
102,103
354,846
$
354,846
$
$
$
354,846
354,846
354,846
$
$
$
354,846
354,846
354,846
-
-
-
-
-
-
-
-
-
-
-
-
27
27
27
27
27
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Troubled Debt Restructurings - The restructured loans generally include terms to reduce the interest rate and extend payment
terms. The Bank did not forgive any principal associated with any of the above loans during 2018 or 2017. Within the last
12 months, no loans that were restructured in 2018 or 2017, subsequently defaulted and were foreclosed upon. These
modifications resulted in specific reserves in the Bank’s allowance for loan losses of $252 thousand and $-0- as of December
31, 2018 and 2017, respectively.
There were two TDRs that were on non-accrual status and have an unpaid principal balance of $249,685 as of December 31,
2018. There were two TDRs that were on non-accrual status and had an unpaid principal balance of $325,411 as of
December 31, 2017. Twelve TDRs with a current principal balance of $1.4 million and nine TDRs with current principal
balance of $1.3 million were considered performing loans and are accruing interest based on their sustained payment
performance as of December 31, 2018 and 2017, respectively.
The specific reserve portion of the allowance for loan losses on TDRs is determined by discounting the restructured cash
flows at the original effective rate of the loan before modification or is based on the underlying collateral value less costs to
sell, if repayment of the loan is collateral-dependent. If the resulting amount is less than the recorded book value, the Bank
either establishes a valuation allowance as a component of the allowance for loan losses or charges off the impaired balance
if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio.
Other real estate owned - At December 31, 2018 and 2017 the Company held $-0- and $15,000, respectively of foreclosed
residential real estate. The recorded investment in one-to-four family residential loans secured by residential real estate
properties where formal foreclosure procedures were in process as of December 31, 2018 and 2017 was $-0-. The remaining
balance of other real estate owned consists of construction and commercial real estate properties.
Impaired Loans - Management considers certain loans graded “doubtful” (loans graded 8) or “loss” (loans graded 9) to be
individually impaired and may consider “substandard” loans (loans graded 7) individually impaired depending on the
borrower’s payment history. Any loans classified as troubled debt restructurings regardless of loan grade are also classified as
impaired loans. The Bank measures impairment based upon discounted expected cash flows or the value of the collateral.
Collateral value is assessed based on collateral value trends, liquidation value trends, and other liquidation expenses to
determine logical and credible discounts that may be needed. Updated appraisals are required for all impaired loans and
typically at renewal or modification of larger loans if the appraisal is more than 12 months old.
Impaired loans for all classes of loans typically include nonaccrual loans, loans over 90 days past due still accruing, troubled
debt restructured loans and other problem loans considered impaired based on other underlying factors. Potential problem
loans totaled $3.8 million and $2.4 million as of December 31, 2018 and 2017, respectively. These totals include loans
which are currently performing and are not included in nonaccrual or restructured loans above, but about which we have
serious doubts as to the borrower’s ability to comply with present repayment terms. These loans are likely to be included
later in nonaccrual, past due or troubled debt restructured loans, so they are considered by management in assessing the
adequacy of the allowance for loan losses. No additional funds are committed to be advanced in connection with impaired
loans.
28
28
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
The following tables present the Bank's investment in loans considered to be impaired and related information on those
impaired loans as of December 31, 2018 and 2017:
December 31, 2018
Impaired loans without a related
allowance for loan losses
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Owner occupied
Residential 1-4 family
Equity lines of credit
Commercial and industrial
Impaired loans with a related
allowance for loan losses
Mortgage loans on real estate:
Commercial real estate:
Non-owner occupied
Residential 1-4 family
Equity lines of credit
Commercial and industrial
Total impaired loans
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Owner occupied
Residential 1-4 family
Equity lines of credit
Commercial and industrial
Total impaired loans
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
(in thousands)
Year to Date
Average
Recorded
Investment
Interest
Income
Recognized
$
263
$
263
$
-
$
313
$
13
212
1,196
615
63
2
81
1,000
352
15
212
1,196
658
63
2
81
1,000
352
15
-
-
-
7
172
252
15
225
1,197
751
63
2
83
1,001
359
15
6
46
26
3
43
7
-
-
-
$
263
$
263
$
-
$
313
$
13
293
1,196
1,615
415
17
3,799
$
293
1,196
1,658
415
17
3,842
$
7
-
172
252
15
446
$
308
1,197
1,752
422
17
4,009
$
6
46
69
10
-
144
$
29
29
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
December 31, 2017
Impaired loans without a related
allowance for loan losses
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Residential 1-4 family
Commercial and industrial
Impaired loans with a related
allowance for loan losses
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Residential 1-4 family
Equity lines of credit
Total impaired loans
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Residential 1-4 family
Equity lines of credit
Commercial and industrial
Total impaired loans
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
(in thousands)
Year to Date
Average
Recorded
Investment
Interest
Income
Recognized
$
278
$
278
$
-
$
285
$
17
225
376
-
253
94
940
189
225
444
-
253
94
940
189
-
-
-
55
15
90
77
234
477
238
274
100
955
193
8
17
10
-
-
-
55
$
531
$
531
$
55
$
559
$
17
319
1,316
189
-
2,355
$
319
1,384
189
-
2,423
$
15
90
77
-
237
$
334
1,432
193
238
2,756
$
8
72
-
10
107
$
Allowance for Loan Losses - The allowance for loan losses is a reserve established through a provision for loan losses charged to
expense, which represents management’s best estimate for probable losses that have been incurred within the existing
portfolio of loans. The primary risks inherent in the Bank’s loan portfolio, including the adequacy of the allowance or
reserve for loan losses, are based on management’s assumptions regarding, among other factors, general and local economic
conditions, which are difficult to predict and are beyond the Bank’s control. In estimating these risks, and the related loss
reserve levels, management also considers the financial conditions of specific borrowers and credit concentrations with
specific borrowers, groups of borrowers, and industries.
30
30
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
The allowance for loan losses is adjusted by direct charges to provision expense. Losses on loans are charged against the
allowance for loan losses in the accounting period in which they are determined by management to be uncollectible.
Recoveries during the period are credited to the allowance for loan losses. The Bank realized no provisions for the years
ended December 31, 2018 and 2017, respectively. The provision expense is determined by the Bank’s allowance for loan
losses model. The components of the model are specific reserves for impaired loans and a general allocation for unimpaired
loans. The general allocation has three components, an estimate based on historical loss experience, an additional estimate
based on internal and external environmental factors due to the uncertainty of historical loss experience in predicting
current embedded losses in the portfolio that will be realized in the future and an unallocated portion to cover uncertainties
that could affect management’s estimate of probable losses.
In determining the general allowance allocation, the ratios from the actual loss history for the various categories are applied
to the homogeneous pools of loans in each category.
The portion of the general allocation on environmental factors includes estimates of losses related to the following:
Current national and local economic conditions
Composition of the nature and volume of the portfolio
Changes in the trend or volume of past due, watch list and classified loans
The existence and effect of concentrations or changes in concentrations upon the portfolio
The existence and effect of granularity in the size of credits in the portfolio
The existence and effect of loan to values in excess of regulatory guidance – percentage of loans in each category
with regulatory exceptions
Cumulative effect of other factors such as loan portfolio quality, underwriting strength and general determinations
about the portfolio held by executive management
Markets served by the Bank continue to experience some uncertainty from the general economy and a slow real estate
market. Other factors impacting the allowance at December 31, 2018 were watch list trends, unemployment rate trends,
government spending expectations and underwriting and servicing assessments.
The following table’s present changes in the allowance for loan losses for the years ended December 31, 2018 and 2017:
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Owner occupied
Residential 1-4 family
Multifamily
Equity lines of credit
Commercial and industrial
Agricultural
Individuals
December 31,
2017
Charge-offs Recoveries
Provision
(in thousands)
December 31,
2018
$
643
$
-
$
-
$
(31)
$
612
601
1,630
1,123
101
262
1,150
385
27
5,922
$
-
-
-
-
-
8
48
-
-
1
53
20
2
6
33
89
$
1
83
$
(107)
(259)
(287)
(69)
215
92
7
439
$
-
494
1,372
881
52
431
1,248
392
434
5,916
$
31
31
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (continued)
Mortgage loans on real estate:
Construction
Commercial real estate:
Non-owner occupied
Owner occupied
Residential 1-4 family
Multifamily
Equity lines of credit
Commercial and industrial
Agricultural
Individuals
December 31,
2016
Charge-offs Recoveries
Provision
(in thousands)
December 31,
2017
$
546
$
-
$
-
$
97
$
643
538
2,015
1,113
65
277
901
279
22
5,756
$
42
-
205
-
21
-
-
-
268
$
-
243
162
19
4
6
-
-
434
$
105
(628)
53
17
2
243
106
5
$
-
601
1,630
1,123
101
262
1,150
385
27
5,922
$
The activity in the allowance for loan loss for 2018 and 2017 are summarized by loan class as follows:
As of December 31, 2018
Mortgage loans on real estate:
Construction
Commercial real estate:
Non owner occupied
Owner occupied
Residential 1-4 family
Multifamily
Equity lines of credit
Commercial and industrial
Agricultural
Individuals
Reserves for
loans
individually
evaluated for
impairment
Loans
individually
evaluated for
impairment
Reserves for
loans
collectively
evaluated for
impairment
Loans
collectively
evaluated for
impairment
(in thousands)
$
-
$
263
$
612
$
37,046
7
-
172
-
252
15
293
1,196
1,615
-
415
17
-
-
446
$
-
-
3,799
$
487
1,372
709
52
179
1,233
392
434
5,470
$
26,400
62,227
37,395
5,334
10,531
60,453
23,243
8,952
271,581
$
32
32
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 4 - Loans and Allowance for Loan Losses (concluded)
As of December 31, 2017
Mortgage loans on real estate:
Construction
Commercial real estate:
Non owner occupied
Owner occupied
Residential 1-4 family
Multifamily
Equity lines of credit
Commercial and industrial
Agricultural
Individuals
Reserves for
loans
individually
evaluated for
impairment
Loans
individually
evaluated for
impairment
Reserves for
loans
collectively
evaluated for
impairment
Loans
collectively
evaluated for
impairment
(in thousands)
$
55
$
531
$
588
$
35,298
15
90
-
-
77
-
-
-
237
$
319
-
1,316
-
189
-
-
-
2,355
$
586
1,630
1,033
101
185
1,150
385
27
5,685
$
31,104
64,906
39,429
4,632
13,089
55,988
23,837
1,987
270,270
$
Note 5 - Premises and equipment
At December 31, 2018 and 2017, premises and equipment consist of the following:
Land
Buildings
Equipment, furniture and fixtures
Computer equipment
Less accumulated depreciation
Total premises and equipment, net
2018
$ 456,450
6,151,012
3,075,892
892,140
10,575,494
(7,640,745)
$ 2,934,749
2017
$ 456,450
6,151,012
3,038,464
364,542
10,010,468
(7,129,437)
$ 2,881,031
For 2018 and 2017, depreciation charged to operating expense was $511,307 and $475,504, respectively.
33
33
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 6 – Goodwill and intangible assets
The gross carrying amount and accumulated amortization for the Company’s intangible assets as of December 31,
2018
2017
Gross
Carrying
Accumulated
Amortization
Gross
Carrying
Accumulated
Amortization
Intangible assets subject to amortization
Customer lists
$
4,261,879
$
450,693
$
4,025,000
$
178,889
Total intangible assets subject to amortization
4,261,879
450,693
4,025,000
178,889
Goodwill
Total intangible assets
4,807,857
9,069,736
$
-
450,693
$
4,511,746
8,536,746
$
-
178,889
$
Aggregate amortization expense for intangible assets with finite lives for the year ended December 31, 2018 was $271,804,
compared to $178,889 for 2017. The estimated aggregate annual amortization expense for each of the five years subsequent
to December 31, 2018, is $284,125.
The Company recorded $296,111 in net increases to goodwill and $236,879 in intangible assets. These intangibles were
created by the acquisition of The Lankford Agency. During 2017, the Company recorded $4,511,746 in increases to
goodwill and $4,025,000 in intangible assets from the acquisition of Manry Rawls. The intangible assets acquired are finite-
lived, consisting primarily of book-of-business purchases. No impairment charges were recorded in any year reported.
Impairment testing indicated that goodwill was not impaired in 2018 or 2017.
Balance, December 31, 2017
Additions to goodwill
Other adjustments
$
4,511,746
296,111
-
Balance, December 31, 2018
$
4,807,857
Note 7 - Non-marketable equity securities
Non-marketable equity securities consist of the following at December 31, 2018 and 2017:
Federal Home Loan Bank stock
Federal Reserve Bank stock
Community Bankers' Bank stock
Plexus Captial, LLC
Tidewater Home Funding, LLC
Senior Housing Crime Prevention Foundation stock
Total non-marketable equity securities
2018
$ 1,473,600
401,800
61,300
961,007
732,992
500,000
$ 4,130,699
2017
$ 1,443,800
399,750
61,300
444,024
720,838
500,000
$ 3,569,712
34
34
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 8 - Interest-bearing deposits
Interest-bearing deposits consist of the following:
NOW accounts
Money market accounts
Personal relationship checking
Business interest checking
Savings accounts
Certificates of deposits and IRAs $250,000 and over
Certificates of deposit and IRAs under $250,000
Total interest-bearing deposits
At December 31, 2018, the scheduled maturities of time deposits are as follows:
2018
$ 20,391,339
95,240,589
993,604
24,977,600
27,397,406
42,113,656
59,697,152
$ 270,811,346
2017
$ 28,369,941
84,752,856
-
15,573,635
26,115,117
39,809,923
68,912,297
$ 263,533,769
2019
2020
2021
2022
2023
Thereafter
Total time deposits
$ 54,639,134
12,222,848
8,397,440
12,385,191
13,587,007
579,188
$ 101,810,808
Note 9 – Capital notes
During the fourth quarter of 2013, the Company closed the private placement of unregistered debt securities (the “2013
Offering”) pursuant to which the Company issued approximately $11.3 million in principal of notes (the “2013 Notes”).
The 2013 Notes were not registered under the Securities Act of 1933 and could not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements. The 2013 Notes bore interest at the rate of
5% per year with interest payable quarterly in arrears. The 2013 Notes had a maturity date of December 31, 2018, but were
subject to prepayment in whole or in part on or after December 31, 2014 at the Company’s sole discretion on 30 days
written notice to the holders. There were no assets pledged as collateral for the 2013 Notes. During 2017, the Company
fully repaid the outstanding balance of the 2013 notes totaling, $7.9 million at the original investment price to reduce debt
service obligations.
During the second quarter of 2017, the Company closed the private placement of unregistered debt securities (the “2017
Offering”) pursuant to which the Company issued $6.0 million in principal of notes (the “2017 Notes”). The 2017 Notes
have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration requirements. The 2017 Notes bear interest at the
rate of 3.25% per year with interest payable quarterly in arrears. The 2017 Notes mature on March 31, 2022, but are subject
to prepayment in whole or in part on or after March 31, 2018 at the Company’s sole discretion on 30 days written notice to
the holders. There are no assets pledged as collateral for the 2017 Notes. Of these capital notes, $-0- is due to executive
officers and board members of the Company as of December 31, 2018 and 2017, respectively.
There was no interest expense paid to these related parties on the capital notes for the years ended December 31, 2018 and
2017, respectively.
35
35
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 10 - Securities sold under agreements to repurchase and other borrowings
The Bank utilizes securities sold under agreement to repurchase to facilitate the needs of customers. Securities sold under
agreements to repurchase, are classified as secured borrowings, generally mature within one day from the transaction date.
Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the
transaction. The average interest rate was 0.58% and 0.50% during the years ended December 31, 2018 and 2017,
respectively.
The Bank monitors collateral levels on a continuous basis and maintains records of each transaction specifically describing
the applicable security and the customer’s fractional interest in that security, and the Bank segregates the security from its
general assets in accordance with regulations governing custodial holding of securities. The primary risk with the Bank’s
repurchase agreements is market risk associated with the investments securing the transactions, as the Bank may be required
to provide additional collateral based on air value changes of the underlying investments. Securities pledged as collateral
under repurchase agreements are maintained with the Bank’s safekeeping agent. The carrying value of available for sale
investment securities pledged as collateral under repurchase agreement was $5,874,785 and $3,054,577 at December 31,
2018 and 2017, respectively.
The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged
included in short-term borrowings in the Consolidated Balance Sheets as of December 31, 2018 and December 31, 2017 is
presented in the following tables.
December 31, 2018
Repurchase agreements:
Overnight and
continuous
Up to 30
Days
Greater
than 90
Total
30-90 Days
(in thousands)
Small Business Administration Pools
Total borrowings
$
$
3,849
3,849
$
-
$
-
-
$
$
-
-
$
$
-
Gross amount of recognized liabilities for repurchase agreements
$
$
3,849
3,849
$
3,849
December 31, 2017
Repurchase agreements:
Overnight and
continuous
Up to 30
Days
Greater
than 90
Total
30-90 Days
(in thousands)
Small Business Administration Pools
Total borrowings
$
$
1,618
1,618
$
-
$
-
-
$
$
-
-
$
$
-
Gross amount of recognized liabilities for repurchase agreements
$
$
1,618
1,618
$
1,618
The Bank has arrangements with various banks which enables the Bank to borrow up to $30,000,000 in federal funds on an
unsecured basis, at a variable rate. At December 31, 2018 and 2017, the Bank had no outstanding federal funds purchased.
The Bank also has arrangements with the Federal Home Loan Bank which enables the Bank to borrow up to 25% of total
assets.
36
36
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 10 - Securities sold under agreements to repurchase and other borrowings (concluded)
At December 31, 2018 and 2017, Federal Home Loan Bank advances were as follows:
December 31, 2018
Maturity date
January 8, 2019
September 3, 2019
April 15, 2020
July 29, 2020
October 13, 2020
May 17, 2021
Call Feature
-
-
-
-
-
-
Amount
$ 5,000,000
5,000,000
2,500,000
5,000,000
2,500,000
5,000,000
Rate
1.977%
1.999%
2.040%
1.944%
2.176%
1.953%
Total FHLB borrowings/weighted average rate
$ 25,000,000
2.000%
December 31, 2017
Maturity date
January 8, 2019
September 3, 2019
April 15, 2020
July 29, 2020
October 13, 2020
May 17, 2021
Call Feature
-
-
-
-
-
-
Amount
$ 5,000,000
5,000,000
2,500,000
5,000,000
2,500,000
5,000,000
Rate
1.977%
1.999%
2.040%
1.944%
2.176%
1.953%
Total FHLB borrowings/weighted average rate
$ 25,000,000
2.000%
The carrying value of loans pledged as collateral to the Federal Home Loan Bank were $20.8 million and $28.7 million at
December 31, 2018 and 2017, respectively.
During 2018 and 2017, $-0- million and $5 million of FHLB advances were repaid.
Note 11 - Employee benefit plans
Profit sharing plan - The Company has a profit sharing plan covering substantially all employees. Contributions to the plan
are determined annually by the Compensation Committee and are the lesser of 10% of the participants' base compensation
or 10% of the net income of the Company. Employee benefits expense included $454,996 and $476,116 for the plan for
2018 and 2017, respectively.
Post-retirement benefits - The Company has entered into deferred compensation arrangements with certain key personnel
which call for the payment of benefits upon the retirement or death of the individuals. In 2016, the Company amended
one of these plans and froze the other plan while creating a new plan for this executive, such that upon the executives’
retirement, the Company will provide for a monthly retirement payment for their lifetime. The agreements provide that a
retirement benefit is payable upon a defined normal retirement age while in service to the Company and a lesser benefit is
payable upon early retirement. Other benefits are payable upon disability, death or change in control.
The agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply
with Section 409A of the Internal Revenue Code.
37
37
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 11 - Employee benefit plans (concluded)
However, the Company has elected to finance the retirement benefits by purchasing annuities that have been designed to
provide a future source of funds for the lifetime retirement benefits of the agreements. The primary impetus for utilizing
these annuities is a substantial savings in compensation expense for the Company as opposed to a typically designed
supplemental retirement plan.
The liabilities associated with these deferred compensation arrangements were $1,520,980 and $1,434,054 as of December
31, 2018 and 2017, respectively. The annuity had a balance of $2,961,521 and $3,028,689 as of December 31, 2018 and
2017, respectively, and is recorded at amortized cost. Salaries and employee benefits expense included $115,956 and
$114,410 of expense related to these arrangements for 2018 and 2017, respectively.
Note 12 - Income taxes
On December 22, 2017 the President of the United States signed into law the Tax Cuts and Jobs Act (the “2017 Tax Act”).
The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a
reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31,
2017.
The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with
Staff Accounting Bulletin No. 118, which provides guidance for the application of ASC Topic 740, Income Taxes, in the
reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s financial results reflect the
income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts
for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a
reasonable estimate could be determined. The Company did not identify items for which the income tax effects of the 2017
Tax Act have been completed and a reasonable estimate could not be determined as of December 31, 2017.
The principal components of the income tax expense as of December 31, 2018 and 2017 are as follows:
Federal - current tax provision
Federal - deferred
2018
$ 566,495
52,637
$ 619,132
2017
$ 1,283,702
167,113
$ 1,450,815
The differences between expected federal income taxes at statutory rates and actual income tax expense are summarized as
follows:
Income tax expense computed at federal statutory rate (21%)
Tax effects of:
Tax-exempt interest
Non-taxable bank owned life insurance
Non-deductible (income) expenses
Minority investment interest
Remeasurement of deferred taxes under TCJA
Other
Total income tax expense
2018
$ 1,200,129
2017
$ 2,114,914
(475,598)
(59,523)
21,112
(46,309)
-
(20,679)
(660,499)
(98,733)
(22,483)
(90,012)
209,879
(2,251)
$ 619,132
$ 1,450,815
38
38
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 12 - Income taxes (concluded)
The Bank's deferred tax assets and liabilities and their components are included on the balance sheets. The components of
these deferred tax assets and liabilities are as follows:
Deferred tax assets:
Available-for-sale investment securities
Allowance for loan losses
Deferred compensation
Interest on non-performing loans
Other real estate owned
Other
Total deferred tax asset
Deferred tax liabilities:
Available-for-sale investment securities
Accumulated depreciation
Accumulated accretion
Net unamortized deferred fees and expenses
Total deferred tax liability
2018
2017
$ 101,999
663,634
319,406
20,762
2,599
24,442
1,132,842
$ -
663,634
301,151
19,285
2,599
4,987
991,656
-
(226,649)
(370,786)
(191,426)
(80,065)
(85,004)
(66,141)
(372,855)
(4,602)
(651,818)
Net deferred tax asset
$ 759,987
$ 339,838
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the
temporary differences are expected to be recovered or paid. In 2017, the Company’s deferred tax assets and liabilities were
remeasured to reflect the reduction in the U.S. corporate income tax rate from 34 percent to 21 percent, resulting in a
$209,879 increase in income tax expense for the year ended December 31, 2017 and a corresponding $209,879 decrease in
net deferred tax assets as of December 31, 2017.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Management considers recoverable taxes paid in prior years,
projected future taxable income, and tax planning strategies in making this assessment. It is management’s belief that the
realization of the net deferred tax assets is more likely than not.
The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability
related to uncertain tax positions.
The Company and its subsidiaries file income tax returns with the federal government. With few exceptions, the Company
is no longer subject to federal income tax examinations by tax authorities for years before 2015.
39
39
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 13 - Commitments and contingencies
The Company leases banking premises and various equipment for periods extending through February 2026. Total rental
expense was $451,418 and $374,705 for 2018 and 2017, respectively.
Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2018, pertaining to bank premises and
equipment, future minimum rental commitments under various operating leases are as follows:
2018
2019
2020
2021
2022
Thereafter
$ 398,136
389,589
275,139
240,061
49,367
120,038
$ 1,472,330
Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will
have no material effect on the Company's consolidated financial statements.
Note 14 - Related party transactions
In the ordinary course of business, the Company has loan and deposit transactions with its executive officers and directors,
and with companies in which the officers and directors have a significant financial interest. These transactions are at
substantially the same rates as similarly situated customers. A summary of related party loan activity during 2018 and 2017
is as follows:
Beginning balance, January 1
Originations
Repayments
Ending balance, December 31
2018
$ 6,096,986
-
(672,441)
$ 5,424,545
2017
$ 4,696,223
1,995,396
(594,633)
$ 6,096,986
Commitments to extend credit to related parties amounted to $5,109,850 and $5,569,738 at December 31, 2018 and 2017,
respectively.
Deposits from related parties held by the Bank amounted to $12,068,589 and $7,189,066 at December 31, 2018 and 2017,
respectively.
The Bank currently has loans outstanding to Manry Rawls, LLC with a current principal balance of $1,568,824 and
$2,250,880 as of December 31, 2018 and 2017, respectively. These loans are eliminated during the consolidation with
Manry Rawls under ASC 805, Business Combination. These loans are at substantially the same terms as similarly situated
customers.
Note 15 - Credit commitments and concentrations of credit risk
Commitments to extend credit are agreements to lend funds 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. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is
deemed necessary by the Bank, is based on management's credit evaluation of the customer. Unfunded commitments under
40
40
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 15 - Credit commitments and concentrations of credit risk (concluded)
commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit are uncollateralized, usually do not contain a specified maturity
date and may not be drawn upon to the total extent to which the Bank is committed.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of
a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit issued have expiration dates within one year.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Bank generally holds collateral supporting those commitments if deemed necessary.
The Bank also has commitments, as detailed below, to invest in a private investment fund that focuses on investments and
partnerships with middle market businesses that need capital for growth.
The amounts of loan commitments, guarantees and standby letters of credit are set out in the following table as of December
31, 2018 and 2017. Because many commitments and almost all standby letters of credit and guarantees expire without
being funded in whole or in part, the contract amounts are not estimates of future cash flows. A summary of loan
commitments and standby letters of credit is as follows:
Loan commitments
Standby letters of credit and guarantees written
Capital commitment to private investment funds
2018
$ 76,245,388
519,958
540,000
2017
$ 65,759,153
440,787
1,550,000
Standby letters of credit outstanding at December 31, 2018 expire between 2019 and 2021.
Loan commitments, standby letters of credit and written guarantees have off-balance sheet credit risk because only
origination fees and accruals for probable losses, if any, are recognized in the statements of financial position until the
commitments are fulfilled or the standby letters of credit or guarantees expire. Credit risk represents the accounting loss that
would be recognized at the reporting date if counterparties failed completely to perform as contracted. The credit risk
amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and collateral or other security
is of no value. The Bank's policy is to require customers to provide collateral prior to the disbursement of approved loans.
For retail loans, the Bank usually retains a security interest in the property or products financed, which provides repossession
rights in the event of default by the customer. For business loans and financial guarantees, collateral is usually in the form
of inventory or marketable securities (held in trust) or property (notations on title).
Concentrations of credit risk (whether on or off-balance sheet) arising from financial instruments exist in relation to certain
groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics
that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other
conditions. A group concentration exists as most of the Bank's customers are located within southeastern Virginia.
The credit risk amounts represent the maximum accounting loss that would be recognized at the reporting date if
counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. The Bank
has experienced little difficulty in accessing collateral when required.
41
41
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 16 - Regulatory matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Bank's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting, and other factors.
In July 2013, the FDIC and other federal banking agencies approved the final rules implementing the Basel Committee on
Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III).
On January 1, 2015, the Bank became subject to the Basel III Capital Rules which revises definitions of regulatory capital,
the new minimum regulatory capital ratios, and various regulatory capital adjustments and deductions according to
transition provision and timelines. The revised rules now require the Bank to maintain (i) a minimum ratio of Common
Tier 1 capital to risk-weighted assets of at least 4.5%, plus 2.5% “capital conservation buffer” (conservation buffer will be
phased in), (ii) minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, (iii) a minimum ratio of total capital
to risk-weighted assets of at 8.0%, and (iv) a minimum leverage ratio of 4.0%. A transition period for the capital
conservation buffer under Basel III for all banking organizations began on January 1, 2016 and ends on January 1, 2019.
The conservation buffer began at the 0.625% level and is phased in over a four-year period (increasing on each subsequent
January 1, until it reaches 2.5% on January 1, 2019).
Management believes, as of December 31, 2018 and 2017, the Bank met all capital adequacy requirements to which it is
subject.
As of December 31, 2018, the most recent notification from the Board of Governors of the Federal Reserve Board
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, Common Equity risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes
have changed the institution's category.
42
42
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 16 - Regulatory matters (concluded)
The Bank's actual capital amounts (dollars in thousands) and ratios are presented in the table below:
As of December 31, 2018:
Total Capital
(to Risk-Weighted Assets)
Tier I Risk-Based Capital
(to Risk-Weighted Assets)
Common Equity Risk-Based Capital
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
(Dollars in thousands)
Under Prompt Corrective
Well Capitalized
Amount
Ratio
$ 48,267
13.8% $ 27,923
8.0% $ 34,904
10.0%
43,904
12.6% 20,943
6.0% 27,923
8.0%
(to Risk-Weighted Assets)
43,904
12.6% 15,707
4.5% 22,688
6.5%
Tier I Leverage Ratio
(to Average Assets)
43,904
9.7% 18,146
4.0% 22,682
5.0%
As of December 31, 2017:
Total Capital
(to Risk-Weighted Assets)
Tier I Risk-Based Capital
(to Risk-Weighted Assets)
Common Equity Risk-Based Capital
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
(Dollars in thousands)
Under Prompt Corrective
Well Capitalized
Amount
Ratio
$ 45,376
14.0% $ 26,011
8.0% $ 32,513
10.0%
41,312
12.7% 19,508
6.0% 26,011
8.0%
(to Risk-Weighted Assets)
41,312
12.7% 14,631
4.5% 21,134
6.5%
Tier I Leverage Ratio
(to Average Assets)
41,312
9.5% 17,665
4.0% 22,081
5.0%
The above tables set forth the capital position and analysis for the Bank only. Because total assets on a consolidated basis
are less than $500 million, the Company is not subject to the consolidated capital requirements imposed by the Bank
Holding Company Act. Consequently, the Company does not calculate its financial ratios on a consolidated basis. If
calculated, the capital ratios for the Company on a consolidated basis would no longer be comparable to the capital ratios of
the Bank because the proceeds of the capital notes do not qualify as equity capital on a consolidated basis.
Note 17 - Fair value measurements
The Company refers to the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards
Codification (ASC 820) to record fair value adjustments to certain assets and liabilities and to determine fair value
disclosures. This guidance clarifies that fair value of certain assets and liabilities is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
The fair market value measurement specifies a hierarchy of valuation techniques based on whether the inputs to those
valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company’s market assumptions.
43
43
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 17 - Fair value measurements (continued)
The three levels of the fair value hierarchy are based on these two types of inputs are as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 – Valuation is based on observable inputs including quoted prices in active markets for similar assets and
liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based
valuation techniques for which significant assumptions can be derived primarily from or corroborated by
observable data in the market.
Level 3 – Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are
unobservable in the market.
The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities
recorded at fair value on a recurring basis in the consolidated financial statements:
Securities available for sale - Securities available for sale are recorded at fair value on a recurring basis. Fair value
measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair
values are measured utilizing independent valuation techniques of identical or similar securities for which significant
assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from
various sources and may determine the fair value of identical or similar securities by using pricing models that considers
observable market data (Level 2).
The following table presents the balances of available-for-sale securities measured at fair value on a recurring basis as of
December 31, 2018 and 2017:
Description
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Small Business Administration loan securities
Balance as of
December 31,
2018
Level 1
Level 2
Level 3
$ 66,164,107
24,359,423
52,220,150
14,271,828
$ 157,015,508
$ -
-
-
-
$ -
$ 66,164,107
24,359,423
52,220,150
14,271,828
$ 157,015,508
$ -
-
-
-
$ -
Description
State and municipal
Residential mortgage-backed securities
Collateralized mortgage obligations
Small Business Administration loan securities
Balance as of
December 31, 2017
$ 53,039,740
17,347,063
47,674,508
19,742,635
$ 137,803,946
Level 1
Level 2
Level 3
$ -
-
-
-
$ -
$ 53,039,740
17,347,063
47,674,508
19,742,635
$ 137,803,946
$ -
-
-
-
$ -
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair
value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual
assets. The following describes the valuation techniques used by the Company to measure certain financial assets recorded at
fair value on a nonrecurring basis in the consolidated financial statements:
44
44
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 17 - Fair value measurements (continued)
Impaired Loans - Loans are designated as impaired when, in the judgment of management based on current information and
events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.
The measurement of loss associated with impaired loans can be based on the observable market price of the loan, the fair
value of the collateral or by using the discounted cash flow method. Fair value is measured based on the value of the
collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory,
and accounts receivable. The vast majority of the collateral is real estate.
The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal
conducted by an independent, licensed appraiser outside of the Company. The Company records impaired loans secured by
real estate as Level 3 assets. The value of business equipment is based upon an outside appraisal if deemed significant, or the
net book value on the applicable business’ financial statements if not considered significant using observable market data.
Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports
are recorded as Level 3 assets. Any fair value adjustments are recorded in the period incurred as provision for loan losses on
the Statements of Operations.
Other real estate owned - Other real estate owned is considered held for sale and is adjusted to fair value less estimated
selling costs upon transfer of the loan to foreclosed assets. Fair value is based upon independent market prices, appraised
value of the collateral or management’s estimation of the value of the collateral. The Company considers the other real
estate owned as nonrecurring Level 3.
The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis
during the periods.
Description
Assets
Other real estate owned
Impaired loans
Total assets
Description
Assets
Other real estate owned
Impaired loans
Total assets
Balance as of
December 31, 2018
Level 1
Level 2
Level 3
$ 672,404
3,353,434
$ 4,025,838
$ -
-
$ -
$ -
-
$ -
$ 672,404
3,353,434
$ 4,025,838
Balance as of
December 31, 2017
Level 1
Level 2
Level 3
$ 742,216
2,116,082
$ 2,858,298
$ -
-
$ -
$ -
-
$ -
$ 742,216
2,116,082
$ 2,858,298
45
45
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 17 - Fair value measurements (concluded)
The following table summarized quantitative information about Level 3 fair value measurements:
Description
Assets
Fair Value at
December 31, 2018
Valuation Technique
Unobservable Input
Range
(Weighted Average)
Other real estate owned
Impaired loans
$ 672,404
3,353,434
Discounted appraisals
Discounted appraisals
Discounted cash flows
Collateral discounts
Collateral discounts
Discount rate
10-20%
10-30%
6%
Total assets
$ 4,025,838
Description
Assets
Fair Value at
December 31, 2017
Valuation Technique
Unobservable Input
Range
(Weighted Average)
Other real estate owned
Impaired loans
$ 742,216
2,116,082
Discounted appraisals
Discounted appraisals
Discounted cash flows
Collateral discounts
Collateral discounts
Discount rate
10-20%
10-30%
6%
Total Assets
$ 2,858,298
The following table presents the carrying amounts and fair value of the Company's financial instruments as of December 31,
2018 and 2017. FASB Accounting Standards Codification’s Financial Instruments (ASC 825), defines the fair value of
financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The carrying amounts in the table are included in the balance sheets
under the indicated captions. The capital notes are valued at amortized cost based on the lack of marketability due to
transfer restrictions.
Financial assets:
Cash and cash equivalents
Investment securities, available-for-sale
Loans held for investment, net
Accrued interest receivable
Bank-owned annuity contract
Financial liabilities:
Demand deposits, NOW, savings
and money market accounts
Time deposits
Accrued interest payable
FHLB Advances
Capital notes
Securities sold under agreement to repurchase
2018
2017
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
(Dollars in thousands)
$ 16,490
157,016
269,520
1,978
2,961
$ 16,490
157,016
273,701
1,978
2,961
$ 18,914
137,804
266,753
1,788
3,029
$ 18,914
137,804
273,981
1,788
3,029
284,872
101,810
337
25,000
6,000
3,849
283,762
100,239
337
24,723
5,636
3,849
262,168
108,722
250
25,000
6,000
1,618
262,168
107,817
250
24,923
5,527
1,618
46
46
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 18 - Stock incentive plan
The Company’s shareholders approved stock incentive plans effective January 1, 2018 and previously January 1, 2007. The
plans authorize the grant of awards for a period of ten years, which expires on December 31, 2028 and previously December
31, 2017. The number of shares authorized for issuance under both of the plans is limited to 2.25% of the total authorized
and unissued shares of common stock. Three types of awards may be granted under the plans: Incentive Stock Options,
Nonqualified Stock Options and Restricted Stock. The Company granted restricted stock awards during 2018 and 2017.
The Company accounts for this plan in accordance with the Stock Compensation Topic of the FASB Accounting Standards
Codification (ASC 718). The non-vested equity share or non-vested equity share unit awarded to an employee is measured
at its fair value on the grant date. The compensation expense is recognized over the requisite service period.
The vesting requirements range from three to five years. The compensation expense recognized for the years ended
December 31, 2018 and 2017 was $167,284 and $200,423, respectively. Members of the Board of Directors of the
Company can elect to receive a portion or all of their director’s fees in the form of common stock. During the year ended
December 31, 2018 and 2017, the expense related to these issuances was $57,975 and $47,500, respectively.
A summary of the status of the non-vested shares in relation to our restricted stock awards as of December 31, 2018 and
2017, and changes during the years ended December 31, 2018 and 2017, is presented below; the weighted average price is
the weighted average fair value at the date of grant:
Restricted Share Awards
Nonvested - Beginning of the year
Granted
Vested
Forfeited
Nonvested - End of year
Note 19 - Earnings per share
2018
2017
Shares
13,011
9,020
2,864
1,361
17,806
Weighted
Average Price
$ 13.43
20.50
11.91
10.54
$ 15.54
Shares
8,223
8,629
3,397
444
13,011
Weighted
Average Price
$ 8.70
19.75
9.46
8.70
$ 13.43
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 had no effect on
income attributable to common shareholders.
Basic
Net income attributable to common shareholders
Average common shares outstanding
Basic earnings per share amount
Diluted
2018
2017
$ 4,875,251
$ 4,504,779
3,071,643
3,063,661
$ 1.59
$ 1.47
Net income attributable to common shareholders
$ 4,875,251
$ 4,504,779
Average common shares outstanding
Effect of dilutive unvested restricted stock awards
Average diluted shares outstanding
Diluted earnings per share
3,071,643
2,784
3,074,427
3,063,661
692
3,064,353
$ 1.59
$ 1.47
47
47
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 20 – Condensed financial statements of parent company
On July 26, 2013, the Board of Directors of the Bank approved an Agreement and Plan of Reorganization and Share
Exchange (the “Agreement”) whereby the Bank would become a subsidiary of Farmers Bankshares, Inc., a company
incorporated in Virginia on July 26, 2013 for the purpose of becoming a holding company for the Bank. The Agreement
provided for the statutory share exchange of all of the Bank’s common stock held by stockholders for the common stock of
Farmers Bankshares, Inc., on a one-for-one basis.
The Agreement was approved by the Bank’s stockholders at a special meeting of the Bank’s stockholders held on September
26, 2013 (the “Special Stockholders’ Meeting”). The holding company reorganization was consummated on December 31,
2013 (see Note 1). Prior to the holding company reorganization, Farmers Bankshares, Inc. conducted no operations other
than obtaining regulatory approval for the holding company reorganization. As this event is considered reorganization under
common control, the consolidated financial statements, discussion of the statements and all other information presented
herein for the years ended December 31, 2018 and 2017 are presented for the Company as a consolidated entity.
Financial information pertaining only to Farmers Bankshares, Inc. is as follows:
Balance Sheets
Cash
Taxes receivable
Investment in Farmers Bank
Other assets
Total assets
Assets
Liabilities and Stockholders' Equity
Liabilities
Capital notes
Other liabilities
Total liabilities
Stockholders' equity
Common stock, $0.125 par value
Capital surplus
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
December 31,
2018
2017
$
1,066,093
682,365
52,139,723
336,386
$
968,593
641,415
50,312,294
402,870
$
54,224,567
$
52,325,172
$
6,000,000
336,386
6,336,386
$
6,000,000
305,370
6,305,370
384,484
2,895,515
44,991,893
(383,711)
47,888,181
383,340
2,841,759
41,399,842
1,394,861
46,019,802
Total liabilities and stockholders' equity
$
54,224,567
$
52,325,172
48
48
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 20 – Condensed financial statements of parent company (concluded)
Statements of Operations
Income
Operating expenses
Interest expense
Total expenses
Assets
December 31,
2018
2017
$
1,478,200
$
3,464,668
Allocated income tax benefits
Income before equity in undistributed income of subsidiary
Equity in undistributed income - Farmers Bank
195,000
195,000
(40,950)
1,324,150
3,551,101
254,702
254,702
(87,333)
3,297,299
1,207,480
Net income
$
4,875,251
$
4,504,779
Statements of Cash Flows
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities
Taxes receivable
Other assets
Other liabilities
Equity in undistributed net income of Farmers Bank
Net cash provided by operating activities
Cash flows from financing activities
Cash dividends paid on common shares
Proceeds from issuance of capital notes
Redemption of capital notes
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents
Beginning of the year
End of year
Years Ended December 31,
2018
2017
$
4,875,251
$
4,504,779
(40,950)
66,484
31,016
(3,551,101)
1,380,700
(1,283,200)
-
-
(1,283,200)
97,500
(87,333)
(88,210)
(304,816)
(1,207,480)
2,816,940
(914,441)
6,000,000
(7,888,475)
(2,802,916)
14,024
968,593
954,569
$
1,066,093
$
968,593
49
49
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 20 – Condensed financial statements of parent company (concluded)
Note 21 – Revenue from Contracts with Customers
Statements of Operations
Income
Operating expenses
Interest expense
Total expenses
Assets
December 31,
2018
2017
$
1,478,200
$
3,464,668
Allocated income tax benefits
Income before equity in undistributed income of subsidiary
Equity in undistributed income - Farmers Bank
Net income
$
4,875,251
$
4,504,779
195,000
195,000
(40,950)
1,324,150
3,551,101
254,702
254,702
(87,333)
3,297,299
1,207,480
Statements of Cash Flows
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities
Taxes receivable
Other assets
Other liabilities
Equity in undistributed net income of Farmers Bank
Net cash provided by operating activities
Cash flows from financing activities
Cash dividends paid on common shares
Proceeds from issuance of capital notes
Redemption of capital notes
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents
Beginning of the year
End of year
Years Ended December 31,
2018
2017
$
4,875,251
$
4,504,779
(40,950)
66,484
31,016
(3,551,101)
1,380,700
(1,283,200)
-
-
(1,283,200)
97,500
(87,333)
(88,210)
(304,816)
(1,207,480)
2,816,940
(914,441)
6,000,000
(7,888,475)
(2,802,916)
14,024
968,593
954,569
$
1,066,093
$
968,593
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest
Income. A description of the Company’s revenue streams accounted for under ASC 606 is as follows:
Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned
on analyzed business and public checking accounts), monthly service fees, and other deposit account related fees. The
Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related
revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely
transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a
point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month
through a direct charge to customers' accounts.
Other Service Charges, Commissions and Fees- Other service charges, commissions and fees are primarily comprised of debit card
income, ATM fees, merchant services income, and other service charges. Debit card income is primarily comprised of
interchange fees earned whenever the Company's debit and credit cards are processed through card payment networks. ATM
fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a
Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit
card transactions, in addition to account management fees. Other service charges include revenue from processing wire
transfers, safe deposit box rentals, cashier's checks, and other services. The Company's performance obligation for other
service charges, commission and fees are largely satisfied, and related revenue recognized, when the services are rendered or
upon completion. Payment is typically received immediately or in the following month.
Insurance Commissions - Insurance income primarily consists of commissions received on insurance product sales. The
Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance
obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the insurance policy is issued, the
carrier remits the commission payment to the Company, and the Company recognizes the revenue.
Gain on Sales of OREO - The Company records a gain or loss from the sale of other real estate owned when control of the
property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the
sale of other real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their
obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met,
the other real estate owned asset is derecognized and the gain on sale is recorded upon the transfer of control of the property
to the buyer. In determining the gain on the sale, the Company adjusts the transaction price and related gain on sale if a
significant financing component is present.
The following table presents the Company’s sources of Non-Interest Income for the twelve months ended December 31,
2018. Items outside the scope of ASC 606 are noted as such.
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Farmers Bankshares, Inc.
Notes to Consolidated Financial Statements
For Years Ended December 31, 2018 and 2017
Note 21 – Revenue from Contracts with Customers (concluded)
The following table presents the Company’s sources of Non-Interest Income for the twelve months ended December 31,
2018. Items outside the scope of ASC 606 are noted as such.
Non-interest income
Service charges on deposits
Overdraft fees
Other
Income from automated teller machines and bank card interchange
Insurance commissions
Net gain on disposition of securities (outside of scope)
Income on bank owned life insurance (outside of scope)
Net gain on sale of premises and equipment (outside of scope)
Income from investment in Manry Rawls (outside of scope)
Income from mortgage loans (outside of scope)
Other income (outside of scope)
Total non-interest income
Note 22 – Subsequent events
2018
2017
$ 375,771
222,609
560,452
4,452,749
154,773
306,814
-
-
-
190,168
$ 6,263,336
$ 345,562
260,797
535,445
2,948,887
61,216
313,602
16,665
66,467
164,715
377,943
$ 5,091,299
On January 2, 2019, The Company completed its acquisition of Carolina East Insurance, an independent insurance agency
which will be merged with the operations of Manry Rawls, LLC. The acquisition was accounted for as a business
combination under the acquisition method of accounting in accordance with ASC 805, Business Combinations, and, as such,
the assets and liabilities acquired were recorded at their respective fair values as of the acquisition date. Due to the recency
and nature of the transaction, the Company is still in the process of evaluating the fair value adjustments necessary to adjust
the acquired assets and assumed liabilities to estimated fair value, as well as the related intangible assets associated with the
transaction. Therefore, it is impractical to estimate and disclose the provisional allocation amounts and the pro forma
impact of the acquisition at this time. The value, before any fair value adjustments of assets acquired was approximately
$69,000 and no liabilities were assumed.
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B R A N C H L O C A T I O N S
B R A N C H L O C A T I O N S
Chesapeake
1403 Greenbrier Parkway, Suite 110
Suffolk – Hillpoint
3100 Godwin Boulevard
Courtland
28319 Southampton Parkway, Suite D
Suffolk – Lakeside
1008 West Washington Street
Smithfield
1119 South Church Street, PO Box 888
Windsor
50 East Windsor Boulevard, PO Box 285
Suffolk – Harbour View
6255 College Drive, Suite L
www.farmersbankva.com
757-242-6111
FARMERS BANK
C E L E B R A T I N G 1 0 0 Y E A R S
www.farmersbankva.com