UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
30, 2015
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______
to ______
Commission file number: 0-50765
VILLAGE BANK AND TRUST FINANCIAL CORP.
(Exact name of registrant as specified in
its charter)
Virginia |
16-1694602 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
13319 Midlothian Turnpike, Midlothian, Virginia |
23113 |
(Address of principal executive offices) |
(Zip code) |
804-897-3900
(Registrant’s telephone number, including
area code)
Indicate
by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer ¨ |
Accelerated Filer ¨ |
Non-Accelerated Filer ¨ (Do not check if smaller reporting company) |
Smaller Reporting Company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
Indicate the number of shares outstanding
of each of the issuer’s classes of common equity, as of the latest practicable date.
1,417,920 shares of common stock, $4.00
par value, outstanding as of November 3, 2015
Village Bank and Trust Financial Corp.
and Subsidiary
Form 10-Q
TABLE OF CONTENTS
Part
I – Financial Information
ITEM 1 – FINANCIAL STATEMENTS
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Balance Sheets |
September 30, 2015 (Unaudited) and December 31, 2014 |
(dollar
amounts in thousands, except per share amounts)
|
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Assets | |
| | | |
| | |
Cash and due from banks | |
$ | 12,772 | | |
$ | 25,115 | |
Federal funds sold | |
| 13,303 | | |
| 23,988 | |
Total cash and cash equivalents | |
| 26,075 | | |
| 49,103 | |
Investment securities available for sale | |
| 39,595 | | |
| 39,542 | |
Loans held for sale | |
| 12,770 | | |
| 9,914 | |
Loans | |
| | | |
| | |
Outstandings | |
| 299,745 | | |
| 286,146 | |
Allowance for loan losses | |
| (5,496 | ) | |
| (5,729 | ) |
Deferred fees and costs | |
| 1,294 | | |
| 722 | |
| |
| 295,543 | | |
| 281,139 | |
Other real estate owned, net of valuation allowance | |
| 8,018 | | |
| 12,638 | |
Assets held for sale | |
| 13,821 | | |
| 13,502 | |
Premises and equipment, net | |
| 13,733 | | |
| 14,301 | |
Bank owned life insurance | |
| 7,084 | | |
| 6,947 | |
Accrued interest receivable | |
| 2,085 | | |
| 1,372 | |
Other assets | |
| 4,926 | | |
| 5,546 | |
| |
| | | |
| | |
| |
$ | 423,650 | | |
$ | 434,004 | |
| |
| | | |
| | |
Liabilities and Shareholders' Equity | |
| | | |
| | |
Liabilities | |
| | | |
| | |
Deposits | |
| | | |
| | |
Noninterest bearing demand | |
$ | 75,978 | | |
$ | 77,496 | |
Interest bearing | |
| 293,061 | | |
| 301,364 | |
Total deposits | |
| 369,039 | | |
| 378,860 | |
Federal Home Loan Bank advances | |
| 6,000 | | |
| 14,000 | |
Long-term debt - trust preferred securities | |
| 8,764 | | |
| 8,764 | |
Other borrowings | |
| 338 | | |
| 3,302 | |
Accrued interest payable | |
| 1,302 | | |
| 1,167 | |
Other liabilities | |
| 7,551 | | |
| 8,853 | |
Total liabilities | |
| 392,994 | | |
| 414,946 | |
| |
| | | |
| | |
Shareholders' equity | |
| | | |
| | |
Preferred stock, $4 par value, $1,000 liquidation preference,1,000,000 shares authorized; 5,715 shares issued and outstanding at September 30, 2015 14,738 shares issued and oustanding at December 31, 2014 | |
| 23 | | |
| 59 | |
Common stock, $4 par value, 10,000,000 shares authorized; 1,417,920 shares issued and outstanding at September 30, 2015 350,622 shares issued and outstanding at December 31, 2014 | |
| 5,561 | | |
| 1,339 | |
Additional paid-in capital | |
| 58,501 | | |
| 58,188 | |
Accumulated deficit | |
| (33,870 | ) | |
| (40,539 | ) |
Common stock warrant | |
| 732 | | |
| 732 | |
Stock in directors rabbi trust | |
| (1,034 | ) | |
| (878 | ) |
Directors deferred fees obligation | |
| 1,034 | | |
| 878 | |
Accumulated other comprehensive loss | |
| (291 | ) | |
| (721 | ) |
Total shareholders' equity | |
| 30,656 | | |
| 19,058 | |
| |
| | | |
| | |
| |
$ | 423,650 | | |
$ | 434,004 | |
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Operations |
Three and Nine Months Ended September 30, 2015 and 2014 |
(Unaudited) |
(dollar amounts in thousands, except per share amounts) |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Interest income | |
| | | |
| | | |
| | | |
| | |
Loans | |
$ | 3,780 | | |
$ | 3,814 | | |
$ | 11,096 | | |
$ | 11,579 | |
Investment securities | |
| 155 | | |
| 304 | | |
| 464 | | |
| 958 | |
Federal funds sold | |
| 10 | | |
| 19 | | |
| 46 | | |
| 64 | |
Total interest income | |
| 3,945 | | |
| 4,137 | | |
| 11,606 | | |
| 12,601 | |
| |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| 621 | | |
| 751 | | |
| 1,877 | | |
| 2,304 | |
Borrowed funds | |
| 82 | | |
| (22 | ) | |
| 307 | | |
| 423 | |
Total interest expense | |
| 703 | | |
| 729 | | |
| 2,184 | | |
| 2,727 | |
| |
| | | |
| | | |
| | | |
| | |
Net interest income | |
| 3,242 | | |
| 3,408 | | |
| 9,422 | | |
| 9,874 | |
Provision for loan losses | |
| - | | |
| - | | |
| - | | |
| 100 | |
Net interest income after provision for loan losses | |
| 3,242 | | |
| 3,408 | | |
| 9,422 | | |
| 9,774 | |
| |
| | | |
| | | |
| | | |
| | |
Noninterest income | |
| | | |
| | | |
| | | |
| | |
Service charges and fees | |
| 632 | | |
| 589 | | |
| 1,906 | | |
| 1,673 | |
Gain on sale of loans | |
| 1,840 | | |
| 1,290 | | |
| 4,797 | | |
| 3,453 | |
Gain on sale of assets | |
| - | | |
| - | | |
| - | | |
| 3 | |
Gain (loss) on sale of investment securities | |
| - | | |
| (14 | ) | |
| 7 | | |
| (14 | ) |
Rental income | |
| 309 | | |
| 226 | | |
| 800 | | |
| 732 | |
Other | |
| 89 | | |
| 99 | | |
| 266 | | |
| 338 | |
Total noninterest income | |
| 2,870 | | |
| 2,190 | | |
| 7,776 | | |
| 6,185 | |
| |
| | | |
| | | |
| | | |
| | |
Noninterest expense | |
| | | |
| | | |
| | | |
| | |
Salaries and benefits | |
| 2,892 | | |
| 2,659 | | |
| 8,271 | | |
| 8,108 | |
Commissions | |
| 499 | | |
| 338 | | |
| 1,234 | | |
| 907 | |
Occupancy | |
| 412 | | |
| 397 | | |
| 1,298 | | |
| 1,272 | |
Equipment | |
| 189 | | |
| 146 | | |
| 587 | | |
| 529 | |
Write down of assets held for sale | |
| - | | |
| - | | |
| 687 | | |
| - | |
Supplies | |
| 70 | | |
| 77 | | |
| 204 | | |
| 243 | |
Professional and outside services | |
| 856 | | |
| 615 | | |
| 2,153 | | |
| 1,896 | |
Advertising and marketing | |
| 73 | | |
| 81 | | |
| 246 | | |
| 220 | |
Loss (gain) on sale and write down of OREO, net | |
| (49 | ) | |
| 364 | | |
| (135 | ) | |
| 1,051 | |
Other operating expense | |
| 699 | | |
| 787 | | |
| 2,103 | | |
| 2,434 | |
Total noninterest expense | |
| 5,641 | | |
| 5,464 | | |
| 16,648 | | |
| 16,660 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) before income tax expense (benefit) | |
| 471 | | |
| 134 | | |
| 550 | | |
| (701 | ) |
Income tax expense (benefit) | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| 471 | | |
| 134 | | |
| 550 | | |
| (701 | ) |
| |
| | | |
| | | |
| | | |
| | |
Preferred stock dividends and amortization of discount | |
| (170 | ) | |
| (545 | ) | |
| (500 | ) | |
| (1,062 | ) |
Preferred stock principal forgiveness | |
| - | | |
| - | | |
| 4,404 | | |
| - | |
Preferred stock dividend forgiveness | |
| - | | |
| - | | |
| 2,215 | | |
| - | |
Net income (loss) available to common shareholders | |
$ | 301 | | |
$ | (411 | ) | |
$ | 6,669 | | |
$ | (1,763 | ) |
| |
| | | |
| | | |
| | | |
| | |
Earnings (loss) per share, basic | |
$ | 0.21 | | |
$ | (1.23 | ) | |
$ | 6.17 | | |
$ | (5.28 | ) |
Earnings (loss) per share, diluted | |
$ | 0.21 | | |
$ | (1.23 | ) | |
$ | 6.14 | | |
$ | (5.28 | ) |
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Changes in Comprehensive Income (Loss) |
Three and Nine Months Ended September 30, 2015 and 2014 |
(Unaudited) |
(dollar amounts in thousands) |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net income (loss) | |
$ | 471 | | |
$ | 134 | | |
$ | 550 | | |
$ | (701 | ) |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
Unrealized holding gains (losses) arising during the period | |
| 544 | | |
| 84 | | |
| 650 | | |
| 3,234 | |
Tax effect | |
| 185 | | |
| 28 | | |
| 221 | | |
| 1,099 | |
Net change in unrealized holding gains (losses) on securities available for sale, net of tax | |
| 359 | | |
| 56 | | |
| 429 | | |
| 2,135 | |
| |
| | | |
| | | |
| | | |
| | |
Reclassification adjustment | |
| | | |
| | | |
| | | |
| | |
Reclassification adjustment for gains realized in income | |
| - | | |
| 14 | | |
| (7 | ) | |
| 14 | |
Tax effect | |
| - | | |
| 5 | | |
| (2 | ) | |
| 5 | |
Reclassification for gains included in net income, net of tax | |
| - | | |
| 9 | | |
| (5 | ) | |
| 9 | |
| |
| | | |
| | | |
| | | |
| | |
Minimum pension adjustment | |
| 3 | | |
| 3 | | |
| 9 | | |
| 9 | |
Tax effect | |
| 1 | | |
| 1 | | |
| 3 | | |
| 3 | |
Minimum pension adjustment, net of tax | |
| 2 | | |
| 2 | | |
| 6 | | |
| 6 | |
| |
| | | |
| | | |
| | | |
| | |
Total other comprehensive income | |
| 361 | | |
| 67 | | |
| 430 | | |
| 2,150 | |
| |
| | | |
| | | |
| | | |
| | |
Total comprehensive income | |
$ | 832 | | |
$ | 201 | | |
$ | 980 | | |
$ | 1,449 | |
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Changes in Shareholders' Equity |
Nine Months Ended September 30, 2015 and 2014 |
(Unaudited) |
(dollar amounts in thousands) |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Directors | | |
Accumulated | | |
| |
| |
| | |
| | |
Additional | | |
| | |
| | |
Discount on | | |
Stock in | | |
Deferred | | |
Other | | |
| |
| |
Preferred | | |
Common | | |
Paid-in | | |
Accumulated | | |
| | |
Preferred | | |
Directors | | |
Fees | | |
Comprehensive | | |
| |
| |
Stock | | |
Stock | | |
Capital | | |
Deficit | | |
Warrant | | |
Stock | | |
Rabbi Trust | | |
Obligation | | |
Income (loss) | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2014 | |
$ | 59 | | |
$ | 1,339 | | |
$ | 58,188 | | |
$ | (40,539 | ) | |
$ | 732 | | |
$ | - | | |
$ | (878 | ) | |
$ | 878 | | |
$ | (721 | ) | |
$ | 19,058 | |
Preferred stock dividend | |
| - | | |
| - | | |
| - | | |
| (500 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (500 | ) |
Restricted stock issuance | |
| - | | |
| 15 | | |
| (93 | ) | |
| - | | |
| - | | |
| - | | |
| (156 | ) | |
| 156 | | |
| - | | |
| (78 | ) |
Issuance of common stock,
net of offering expense of $1,200 | |
| - | | |
| 2,875 | | |
| 5,842 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,717 | |
Preferred stock exchanged
for commmon stock | |
| (18 | ) | |
| 1,332 | | |
| (1,314 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Preferred stock principal
forgiveness | |
| (18 | ) | |
| - | | |
| (4,386 | ) | |
| 4,404 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Preferred stock dividend
forgiveness | |
| - | | |
| - | | |
| - | | |
| 2,215 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,215 | |
Stock based compensation | |
| - | | |
| - | | |
| 264 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 264 | |
Minimum pension adjustment (net of income
taxes of $3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6 | | |
| 6 | |
Net income | |
| - | | |
| - | | |
| - | | |
| 550 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 550 | |
Change
in unrealized gain (loss) on investment securities available-for-sale, net of reclassification and tax effect | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 424 | | |
| 424 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September
30, 2015 | |
$ | 23 | | |
$ | 5,561 | | |
$ | 58,501 | | |
$ | (33,870 | ) | |
$ | 732 | | |
$ | - | | |
$ | (1,034 | ) | |
$ | 1,034 | | |
$ | (291 | ) | |
$ | 30,656 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
$ | 59 | | |
$ | 21,353 | | |
$ | 38,054 | | |
$ | (38,066 | ) | |
$ | 732 | | |
$ | (50 | ) | |
$ | (878 | ) | |
$ | 878 | | |
$ | (3,838 | ) | |
$ | 18,244 | |
Amortization of preferred
stock discount | |
| - | | |
| - | | |
| - | | |
| (50 | ) | |
| - | | |
| 50 | | |
| - | | |
| - | | |
| - | | |
| - | |
Preferred stock dividend | |
| - | | |
| - | | |
| - | | |
| (1,012 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,012 | ) |
Reverse stock split | |
| - | | |
| (20,019 | ) | |
| 20,019 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Issuance of common stock | |
| - | | |
| 3 | | |
| (11 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (8 | ) |
Stock based compensation | |
| - | | |
| - | | |
| 62 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 62 | |
Minimum pension adjustment
(net of income taxes of $3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6 | | |
| 6 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (701 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (701 | ) |
Change
in unrealized gain (loss) on investment securities available-for-sale, net of reclassification and tax effect | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,144 | | |
| 2,144 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September
30, 2014 | |
$ | 59 | | |
$ | 1,337 | | |
$ | 58,124 | | |
$ | (39,829 | ) | |
$ | 732 | | |
$ | - | | |
$ | (878 | ) | |
$ | 878 | | |
$ | (1,688 | ) | |
$ | 18,735 | |
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Cash Flows |
Nine Months Ended September 30, 2015 and 2014 |
(Unaudited) |
(dollars in thousands) |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash Flows from Operating Activities | |
| | | |
| | |
Net income (loss) | |
$ | 550 | | |
$ | (701 | ) |
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 649 | | |
| 482 | |
Deferred income taxes | |
| 201 | | |
| (324 | ) |
Valuation allowance deferred income taxes | |
| (201 | ) | |
| 324 | |
Provision for loan losses | |
| - | | |
| 100 | |
Write-down of other real estate owned | |
| 216 | | |
| 751 | |
Valuation allowance other real estate owned | |
| 73 | | |
| (495 | ) |
Write-down of assets held for sale | |
| 687 | | |
| - | |
(Gain) loss on securities sold | |
| (7 | ) | |
| 14 | |
Gain on loans sold | |
| (4,797 | ) | |
| (3,453 | ) |
(Gain) loss on sale and disposal of premises and equipment | |
| 12 | | |
| (3 | ) |
Gain on sale of other real estate owned | |
| (666 | ) | |
| (199 | ) |
Stock compensation expense | |
| 264 | | |
| 62 | |
Proceeds from sale of mortgage loans | |
| 166,176 | | |
| 128,465 | |
Origination of mortgage loans for sale | |
| (164,235 | ) | |
| (123,939 | ) |
Amortization of premiums and accretion of discounts on securities, net | |
| 216 | | |
| 304 | |
Increase in interest receivable | |
| (713 | ) | |
| (81 | ) |
Increase in bank owned life insurance | |
| (137 | ) | |
| (137 | ) |
Decrease (increase) in other assets | |
| (835 | ) | |
| 205 | |
Increase in interest payable | |
| 135 | | |
| 27 | |
Increase in other liabilities | |
| 1,010 | | |
| 2,142 | |
Net cash (used in) provided by operating
activities | |
| (1,402 | ) | |
| 3,544 | |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchases of available for sale securities | |
| (6,748 | ) | |
| - | |
Proceeds from the sale or calls of available for sale securities | |
| 7,129 | | |
| 5,162 | |
Net decrease (increase) in loans | |
| (14,747 | ) | |
| 4,401 | |
Proceeds from sale of other real estate owned | |
| 5,340 | | |
| 8,057 | |
Purchases of premises and equipment | |
| (780 | ) | |
| (1,708 | ) |
Proceeds from sale of premises and equipment | |
| - | | |
| 17 | |
Net cash (used in) provided by investing
activities | |
| (9,806 | ) | |
| 15,929 | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Issuance of common stock | |
| - | | |
| (8 | ) |
Net proceeds from sale of common stock, net of expenses of $990 | |
| 8,965 | | |
| - | |
Net decrease in deposits | |
| (9,821 | ) | |
| (9,964 | ) |
Net decrease in Federal Home Loan Bank Advances | |
| (8,000 | ) | |
| (4,000 | ) |
Net increase (decrease) in other borrowings | |
| (2,964 | ) | |
| (878 | ) |
Net cash used in financing activities | |
| (11,820 | ) | |
| (14,850 | ) |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (23,028 | ) | |
| 4,623 | |
Cash and cash equivalents, beginning of period | |
| 49,103 | | |
| 40,209 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 26,075 | | |
$ | 44,832 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information | |
| | | |
| | |
Cash payments for interest | |
$ | 2,049 | | |
$ | 2,536 | |
Supplemental Schedule of Non Cash Activities | |
| | | |
| | |
Real estate owned assets acquired in settlement of loans | |
$ | 329 | | |
$ | 5,375 | |
Assets moved to held for sale | |
$ | 831 | | |
$ | - | |
Dividends on preferred stock accrued | |
$ | 500 | | |
$ | 1,012 | |
Non-Cash conversion of preferred shares | |
$ | 4,619 | | |
$ | - | |
Forgiveness of principal and accrued dividends | |
$ | 6,619 | | |
$ | - | |
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp.
and Subsidiary
Notes to Consolidated Financial Statements
Three and Nine Months Ended September
30, 2015 and 2014
(Unaudited)
Note 1 - Principles
of presentation
Village Bank and Trust Financial Corp.
(the “Company”) is the holding company of Village Bank (the “Bank”). The consolidated financial statements
include the accounts of the Company, the Bank and the Bank’s subsidiary. All material intercompany balances and transactions
have been eliminated in consolidation.
On August
6, 2014, the Company filed Articles of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission
to effect a reverse stock split of its outstanding common stock which became effective on August 8, 2014. As a result of the reverse
split, every sixteen shares of the Company’s issued and outstanding common stock were consolidated into one issued and outstanding
share of common stock. The computations of basic and diluted earnings (loss) per share have
been adjusted retroactively to reflect the reverse stock split.
In the opinion of management, the accompanying
condensed consolidated financial statements of the Company have been prepared on the accrual basis in accordance with generally
accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. However, all adjustments that are, in the
opinion of management, necessary for a fair presentation have been included. The results of operations for the nine month period
ended September 30, 2015 is not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
The unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial
statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as filed with
the Securities and Exchange Commission (“SEC”).
The Company has evaluated events and transactions
occurring subsequent to the consolidated balance sheet date of September 30, 2015 for items that should potentially be recognized
or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial
statements were issued.
Note 2 - Use of estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the balance sheets and statements of operations for the period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to significant change include the determination of the allowance
for loan losses and its related provision, the valuation allowance on the deferred tax asset, and the estimate of the fair value
of assets held for sale.
Note 3 - Earnings (loss) per common
share
The following table presents the basic
and diluted earnings (loss) per common share computation (in thousands, except per share data):
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Numerator | |
| | | |
| | | |
| | | |
| | |
Net income (loss) - basic and diluted | |
$ | 471 | | |
$ | 134 | | |
$ | 550 | | |
$ | (701 | ) |
Preferred stock dividend and accretion | |
| (170 | ) | |
| (545 | ) | |
| (500 | ) | |
| (1,062 | ) |
Preferred stock principal forgiveness | |
| - | | |
| - | | |
| 4,404 | | |
| - | |
Preferred stock dividend forgiveness | |
| - | | |
| - | | |
| 2,215 | | |
| - | |
Net income (loss) available to common shareholders | |
$ | 301 | | |
$ | (411 | ) | |
$ | 6,669 | | |
$ | (1,763 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding - basic | |
| 1,418 | | |
| 334 | | |
| 1,081 | | |
| 334 | |
Dilutive effect of common stock options and restricted stock awards | |
| 5 | | |
| - | | |
| 5 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding - diluted | |
| 1,423 | | |
| 334 | | |
| 1,086 | | |
| 334 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings (loss) per share - basic | |
$ | 0.21 | | |
$ | (1.23 | ) | |
$ | 6.17 | | |
$ | (5.28 | ) |
Earnings (loss) per share - diluted | |
$ | 0.21 | | |
$ | (1.23 | ) | |
$ | 6.14 | | |
$ | (5.28 | ) |
Outstanding options and warrants to purchase
common stock were considered in the computation of diluted earnings (loss) per share for the periods presented.
Stock options for 4,505 and 14,802 shares
of common stock were not included in computing diluted earnings (loss) per share for the three and nine months ended September
30, 2015 and 2014, respectively, because their effects were anti-dilutive. Warrants for 31,190 shares of common stock were not
included in computing earnings (loss) per share in 2015 and 2014 because their effects were also anti-dilutive.
Note 4 – Investment securities
available for sale
At September 30, 2015 and December 31,
2014, all of our securities were classified as available-for-sale. The following table presents the composition of our investment
portfolio at the dates indicated (dollars in thousands):
| |
| | |
| | |
Gross | | |
Gross | | |
Estimated | | |
| |
| |
Par | | |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | | |
Average | |
| |
Value | | |
Cost | | |
Gains | | |
Losses | | |
Value | | |
Yield | |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One to five years | |
$ | 12,000 | | |
$ | 12,318 | | |
$ | - | | |
$ | (32 | ) | |
$ | 12,286 | | |
| 0.91 | % |
Five to ten years | |
| 18,500 | | |
| 19,737 | | |
| - | | |
| (240 | ) | |
| 19,497 | | |
| 2.32 | % |
More than ten years | |
| 3,349 | | |
| 3,357 | | |
| - | | |
| (9 | ) | |
| 3,348 | | |
| 0.84 | % |
| |
| 33,849 | | |
| 35,412 | | |
| - | | |
| (281 | ) | |
| 35,131 | | |
| 1.49 | % |
Mortgage-backed securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One to five years | |
| 1,896 | | |
| 1,947 | | |
| 1 | | |
| (9 | ) | |
| 1,939 | | |
| 1.27 | % |
More than ten years | |
| 1,253 | | |
| 1,311 | | |
| 1 | | |
| (6 | ) | |
| 1,306 | | |
| 1.28 | % |
| |
| 3,149 | | |
| 3,258 | | |
| 2 | | |
| (15 | ) | |
| 3,245 | | |
| 1.31 | % |
Municipals | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
More than ten years | |
| 1,130 | | |
| 1,258 | | |
| - | | |
| (39 | ) | |
| 1,219 | | |
| 3.72 | % |
| |
| 1,130 | | |
| 1,258 | | |
| - | | |
| (39 | ) | |
| 1,219 | | |
| 3.72 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total investment securities | |
$ | 38,128 | | |
$ | 39,928 | | |
$ | 2 | | |
$ | (335 | ) | |
$ | 39,595 | | |
| 1.54 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One to Five years | |
$ | 10,000 | | |
$ | 10,324 | | |
$ | - | | |
$ | (225 | ) | |
$ | 10,099 | | |
| 1.10 | % |
Five to ten years | |
| 22,500 | | |
| 23,895 | | |
| - | | |
| (647 | ) | |
| 23,248 | | |
| 1.98 | % |
| |
| 32,500 | | |
| 34,219 | | |
| - | | |
| (872 | ) | |
| 33,347 | | |
| 1.71 | % |
Mortgage-backed securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
More than ten years | |
| 471 | | |
| 484 | | |
| 2 | | |
| (2 | ) | |
| 484 | | |
| 0.31 | % |
Municipals | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Five to ten years | |
| 1,000 | | |
| 1,131 | | |
| - | | |
| (20 | ) | |
| 1,111 | | |
| 2.50 | % |
More than ten years | |
| 4,130 | | |
| 4,684 | | |
| 2 | | |
| (86 | ) | |
| 4,600 | | |
| 2.89 | % |
| |
| 5,130 | | |
| 5,815 | | |
| 2 | | |
| (106 | ) | |
| 5,711 | | |
| 2.82 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total investment securities | |
$ | 38,101 | | |
$ | 40,518 | | |
$ | 4 | | |
$ | (980 | ) | |
$ | 39,542 | | |
| 1.85 | % |
Investment securities available for sale
that have an unrealized loss position at September 30, 2015 and December 31, 2014 are detailed below (in thousands):
| |
Securities in a loss | | |
Securities in a loss | | |
| | |
| |
| |
position for less than | | |
position for more than | | |
| | |
| |
| |
12 Months | | |
12 Months | | |
Total | |
| |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
$ | 18,782 | | |
$ | (219 | ) | |
$ | 16,349 | | |
$ | (62 | ) | |
$ | 35,131 | | |
$ | (281 | ) |
Municipals | |
| 711 | | |
| (11 | ) | |
| 507 | | |
| (28 | ) | |
| 1,218 | | |
| (39 | ) |
Mortgage-backed securities | |
| 2,152 | | |
| (15 | ) | |
| - | | |
| - | | |
| 2,152 | | |
| (15 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 21,645 | | |
$ | (245 | ) | |
$ | 16,856 | | |
$ | (90 | ) | |
$ | 38,501 | | |
$ | (335 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
$ | - | | |
$ | - | | |
$ | 33,347 | | |
$ | (872 | ) | |
$ | 33,347 | | |
$ | (872 | ) |
Municipals | |
| - | | |
| - | | |
| 5,497 | | |
| (106 | ) | |
| 5,497 | | |
| (106 | ) |
Mortgage-backed securities | |
| - | | |
| - | | |
| 363 | | |
| (2 | ) | |
| 363 | | |
| (2 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | - | | |
$ | - | | |
$ | 39,207 | | |
$ | (980 | ) | |
$ | 39,207 | | |
$ | (980 | ) |
Management
does not believe that any individual unrealized loss as of September 30, 2015 and December 31, 2014 is other than a temporary impairment.
These unrealized losses are primarily attributable to changes in interest rates. As of September 30, 2015, management does not
have the intent to sell any of the securities classified as available for sale and management believes that it is more likely than
not that the Company will not have to sell any such securities before a recovery of cost. Approximately $6 million of these securities
are pledged against current and potential fundings.
Note 5 – Loans and allowance
for loan losses
The following table presents the composition of our loan portfolio
(excluding mortgage loans held for sale) at the dates indicated (dollars in thousands):
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
Amount | | |
% | | |
Amount | | |
% | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 5,188 | | |
| 1.73 | % | |
$ | 4,315 | | |
| 1.51 | % |
Commercial | |
| 26,220 | | |
| 8.76 | % | |
| 25,152 | | |
| 8.80 | % |
| |
| 31,408 | | |
| 10.49 | % | |
| 29,467 | | |
| 10.31 | % |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 68,437 | | |
| 22.84 | % | |
| 58,804 | | |
| 20.55 | % |
Non-owner occupied | |
| 38,132 | | |
| 12.72 | % | |
| 38,892 | | |
| 13.59 | % |
Multifamily | |
| 8,195 | | |
| 2.73 | % | |
| 11,438 | | |
| 4.00 | % |
Farmland | |
| 394 | | |
| 0.13 | % | |
| 434 | | |
| 0.15 | % |
| |
| 115,158 | | |
| 38.42 | % | |
| 109,568 | | |
| 38.29 | % |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 20,024 | | |
| 6.68 | % | |
| 20,082 | | |
| 7.02 | % |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 58,470 | | |
| 19.51 | % | |
| 61,837 | | |
| 21.61 | % |
Second deed of trust | |
| 7,249 | | |
| 2.42 | % | |
| 7,854 | | |
| 2.74 | % |
| |
| 85,743 | | |
| 28.61 | % | |
| 89,773 | | |
| 31.37 | % |
Commercial and industrial loans (except those secured by real estate) | |
| 19,457 | | |
| 6.49 | % | |
| 22,165 | | |
| 7.75 | % |
Guaranteed student loans | |
| 46,355 | | |
| 15.46 | % | |
| 33,562 | | |
| 11.73 | % |
Consumer and other | |
| 1,624 | | |
| 0.53 | % | |
| 1,611 | | |
| 0.55 | % |
| |
| | | |
| | | |
| | | |
| | |
Total loans | |
| 299,745 | | |
| 100.00 | % | |
| 286,146 | | |
| 100.00 | % |
Deferred loan cost, net | |
| 1,294 | | |
| | | |
| 722 | | |
| | |
Less: allowance for loan losses | |
| (5,496 | ) | |
| | | |
| (5,729 | ) | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 295,543 | | |
| | | |
$ | 281,139 | | |
| | |
The Company assigns risk rating classifications to its loans.
These risk ratings are divided into the following groups:
| · | Risk rated 1 to 4 loans are considered
of sufficient quality to preclude an adverse rating. These assets generally are well protected by the current net worth and paying
capacity of the obligor or by the value of the asset or underlying collateral; |
| · | Risk rated 5 loans are defined as having
potential weaknesses that deserve management’s close attention; |
| · | Risk rated 6 loans are inadequately protected
by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any; |
| · | Risk rated 7 loans have all the weaknesses
inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the
basis of currently existing facts, conditions and values, highly questionable and improbable; and |
| · | Loans rated 6 or 7 are considered “Classified”
loans for regulatory classification purposes. |
The following tables provide information
on the risk rating of loans at the dates indicated (in thousands):
| |
Risk Rated | | |
Risk Rated | | |
Risk Rated | | |
Risk Rated | | |
Total | |
| |
1-4 | | |
5 | | |
6 | | |
7 | | |
Loans | |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 5,188 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 5,188 | |
Commercial | |
| 24,165 | | |
| 581 | | |
| 1,474 | | |
| - | | |
| 26,220 | |
| |
| 29,353 | | |
| 581 | | |
| 1,474 | | |
| - | | |
| 31,408 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 62,315 | | |
| 2,882 | | |
| 3,240 | | |
| - | | |
| 68,437 | |
Non-owner occupied | |
| 36,020 | | |
| 2,015 | | |
| 97 | | |
| - | | |
| 38,132 | |
Multifamily | |
| 7,993 | | |
| 202 | | |
| - | | |
| - | | |
| 8,195 | |
Farmland | |
| 394 | | |
| - | | |
| - | | |
| - | | |
| 394 | |
| |
| 106,722 | | |
| 5,099 | | |
| 3,337 | | |
| - | | |
| 115,158 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 18,909 | | |
| 237 | | |
| 878 | | |
| - | | |
| 20,024 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 52,409 | | |
| 2,919 | | |
| 3,142 | | |
| - | | |
| 58,470 | |
Second deed of trust | |
| 6,404 | | |
| 26 | | |
| 819 | | |
| - | | |
| 7,249 | |
| |
| 77,722 | | |
| 3,182 | | |
| 4,839 | | |
| - | | |
| 85,743 | |
Commercial and industrial loans (except those secured by real estate) | |
| 18,049 | | |
| 386 | | |
| 1,022 | | |
| - | | |
| 19,457 | |
Guaranteed student loans | |
| 46,355 | | |
| - | | |
| - | | |
| - | | |
| 46,355 | |
Consumer and other | |
| 1,534 | | |
| 66 | | |
| 24 | | |
| - | | |
| 1,624 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
$ | 279,735 | | |
$ | 9,314 | | |
$ | 10,696 | | |
$ | - | | |
$ | 299,745 | |
| |
Risk Rated | | |
Risk Rated | | |
Risk Rated | | |
Risk Rated | | |
Total | |
| |
1-4 | | |
5 | | |
6 | | |
7 | | |
Loans | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 3,946 | | |
$ | 205 | | |
$ | 164 | | |
$ | - | | |
$ | 4,315 | |
Commercial | |
| 20,641 | | |
| 1,622 | | |
| 2,889 | | |
| - | | |
| 25,152 | |
| |
| 24,587 | | |
| 1,827 | | |
| 3,053 | | |
| - | | |
| 29,467 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 47,175 | | |
| 5,234 | | |
| 6,395 | | |
| - | | |
| 58,804 | |
Non-owner occupied | |
| 36,439 | | |
| 1,811 | | |
| 642 | | |
| - | | |
| 38,892 | |
Multifamily | |
| 10,703 | | |
| 735 | | |
| - | | |
| - | | |
| 11,438 | |
Farmland | |
| 413 | | |
| - | | |
| 21 | | |
| - | | |
| 434 | |
| |
| 94,730 | | |
| 7,780 | | |
| 7,058 | | |
| - | | |
| 109,568 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 18,107 | | |
| 465 | | |
| 1,510 | | |
| - | | |
| 20,082 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 52,513 | | |
| 4,763 | | |
| 4,561 | | |
| - | | |
| 61,837 | |
Second deed of trust | |
| 6,456 | | |
| 434 | | |
| 964 | | |
| - | | |
| 7,854 | |
| |
| 77,076 | | |
| 5,662 | | |
| 7,035 | | |
| - | | |
| 89,773 | |
Commercial and industrial loans (except those secured by real estate) | |
| 19,026 | | |
| 2,297 | | |
| 390 | | |
| 452 | | |
| 22,165 | |
Guaranteed student loans | |
| 33,562 | | |
| - | | |
| - | | |
| - | | |
| 33,562 | |
Consumer and other | |
| 1,488 | | |
| 74 | | |
| 49 | | |
| - | | |
| 1,611 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
$ | 250,469 | | |
$ | 17,640 | | |
$ | 17,585 | | |
$ | 452 | | |
$ | 286,146 | |
The following table presents the aging of the recorded investment
in past due loans and leases as of the dates indicated (in thousands):
| |
| | |
| | |
| | |
| | |
| | |
| | |
Recorded | |
| |
| | |
| | |
Greater | | |
| | |
| | |
| | |
Investment > | |
| |
30-59 Days | | |
60-89 Days | | |
Than | | |
Total Past | | |
| | |
Total | | |
90 Days and | |
| |
Past Due | | |
Past Due | | |
90 Days | | |
Due | | |
Current | | |
Loans | | |
Accruing | |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 5,188 | | |
$ | 5,188 | | |
$ | - | |
Commercial | |
| - | | |
| - | | |
| - | | |
| - | | |
| 26,220 | | |
| 26,220 | | |
| - | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| 31,408 | | |
| 31,408 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 157 | | |
| - | | |
| - | | |
| 157 | | |
| 68,280 | | |
| 68,437 | | |
| - | |
Non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| 38,132 | | |
| 38,132 | | |
| - | |
Multifamily | |
| - | | |
| - | | |
| - | | |
| - | | |
| 8,195 | | |
| 8,195 | | |
| - | |
Farmland | |
| - | | |
| - | | |
| - | | |
| - | | |
| 394 | | |
| 394 | | |
| - | |
| |
| 157 | | |
| - | | |
| - | | |
| 157 | | |
| 115,001 | | |
| 115,158 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 27 | | |
| 49 | | |
| - | | |
| 76 | | |
| 19,948 | | |
| 20,024 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| - | | |
| 263 | | |
| - | | |
| 263 | | |
| 58,207 | | |
| 58,470 | | |
| - | |
Second deed of trust | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,249 | | |
| 7,249 | | |
| - | |
| |
| 27 | | |
| 312 | | |
| - | | |
| 339 | | |
| 85,404 | | |
| 85,743 | | |
| - | |
Commercial and industrial
loans (except those secured by real estate) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 19,457 | | |
| 19,457 | | |
| - | |
Guaranteed student loans | |
| 1,750 | | |
| 1,092 | | |
| 9,117 | | |
| 11,959 | | |
| 34,396 | | |
| 46,355 | | |
| 9,117 | |
Consumer and other | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,624 | | |
| 1,624 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
$ | 1,934 | | |
$ | 1,404 | | |
$ | 9,117 | | |
$ | 12,455 | | |
$ | 287,290 | | |
$ | 299,745 | | |
$ | 9,117 | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
Recorded | |
| |
| | |
| | |
Greater | | |
| | |
| | |
| | |
Investment > | |
| |
30-59 Days | | |
60-89 Days | | |
Than | | |
Total Past | | |
| | |
Total | | |
90 Days and | |
| |
Past Due | | |
Past Due | | |
90 Days | | |
Due | | |
Current | | |
Loans | | |
Accruing | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 4,315 | | |
$ | 4,315 | | |
$ | - | |
Commercial | |
| 92 | | |
| 391 | | |
| - | | |
| 483 | | |
| 24,669 | | |
| 25,152 | | |
| - | |
| |
| 92 | | |
| 391 | | |
| - | | |
| 483 | | |
| 28,984 | | |
| 29,467 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 715 | | |
| - | | |
| - | | |
| 715 | | |
| 58,089 | | |
| 58,804 | | |
| - | |
Non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| 38,892 | | |
| 38,892 | | |
| - | |
Multifamily | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,438 | | |
| 11,438 | | |
| - | |
Farmland | |
| - | | |
| - | | |
| - | | |
| - | | |
| 434 | | |
| 434 | | |
| - | |
| |
| 715 | | |
| - | | |
| - | | |
| 715 | | |
| 108,853 | | |
| 109,568 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 31 | | |
| 139 | | |
| - | | |
| 170 | | |
| 19,912 | | |
| 20,082 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| - | | |
| 153 | | |
| - | | |
| 153 | | |
| 61,684 | | |
| 61,837 | | |
| - | |
Second deed of trust | |
| 56 | | |
| - | | |
| - | | |
| 56 | | |
| 7,798 | | |
| 7,854 | | |
| - | |
| |
| 87 | | |
| 292 | | |
| - | | |
| 379 | | |
| 89,394 | | |
| 89,773 | | |
| - | |
Commercial and industrial
loans (except those secured by real estate) | |
| - | | |
| 47 | | |
| - | | |
| 47 | | |
| 22,118 | | |
| 22,165 | | |
| - | |
Guaranteed student loans | |
| 671 | | |
| 392 | | |
| 720 | | |
| 1,783 | | |
| 31,779 | | |
| 33,562 | | |
| 720 | |
Consumer and other | |
| - | | |
| 8 | | |
| - | | |
| 8 | | |
| 1,603 | | |
| 1,611 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans | |
$ | 1,565 | | |
$ | 1,130 | | |
$ | 720 | | |
$ | 3,415 | | |
$ | 282,731 | | |
$ | 286,146 | | |
$ | 720 | |
Loans greater than 90 days past due are
student loans that are guaranteed by the Department of Education which covers approximately 98% of the principal and interest.
Accordingly, these loans will not be placed on nonaccrual status.
Loans are considered impaired when, based
on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original
contractual terms of the loan agreement, including scheduled principal and interest payments. Loans evaluated individually for
impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and
other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If
the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.
Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans.
If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present
value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected
solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the
principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof,
are charged off when deemed uncollectible. Impaired loans are set forth in the following table as of the dates indicated (in thousands):
| |
September 30, 2015 | |
| |
| | |
Unpaid | | |
| |
| |
Recorded | | |
Principal | | |
Related | |
| |
Investment | | |
Balance | | |
Allowance | |
With no related allowance recorded | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Commercial | |
$ | 1,403 | | |
$ | 1,655 | | |
$ | - | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,594 | | |
| 1,594 | | |
| | |
Non-owner occupied | |
| 2,100 | | |
| 2,677 | | |
| - | |
Multifamily | |
| - | | |
| - | | |
| - | |
Farmland | |
| - | | |
| - | | |
| - | |
| |
| 3,694 | | |
| 4,271 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | |
Home equity lines | |
| 1,407 | | |
| 1,407 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | |
First deed of trust | |
| 5,005 | | |
| 5,009 | | |
| - | |
Second deed of trust | |
| 1,115 | | |
| 1,386 | | |
| - | |
| |
| 7,527 | | |
| 7,802 | | |
| - | |
| |
| | | |
| | | |
| | |
Commercial and industrial loans (except those secured by real estate) | |
| 454 | | |
| 454 | | |
| - | |
Consumer and other | |
| - | | |
| - | | |
| - | |
| |
| 13,078 | | |
| 14,182 | | |
| - | |
| |
| | | |
| | | |
| | |
With an allowance recorded | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Commercial | |
| 575 | | |
| 575 | | |
| 26 | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 5,550 | | |
| 5,515 | | |
| 366 | |
Non-Owner occupied | |
| 456 | | |
| 456 | | |
| 38 | |
| |
| 6,006 | | |
| 5,971 | | |
| 404 | |
Consumer real estate | |
| | | |
| | | |
| | |
Home equity lines | |
| 89 | | |
| 89 | | |
| 9 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,350 | | |
| 1,350 | | |
| 215 | |
Second deed of trust | |
| 356 | | |
| 356 | | |
| 147 | |
| |
| 1,795 | | |
| 1,795 | | |
| 371 | |
Commercial and industrial loans
(except those secured by real estate) | |
| 136 | | |
| 232 | | |
| 17 | |
| |
| 8,512 | | |
| 8,573 | | |
| 818 | |
| |
| | | |
| | | |
| | |
Total | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Commercial | |
| 1,978 | | |
| 2,230 | | |
| 26 | |
| |
| 1,978 | | |
| 2,230 | | |
| 26 | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 7,144 | | |
| 7,109 | | |
| 366 | |
Non-owner occupied | |
| 2,556 | | |
| 3,133 | | |
| 38 | |
| |
| 9,700 | | |
| 10,242 | | |
| 404 | |
Consumer real estate | |
| | | |
| | | |
| | |
Home equity lines | |
| 1,496 | | |
| 1,496 | | |
| 9 | |
Secured by 1-4 family residential, | |
| | | |
| | | |
| | |
First deed of trust | |
| 6,355 | | |
| 6,359 | | |
| 215 | |
Second deed of trust | |
| 1,471 | | |
| 1,742 | | |
| 147 | |
| |
| 9,322 | | |
| 9,597 | | |
| 371 | |
Commercial and industrial loans
(except those secured by real estate) | |
| 590 | | |
| 686 | | |
| 17 | |
Consumer and other | |
| - | | |
| - | | |
| - | |
| |
$ | 21,590 | | |
$ | 22,755 | | |
$ | 818 | |
| |
December 31, 2014 | |
| |
| | |
Unpaid | | |
| |
| |
Recorded | | |
Principal | | |
Related | |
| |
Investment | | |
Balance | | |
Allowance | |
With no related allowance recorded | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Residential | |
$ | 164 | | |
$ | 164 | | |
$ | - | |
Commercial | |
| 3,379 | | |
| 3,379 | | |
| - | |
| |
| 3,543 | | |
| 3,543 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,686 | | |
| 1,686 | | |
| | |
Non-owner occupied | |
| 6,593 | | |
| 6,593 | | |
| - | |
Multifamily | |
| 2,322 | | |
| 2,322 | | |
| - | |
Farmland | |
| 21 | | |
| 450 | | |
| - | |
| |
| 10,622 | | |
| 11,051 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | |
Home equity lines | |
| 800 | | |
| 800 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | |
First deed of trust | |
| 6,485 | | |
| 6,493 | | |
| - | |
Second deed of trust | |
| 1,103 | | |
| 1,373 | | |
| - | |
| |
| 8,388 | | |
| 8,666 | | |
| - | |
Commercial and industrial loans (except those secured by real estate) | |
| 263 | | |
| 365 | | |
| - | |
Consumer and other | |
| 23 | | |
| 36 | | |
| - | |
| |
| 22,839 | | |
| 23,661 | | |
| - | |
| |
| | | |
| | | |
| | |
With an allowance recorded | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Commercial | |
| 589 | | |
| 589 | | |
| 26 | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 6,625 | | |
| 6,640 | | |
| 905 | |
| |
| | | |
| | | |
| | |
Consumer real estate | |
| | | |
| | | |
| | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,415 | | |
| 1,415 | | |
| 200 | |
Second deed of trust | |
| 257 | | |
| 257 | | |
| 142 | |
| |
| 1,672 | | |
| 1,672 | | |
| 342 | |
Commercial and industrial loans (except those secured by real estate) | |
| 555 | | |
| 555 | | |
| 239 | |
| |
| 9,441 | | |
| 9,456 | | |
| 1,512 | |
| |
| | | |
| | | |
| | |
Total | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | |
Residential | |
| 164 | | |
| 164 | | |
| - | |
Commercial | |
| 3,968 | | |
| 3,968 | | |
| 26 | |
| |
| 4,132 | | |
| 4,132 | | |
| 26 | |
Commercial real estate | |
| | | |
| | | |
| | |
Owner occupied | |
| 8,311 | | |
| 8,326 | | |
| 905 | |
Non-owner occupied | |
| 6,593 | | |
| 6,593 | | |
| - | |
Multifamily | |
| 2,322 | | |
| 2,322 | | |
| - | |
Farmland | |
| 21 | | |
| 450 | | |
| - | |
| |
| 17,247 | | |
| 17,691 | | |
| 905 | |
Consumer real estate | |
| | | |
| | | |
| | |
Home equity lines | |
| 800 | | |
| 800 | | |
| - | |
Secured by 1-4 family residential, | |
| | | |
| | | |
| | |
First deed of trust | |
| 7,900 | | |
| 7,908 | | |
| 200 | |
Second deed of trust | |
| 1,360 | | |
| 1,630 | | |
| 142 | |
| |
| 10,060 | | |
| 10,338 | | |
| 342 | |
Commercial
and industrial loans (except those secured by real estate) | |
| 818 | | |
| 920 | | |
| 239 | |
Consumer and other | |
| 23 | | |
| 36 | | |
| - | |
| |
$ | 32,280 | | |
$ | 33,117 | | |
$ | 1,512 | |
The following is a summary of average recorded investment in
impaired loans with and without a valuation allowance and interest income recognized on those loans for the periods indicated (in
thousands):
| |
For the Three Months | | |
For the Nine Months | |
| |
Ended
September 30, 2015 | | |
Ended
September 30, 2015 | |
| |
Average | | |
Interest | | |
Average | | |
Interest | |
| |
Recorded | | |
Income | | |
Recorded | | |
Income | |
| |
Investment | | |
Recognized | | |
Investment | | |
Recognized | |
With no related allowance recorded | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | - | | |
$ | - | | |
$ | 76 | | |
$ | - | |
Commercial | |
| 2,191 | | |
| - | | |
| 2,579 | | |
| 66 | |
| |
| 2,191 | | |
| - | | |
| 2,655 | | |
| 66 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,364 | | |
| 14 | | |
| 1,409 | | |
| 45 | |
Non-owner occupied | |
| 4,971 | | |
| - | | |
| 5,947 | | |
| 157 | |
Multifamily | |
| - | | |
| - | | |
| 319 | | |
| 6 | |
Farmland | |
| - | | |
| - | | |
| 5 | | |
| - | |
| |
| 6,335 | | |
| 14 | | |
| 7,680 | | |
| 208 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 1,178 | | |
| - | | |
| 617 | | |
| 4 | |
Secured by 1-4 family
residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 5,665 | | |
| - | | |
| 6,120 | | |
| 173 | |
Second
deed of trust | |
| 1,118 | | |
| 13 | | |
| 1,162 | | |
| 43 | |
| |
| 7,961 | | |
| 13 | | |
| 7,899 | | |
| 220 | |
Commercial
and industrial loans (except those secured by real estate) | |
| 185 | | |
| 22 | | |
| 181 | | |
| 26 | |
Consumer and other | |
| - | | |
| - | | |
| 13 | | |
| 1 | |
| |
| 16,672 | | |
| 49 | | |
| 18,428 | | |
| 521 | |
| |
| | | |
| | | |
| | | |
| | |
With an allowance recorded | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Commercial | |
| 529 | | |
| 6 | | |
| 578 | | |
| 17 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 5,544 | | |
| 53 | | |
| 6,197 | | |
| 169 | |
Non-Owner occupied | |
| 459 | | |
| 6 | | |
| 262 | | |
| 18 | |
| |
| 6,003 | | |
| 59 | | |
| 6,459 | | |
| 187 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity line | |
| 89 | | |
| - | | |
| 45 | | |
| - | |
Secured by 1-4 family
residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,387 | | |
| - | | |
| 1,306 | | |
| - | |
Second
deed of trust | |
| 284 | | |
| - | | |
| 262 | | |
| - | |
| |
| 1,760 | | |
| - | | |
| 1,613 | | |
| - | |
Commercial
and industrial loans (except those secured by real estate) | |
| 226 | | |
| 4 | | |
| 378 | | |
| 20 | |
| |
| 8,518 | | |
| 69 | | |
| 9,028 | | |
| 224 | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
| - | | |
| - | | |
| 76 | | |
| - | |
Commercial | |
| 2,720 | | |
| 6 | | |
| 3,157 | | |
| 83 | |
| |
| 2,720 | | |
| 6 | | |
| 3,233 | | |
| 83 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 6,908 | | |
| 67 | | |
| 7,606 | | |
| 214 | |
Non-owner occupied | |
| 5,430 | | |
| 6 | | |
| 6,209 | | |
| 175 | |
Multifamily | |
| - | | |
| - | | |
| 319 | | |
| 6 | |
Farmland | |
| - | | |
| - | | |
| 5 | | |
| - | |
| |
| 12,338 | | |
| 73 | | |
| 14,139 | | |
| 395 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 1,267 | | |
| - | | |
| 662 | | |
| 4 | |
Secured by 1-4 family
residential, | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 7,052 | | |
| - | | |
| 7,426 | | |
| 173 | |
Second
deed of trust | |
| 1,402 | | |
| 13 | | |
| 1,424 | | |
| 43 | |
| |
| 9,721 | | |
| 13 | | |
| 9,512 | | |
| 220 | |
Commercial
and industrial loans (except those secured by real estate) | |
| 411 | | |
| 26 | | |
| 559 | | |
| 46 | |
Consumer and other | |
| - | | |
| - | | |
| 13 | | |
| 1 | |
| |
$ | 25,190 | | |
$ | 118 | | |
$ | 27,456 | | |
$ | 745 | |
| |
For the Three Months | | |
For the Nine Months | |
| |
Ended September 30, 2014 | | |
Ended September 30, 2014 | |
| |
Average | | |
Interest | | |
Average | | |
Interest | |
| |
Recorded | | |
Income | | |
Recorded | | |
Income | |
| |
Investment | | |
Recognized | | |
Investment | | |
Recognized | |
With no related allowance recorded | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 133 | | |
| - | | |
$ | 206 | | |
| 2 | |
Commercial | |
| 3,584 | | |
| 52 | | |
| 3,841 | | |
| 150 | |
| |
| 3,717 | | |
| 52 | | |
| 4,047 | | |
| 152 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 2,654 | | |
| 70 | | |
| 3,161 | | |
| 135 | |
Non-owner occupied | |
| 9,557 | | |
| 120 | | |
| 9,994 | | |
| 335 | |
Multifamily | |
| 2,340 | | |
| 35 | | |
| 2,353 | | |
| 106 | |
Farmland | |
| 21 | | |
| - | | |
| 21 | | |
| - | |
| |
| 14,572 | | |
| 225 | | |
| 15,529 | | |
| 576 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 950 | | |
| 3 | | |
| 960 | | |
| 19 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 7,259 | | |
| 75 | | |
| 7,175 | | |
| 268 | |
Second deed of trust | |
| 1,147 | | |
| 9 | | |
| 1,066 | | |
| 42 | |
| |
| 9,356 | | |
| 87 | | |
| 9,201 | | |
| 329 | |
Commercial and industrial loans | |
| | | |
| | | |
| | | |
| | |
(except those secured by real estate) | |
| 746 | | |
| 7 | | |
| 751 | | |
| 30 | |
Consumer and other | |
| 17 | | |
| - | | |
| 19 | | |
| 1 | |
| |
$ | 28,408 | | |
$ | 371 | | |
$ | 29,547 | | |
$ | 1,088 | |
| |
| | | |
| | | |
| | | |
| | |
With an allowance recorded | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Commercial | |
| 598 | | |
| 8 | | |
| 603 | | |
| 23 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 2,801 | | |
| 62 | | |
| 4,446 | | |
| 154 | |
Non-Owner occupied | |
| 1,946 | | |
| 9 | | |
| 217 | | |
| 9 | |
| |
| 4,747 | | |
| 71 | | |
| 4,663 | | |
| 163 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,870 | | |
| 22 | | |
| 1,944 | | |
| 24 | |
Second deed of trust | |
| 260 | | |
| 5 | | |
| 264 | | |
| 8 | |
| |
| 2,130 | | |
| 27 | | |
| 2,208 | | |
| 32 | |
Commercial and industrial loans (except those secured by real estate) | |
| 110 | | |
| - | | |
| 115 | | |
| - | |
| |
$ | 7,585 | | |
$ | 106 | | |
$ | 7,589 | | |
$ | 218 | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
| 133 | | |
| - | | |
| 206 | | |
| 2 | |
Commercial | |
| 4,182 | | |
| 60 | | |
| 4,444 | | |
| 173 | |
| |
| 4,315 | | |
| 60 | | |
| 4,650 | | |
| 175 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 5,455 | | |
| 132 | | |
| 7,607 | | |
| 289 | |
Non-owner occupied | |
| 11,503 | | |
| 129 | | |
| 10,211 | | |
| 344 | |
Multifamily | |
| 2,340 | | |
| 35 | | |
| 2,353 | | |
| 106 | |
Farmland | |
| 21 | | |
| - | | |
| 21 | | |
| - | |
| |
| 19,319 | | |
| 296 | | |
| 20,192 | | |
| 739 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 950 | | |
| 3 | | |
| 960 | | |
| 19 | |
Secured by 1-4 family residential, | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 9,129 | | |
| 97 | | |
| 9,119 | | |
| 292 | |
Second deed of trust | |
| 1,407 | | |
| 14 | | |
| 1,330 | | |
| 50 | |
| |
| 11,486 | | |
| 114 | | |
| 11,409 | | |
| 361 | |
Commercial and industrial loans (except those secured by real estate) | |
| 856 | | |
| 7 | | |
| 866 | | |
| 30 | |
Consumer and other | |
| 17 | | |
| - | | |
| 19 | | |
| 1 | |
| |
$ | 35,993 | | |
$ | 477 | | |
$ | 37,136 | | |
$ | 1,306 | |
Included in impaired loans are loans classified
as troubled debt restructurings (“TDRs”). A modification of a loan’s terms constitutes a TDR if the creditor
grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it
would not otherwise consider. For loans classified as impaired TDRs, the Company further evaluates the loans as performing or nonperforming.
If, at the time of restructure, the loan is not considered nonaccrual, it will be classified as performing. TDRs originally classified
as nonperforming are able to be reclassified as performing if, subsequent to restructure, they experience six months of payment
performance according to the restructured terms. The following is a summary of performing and nonaccrual TDRs and the related specific
valuation allowance by portfolio segment as of the dates indicated (dollars in thousands):
| |
| | |
| | |
| | |
Valuation | |
| |
Total | | |
Performing | | |
Nonaccrual | | |
Allowance | |
September 30, 2015 | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Commercial | |
$ | 1,723 | | |
$ | 1,705 | | |
$ | 19 | | |
$ | - | |
| |
| 1,723 | | |
| 1,705 | | |
| 19 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 5,773 | | |
| 5,489 | | |
| 284 | | |
| 59 | |
Non-owner occupied | |
| 2,556 | | |
| 2,556 | | |
| - | | |
| - | |
| |
| 8,329 | | |
| 8,045 | | |
| 284 | | |
| 59 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 89 | | |
| - | | |
| 89 | | |
| 9 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 4,610 | | |
| 3,742 | | |
| 868 | | |
| 107 | |
Second deed of trust | |
| 739 | | |
| 644 | | |
| 95 | | |
| - | |
| |
| 5,438 | | |
| 4,386 | | |
| 1,052 | | |
| 116 | |
Commercial and industrial loans (except those secured by real estate) | |
| 131 | | |
| - | | |
| 131 | | |
| 17 | |
Consumer and other | |
| - | | |
| - | | |
| - | | |
| - | |
| |
$ | 15,621 | | |
$ | 14,135 | | |
$ | 1,486 | | |
$ | 192 | |
| |
| | | |
| | | |
| | | |
| | |
Number of loans | |
| 67 | | |
| 48 | | |
| 19 | | |
| 10 | |
| |
| | |
| | |
| | |
Specific | |
| |
| | |
| | |
| | |
Valuation | |
| |
Total | | |
Performing | | |
Nonaccrual | | |
Allowance | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
| 7 | | |
| - | | |
| 7 | | |
| - | |
Commercial | |
| 3,895 | | |
| 3,751 | | |
| 144 | | |
| 17 | |
| |
| 3,902 | | |
| 3,751 | | |
| 151 | | |
| 17 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 6,317 | | |
| 5,149 | | |
| 1,168 | | |
| 325 | |
Non-owner occupied | |
| 6,593 | | |
| 6,593 | | |
| - | | |
| - | |
Multifamily | |
| 2,322 | | |
| 2,322 | | |
| - | | |
| - | |
| |
| 15,232 | | |
| 14,065 | | |
| 1,168 | | |
| 325 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Secured by 1-4 family residential | |
| - | | |
| - | | |
| - | | |
| - | |
First deeds of trust | |
| 6,990 | | |
| 5,494 | | |
| 1,496 | | |
| 200 | |
Second deeds of trust | |
| 762 | | |
| 658 | | |
| 104 | | |
| 5 | |
| |
| 7,752 | | |
| 6,152 | | |
| 1,600 | | |
| 205 | |
| |
| | | |
| | | |
| | | |
| | |
Commercial and industrial loans (except those secured by real estate) | |
| 239 | | |
| - | | |
| 239 | | |
| 12 | |
Consumer and other | |
| 16 | | |
| - | | |
| 16 | | |
| - | |
| |
$ | 27,141 | | |
$ | 23,967 | | |
$ | 3,174 | | |
$ | 559 | |
| |
| | | |
| | | |
| | | |
| | |
Number of loans | |
| 107 | | |
| 77 | | |
| 30 | | |
| 21 | |
The following table provides information
about TDRs identified during the indicated periods (dollars in thousands):
| |
Nine Months
Ended September 30, 2015 | | |
Nine Months
Ended September 30, 2014 | |
| |
| | |
Pre- | | |
Post- | | |
| | |
Pre- | | |
Post- | |
| |
| | |
Modification | | |
Modification | | |
| | |
Modification | | |
Modification | |
| |
Number of | | |
Recorded | | |
Recorded | | |
Number of | | |
Recorded | | |
Recorded | |
| |
Loans | | |
Balance | | |
Balance | | |
Loans | | |
Balance | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial | |
| - | | |
$ | - | | |
$ | - | | |
| 1 | | |
$ | 45 | | |
$ | 45 | |
| |
| - | | |
| - | | |
| - | | |
| 1 | | |
| 45 | | |
| 45 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| - | | |
| - | | |
| - | | |
| 2 | | |
| 743 | | |
| 743 | |
Non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | | |
| - | | |
| 2 | | |
| 743 | | |
| 743 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 1 | | |
| 89 | | |
| 89 | | |
| - | | |
| - | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| - | | |
| - | | |
| - | | |
| 7 | | |
| 729 | | |
| 729 | |
Second deed of trust | |
| - | | |
| - | | |
| - | | |
| 2 | | |
| 105 | | |
| 105 | |
| |
| 1 | | |
| 89 | | |
| 89 | | |
| 9 | | |
| 834 | | |
| 834 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 1 | | |
$ | 89 | | |
$ | 89 | | |
| 12 | | |
$ | 1,622 | | |
$ | 1,622 | |
The following table provides information
about defaults on TDRs identified for the indicated periods (dollars in thousands):
| |
Nine Months
Ended September 30, 2015 | | |
Nine Months
Ended September 30, 2014 | |
| |
Number of | | |
Recorded | | |
Number of | | |
Recorded | |
| |
Loans | | |
Balance | | |
Loans | | |
Balance | |
| |
| | |
| | |
| | |
| |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Commercial | |
| 1 | | |
$ | 19 | | |
| 1 | | |
$ | 45 | |
| |
| 1 | | |
| 19 | | |
| 1 | | |
| 45 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1 | | |
| 157 | | |
| 1 | | |
| 334 | |
Non-owner occupied | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 1 | | |
| 157 | | |
| 1 | | |
| 334 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| - | | |
| - | | |
| - | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 11 | | |
| 897 | | |
| 5 | | |
| 541 | |
Second deed of trust | |
| - | | |
| - | | |
| 2 | | |
| 105 | |
| |
| 11 | | |
| 897 | | |
| 7 | | |
| 646 | |
| |
| | | |
| | | |
| | | |
| | |
Commercial
and industrial
(except those secured by real estate) | |
| 1 | | |
| 131 | | |
| - | | |
| - | |
| |
| 14 | | |
$ | 1,204 | | |
| 9 | | |
$ | 1,025 | |
Activity in the allowance for loan losses
is as follows for the periods indicated (dollars in thousands):
| |
Beginning | | |
Provision for | | |
| | |
| | |
Ending | |
| |
Balance | | |
Loan Losses | | |
Charge-offs | | |
Recoveries | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| |
Three Months Ended September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 92 | | |
$ | (9 | ) | |
$ | - | | |
$ | - | | |
$ | 83 | |
Commercial | |
| 369 | | |
| 113 | | |
| (67 | ) | |
| - | | |
| 415 | |
| |
| 461 | | |
| 104 | | |
| (67 | ) | |
| - | | |
| 498 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,686 | | |
| (150 | ) | |
| - | | |
| 33 | | |
| 1,569 | |
Non-owner occupied | |
| 639 | | |
| 51 | | |
| - | | |
| 2 | | |
| 692 | |
Multifamily | |
| 110 | | |
| 2 | | |
| - | | |
| - | | |
| 112 | |
Farmland | |
| 127 | | |
| (48 | ) | |
| - | | |
| - | | |
| 79 | |
| |
| 2,562 | | |
| (145 | ) | |
| - | | |
| 35 | | |
| 2,452 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 441 | | |
| 59 | | |
| (14 | ) | |
| 1 | | |
| 487 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,192 | | |
| 72 | | |
| (37 | ) | |
| 5 | | |
| 1,232 | |
Second deed of trust | |
| 250 | | |
| (17 | ) | |
| - | | |
| 12 | | |
| 245 | |
| |
| 1,883 | | |
| 114 | | |
| (51 | ) | |
| 18 | | |
| 1,964 | |
Commercial and industrial
loans
(except those secured by real estate) | |
| 382 | | |
| (67 | ) | |
| - | | |
| 15 | | |
| 330 | |
Student Loans | |
| 253 | | |
| (21 | ) | |
| (2 | ) | |
| - | | |
| 230 | |
Consumer and other | |
| 26 | | |
| 15 | | |
| (21 | ) | |
| 2 | | |
| 22 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 5,567 | | |
$ | - | | |
$ | (141 | ) | |
$ | 70 | | |
$ | 5,496 | |
| |
Beginning | | |
Provision for | | |
| | |
| | |
Ending | |
| |
Balance | | |
Loan Losses | | |
Charge-offs | | |
Recoveries | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| |
Three Months Ended September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 141 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 141 | |
Commercial | |
| 770 | | |
| - | | |
| - | | |
| 27 | | |
| 797 | |
| |
| 911 | | |
| - | | |
| - | | |
| 27 | | |
| 938 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,245 | | |
| - | | |
| - | | |
| - | | |
| 1,245 | |
Non-owner occupied | |
| (15 | ) | |
| - | | |
| - | | |
| 1 | | |
| (14 | ) |
Multifamily | |
| 17 | | |
| - | | |
| - | | |
| - | | |
| 17 | |
Farmland | |
| 409 | | |
| - | | |
| - | | |
| - | | |
| 409 | |
| |
| 1,656 | | |
| - | | |
| - | | |
| 1 | | |
| 1,657 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 225 | | |
| - | | |
| (52 | ) | |
| 12 | | |
| 185 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,744 | | |
| - | | |
| (39 | ) | |
| 9 | | |
| 1,714 | |
Second deed of trust | |
| 440 | | |
| - | | |
| - | | |
| 5 | | |
| 445 | |
| |
| 2,409 | | |
| - | | |
| (91 | ) | |
| 26 | | |
| 2,344 | |
Commercial and industrial loans (except those secured by real estate) | |
| 678 | | |
| - | | |
| - | | |
| 13 | | |
| 691 | |
Consumer and other | |
| 27 | | |
| - | | |
| (3 | ) | |
| 4 | | |
| 28 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 5,681 | | |
$ | - | | |
$ | (94 | ) | |
$ | 71 | | |
$ | 5,658 | |
| |
Beginning | | |
Provision for | | |
| | |
| | |
Ending | |
| |
Balance | | |
Loan Losses | | |
Charge-offs | | |
Recoveries | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| |
Nine Months Ended September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 34 | | |
$ | 48 | | |
$ | - | | |
$ | 1 | | |
$ | 83 | |
Commercial | |
| 202 | | |
| 443 | | |
| (252 | ) | |
| 22 | | |
| 415 | |
| |
| 236 | | |
| 491 | | |
| (252 | ) | |
| 23 | | |
| 498 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,836 | | |
| (173 | ) | |
| (127 | ) | |
| 33 | | |
| 1,569 | |
Non-owner occupied | |
| 607 | | |
| 81 | | |
| - | | |
| 4 | | |
| 692 | |
Multifamily | |
| 78 | | |
| 34 | | |
| - | | |
| - | | |
| 112 | |
Farmland | |
| 130 | | |
| (51 | ) | |
| - | | |
| - | | |
| 79 | |
| |
| 2,651 | | |
| (109 | ) | |
| (127 | ) | |
| 37 | | |
| 2,452 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 469 | | |
| 70 | | |
| (54 | ) | |
| 2 | | |
| 487 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,345 | | |
| (384 | ) | |
| (103 | ) | |
| 374 | | |
| 1,232 | |
Second deed of trust | |
| 275 | | |
| - | | |
| (55 | ) | |
| 25 | | |
| 245 | |
| |
| 2,089 | | |
| (314 | ) | |
| (212 | ) | |
| 401 | | |
| 1,964 | |
Commercial and industrial loans (except those secured by real estate) | |
| 506 | | |
| (87 | ) | |
| (162 | ) | |
| 73 | | |
| 330 | |
Student Loans | |
| 217 | | |
| 14 | | |
| (1 | ) | |
| - | | |
| 230 | |
Consumer and other | |
| 30 | | |
| 5 | | |
| (30 | ) | |
| 17 | | |
| 22 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 5,729 | | |
$ | - | | |
$ | (784 | ) | |
$ | 551 | | |
$ | 5,496 | |
| |
Beginning | | |
Provision for | | |
| | |
| | |
Ending | |
| |
Balance | | |
Loan Losses | | |
Charge-offs | | |
Recoveries | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| |
Nine Months Ended September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 135 | | |
$ | 5 | | |
$ | - | | |
$ | 1 | | |
$ | 141 | |
Commercial | |
| 1,274 | | |
| (421 | ) | |
| (100 | ) | |
| 44 | | |
| 797 | |
| |
| 1,409 | | |
| (416 | ) | |
| (100 | ) | |
| 45 | | |
| 938 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,199 | | |
| 653 | | |
| (608 | ) | |
| - | | |
| 1,244 | |
Non-owner occupied | |
| 670 | | |
| (470 | ) | |
| (238 | ) | |
| 24 | | |
| (14 | ) |
Multifamily | |
| 20 | | |
| (2 | ) | |
| - | | |
| - | | |
| 18 | |
Farmland | |
| 337 | | |
| 168 | | |
| (96 | ) | |
| - | | |
| 409 | |
| |
| 2,226 | | |
| 349 | | |
| (942 | ) | |
| 24 | | |
| 1,657 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 424 | | |
| 223 | | |
| (476 | ) | |
| 14 | | |
| 185 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,992 | | |
| (65 | ) | |
| (277 | ) | |
| 64 | | |
| 1,714 | |
Second deed of trust | |
| 394 | | |
| 12 | | |
| (76 | ) | |
| 115 | | |
| 445 | |
| |
| 2,810 | | |
| 170 | | |
| (829 | ) | |
| 193 | | |
| 2,344 | |
Commercial and industrial loans (except those secured by real estate) | |
| 724 | | |
| 45 | | |
| (168 | ) | |
| 90 | | |
| 691 | |
Consumer and other | |
| 70 | | |
| (48 | ) | |
| (8 | ) | |
| 14 | | |
| 28 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 7,239 | | |
$ | 100 | | |
$ | (2,047 | ) | |
$ | 366 | | |
$ | 5,658 | |
| |
Beginning | | |
Provision for | | |
| | |
| | |
Ending | |
| |
Balance | | |
Loan Losses | | |
Charge-offs | | |
Recoveries | | |
Balance | |
| |
| | |
| | |
| | |
| | |
| |
Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 135 | | |
$ | (103 | ) | |
$ | - | | |
$ | 2 | | |
$ | 34 | |
Commercial | |
| 1,274 | | |
| (1,016 | ) | |
| (100 | ) | |
| 44 | | |
| 202 | |
| |
| 1,409 | | |
| (1,119 | ) | |
| (100 | ) | |
| 46 | | |
| 236 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,199 | | |
| 1,268 | | |
| (631 | ) | |
| - | | |
| 1,836 | |
Non-owner occupied | |
| 670 | | |
| 430 | | |
| (518 | ) | |
| 25 | | |
| 607 | |
Multifamily | |
| 20 | | |
| 58 | | |
| - | | |
| - | | |
| 78 | |
Farmland | |
| 337 | | |
| (111 | ) | |
| (96 | ) | |
| - | | |
| 130 | |
| |
| 2,226 | | |
| 1,645 | | |
| (1,245 | ) | |
| 25 | | |
| 2,651 | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 424 | | |
| 506 | | |
| (476 | ) | |
| 15 | | |
| 469 | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,992 | | |
| (442 | ) | |
| (277 | ) | |
| 72 | | |
| 1,345 | |
Second deed of trust | |
| 394 | | |
| (223 | ) | |
| (86 | ) | |
| 190 | | |
| 275 | |
| |
| 2,810 | | |
| (159 | ) | |
| (839 | ) | |
| 277 | | |
| 2,089 | |
Commercial and industrial loans (except those secured by real estate) | |
| 724 | | |
| (447 | ) | |
| (172 | ) | |
| 401 | | |
| 506 | |
Student Loans | |
| - | | |
| 217 | | |
| - | | |
| - | | |
| 217 | |
Consumer and other | |
| 70 | | |
| (37 | ) | |
| (25 | ) | |
| 22 | | |
| 30 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 7,239 | | |
$ | 100 | | |
$ | (2,381 | ) | |
$ | 771 | | |
$ | 5,729 | |
The allowance
for loan losses at each of the periods presented includes an amount that could not be identified to individual types of
loans referred to as the unallocated portion of the allowance. We recognize the inherent imprecision
in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range
around the estimate of losses is derived and used to ascertain whether the allowance is too high. We concluded that the unallocated
portion of the allowance was warranted given the continued higher level of classified assets and was within a reasonable range
around the estimate of losses.
Loans were evaluated for impairment as follows for the periods
indicated (in thousands):
| |
Recorded Investment
in Loans | |
| |
Allowance | | |
Loans | |
| |
| | |
| | |
| | |
Loans acquired | | |
| | |
| | |
| | |
Loans acquired | |
| |
Ending | | |
| | |
| | |
with deteriorated | | |
Ending | | |
| | |
| | |
with deteriorated | |
| |
Balance | | |
Individually | | |
Collectively | | |
credit quality | | |
Balance | | |
Individually | | |
Collectively | | |
credit quality | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Period Ended September 30, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 83 | | |
$ | - | | |
$ | 83 | | |
$ | - | | |
$ | 5,188 | | |
$ | - | | |
$ | 5,188 | | |
$ | - | |
Commercial | |
| 415 | | |
| 26 | | |
| 389 | | |
| - | | |
| 26,220 | | |
| 1,978 | | |
| 24,242 | | |
| - | |
| |
| 498 | | |
| 26 | | |
| 472 | | |
| - | | |
| 31,408 | | |
| 1,978 | | |
| 29,430 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,569 | | |
| 366 | | |
| 1,203 | | |
| - | | |
| 68,437 | | |
| 7,144 | | |
| 61,293 | | |
| - | |
Non-owner occupied | |
| 692 | | |
| 38 | | |
| 654 | | |
| - | | |
| 38,132 | | |
| 2,556 | | |
| 35,576 | | |
| - | |
Multifamily | |
| 112 | | |
| - | | |
| 112 | | |
| - | | |
| 8,195 | | |
| - | | |
| 8,195 | | |
| - | |
Farmland | |
| 79 | | |
| - | | |
| 79 | | |
| - | | |
| 394 | | |
| - | | |
| 394 | | |
| - | |
| |
| 2,452 | | |
| 404 | | |
| 2,048 | | |
| - | | |
| 115,158 | | |
| 9,700 | | |
| 105,458 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 487 | | |
| 9 | | |
| 478 | | |
| - | | |
| 20,024 | | |
| 1,496 | | |
| 18,528 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,232 | | |
| 215 | | |
| 1,017 | | |
| - | | |
| 58,470 | | |
| 6,355 | | |
| 52,115 | | |
| - | |
Second deed of trust | |
| 245 | | |
| 147 | | |
| 98 | | |
| - | | |
| 7,249 | | |
| 1,471 | | |
| 5,778 | | |
| - | |
| |
| 1,964 | | |
| 371 | | |
| 1,593 | | |
| - | | |
| 85,743 | | |
| 9,322 | | |
| 76,422 | | |
| - | |
Commercial and industrial
loans
(except those secured by real estate) | |
| 330 | | |
| 17 | | |
| 313 | | |
| - | | |
| 19,457 | | |
| 590 | | |
| 18,867 | | |
| - | |
Student loans | |
| 230 | | |
| - | | |
| 230 | | |
| | | |
| 46,355 | | |
| - | | |
| 46,355 | | |
| - | |
Consumer and other | |
| 22 | | |
| - | | |
| 22 | | |
| - | | |
| 1,624 | | |
| - | | |
| 1,624 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 5,496 | | |
$ | 818 | | |
$ | 4,678 | | |
$ | - | | |
$ | 299,745 | | |
$ | 21,590 | | |
$ | 278,156 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Year Ended December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 34 | | |
$ | - | | |
$ | 34 | | |
$ | - | | |
$ | 4,315 | | |
$ | 164 | | |
$ | 4,151 | | |
$ | - | |
Commercial | |
| 202 | | |
| 26 | | |
| 176 | | |
| - | | |
| 25,152 | | |
| 3,968 | | |
| 21,184 | | |
| - | |
| |
| 236 | | |
| 26 | | |
| 210 | | |
| - | | |
| 29,467 | | |
| 4,132 | | |
| 25,335 | | |
| - | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 1,836 | | |
| 905 | | |
| 931 | | |
| - | | |
| 58,804 | | |
| 8,311 | | |
| 50,493 | | |
| - | |
Non-owner occupied | |
| 607 | | |
| - | | |
| 607 | | |
| - | | |
| 38,892 | | |
| 6,593 | | |
| 32,299 | | |
| - | |
Multifamily | |
| 78 | | |
| - | | |
| 78 | | |
| - | | |
| 11,438 | | |
| 2,322 | | |
| 9,116 | | |
| - | |
Farmland | |
| 130 | | |
| - | | |
| 130 | | |
| - | | |
| 434 | | |
| 21 | | |
| 413 | | |
| - | |
| |
| 2,651 | | |
| 905 | | |
| 1,746 | | |
| - | | |
| 109,568 | | |
| 17,247 | | |
| 92,321 | | |
| - | |
Consumer real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 469 | | |
| - | | |
| 469 | | |
| - | | |
| 20,082 | | |
| 800 | | |
| 19,282 | | |
| - | |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 1,345 | | |
| 200 | | |
| 1,145 | | |
| - | | |
| 61,837 | | |
| 7,900 | | |
| 53,937 | | |
| - | |
Second deed of trust | |
| 275 | | |
| 142 | | |
| 133 | | |
| - | | |
| 7,854 | | |
| 1,360 | | |
| 6,494 | | |
| - | |
| |
| 2,089 | | |
| 342 | | |
| 1,747 | | |
| - | | |
| 89,773 | | |
| 10,060 | | |
| 79,713 | | |
| - | |
Commercial and industrial
loans (except those secured by real estate) | |
| 506 | | |
| 239 | | |
| 267 | | |
| - | | |
| 22,165 | | |
| 818 | | |
| 21,347 | | |
| - | |
Student loans | |
| 217 | | |
| - | | |
| 217 | | |
| | | |
| 33,562 | | |
| - | | |
| 33,562 | | |
| - | |
Consumer and other | |
| 30 | | |
| - | | |
| 30 | | |
| - | | |
| 1,611 | | |
| 23 | | |
| 1,588 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
$ | 5,729 | | |
$ | 1,512 | | |
$ | 4,217 | | |
$ | - | | |
$ | 286,146 | | |
$ | 32,280 | | |
$ | 253,866 | | |
$ | - | |
Note 6 – Deposits
Deposits as of September 30, 2015 and
December 31, 2014 were as follows (dollars in thousands):
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
Amount | | |
% | | |
Amount | | |
% | |
| |
| | |
| | |
| | |
| |
Demand accounts | |
| 75,978 | | |
| 20.6 | % | |
$ | 77,496 | | |
| 20.5 | % |
Interest checking accounts | |
| 41,609 | | |
| 11.3 | % | |
| 42,924 | | |
| 11.3 | % |
Money market accounts | |
| 70,228 | | |
| 19.0 | % | |
| 64,987 | | |
| 17.2 | % |
Savings accounts | |
| 20,049 | | |
| 5.4 | % | |
| 20,643 | | |
| 5.4 | % |
Time deposits of $100,000 and over | |
| 71,993 | | |
| 19.5 | % | |
| 75,559 | | |
| 19.9 | % |
Other time deposits | |
| 89,182 | | |
| 24.2 | % | |
| 97,251 | | |
| 25.7 | % |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 369,039 | | |
| 100.0 | % | |
$ | 378,860 | | |
| 100.0 | % |
Note 7 – Trust preferred securities
During the first quarter of 2005, Southern
Community Financial Capital Trust I, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable
securities. On February 24, 2005, $5.2 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The
securities have a LIBOR-indexed floating rate of interest (three-month LIBOR plus 2.15%) which adjusts, and is payable, quarterly.
The interest rate at September 30, 2015 was 2.48%. The securities were redeemable at par beginning on March 15, 2010 and each
quarter after such date until the securities mature on March 15, 2035. No amounts have been redeemed at September 30, 2015 and
there are no plans to do so. The principal asset of the Trust is $5.2 million of the Company’s junior subordinated debt
securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
During the third quarter of 2007, Village
Financial Statutory Trust II, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable securities.
On September 20, 2007, $3.6 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The securities
have LIBOR-indexed floating rate of interest (three-month LIBOR plus 1.4%) which adjusts, and is also payable, quarterly. The
interest rate at September 30, 2015 was 1.73%. The securities were redeemable at par beginning on December 2012 and each quarter
after such date until the securities mature in 2037. No amounts have been redeemed at September 30, 2015 and there are no plans
to do so. The principal asset of the Trust is $3.6 million of the Company’s junior subordinated debt securities with like
maturities and like interest rates to the Trust Preferred Capital Notes.
The Trust Preferred Capital Notes may
be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion.
The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be included in Tier 2 capital.
The obligations of the Company with respect
to the issuance of the Trust Preferred Capital Notes constitute a full and unconditional guarantee by the Company of the Trust’s
obligations with respect to the Trust Preferred Capital Notes. Subject to certain exceptions and limitations, the Company may
elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral
of distribution payments on the related Trust Preferred Capital Notes and require a deferral of common dividends. In consideration
of our agreements with our regulators, which require regulatory approval to make interest payments on these securities, the Company
has deferred an aggregate of $1,218,700 in interest payments on the junior subordinated debt securities as of September 30, 2015.
The Company has been deferring interest payments since June 2011. Although the Company elected to defer payment of the interest
due, the amount has been accrued and is included in interest expense in the consolidated statement of operations.
Note 8 – Stock incentive plan
The Village Bank and Trust Financial Corp.
Incentive Plan, which was adopted on February 28, 2006, authorized the issuance of up to 48,750 shares of common stock (after
the reverse stock split) (the “2006 Plan”). On May 26, 2015, the Company’s shareholders approved the adoption
of the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (the “2015 Plan”) authorizing the issuance
of up to 60,000 shares of common stock. The 2015 Plan was adopted to replace the 2006 Plan and any new awards will be made pursuant
to the 2015 Plan. The prior awards made under the 2006 Plan were unchanged by the adoption of the 2015 Plan and continue to be
governed by the terms of the 2006 Plan.
The following table summarizes stock options
outstanding under the stock incentive plans at the indicated dates:
| |
Nine Months
Ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
Weighted | | |
| | |
| | |
| | |
Weighted | | |
| | |
| |
| |
| | |
Average | | |
| | |
| | |
| | |
Average | | |
| | |
| |
| |
| | |
Exercise | | |
Fair Value | | |
Intrinsic | | |
| | |
Exercise | | |
Fair Value | | |
Intrinsic | |
| |
Options | | |
Price | | |
Per Share | | |
Value | | |
Options | | |
Price | | |
Per Share | | |
Value | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Options outstanding, beginning
of period | |
| 6,830 | | |
$ | 92.34 | | |
$ | 52.74 | | |
| | | |
| 6,210 | | |
$ | 99.03 | | |
$ | 59.21 | | |
| | |
Granted | |
| - | | |
| - | | |
| - | | |
| | | |
| 884 | | |
| 25.28 | | |
| 15.52 | | |
| | |
Forfeited | |
| (2,012 | ) | |
| 171.03 | | |
| 94.35 | | |
| | | |
| (264 | ) | |
| 25.28 | | |
| 80.33 | | |
| | |
Exercised | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| | |
Options outstanding,
end of period | |
| 4,818 | | |
$ | 59.48 | | |
$ | 35.36 | | |
$ | - | | |
| 6,830 | | |
$ | 92.34 | | |
$ | 52.74 | | |
$ | - | |
Options exercisable,
end of period | |
| 3,306 | | |
| | | |
| | | |
| | | |
| 5,318 | | |
| | | |
| | | |
| | |
During the first and third quarters of
2014, we granted certain officers 4,423, 6,278 and 1,625 restricted shares of common stock with a weighted average fair market
value of $21.28, $27.04 and $27.69 at the date of grant respectively. During the first and second quarters of 2015, we granted
certain officers 2,850 and 40,675 restricted shares of common stock with a weighted average fair market value of $20.60 and $19.72
at the date of grant respectively. These restricted stock awards have three-year graded vesting. Prior to vesting, these shares
are subject to forfeiture to us without consideration upon termination of employment under certain circumstances. The total number
of shares underlying non-vested restricted stock was 12,324 and 51,274 at September 30, 2014 and 2015 respectively.
The fair value of the stock is calculated
under the same methodology as stock options and the expense is recognized over the vesting period. Unamortized stock-based compensation
related to nonvested share based compensation arrangements granted under the stock incentive plans as of September 30, 2015 and
2014, was approximately $532,000 and $355,000, respectively. The time based unamortized compensation of approximately $532,000
is expected to be recognized over a weighted average period of 2.29 years.
Stock-based compensation expense was approximately
$264,000 and $62,000 for the nine months ended September 30, 2015 and 2014, respectively.
Note 9 — Fair value
The fair value of an asset or liability
is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market
participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the
principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset
or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability
shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market
that are independent, knowledgeable, able to transact and willing to transact.
Financial Accounting Standards Board (“FASB”)
Codification Topic 820: Fair Value Measurements and Disclosures establishes a hierarchy for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The fair values hierarchy is as follows:
Level 1 Inputs —
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as
of the measurement date.
Level 2 Inputs
— Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data.
Level 3 Inputs —
Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
The Company used the following methods
to determine the fair value of each type of financial instrument:
Securities: Fair values for securities
available-for-sale are obtained from an independent pricing service. The prices are not adjusted. The independent pricing service
uses industry-standard models to price U.S. Government agency obligations and mortgage backed securities that consider various
assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current
market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities
of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are
benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service
are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions
are executed in the marketplace (Levels 1 and 2).
Impaired loans: The fair values
of impaired loans are measured for impairment using the fair value of the collateral for collateral-dependent loans on a nonrecurring
basis. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable.
The vast majority of the Company’s 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 using observable
market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of
the property is more than two years old, then a Level 3 valuation is considered to measure the fair value. The value of business
equipment is based upon an outside appraisal if deemed significant using observable market data. Likewise, values for non-collateral
dependent loans, inventory and account receivables collateral are based on discounted cash flows and financial statement balances
or aging reports (Level 3). Any fair value adjustments are recorded in the period incurred as provision for loan losses on the
Consolidated Statements of Operations.
Real Estate Owned: Real estate
owned assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, real estate owned assets
are carried at net realizable value. Fair value is based upon independent market prices, appraised values of the collateral or
management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable
market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised
value is not available or management determines the fair value of the collateral is further impaired below the appraised value
and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.
Assets and liabilities measured at fair
value under Topic 820 on a recurring and non-recurring basis are summarized below for the indicated dates:
| |
Fair Value Measurement | |
| |
at September 30, 2015 Using | |
| |
(In thousands) | |
| |
| | |
Quoted Prices | | |
| | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
| | |
Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Financial Assets - Recurring | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
$ | 35,131 | | |
| 3,347 | | |
| 31,784 | | |
| - | |
Mortgage-backed securities | |
| 3,245 | | |
| - | | |
| 3,245 | | |
| - | |
Municipals | |
| 1,219 | | |
| - | | |
| 1,219 | | |
| - | |
Residential loans held for sale | |
| 12,770 | | |
| - | | |
| 12,770 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Financial Assets - Non-Recurring | |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
| 21,590 | | |
| - | | |
| 20,077 | | |
| 1,513 | |
Real estate owned | |
| 8,018 | | |
| - | | |
| 7,959 | | |
| 59 | |
| |
Fair Value Measurement | |
| |
at December 31, 2014 Using | |
| |
(In thousands) | |
| |
| | |
Quoted Prices | | |
| | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
| | |
Markets for | | |
Observable | | |
Unobservable | |
| |
Carrying | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Financial Assets - Recurring | |
| | | |
| | | |
| | | |
| | |
US Government Agencies | |
$ | 33,347 | | |
$ | - | | |
$ | 33,347 | | |
$ | - | |
MBS | |
| 484 | | |
| - | | |
| 484 | | |
| - | |
Municipals | |
| 5,711 | | |
| - | | |
| 5,711 | | |
| - | |
Residential loans held for sale | |
| 9,914 | | |
| - | | |
| 9,914 | | |
| - | |
| |
| | | |
| | | |
| - | | |
| | |
Financial Assets - Non-Recurring | |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
| 32,280 | | |
| - | | |
| 30,017 | | |
| 2,263 | |
Real estate owned | |
| 12,638 | | |
| - | | |
| 12,168 | | |
| 470 | |
The following table presents qualitative information about
Level 3 fair value measurements for financial instruments measured at fair value at September 30, 2015:
| |
September
30, 2015 |
| |
| | |
| |
| |
Range |
| |
Fair Value | | |
Valuation | |
Unobservable | |
(Weighted |
| |
Estimate | | |
Techniques | |
Input | |
Average) |
| |
(In thousands) |
| |
| | |
| |
| |
|
Impaired loans - real estate secured | |
$ | 999 | | |
Appraisal (1) or Internal Valuation (2) | |
Selling costs | |
6%-10% (7%) |
| |
| | | |
| |
Discount for lack of
marketability and age of appraisal | |
6%-30% (10%) |
Impaired loans - non-real estate secured | |
$ | 514 | | |
Appraisal (1) or Discounted Cash Flow | |
Selling costs | |
10% |
| |
| | | |
| |
Discount for lack of
marketability or practical life | |
0%-50% (20%) |
Real estate owned | |
$ | 59 | | |
Appraisal (1) or Internal Valuation (2) | |
Selling costs | |
6%-10% (7%) |
| |
| | | |
| |
Discount for lack of
marketability and age of appraisal | |
6%-30% (15%) |
| (1) | Fair Value is generally
determined through independent appraisals of the underlying collateral, which generally
included various level 3 inputs which are not identifiable |
| (2) | Internal valuations
may be conducted to determine Fair Value for assets with nominal carrying balances |
| |
December 31, 2014 |
| |
| | |
| |
| |
Range |
| |
Fair Value | | |
Valuation | |
Unobservable | |
(Weighted |
| |
Estimate | | |
Techniques | |
Input | |
Average) |
| |
(dollars in thousands) |
| |
| | |
| |
| |
|
Impaired loans - real estate secured | |
$ | 1,438 | | |
Appraisal (1) or Internal Valuation (2) | |
Selling costs | |
6%-10% (7%) |
| |
| | | |
| |
Discount for lack of
marketability and age of appraisal | |
6%-30% (10%) |
Impaired loans - non-real estate secured | |
$ | 825 | | |
Appraisal (1) or Discounted Cash Flow | |
Selling costs | |
10% |
| |
| | | |
| |
Discount for lack of
marketability or practical life | |
0%-50% (20%) |
Real estate owned | |
$ | 470 | | |
Appraisal (1) or Internal Valuation (2) | |
Selling costs | |
6%-10% (7%) |
| |
| | | |
| |
Discount for lack of
marketability and age of appraisal | |
6%-30% (15%) |
| (1) | Fair Value is generally
determined through independent appraisals of the underlying collateral, which generally
included various Level 3 inputs which are not identifiable. |
| (2) | Internal valuations
may be conducted to determine Fair Value for assets with nominal carrying balances. |
In general,
fair value of securities is based upon quoted market prices, where available. If such quoted market prices are not available,
fair value is based upon market prices determined by an outside, independent entity that primarily uses as inputs, observable
market-based parameters. Fair value of loans held for sale is based upon internally developed models that primarily use as inputs,
observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair
value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable
parameters. Any such valuation adjustments are applied consistently over time. The Company valuation methodologies may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management
believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual
date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or
quarterly valuation process.
Cash and cash equivalents –
The carrying amount of cash and cash equivalents approximates fair value.
Investment securities – The
fair value of investment securities available-for-sale is estimated based on bid quotations received from independent pricing
services for similar assets. The carrying amount of other investments approximates fair value.
Loans – For variable rate
loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For all
other loans, fair values are calculated by discounting the contractual cash flows using estimated market discount rates which
reflect the credit and interest rate risk inherent in the loans, or by using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining maturities.
Assets held for sale –The carrying value of assets
held for sale is less than fair value. Fair values for assets held for sale are estimated based on appraised values
of the asset or management’s estimation of the value of the assets.
Deposits – The fair value
of deposits with no stated maturity, such as demand, interest checking and money market, and savings accounts, is equal to the
amount payable on demand at year-end. The fair value of certificates of deposit is based on the discounted value of contractual
cash flows using the rates currently offered for deposits of similar remaining maturities.
Borrowings – The fair value
of borrowings is based on the discounted value of contractual cash flows using the rates currently offered for borrowings of similar
remaining maturities.
Accrued interest – The carrying
amounts of accrued interest receivable and payable approximate fair value.
| |
| |
September 30, | | |
December 31, | |
| |
| |
2015 | | |
2014 | |
| |
Level in Fair | |
| | |
| | |
| | |
| |
| |
Value | |
Carrying | | |
Estimated | | |
Carrying | | |
Estimated | |
| |
Hierarchy | |
Value | | |
Fair Value | | |
Value | | |
Fair Value | |
| |
(In thousands) |
Financial assets | |
| |
| | | |
| | | |
| | | |
| | |
Cash | |
Level 1 | |
$ | 12,772 | | |
$ | 12,772 | | |
$ | 25,115 | | |
$ | 25,115 | |
Cash equivalents | |
Level 2 | |
| 13,303 | | |
| 13,303 | | |
| 23,988 | | |
| 23,988 | |
Investment securities available for sale | |
Level 1 | |
| 3,347 | | |
| 3,347 | | |
| - | | |
| - | |
Investment securities available for sale | |
Level 2 | |
| 36,248 | | |
| 36,248 | | |
| 39,542 | | |
| 39,542 | |
Federal Home Loan Bank stock | |
Level 2 | |
| 685 | | |
| 685 | | |
| 1,073 | | |
| 1,073 | |
Loans held for sale | |
Level 2 | |
| 12,770 | | |
| 12,770 | | |
| 9,914 | | |
| 9,914 | |
Loans | |
Level 2 | |
| 278,155 | | |
| 272,373 | | |
| 253,866 | | |
| 249,942 | |
Impaired loans | |
Level 2 | |
| 20,077 | | |
| 20,077 | | |
| 30,017 | | |
| 30,017 | |
Impaired loans | |
Level 3 | |
| 1,513 | | |
| 1,513 | | |
| 2,263 | | |
| 2,263 | |
Other real estate owned | |
Level 2 | |
| 7,959 | | |
| 7,959 | | |
| 12,168 | | |
| 12,168 | |
Other real estate owned | |
Level 3 | |
| 59 | | |
| 59 | | |
| 470 | | |
| 470 | |
Assets held for sale | |
Level 2 | |
| 13,821 | | |
| 14,384 | | |
| 13,502 | | |
| 14,112 | |
Accrued interest receivable | |
Level 2 | |
| 2,085 | | |
| 2,085 | | |
| 1,372 | | |
| 1,372 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| |
| | | |
| | | |
| | | |
| | |
Deposits | |
Level 2 | |
| 369,039 | | |
| 369,515 | | |
| 378,860 | | |
| 379,857 | |
FHLB borrowings | |
Level 2 | |
| 6,000 | | |
| 6,022 | | |
| 14,000 | | |
| 14,065 | |
Trust preferred securities | |
Level 2 | |
| 8,764 | | |
| 8,984 | | |
| 8,764 | | |
| 7,274 | |
Other borrowings | |
Level 2 | |
| 338 | | |
| 338 | | |
| 3,302 | | |
| 3,303 | |
Accrued interest payable | |
Level 2 | |
| 1,302 | | |
| 1,302 | | |
| 1,167 | | |
| 1,167 | |
Note 10 – Shareholders’
equity and regulatory matters
On May 1, 2009, as part of the Capital
Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization
Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively,
the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 14,738 shares of the Company’s
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $4.00 per share, having a liquidation preference of $1,000
per share (the “preferred stock”) and (ii) a warrant (the “Warrant”) to purchase 31,190 shares of the Company’s
common stock at an initial exercise price of $70.88 per share, subject to certain anti-dilution and other adjustments, for an aggregate
purchase price of $14,738,000 in cash. The fair value of the preferred stock was estimated using discounted cash flow methodology
at an assumed market equivalent rate of 13%, with 20 quarterly payments over a five year period, and was determined to be $10,208,000.
The fair value of the Warrant was estimated using the Black-Scholes option pricing model, with assumptions of 25% volatility, a
risk-free rate of 2.03%, a yield of 6.162% and an estimated life of 5 years, and was determined to be $534,000. The aggregate fair
value for both the preferred stock and Warrant was determined to be $10,742,000 with 95% of the aggregate attributable to the preferred
stock and 5% attributable to the Warrant. Therefore, the $14,738,000 issuance was allocated with $14,006,000 being assigned to
the preferred stock and $732,000 being allocated to the Warrant. The difference between the $14,738,000 face value of the preferred
stock and the amount allocated of $14,006,000 to the preferred stock was accreted as a discount on the preferred stock using the
effective interest rate method over five years.
The preferred stock qualifies as Tier
1 capital and paid cumulative dividends at a rate of 5% until May 1, 2014, at which time the rate increased to 9%. The preferred
stock is generally non-voting, other than on certain matters that could adversely affect the preferred stock.
The Warrant is immediately exercisable.
The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise
pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders
of common stock, and upon certain issuances of common stock at or below a specified price relative to the then-current market
price of common stock. The Warrant expires ten years from the issuance date. Pursuant to the Purchase Agreement, the Treasury
has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.
In accordance with the Company’s
written agreement with the Federal Reserve Bank of Richmond (the “Reserve Bank”), the Company has been deferring quarterly
cash dividends on the preferred stock since May 2011. The total arrearage on such preferred stock as of September 30, 2015 was
$1,903,175 (after forgiveness of $2,215,009 in accrued dividends in connection with the standby rights offering described below).
This amount has been accrued for and is included in other liabilities in the consolidated balance sheet.
In November 2013, the Company participated
in a successful auction of the Company’s preferred stock by the Treasury that resulted in the purchase of the securities
by private and institutional investors.
On December 4, 2013, the Company issued
1,086,500 new shares of common stock through a private placement to directors and executive officers. The sale raised $1,684,075
in new capital for the Company. The $1.55 sale price for the common shares was equal to the stock’s book value at September
30, 2013, which represented a 30% premium over the closing price of the stock on December 3, 2013.
On August
6, 2014, the Company filed Articles of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission
to affect a reverse stock split of its outstanding common stock which became effective on August 8, 2014. As a result of the reverse
split, every sixteen shares of the Company’s issued and outstanding common stock were consolidated into one issued and outstanding
share of common stock.
On March 27, 2015, the Company completed
a rights offering to shareholders (the “Rights Offering”) and concurrent standby offering to Kenneth R. Lehman (the
“Standby Offering”), in which the Company issued an aggregate of 1,051,866 shares of common stock (the total number
of shares offered) at $13.87 per share for aggregate gross proceeds of $14,589,381 (including the value of the Company’s
common stock of $4,618,813 exchanged for shares of preferred stock by Mr. Lehman). In connection with the Rights Offering, 283,293
shares were issued to shareholders upon exercise of their basic subscription rights and 191,773 shares were issued to shareholders
upon exercise of their oversubscription privileges (approximately 36.9% of the total number of shares requested pursuant to oversubscription
privileges). In connection with the Standby Offering, Mr. Lehman purchased an aggregate of 576,800 shares of the Company’s
common stock, 333,007 of which were issued in exchange for 9,023 shares of the Company’s preferred stock and 243,793 of
which were purchased for cash. Also, as part of the Standby Offering, Mr. Lehman forgave $2,215,009 in accrued and unpaid dividends
on the preferred stock.
The Bank is subject to various regulatory
capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possible additional discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank’s financial statements. Under the 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 weightings,
and other factors.
Note 11 – Commitments and contingencies
Off-balance-sheet risk –
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the
financial statements. The contract amounts of these instruments reflect the extent of involvement that the Company has in particular
classes of instruments.
The Company’s exposure to credit
loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, and to potential
credit loss associated with letters of credit issued, is represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations as it does for loans and other such on-balance
sheet instruments.
The Company had outstanding the following
approximate off-balance-sheet financial instruments whose contract amounts represent credit risk at the dates indicated (dollars
in thousands):
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Undisbursed credit lines | |
$ | 40,141 | | |
$ | 38,064 | |
Commitments to extend or originate credit | |
| 19,870 | | |
| 9,207 | |
Standby letters of credit | |
| 1,519 | | |
| 1,571 | |
| |
| | | |
| | |
Total commitments to extend credit | |
$ | 61,530 | | |
$ | 48,842 | |
Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Historically,
many commitments expire without being drawn upon; therefore, the total commitment amounts shown in the above table are not necessarily
indicative of future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.
The amount of collateral obtained, as deemed necessary by the Company upon extension of credit is based on management’s
credit evaluation of the customer. Collateral held varies but may include personal or income-producing commercial real estate,
accounts receivable, inventory and equipment.
Standby
letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
Concentrations
of credit risk – All of the Company’s loans, commitments to extend credit, and standby letters of credit have
been granted to customers generally within the Company’s market area. Although the Company is building a diversified loan
portfolio, a substantial portion of its clients’ ability to honor contracts is reliant upon the economic stability of the
Richmond, Virginia area, including the real estate markets in the area. The concentrations of credit by type of loan are set forth
in Note 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding.
Approximately
15% of the Company’s loan portfolio consists of student loans that are guaranteed by the Department of Education (“DOE”)
and covers approximately 98% of the principal and interest in the event of default. The Company utilizes a third party vendor
with significant experience and expertise to service these loans. In the unlikely event that the third party servicer does
not service the loans in accordance with the DOE requirements and could not reimburse the Company for losses sustained as a result
of servicing errors, the Company could sustain additional losses beyond what has been factored in the allowance for loan losses.
Consent
Order – In February 2012, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (“Consent
Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the Virginia Bureau of Financial
Institutions (collectively, the “Supervisory Authorities”), and the Supervisory Authorities have issued the related
Consent Order (the “Order”) effective February 3, 2012. The description of the Consent Agreement and the Order is
set forth below:
Management.
The Order requires that the Bank have and retain qualified management, including at a minimum a chief executive officer, senior
lending officer and chief operating officer, with qualifications and experience commensurate with their assigned duties and responsibilities.
The Bank was required to retain a bank consultant to develop a written analysis and assessment of the Bank’s management
and staffing needs for the purpose of providing qualified management for the Bank. Following receipt of the consultant’s
management report, the Bank was required to formulate a written management plan that incorporated the findings of the management
report, a plan of action in response to each recommendation contained in the management report, and a timeframe for completing
each action.
Capital
Requirements. During the life of the Order, the Bank must have Tier 1 capital equal to or greater than 8 percent of its
total assets, and total risk-based capital equal to or greater than 11 percent of the Bank’s total risk-weighted assets.
The Bank was required to submit a written capital plan to the Supervisory Authorities that included a contingency plan in the
event that the Bank fails to maintain the minimum capital ratios required in the Order, submit a capital plan that is acceptable
to the Supervisory Authorities, or implement or adhere to the capital plan.
Charge-offs.
The Order requires the Bank to eliminate from its books, by charge-off or collection, all assets or portions of assets classified
“Loss” and 50 percent of those classified “Doubtful”. If an asset is classified “Doubtful”,
the Bank may, in the alternative, charge off the amount that is considered uncollectible in accordance with the Bank’s written
analysis of loan or lease impairment. The Order also prevents the Bank from extending, directly or indirectly, any additional
credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged
off or classified, on whole or in part, “loss” or “doubtful” and is uncollected. The Bank may not extend,
directly or indirectly, any additional credit to any borrower who has a loan or other extension of credit from the Bank that has
been classified “substandard.” These limitations do not apply if the Bank’s failure to extend further credit
to a particular borrower would be detrimental to the best interests of the Bank.
Asset Growth. While
the Order is in effect, the Bank must notify the Supervisory Authorities at least 60 days prior to undertaking asset growth that
exceeds 10% or more per year or initiating material changes in asset or liability composition. The Bank’s asset growth cannot
result in noncompliance with the capital maintenance provisions of the Order unless the Bank receives prior written approval from
the Supervisory Authorities.
Restriction on Dividends
and Other Payments. While the Order is in effect, the Bank cannot declare or pay dividends, pay bonuses, or pay any form
of payment outside the ordinary course of business resulting in a reduction of capital without the prior written approval of the
Supervisory Authorities. In addition, the Bank cannot make any distributions of interest, principal, or other sums on subordinated
debentures without prior written approval of the Supervisory Authorities.
Brokered Deposits. The
Order provides that the Bank may not accept, renew, or roll over any brokered deposits unless it is in compliance with the requirements
of the FDIC regulations governing brokered deposits. These regulations prohibit undercapitalized institutions from accepting,
renewing, or rolling over any brokered deposits and also prohibit undercapitalized institutions from soliciting deposits by offering
an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable
maturity in the institution’s market area. An “adequately capitalized” institution may not accept, renew, or
roll over brokered deposits unless it has applied for and been granted a waiver by the FDIC.
Written Plans and Other
Material Terms. Under the terms of the Order, the Bank was required to prepare and submit the following written plans
or reports to the Supervisory Authorities:
| · | Plan
to improve liquidity, contingency funding, interest rate risk, and asset liability management; |
| · | Plan
to reduce assets of $250,000 or greater classified “doubtful” and “substandard”; |
| · | Revised
lending and collection policy to provide effective guidance and control over the Bank’s
lending and credit administration functions; |
| · | Effective
internal loan review and grading system; |
| · | Policy
for managing the Bank’s other real estate; |
| · | Business/strategic
plan covering the overall operation of the Bank; |
| · | Plan
and comprehensive budget for all categories of income and expense for the year 2011; |
| · | Policy
and procedures for managing interest rate risk; and |
| · | Assessment
of the Bank’s information technology function. |
Under the Order, the Bank’s board
of directors agreed to increase its participation in the affairs of the Bank, including assuming full responsibility for the approval
of policies and objectives for the supervision of all of the Bank’s activities. The Bank was also required to establish
a board committee to monitor and coordinate compliance with the Order.
The Order will remain in effect until
modified or terminated by the Supervisory Authorities.
While subject to the Order, we expect
that our management and board of directors will continue to focus considerable time and attention on taking corrective actions
to comply with the terms. In addition, certain provisions of the Order described above will continue to adversely impact the Company’s
businesses and results of operations.
Written Agreement – In June
2012, the Company entered into a written agreement with the Federal Reserve Bank of Richmond. Pursuant to the terms of the Written
Agreement, the Company developed and submitted to the Reserve Bank for approval written plans to maintain sufficient capital and
correct any violations of Section 23A of the Federal Reserve Act and Regulation W. In addition, the Company submitted a written
statement of its planned sources and uses of cash for debt service, operation expenses, and other purposes.
The Company also has agreed that it will
not, without prior regulatory approval:
| · | pay
or declare any dividends; |
| · | take
any other form of payment representing a reduction in Bank’s capital; |
| · | make
any distributions of interest, principal or other sums on subordinated debentures or
trust preferred securities; |
| · | incur,
increase or guarantee any debt; or |
| · | purchase
or redeem any shares of its stock. |
Since entering into the Order and the Written
Agreement, the Company has taken numerous steps to comply with their terms. As of September 30, 2015, we believe we have complied
with all requirements of the Order and the Written Agreement with the exception of the correction of noncompliance with Section
23A of Regulation W of the Federal Reserve Act in the Written Agreement.
In the course of its operations, the Company
may become a party to legal proceedings. Except as previously reported, there are no material pending legal proceedings to which
the Company is party or of which the property of the Company is subject.
Note 12 – Income Taxes
The net deferred tax asset is included
in other assets on the balance sheet. Accounting Standards Codification Topic 740, Income Taxes, requires that companies
assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all
available evidence using a “more likely than not” standard. Management considers both positive and negative evidence
and analyzes changes in near-term market conditions as well as other factors which may impact future operating results. In making
such judgments, significant weight is given to evidence that can be objectively verified. The deferred tax assets are analyzed
quarterly for changes affecting realization. At September 30, 2015, management continues to believe that the objective negative
evidence represented by the Company’s prior losses outweighed the more subjective positive evidence and, as a result, maintains
a valuation allowance at September 30, 2015 of $12,072,000. The net operating losses available to offset future taxable income
amounted to $23,446,000 at September 30, 2015 and begin expiring in 2028.
Note 13 – Recent accounting
pronouncements
In January 2014, the FASB issued ASU 2014-01,
“Investments – Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects”.
This ASU applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities
that are flow through entities for tax purposes. The amendments in the ASU eliminate the effective yield election and permit
reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects
using the proportional amortization method if certain conditions are met. Those not electing the proportional amortization
method would account for the investment using the equity method or cost method. The amendments in this ASU became effective
for public business entities for annual periods beginning after December 15, 2014. The adoption of this guidance should
not have a material effect on the Company’s financial condition or results of operations.
In January 2014, the FASB issued ASU 2014-04,
“Receivables – Troubled Debt Restructurings by Creditors”. ASU 2014-04 clarifies when a creditor should
be considered to have received physical possession of residential real estate property during a foreclosure. ASU 2014-04
establishes a loan receivable should be derecognized and the real estate property recognized upon the creditor obtaining legal
title to the residential real estate property upon completion of foreclosure or the borrower conveying all interest in the residential
real estate property to the creditor to satisfy the loan. The provisions of ASU 2014-04 became effective for annual periods
beginning after December 15, 2014. The adoption of this guidance should not have a material effect on the Company’s
financial condition or results of operations.
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers (Topic 606)”. The amendments in this ASU modify the guidance companies use
to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless
those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue
reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires
new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities
are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations.
Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the
guidance. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15,
2017, with early adoption prohibited. The Company is evaluating the effect ASU 2014-09 will have on its consolidated financial
statements.
In June 2014, the FASB issued ASU 2014-12,
“Compensation-Stock Compensation”. The guidance in this ASU requires that a performance target that affects vesting
and that could be achieved after the requisite service is treated as a performance condition. As such, the performance target
should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period
in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being
achieved before the end of the requisite period, the remaining unrecognized cost should be recognized prospectively over the remaining
service period. The total amount of compensation cost recognized during and after the requisite service period should reflect
the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite
service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance
target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the
performance target could be achieved) may differ from the requisite service period. The guidance in this ASU is effective for
annual and interim periods beginning after December 15, 2015. The Company does not expect this ASU to have a significant impact
on its financial condition of results of operations.
Item
2 - Management’s Discussion and Analysis OF Financial condition and results of operations
Caution about forward-looking statements
In addition to historical information,
this report may contain forward-looking statements. For this purpose, any statement that is not a statement of historical fact
may be deemed to be a forward-looking statement. These forward-looking statements may include statements regarding profitability,
liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy and financial and other goals. Forward-looking
statements often use words such as “believes,” “expects,” “plans,” “may,” “will,”
“should,” “projects,” “contemplates,” “anticipates,” “forecasts,”
“intends” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly
to historical or current facts. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, and actual
results could differ materially from historical results or those anticipated by such statements.
There are many factors that could have
a material adverse effect on the operations and future prospects of the Company including, but not limited to:
| · | the
risks of changes in interest rates on levels, composition and costs of deposits, loan
demand, and the values and liquidity of loan collateral, securities, and interest sensitive
assets and liabilities; |
| · | changes
in assumptions underlying the establishment of allowances for loan losses, and other
estimates; |
| · | legislative
and regulatory changes, including the Dodd-Frank Act Wall Street Reform and Consumer
Protection Act and other changes in banking, securities, and tax laws and regulations
and their application by our regulators, and changes in scope and cost of FDIC insurance
and other coverages; |
| · | competition
with other banks and financial institutions, and companies outside of the banking industry,
including those companies that have substantially greater access to capital and other
resources; |
| · | the
inability of the Company and the Bank to comply with the requirements of agreements with
and orders from its regulators; |
| · | the
inability to reduce nonperforming assets consisting of nonaccrual loans and foreclosed
real estate; |
| · | changes
in market conditions, specifically declines in the residential and commercial real estate
market, volatility and disruption of the capital and credit markets, soundness of other
financial institutions we do business with; |
| · | risks
inherent in making loans such as repayment risks and fluctuating collateral values; |
| · | a
decline in loan volume of Village Bank Mortgage Corporation as a result of the activity
in the residential real estate market; |
| · | exposure
to repurchase loans sold to investors for which borrowers failed to provide full and
accurate information on or related to their loan application or for which appraisals
have not been acceptable or when the loan was not underwritten in accordance with the
loan program specified by the loan investor; |
| · | the
effects of future economic, business and market conditions; |
| · | governmental
monetary and fiscal policies; |
| · | changes
in accounting policies, rules and practices; |
| · | maintaining
capital levels adequate to remain well capitalized; |
| · | reliance
on our management team, including our ability to attract and retain key personnel; |
| · | demand,
development and acceptance of new products and services; |
| · | problems
with technology utilized by us; |
| · | changing
trends in customer profiles and behavior; and |
| · | other
factors described from time to time in our reports filed with the SEC. |
These risks and uncertainties should be
considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance
on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no
obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made.
In addition, past results of operations are not necessarily indicative of future results.
General
The Company’s primary source of
earnings is net interest income, and its principal market risk exposure is interest rate risk. The Company is not able to predict
market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having
a material adverse effect on the Company’s results of operations and financial condition.
Although we endeavor to minimize the credit
risk inherent in the Company’s loan portfolio, we must necessarily make various assumptions and judgments about the collectability
of the loan portfolio based on our experience and evaluation of economic conditions. If such assumptions or judgments prove to
be incorrect, the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance
may be necessary, which would have a negative impact on net income. In 2014 and continuing through the third quarter of 2015,
the provision for loan losses declined substantially from previous years as we resolved nonperforming loans and real estate values
have recovered somewhat.
Results of operations
The following presents management’s
discussion and analysis of the financial condition of the Company at September 30, 2015 and December 31, 2014 and the results
of operations for the Company for the three and nine months ended September 30, 2015 and 2014. This discussion should be read
in conjunction with the Company’s consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly
report.
Summary
For the three months ended September 30,
2015, the Company had net income of $471,000 and net income available to common shareholders of $301,000 or $0.21 per fully diluted
share, compared to net income of $134,000 and net loss available to common shareholders of $(411,000), or $(1.23) per fully diluted
share, for the same period in 2014. For the nine months ended September 30, 2015, the Company had net income of $550,000 and net
income available to common shareholders of $6,669,000, or $6.14 per fully diluted share, compared to a net loss of $(701,000)
and net loss available to common shareholders of $(1,763,000), or $(5.28) per fully diluted share, for the same period in 2014.
The computation of basic and diluted earnings (loss) per share has been adjusted retroactively for all periods presented to reflect
the reverse stock split in August 2014.
As indicated in the following table, there
were significant changes in income and expense items when comparing the 2015 results to the 2014 results (in thousands):
| |
Effect on Income | |
| |
Three Months | | |
Nine Months | |
| |
Ended | | |
Ended | |
| |
September 30, | | |
September 30, | |
Changes In | |
2015 | | |
2015 | |
| |
| | |
| |
Net interest income | |
$ | (166 | ) | |
$ | (452 | ) |
Provision for loan losses | |
| - | | |
| 100 | |
Gains on loan sales | |
| 550 | | |
| 1,344 | |
Salaries and benefits | |
| (233 | ) | |
| (163 | ) |
Commissions | |
| (161 | ) | |
| (327 | ) |
Writedown of assets held for sale | |
| - | | |
| (687 | ) |
Expenses related to foreclosed real estate | |
| 413 | | |
| 1,186 | |
Other operating expense | |
| 88 | | |
| 331 | |
| |
| | | |
| | |
| |
$ | 491 | | |
$ | 1,332 | |
The decline in net interest income reflects
the decline in average interest-earning assets and annualized yield for the periods ended September 30, 2015 and 2014. Average
interest earning assets declined to $372,946,000 and $372,378,000 for the three and nine month periods ended September 30, 2015
from $374,399,000 and $378,477,000 for the same periods in 2014, respectively. Annualized yield declined to 4.20% and 4.17% for
the three and nine month periods ended September 30, 2015 from 4.38% and 4.45% for the same periods in 2014, respectively. The
decrease in the provision for loan losses and the expenses related to foreclosed real estate are attributable to stabilization
of the loan portfolio and an improving real estate market as well as successful efforts in selling foreclosed assets at gains.
The increase in gains on loan sales as well as commissions is a result of increased mortgage production by our mortgage company.
The mortgage company’s profit increased by $235,000 in the third quarter of 2015 compared to the same period in 2014 due
to the mortgage company closing $54,886,000 in mortgage loans in the third quarter of 2015 compared to $42,917,000 in the third
quarter of 2014. The increase in salaries and benefits for the third quarter and nine months ended September 30, 2015 is related
to the increase in stock based compensation. The writedown of assets held for sale for the nine months ended September 30, 2015
is related to our assessment of net realizable value on the Watkins Centre building ($675,000) and a branch building we previously
closed ($12,000). The decline in other operating expenses is a result of management’s efforts to reduce overhead expenses
to improve profitability.
Our cost of deposits declined from 0.93%
for the third quarter of 2014 to 0.83% for the third quarter of 2015. This decline in cost of deposits is a result of the repricing
of higher cost certificates of deposit during the low interest rate environment as well as our efforts to change our deposit mix
so that we are not so dependent on higher cost deposits. Noninterest-bearing demand deposits represented 20.6% of our total deposits
at September 30, 2015 compared to 17.1% at September 30, 2014.
Net interest income
Net interest income, which represents
the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the
Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as
the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between
the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on
interest-earning assets (“net interest margin”) is calculated by dividing tax equivalent net interest income by average
interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning
assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity.
Net interest income of $3,242,000 for
the third quarter of 2015 represents a decrease of $166,000, or 5%, compared to the third quarter of 2014, and an increase of
$101,000 or 3% compared to the second quarter of 2015. The decline as compared to 2014 is primarily due to a decrease in average
interest-earning assets of $1,453,000 combined with a decline in the yield on those assets of 0.18% (18 basis points).
Net interest income of $9,422,000 for the
first nine months of 2015 represents a $452,000 decrease, or 4.6%, compared to the same period in 2014. Compared to the first nine
months of 2014, average interest-earning assets for the same period in 2015 decreased by $6,099,000, or 1.6%. The decrease in average
interest-earning assets was due primarily to the decrease in available for sale securities of $19,852,000 and federal funds sold
of $8,255,000 combined with a decline in the yield on those assets of 0.28% (28 basis points) offset by an increase in portfolio
loans of $18,773,000.
Average interest-bearing liabilities for
the third quarter of 2015 decreased by $34,841,000 or 10.1% compared to the third quarter of 2014. The decrease in interest-bearing
liabilities was primarily due to declines in average deposits of $25,191,000. The average cost of interest-bearing liabilities
decreased to 0.90% and 0.92% for the three and nine month periods ended September 30, 2015, respectively, compared to 1.00% and
1.08% for the same periods in 2014 as a result of management’s efforts to increase low cost demand deposits while reducing
dependency on higher cost time deposits. The continuing low interest rates have allowed us to reduce our costs of funds as time
deposits and borrowings mature. See our discussion of interest rate sensitivity below for more information.
The Company’s net interest margin
is not a measurement under accounting principles generally accepted in the United States of America, but it is a common measure
used by the financial services industry to determine how profitably earning assets are funded. Our net interest margin over the
last several quarters is provided in the following table:
| |
Interest | |
Quarter Ended | |
Margin | |
| |
| |
September 30, 2014 | |
| 3.46 | % |
December 31, 2014 | |
| 3.46 | % |
March 31, 2015 | |
| 3.36 | % |
June 30, 2015 | |
| 3.34 | % |
September 30, 2015 | |
| 3.45 | % |
Our net interest margin has remained relatively
stable over the last twelve months reflecting the continued low interest rates set by the Federal Reserve. The linked quarter
increase in our net interest margin for the three months ended September 30, 2015 is related to the purchase of student loans
during the second quarter of approximately $15 million funded by federal funds sold. The yield on student loans is significantly
higher than on fed funds sold which increased the yield on earning assets by 9 basis points. The previous decline in our net interest
margin since December 31, 2014 is a result of declining rates on loans; the average interest rate on loans declined by 52 basis
points, from 5.30% for the three months ended December 31, 2014 to 4.78% for the three months ended September 30, 2015. Additionally
our cost of funds declined by 1 basis point related to our costs of deposits.
The following table illustrates average
balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated, showing the average
distribution of assets, liabilities, shareholders' equity and related income, expense and corresponding weighted-average yields
and rates. The average balances used in these tables and other statistical data were calculated using daily average balances.
We had no tax exempt assets for the periods presented.
Average Balance Sheet
(in thousands)
| |
Three Months
Ended September 30, 2015 | | |
Three Months
Ended September 30, 2014 | |
| |
| | |
Interest | | |
Annualized | | |
| | |
Interest | | |
Annualized | |
| |
Average | | |
Income/ | | |
Yield | | |
Average | | |
Income/ | | |
Yield | |
| |
Balance | | |
Expense | | |
Rate | | |
Balance | | |
Expense | | |
Rate | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Loans net
of deferred fees | |
$ | 301,408 | | |
$ | 3,634 | | |
| 4.78 | % | |
$ | 273,645 | | |
$ | 3,695 | | |
| 5.36 | % |
Loans held for sale | |
| 13,672 | | |
| 146 | | |
| 4.24 | % | |
| 11,186 | | |
| 119 | | |
| 4.22 | % |
Investment securities | |
| 39,496 | | |
| 155 | | |
| 1.56 | % | |
| 56,645 | | |
| 304 | | |
| 2.13 | % |
Federal
funds and other | |
| 18,370 | | |
| 10 | | |
| 0.22 | % | |
| 32,923 | | |
| 19 | | |
| 0.23 | % |
Total
interest earning assets | |
| 372,946 | | |
| 3,945 | | |
| 4.20 | % | |
| 374,399 | | |
| 4,137 | | |
| 4.38 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for loan losses
and deferred fees | |
| (5,730 | ) | |
| | | |
| | | |
| (5,714 | ) | |
| | | |
| | |
Cash and due from banks | |
| 8,880 | | |
| | | |
| | | |
| 12,086 | | |
| | | |
| | |
Premises and equipment,
net | |
| 14,363 | | |
| | | |
| | | |
| 13,147 | | |
| | | |
| | |
Other
assets | |
| 35,588 | | |
| | | |
| | | |
| 48,216 | | |
| | | |
| | |
Total
assets | |
$ | 426,047 | | |
| | | |
| | | |
$ | 442,134 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing deposits | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest checking | |
$ | 42,861 | | |
$ | 20 | | |
| 0.19 | % | |
$ | 42,423 | | |
$ | 20 | | |
| 0.19 | % |
Money market | |
| 69,539 | | |
| 65 | | |
| 0.37 | % | |
| 67,257 | | |
| 64 | | |
| 0.38 | % |
Savings | |
| 20,483 | | |
| 9 | | |
| 0.17 | % | |
| 20,016 | | |
| 9 | | |
| 0.18 | % |
Certificates | |
| 162,512 | | |
| 527 | | |
| 1.29 | % | |
| 190,890 | | |
| 658 | | |
| 1.37 | % |
Total | |
| 295,395 | | |
| 621 | | |
| 0.83 | % | |
| 320,586 | | |
| 751 | | |
| 0.93 | % |
Borrowings(1) | |
| 16,120 | | |
| 82 | | |
| 2.02 | % | |
| 25,770 | | |
| 122 | | |
| 1.88 | % |
Total
interest bearing liabilities | |
| 311,515 | | |
| 703 | | |
| 0.90 | % | |
| 346,356 | | |
| 873 | | |
| 1.00 | % |
Noninterest bearing deposits | |
| 75,734 | | |
| | | |
| | | |
| 63,784 | | |
| | | |
| | |
Other
liabilities | |
| 8,418 | | |
| | | |
| | | |
| 12,596 | | |
| | | |
| | |
Total liabilities | |
| 395,667 | | |
| | | |
| | | |
| 422,736 | | |
| | | |
| | |
Equity
capital | |
| 30,380 | | |
| | | |
| | | |
| 19,398 | | |
| | | |
| | |
Total
liabilities and capital | |
$ | 426,047 | | |
| | | |
| | | |
$ | 442,134 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
interest income before provision for loan losses | |
| | | |
$ | 3,242 | | |
| | | |
| | | |
$ | 3,264 | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest
spread - average yield on interest earning assets, less average rate on interest bearing liabilities | |
| | | |
| | | |
| 3.30 | % | |
| | | |
| | | |
| 3.38 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Annualized
net interest margin (net interest income expressed as percentage of average earning assets) | |
| | | |
| | | |
| 3.45 | % | |
| | | |
| | | |
| 3.46 | % |
Average Balance Sheet
(in thousands)
| |
Nine Months
Ended September 30, 2015 | | |
Nine Months
Ended September 30, 2014 | |
| |
| | |
Interest | | |
Annualized | | |
| | |
Interest | | |
Annualized | |
| |
Average | | |
Income/ | | |
Yield | | |
Average | | |
Income/ | | |
Yield | |
| |
Balance | | |
Expense | | |
Rate | | |
Balance | | |
Expense | | |
Rate | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Loans net
of deferred fees | |
$ | 293,930 | | |
$ | 10,750 | | |
| 4.89 | % | |
$ | 275,157 | | |
$ | 11,301 | | |
| 5.49 | % |
Loans held for sale | |
| 11,915 | | |
| 346 | | |
| 3.88 | % | |
| 8,680 | | |
| 278 | | |
| 4.28 | % |
Investment securities | |
| 38,152 | | |
| 464 | | |
| 1.63 | % | |
| 58,004 | | |
| 958 | | |
| 2.21 | % |
Federal
funds and other | |
| 28,381 | | |
| 46 | | |
| 0.22 | % | |
| 36,636 | | |
| 64 | | |
| 0.23 | % |
Total
interest earning assets | |
| 372,378 | | |
| 11,606 | | |
| 4.17 | % | |
| 378,477 | | |
| 12,601 | | |
| 4.45 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for loan losses
and deferred fees | |
| (5,730 | ) | |
| | | |
| | | |
| (6,415 | ) | |
| | | |
| | |
Cash and due from banks | |
| 11,522 | | |
| | | |
| | | |
| 12,490 | | |
| | | |
| | |
Premises and equipment,
net | |
| 14,363 | | |
| | | |
| | | |
| 12,926 | | |
| | | |
| | |
Other
assets | |
| 35,877 | | |
| | | |
| | | |
| 46,824 | | |
| | | |
| | |
Total
assets | |
$ | 428,410 | | |
| | | |
| | | |
$ | 444,302 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing deposits | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest checking | |
$ | 43,704 | | |
$ | 60 | | |
| 0.18 | % | |
$ | 42,456 | | |
$ | 58 | | |
| 0.18 | % |
Money market | |
| 68,174 | | |
| 190 | | |
| 0.37 | % | |
| 66,620 | | |
| 187 | | |
| 0.38 | % |
Savings | |
| 20,527 | | |
| 28 | | |
| 0.18 | % | |
| 20,557 | | |
| 28 | | |
| 0.18 | % |
Certificates | |
| 165,431 | | |
| 1,599 | | |
| 1.29 | % | |
| 197,736 | | |
| 2,031 | | |
| 1.37 | % |
Total | |
| 297,836 | | |
| 1,877 | | |
| 0.84 | % | |
| 327,369 | | |
| 2,304 | | |
| 0.94 | % |
Borrowings(1) | |
| 20,525 | | |
| 307 | | |
| 2.00 | % | |
| 27,811 | | |
| 567 | | |
| 2.73 | % |
Total
interest bearing liabilities | |
| 318,361 | | |
| 2,184 | | |
| 0.92 | % | |
| 355,180 | | |
| 2,871 | | |
| 1.08 | % |
Noninterest bearing deposits | |
| 73,924 | | |
| | | |
| | | |
| 60,577 | | |
| | | |
| | |
Other
liabilities | |
| 8,957 | | |
| | | |
| | | |
| 9,487 | | |
| | | |
| | |
Total liabilities | |
| 401,242 | | |
| | | |
| | | |
| 425,244 | | |
| | | |
| | |
Equity
capital | |
| 27,168 | | |
| | | |
| | | |
| 19,058 | | |
| | | |
| | |
Total
liabilities and capital | |
$ | 428,410 | | |
| | | |
| | | |
$ | 444,302 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
interest income before provision for loan losses | |
| | | |
$ | 9,422 | | |
| | | |
| | | |
$ | 9,730 | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest
spread - average yield on interest earning assets, less average rate on interest bearing liabilities | |
| | | |
| | | |
| 3.25 | % | |
| | | |
| | | |
| 3.37 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Annualized
net interest margin (net interest income expressed as percentage of average earning assets) | |
| | | |
| | | |
| 3.38 | % | |
| | | |
| | | |
| 3.44 | % |
(1) Interest expense on borrowings
for the three and nine month periods ended September 30, 2014 has been adjusted for the reclassification of $144,000 from interest
expense to dividends related to preferred stock reflected as a reduction of interest expense in those periods.
Provision for loan losses
The Company did not record a provision
for loan losses for the three months ended September 30, 2015 and 2014 and the nine months ended September 30, 2015 compared to
a provision of $100,000 for the nine months ended September 30, 2014. The decline in the provision for loan losses for the nine
month period of 2015 was primarily driven by decline in the impairment on specific nonperforming loans. The decrease in the commercial
and consumer loan portfolio was offset by an increase in our student loan portfolio of approximately $46,355,000 and our United
States Department of Agriculture loan portfolio of approximately $5,480,000. These two portfolios include guarantees of principal
and interest ranging from 98% - 100%.
Noninterest income
Noninterest income increased from $2,190,000
for the three months ended September 30, 2014 to $2,870,000 for the three months ended September 30, 2015, an increase of $680,000,
or 31%. Noninterest income also increased from $6,185,000 for the first nine months of 2014 to $7,776,000 for the first nine months
of 2015, an increase of $1,591,000, or 25%. These increases in noninterest income were primarily the result of higher gains on
sales from increased loan production by our mortgage banking subsidiary; gains on sale of loans increased by $550,000 quarter
over quarter and by $1,344,000 for the nine month periods.
Noninterest expense
Noninterest expense for the three months
ended September 30, 2015 was $5,641,000 compared to $5,464,000 for the three months ended September 30, 2014, an increase of $177,000,
or 3.2%. The more significant increases were salaries and benefits of $233,000, commissions of $161,000 and professional and outside
services of $241,000, offset by a reduction in expense related to foreclosed real estate of $413,000. The increase in salaries
and benefits was attributable to awards under our 2015 Stock Incentive Plan as well as severance payments to employees whose positions
were terminated. The increase in commissions is result of increased mortgage production by our mortgage company. The reduction
in expense related to foreclosed real estate is attributable to gains on sale of $214,000 coupled with reduced expenses due to
disposition of real estate aided by an improving real estate market.
Noninterest expense for the nine months
ended September 30, 2015 was $16,648,000 compared to $16,660,000 for the nine months ended September 30, 2014, a decrease of $12,000,
or 0.07%. The more significant changes in noninterest expense for the nine month comparison were declines in expense related to
foreclosed assets of $1,186,000 and other noninterest expense of $331,000, offset by the writedown of assets held for sale of $687,000,
increased salaries and benefits of $163,000, increased commissions of $327,000 and increased professional and outside services
of $257,000. The decline in expenses related to foreclosed real estate was aided by gains of $666,000 offset by writedowns of $216,000
on the sale of real estate.
Income taxes
Certain items of income and expense are
reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences
are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted
marginal tax rate.
The net deferred tax asset is included
in other assets on the balance sheet. Accounting Standards Codification Topic 740, Income Taxes, requires that companies
assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all
available evidence using a “more likely than not” standard. Management considers both positive and negative evidence
and analyzes changes in near-term market conditions as well as other factors which may impact future operating results. In making
such judgments, significant weight is given to evidence that can be objectively verified. The deferred tax assets are analyzed
quarterly for changes affecting realization. Management determined that as of December 31, 2014, the objective negative evidence
represented by the Company’s recent losses outweighed the more subjective positive evidence and, as a result, recognized
a valuation allowance on its net deferred tax asset that is dependent on future earnings of the Company of approximately $12,274,000.
At September 30, 2015, management continues to believe that the objective negative evidence represented by the Company’s
prior losses outweighed the more subjective positive evidence and, as a result, maintains a valuation allowance at September 30,
2015 of $12,072,000. The net operating losses available to offset future taxable income amounted to $23,446,000 at September 30,
2015 and begin expiring in 2028.
Commercial banking organizations conducting
business in Virginia are not subject to Virginia income taxes. Instead, they are subject to a franchise tax based on bank capital.
Due to the Company’s adjusted capital level we were not subject to franchise tax expense for the nine months ended September
30, 2015 and 2014.
Balance Sheet Analysis
Total assets decreased to $423,650,000
at September 30, 2015 from $434,004,000 at December 31, 2014, a decrease of $10,354,000, or 2.4%. The decrease in cash and cash
equivalents was the primary driver of this decrease. Cash and cash equivalents decreased by $23,028,000 which was offset by a
net increase in loans of $14,404,000. The Company purchased approximately $15 million in additional student loans and reduced
FHLB advances by $8 million. Total deposits also decreased by $9,821,000, or 2.6%, from $378,860,000 at December 31, 2014 to $369,039,000
at September 30, 2015. Checking and savings accounts decreased by $3,428,000, money market accounts increased by $5,241,000 and
time deposits decreased by $11,634,000. Other borrowings decreased by $2,964,000.
Loans
A management objective is to maintain
the quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards
coupled with regular evaluation of the creditworthiness of and the designation of lending limits for each borrower. The portfolio
strategies include seeking industry and loan size diversification in order to minimize credit exposure and originating loans in
markets with which the Company is familiar.
The Company’s real estate loan portfolios,
which represent approximately 78% of all loans, are secured by mortgages on real property located principally in the Commonwealth
of Virginia. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral.
The Company’s commercial loan portfolio represents approximately 6% of all loans. Loans in this category are typically made
to individuals, small and medium-sized businesses and range between $250,000 and $2.5 million. Based on underwriting standards,
commercial and industrial loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment,
inventory, and real property. The collateral securing any loan may depend on the type of loan and may vary in value based on market
conditions. The remainder of our loan portfolio is in consumer loans which represent 16% of the total and includes student loans.
The following table presents the composition
of our loan portfolio (excluding mortgage loans held for sale) at the dates indicated (dollars in thousands):
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
Amount | | |
% | | |
Amount | | |
% | |
Construction and land development | |
| | | |
| | | |
| | | |
| | |
Residential | |
$ | 5,188 | | |
| 1.73 | % | |
$ | 4,315 | | |
| 1.51 | % |
Commercial | |
| 26,220 | | |
| 8.76 | % | |
| 25,152 | | |
| 8.80 | % |
| |
| 31,408 | | |
| 10.49 | % | |
| 29,467 | | |
| 10.31 | % |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Owner occupied | |
| 68,437 | | |
| 22.84 | % | |
| 58,804 | | |
| 20.55 | % |
Non-owner occupied | |
| 38,132 | | |
| 12.72 | % | |
| 38,892 | | |
| 13.59 | % |
Multifamily | |
| 8,195 | | |
| 2.73 | % | |
| 11,438 | | |
| 4.00 | % |
Farmland | |
| 394 | | |
| 0.13 | % | |
| 434 | | |
| 0.15 | % |
| |
| 115,158 | | |
| 38.42 | % | |
| 109,568 | | |
| 38.29 | % |
Consumer real estate | |
| | | |
| | | |
| | | |
| | |
Home equity lines | |
| 20,024 | | |
| 6.68 | % | |
| 20,082 | | |
| 7.02 | % |
Secured by 1-4 family residential | |
| | | |
| | | |
| | | |
| | |
First deed of trust | |
| 58,470 | | |
| 19.51 | % | |
| 61,837 | | |
| 21.61 | % |
Second deed of trust | |
| 7,249 | | |
| 2.42 | % | |
| 7,854 | | |
| 2.74 | % |
| |
| 85,743 | | |
| 28.61 | % | |
| 89,773 | | |
| 31.37 | % |
Commercial and industrial loans (except those secured
by real estate) | |
| 19,457 | | |
| 6.49 | % | |
| 22,165 | | |
| 7.75 | % |
Guaranteed student loans | |
| 46,355 | | |
| 15.46 | % | |
| 33,562 | | |
| 11.73 | % |
Consumer
and other | |
| 1,624 | | |
| 0.53 | % | |
| 1,611 | | |
| 0.55 | % |
| |
| | | |
| | | |
| | | |
| | |
Total loans | |
| 299,745 | | |
| 100.00 | % | |
| 286,146 | | |
| 100.00 | % |
Deferred loan cost, net | |
| 1,294 | | |
| | | |
| 722 | | |
| | |
Less: allowance for loan losses | |
| (5,496 | ) | |
| | | |
| (5,729 | ) | |
| | |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 295,543 | | |
| | | |
$ | 281,139 | | |
| | |
The Company assigns risk rating classifications
to its loans. These risk ratings are divided into the following groups:
| · | Risk
rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating.
These assets generally are well protected by the current net worth and paying capacity
of the obligor or by the value of the asset or underlying collateral; |
| · | Risk
rated 5 loans are defined as having potential weaknesses that deserve management’s
close attention; |
| · | Risk
rated 6 loans are inadequately protected by the current sound worth and paying capacity
of the obligor or of the collateral pledged, if any; and, |
| · | Risk
rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics
that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable. |
Loans are considered impaired when, based
on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the
original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated
in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired,
a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from
the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal
amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged
off when deemed uncollectible.
Allowance for
loan losses
We monitor and maintain an allowance for
loan losses to absorb an estimate of probable losses inherent in the loan portfolio. We maintain policies and procedures that
address the systems of controls over the following areas of maintenance of the allowance: the systematic methodology used to determine
the appropriate level of the allowance to provide assurance they are maintained in accordance with accounting principles generally
accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement
of impairment in the loan portfolio; and the loan grading system.
The allowance reflects management’s
best estimate of probable losses within the existing loan portfolio and of the risk inherent in various components of the loan
portfolio, including loans identified as impaired as required by FASB Codification Topic 310: Receivables. Loans evaluated
individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured
loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations.
If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.
Loans are grouped by similar characteristics,
including the type of loan, the assigned loan classification and the general collateral type. A loss rate reflecting the expected
loss inherent in a group of loans is derived based upon historical net charge-off rates, the predominant collateral type for the
group and the terms of the loan. The resulting estimate of losses for groups of loans is adjusted for relevant environmental factors
and other conditions of the portfolio of loans and leases, including: borrower and industry concentrations; levels and trends
in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability
and depth of lending management; and national and local economic conditions.
The amounts of estimated impairment for
individually evaluated loans and groups of loans are added together for a total estimate of loan losses. This estimate of losses
is compared to our allowance for loan losses as of the evaluation date and, if the estimate of losses is greater than the allowance,
an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which
the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. We recognize
the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and
therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high.
If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new
estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the financial
statements.
The allowance
for loan losses at each of the periods presented includes an amount that could not be identified to individual types of
loans referred to as the unallocated portion of the allowance. We recognize the inherent imprecision
in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range
around the estimate of losses is derived and used to ascertain whether the allowance is too high. We concluded that the unallocated
portion of the allowance was warranted given the continued higher level of classified assets and was within a reasonable range
around the estimate of losses.
The allowance for loan losses at September
30, 2015 was $5,496,000, compared to $5,729,000 at December 31, 2014. The ratio of the allowance for loan losses to gross portfolio
loans (net of unearned income and excluding mortgage loans held for sale) at September 30, 2015 and December 31, 2014 was 1.83%
and 2.00%, respectively. The decrease in the allowance for loan losses for the first nine months of 2015 was primarily a result
of charge offs recognized during the period. We believe the amount of the allowance for loan losses at September 30, 2015 is adequate
to absorb the losses that can reasonably be anticipated from the loan portfolio at that date.
The following table presents an analysis
of the changes in the allowance for loan losses for the periods indicated (dollars in thousands):
Analysis of Allowance for Loan Losses
(In thousands)
| |
Nine Months Ended | |
| |
September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Beginning balance | |
$ | 5,729 | | |
$ | 7,239 | |
Provision for loan losses | |
| - | | |
| 100 | |
Charge-offs | |
| | | |
| | |
Construction and land development | |
| | | |
| | |
Commercial | |
| (252 | ) | |
| (100 | ) |
Commercial real estate | |
| | | |
| | |
Owner occupied | |
| (127 | ) | |
| (608 | ) |
Non-owner occupied | |
| - | | |
| (238 | ) |
Farmland | |
| - | | |
| (96 | ) |
Consumer real estate | |
| | | |
| | |
Home equity lines | |
| (54 | ) | |
| (476 | ) |
Secured by 1-4 family residential | |
| | | |
| | |
First deed of trust | |
| (103 | ) | |
| (277 | ) |
Second deed of trust | |
| (55 | ) | |
| (76 | ) |
Commercial and industrial | |
| | | |
| | |
(except those secured by real estate) | |
| (162 | ) | |
| (168 | ) |
Consumer and other | |
| (31 | ) | |
| (8 | ) |
| |
| (784 | ) | |
| (2,047 | ) |
Recoveries | |
| | | |
| | |
Construction and land development | |
| | | |
| | |
Residential | |
| 1 | | |
| 1 | |
Commercial | |
| 22 | | |
| 44 | |
Commercial real estate | |
| | | |
| | |
Owner occupied | |
| 33 | | |
| - | |
Non-owner occupied | |
| 4 | | |
| 24 | |
Secured by 1-4 family residential | |
| | | |
| | |
Home equity lines | |
| 2 | | |
| 14 | |
First deed of trust | |
| 374 | | |
| 64 | |
Second deed of trust | |
| 25 | | |
| 115 | |
Commercial and industrial | |
| | | |
| | |
(except those secured by real estate) | |
| 73 | | |
| 90 | |
Consumer and other | |
| 17 | | |
| 14 | |
| |
| 551 | | |
| 366 | |
Net charge-offs | |
| (233 | ) | |
| (1,681 | ) |
| |
| | | |
| | |
Ending balance | |
$ | 5,496 | | |
$ | 5,658 | |
| |
| | | |
| | |
Loans
outstanding at end of period(1) | |
$ | 301,039 | | |
$ | 275,123 | |
Ratio of allowance for loan
losses as a percent of loans outstanding at end of period | |
| 1.83 | % | |
| 2.06 | % |
| |
| | | |
| | |
Average
loans outstanding for the period(1) | |
$ | 293,930 | | |
$ | 275,157 | |
Ratio of net charge-offs to
average loans outstanding for the period | |
| 0.08 | % | |
| 0.61 | % |
(1) Loans are net of unearned income.
Asset quality
The following table summarizes asset quality information at
the dates indicated (dollars in thousands):
| |
September 30, | | |
December 31, | | |
September 30, | |
| |
2015 | | |
2014 | | |
2014 | |
| |
| | |
| | |
| |
Nonaccrual loans | |
$ | 4,489 | | |
$ | 7,478 | | |
$ | 9,547 | |
Foreclosed properties | |
| 8,018 | | |
| 12,638 | | |
| 14,003 | |
Total nonperforming assets | |
$ | 12,507 | | |
$ | 20,116 | | |
$ | 23,550 | |
| |
| | | |
| | | |
| | |
Restructured loans (not included
in nonaccrual loans above) | |
$ | 13,977 | | |
$ | 23,967 | | |
$ | 26,923 | |
| |
| | | |
| | | |
| | |
Loans past due 90 days and still
accruing | |
$ | 9,117 | | |
$ | 720 | | |
$ | - | |
| |
| | | |
| | | |
| | |
Nonaccrual
loans to loans (1) | |
| 1.5 | % | |
| 2.6 | % | |
| 8.6 | % |
| |
| | | |
| | | |
| | |
Nonperforming assets to total
assets | |
| 3.0 | % | |
| 4.6 | % | |
| 5.4 | % |
| |
| | | |
| | | |
| | |
Allowance for loan losses to
nonaccrual loans | |
| 122.4 | % | |
| 76.6 | % | |
| 59.3 | % |
(1) Loans are net of unearned income
and deferred cost.
Loans greater than 90 days past due are
student loans that are guaranteed by the Department of Education which covers approximately 98% of the principal and interest.
Accordingly, these loans will not be placed on nonaccrual status.
The following table presents an analysis of the changes in
nonperforming assets for the nine months ended September 30, 2015 (in thousands):
| |
Nonaccrual | | |
Foreclosed | | |
| |
| |
Loans | | |
Properties | | |
Total | |
| |
| | |
| | |
| |
Balance December 31, 2014 | |
$ | 7,478 | | |
$ | 12,638 | | |
$ | 20,116 | |
Additions | |
| 2,078 | | |
| 15 | | |
| 2,093 | |
Loans placed back on accrual | |
| (2,050 | ) | |
| - | | |
| (2,050 | ) |
Transfers to OREO | |
| (329 | ) | |
| 329 | | |
| - | |
Repayments | |
| (1,967 | ) | |
| - | | |
| (1,967 | ) |
Charge-offs | |
| (721 | ) | |
| (290 | ) | |
| (1,011 | ) |
Sales | |
| - | | |
| (4,674 | ) | |
| (4,674 | ) |
| |
| | | |
| | | |
| | |
Balance September 30, 2015 | |
$ | 4,489 | | |
$ | 8,018 | | |
$ | 12,507 | |
Until a nonperforming restructured loan has performed in accordance
with its restructured terms for a minimum of six months, it will remain on nonaccrual status.
Interest is accrued on outstanding loan
principal balances, unless the Company considers collection to be doubtful. Commercial and unsecured consumer loans are designated
as non-accrual when the Company considers collection of expected principal and interest doubtful. Mortgage loans and most other
types of consumer loans past due 90 days or more may remain on accrual status if management determines that concern over our ability
to collect principal and interest is not significant. When loans are placed on non-accrual status, previously accrued and unpaid
interest is reversed against interest income in the current period and interest is subsequently recognized only to the extent
cash is received. Interest accruals are resumed on such loans only when in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
Of the total nonaccrual loans of $4,489,000
at September 30, 2015 that were considered impaired, 13 loans totaling $2,230,000 had specific allowances for loan losses totaling
$473,000. This compares to $7,478,000 in nonaccrual loans at December 31, 2014 of which 14 loans totaling $3,332,000 had specific
allowances for loan losses of $1,108,000.
Cumulative interest income that would
have been recorded had nonaccrual loans been performing would have been approximately $145,000 and
$333,000 for the nine months ended September 30, 2015 and 2014, respectively.
Deposits
Deposits as of September 30, 2015 and
December 31, 2014 were as follows (dollars in thousands):
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
Amount | | |
% | | |
Amount | | |
% | |
| |
| | |
| | |
| | |
| |
Demand accounts | |
$ | 75,978 | | |
| 20.6 | % | |
$ | 77,496 | | |
| 20.5 | % |
Interest checking accounts | |
| 41,609 | | |
| 11.3 | % | |
| 42,924 | | |
| 11.3 | % |
Money market accounts | |
| 70,228 | | |
| 19.0 | % | |
| 64,987 | | |
| 17.2 | % |
Savings accounts | |
| 20,049 | | |
| 5.4 | % | |
| 20,643 | | |
| 5.4 | % |
Time deposits of $100,000 and over | |
| 71,993 | | |
| 19.5 | % | |
| 75,559 | | |
| 19.9 | % |
Other time deposits | |
| 89,182 | | |
| 24.2 | % | |
| 97,251 | | |
| 25.7 | % |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 369,039 | | |
| 100.0 | % | |
$ | 378,860 | | |
| 100.0 | % |
Total deposits decreased by $9,821,000,
or 2.6%, from $378,860,000 at December 31, 2014 to $369,039,000 at September 30, 2015, as compared to a decrease of $9,964,000,
or 2.6%, during the first nine months of 2014. Checking and savings accounts decreased by $3,428,000, money market accounts increased
by $5,241,000 and time deposits decreased by $11,634,000. The decline in time deposits was a result of repricing maturing time
deposits at rates below market for noncore depositors. The cost of our interest-bearing deposits declined to 0.84% for the first
nine months of 2015 compared to 0.94% for the first nine months of 2014.
The variety of deposit accounts that we
offer has allowed us to be competitive in obtaining funds and has allowed us to respond with flexibility to, although not to eliminate,
the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct
investment vehicles such as government and corporate securities). Our ability to attract and retain deposits, and our cost of
funds, has been, and is expected to continue to be, significantly affected by money market conditions.
Borrowings
The Company has issued $8,764,000 in Trust
Preferred Capital Notes that may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25%
of Tier 1 capital after its inclusion. The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be
included in Tier 2 capital. See note 7 to the consolidated financial statements for a complete discussion of these notes.
Additionally, we utilize borrowings to
supplement deposits when they are available at a lower overall cost to us or they can be invested at a positive rate of return.
As a member of the Federal Home Loan Bank
of Atlanta (“FHLB”), the Bank is required to own capital stock in the FHLB and is authorized to apply for borrowings
from the FHLB. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The
FHLB may prescribe the acceptable uses to which the advances may be put, as well as on the size of the advances and repayment
provisions. Borrowings from the FHLB were $6,000,000 and $14,000,000 at September 30, 2015 and December 31, 2014, respectively.
The FHLB advances are secured by the pledge of commercial real estate loans, investment securities and cash.
Capital resources
On May 1, 2009, as part of the Capital
Purchase Program established by the U.S. Department of the Treasury under the Emergency Economic Stabilization Act of 2008, the
Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms with the Treasury, pursuant to
which the Company sold (i) 14,738 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A,
par value $4.00 per share, having a liquidation preference of $1,000 per share and (ii) a Warrant to purchase 31,190 shares of
the Company’s common stock at an initial exercise price of $70.88 per share, subject to certain anti-dilution and other adjustments,
for an aggregate purchase price of $14,738,000 in cash. The fair value of the preferred stock was estimated using discounted cash
flow methodology at an assumed market equivalent rate of 13%, with 20 quarterly payments over a five year period, and was determined
to be $10,208,000. The fair value of the Warrant was estimated using the Black-Scholes option pricing model, with assumptions
of 25% volatility, a risk-free rate of 2.03%, a yield of 6.162% and an estimated life of 5 years, and was determined to be $534,000.
The aggregate fair value for both the preferred stock and Warrant was determined to be $10,742,000 with 95% of the aggregate attributable
to the preferred stock and 5% attributable to the Warrant. Therefore, the $14,738,000 issuance was allocated with $14,006,000
being assigned to the preferred stock and $732,000 being allocated to the Warrant. The difference between the $14,738,000 face
value of the preferred stock and the amount allocated of $14,006,000 to the preferred stock was accreted as a discount on the
preferred stock using the effective interest rate method over five years.
The preferred stock qualifies as Tier
1 capital and paid cumulative dividends at a rate of 5% until May 1, 2014, at which time the rate increased to 9%. The preferred
stock is generally non-voting, other than on certain matters that could adversely affect the preferred stock.
The Warrant is immediately exercisable.
The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise
pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders
of common stock, and upon certain issuances of common stock at or below a specified price relative to the then-current market
price of common stock. The Warrant expires ten years from the issuance date. Pursuant to the Purchase Agreement, the Treasury
has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.
In accordance with the Company’s
written agreement with the Reserve Bank, the Company has been deferring quarterly cash dividends on the preferred stock since
May 2011. The total arrearage on such preferred stock as of September 30, 2015 was $1,903,175 (after forgiveness of $2,215,009
in accrued dividends in connection with the standby rights offering). This amount has been accrued for and is included in other
liabilities in the consolidated balance sheet.
In November 2013, the Company participated
in a successful auction of the Company’s preferred stock by the Treasury that resulted in the purchase of the securities
by private and institutional investors.
On December 4, 2013, the Company issued
1,086,500 new shares of common stock through a private placement to directors and executive officers. The sale raised $1,684,075
in new capital for the Company. The $1.55 sale price for the common shares was equal to the stock’s book value at September
30, 2013, which represented a 30% premium over the closing price of the stock on December 3, 2013.
On August
6, 2014, the Company filed Articles of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission
to effect a reverse stock split of its outstanding common stock which became effective on August 8, 2014. As a result of the reverse
split, every sixteen shares of the Company’s issued and outstanding common stock were consolidated into one issued and outstanding
share of common stock.
On March 27, 2015, the Company completed
a rights offering to shareholders and concurrent standby offering to Kenneth R. Lehman, in which the Company issued an aggregate
of 1,051,866 shares of common stock (the total number of shares offered) at $13.87 per share for aggregate gross proceeds of $14,589,381
(including the value of the Company’s preferred stock exchanged by Mr. Lehman for shares of common stock of $4,618,813).
In connection with the Rights Offering, 283,293 shares were issued to shareholders upon exercise of their basic subscription rights
and 191,773 shares were issued to shareholders upon exercise of their oversubscription privileges (approximately 36.9% of the
total number of shares requested pursuant to oversubscription privileges). In connection with the Standby Offering, Mr. Lehman
purchased an aggregate of 576,800 shares of the Company’s common stock, 333,007 of which were issued in exchange for 9,023
shares of the Company’s preferred stock and 243,793 of which were purchased for cash. Also, as part of the Standby Offering,
Mr. Lehman forgave $2,215,009 in accrued and unpaid dividends on the preferred stock.
The Company meets eligibility criteria of a small bank holding
company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement issued in February 2015,
and is no longer obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements
administered by banking agencies.
The following table presents the composition
of regulatory capital and the capital ratios for the Bank at the dates indicated (dollars in thousands):
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Tier
1 capital | |
| | | |
| | |
Total bank equity capital | |
$ | 37,519 | | |
$ | 30,158 | |
Net unrealized loss on available-for-sale securities | |
| 291 | | |
| 644 | |
Defined benefit postretirement plan | |
| 71 | | |
| 77 | |
Disallowed intangible assets | |
| (50 | ) | |
| (198 | ) |
Total Tier 1 capital | |
| 37,831 | | |
| 30,681 | |
| |
| | | |
| | |
Tier
2 capital | |
| | | |
| | |
Allowance for loan losses | |
| 3,784 | | |
| 3,572 | |
Total Tier 2 capital | |
| 3,784 | | |
| 3,572 | |
| |
| | | |
| | |
Total risk-based capital | |
| 41,615 | | |
| 34,253 | |
| |
| | | |
| | |
Risk-weighted assets | |
$ | 301,024 | | |
$ | 283,581 | |
| |
| | | |
| | |
Average assets | |
$ | 423,454 | | |
$ | 427,113 | |
| |
| | | |
| | |
Capital ratios | |
| | | |
| | |
Leverage ratio (Tier 1 capital to average assets) | |
| 8.93 | % | |
| 7.18 | % |
Common equity tier 1 capital ratio (CET 1) | |
| 12.57 | % | |
| N/A | |
Tier 1 capital to risk-weighted assets | |
| 12.57 | % | |
| 10.82 | % |
Total capital to risk-weighted assets | |
| 13.82 | % | |
| 12.08 | % |
Equity to total assets | |
| 8.93 | % | |
| 6.99 | % |
Under new capital guidelines discussed
more fully following, the Bank must identify high volatility commercial real estate (“HVCRE) loans which are defined as a
credit facility that, prior to conversion to permanent financing, finances or has financed the acquisition, development, or construction
of real property, unless the facility finances (1) one to four family residential properties; (2) certain community development
projects; (3) the purchase or development of agricultural land; (4) commercial real estate projects that meet the criteria in the
rule, including criteria regarding the loan-to-value ratio and capital contributions to the project. Under the new guidelines,
HVCRE loans are risk weighted at 150% for capital ratios purposes rather than 100% as with other loans.
Federal regulatory agencies are required
by law to adopt regulations defining five capital tiers: well capitalized, adequately capitalized, under capitalized, significantly
under capitalized, and critically under capitalized. The Bank met the ratio requirements to be categorized “well capitalized”
institution as of September 30, 2015 and December 31, 2014. However, due to the existence of the Consent Order, the Bank was considered
adequately capitalized as of such dates. The Consent Order requires the Bank to maintain a leverage ratio of at least 8% and a
total capital to risk-weighted assets ratio of at least 11%. As a result of the Company’s Rights Offering and Standby Offering
completed on March 27, 2015, the Bank’s leverage ratio increased to 8.93% and the total capital to risk weighted assets
ratio increased to 13.82% bringing the Bank into compliance with the ratios required by the Consent Order. When capital falls
below the “well capitalized” requirement, consequences can include: new branch approval could be withheld; more frequent
examinations by the FDIC; brokered deposits cannot be renewed without a waiver from the FDIC; and other potential limitations
as described in FDIC Rules and Regulations Sections 337.6 and 303, and FDIC Act Section 29. In addition, the FDIC insurance assessment
increases when an institution falls below the “well capitalized” classification.
In July 2013, the Board of Governors of
the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital
guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January
1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity
and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted
assets ratio (“CET1 ratio”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully
phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted
assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of
8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital
conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights
for certain assets and off-balance-sheet exposures. Management expects that the capital ratios for the Company and the Bank under
Basel III will continue to exceed the well capitalized minimum capital requirements.
Liquidity
Liquidity represents the ability of a
company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by
increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day
cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet
components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio
is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit
inflows and outflows are far less predictable and are not subject to the same degree of control.
At September 30, 2015, our liquid assets,
consisting of cash, cash equivalents and investment securities available for sale totaled $65,670,000, or 16% of total assets.
Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely
manner. However, approximately $6,000,000 of these securities is pledged against current and potential fundings.
Our holdings of liquid assets plus the
ability to maintain and expand our deposit base and borrowing capabilities serve as our principal sources of liquidity. We plan
to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional
borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We
maintain two federal funds lines of credit with correspondent banks totaling $17 million for which there were no borrowings against
the lines at September 30, 2015. Subsequent to September 30, 2015 the secured line reverted to an unsecured status in the amount
of $5 million bringing our total unsecured availability to $10 million.
At September 30, 2015, we had commitments
to originate $61,530,000 of loans. Fixed commitments to incur capital expenditures were less than $25,000 at September 30, 2015.
Certificates of deposit scheduled to mature in the 12-month period ending September 30, 2016 totaled $93,438,000. We believe that
a significant portion of such deposits will remain with us. We further believe that deposit growth, loan repayments and other
sources of funds will be adequate to meet our foreseeable short-term and long-term liquidity needs.
Interest rate sensitivity
An important element of asset/liability
management is the monitoring of our sensitivity to interest rate movements. In order to measure the effects of interest rates
on our net interest income, management takes into consideration the expected cash flows from the securities and loan portfolios
and the expected magnitude of the repricing of specific asset and liability categories. We evaluate interest sensitivity risk
and then formulate guidelines to manage this risk based on management’s outlook regarding the economy, forecasted interest
rate movements and other business factors. Our goal is to maximize and stabilize the net interest margin by limiting exposure
to interest rate changes.
Contractual principal repayments of loans
do not necessarily reflect the actual term of our loan portfolio. The average lives of mortgage loans are substantially less than
their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which gives us the right
to declare a loan immediately due and payable in the event, among other things, the borrower sells the real property subject to
the mortgage and the loan is not repaid. In addition, certain borrowers increase their equity in the security property by making
payments in excess of those required under the terms of the mortgage.
The sale of fixed rate loans is intended
to protect us from precipitous changes in the general level of interest rates. The valuation of adjustable rate mortgage loans
is not as directly dependent on the level of interest rates as is the value of fixed rate loans. As with other investments, we
regularly monitor the appropriateness of the level of adjustable rate mortgage loans in our portfolio and may decide from time
to time to sell such loans and reinvest the proceeds in other adjustable rate investments.
Critical accounting policies
General
The accounting and reporting policies
of the Company and its subsidiary are in accordance with accounting principles generally accepted in the United States of America
and conform to general practices within the banking industry. The Company’s financial position and results of operations
are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to
arrive at the carrying value of assets and liabilities, and amounts reported for revenues, expenses and related disclosures. Different
assumptions in the application of these policies could result in material changes in the Company’s consolidated financial
position and/or results of operations.
The more critical accounting and reporting
policies include the Company’s accounting for the allowance for loan losses, troubled debt restructurings, real estate acquired
in settlement of loans and income taxes. The Company’s accounting policies are fundamental to understanding the Company’s
consolidated financial position and consolidated results of operations.
The following is a summary of the Company’s
critical accounting policies that are highly dependent on estimates, assumptions, and judgments.
Allowance for loan losses
We monitor and maintain an allowance for
loan losses to absorb an estimate of probable losses inherent in the loan portfolio. We maintain policies and procedures that
address the systems of controls over the following areas of maintenance of the allowance: the systematic methodology used to determine
the appropriate level of the allowance to provide assurance they are maintained in accordance with accounting principles generally
accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement
of impairment in the loan portfolio; and the loan grading system.
The allowance reflects management’s
best estimate of probable losses within the existing loan portfolio and of the risk inherent in various components of the loan
portfolio, including loans identified as impaired as required by FASB Codification Topic 310: Receivables. Loans evaluated
individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured
loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations.
If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.
Loans are grouped by similar characteristics,
including the type of loan, the assigned loan classification and the general collateral type. A loss rate reflecting the expected
loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral
type for the group and the terms of the loan. The resulting estimate of losses for groups of loans is adjusted for relevant environmental
factors and other conditions of the portfolio of loans and leases, including: borrower and industry concentrations; levels and
trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience,
ability and depth of lending management; and national and local economic conditions.
The amounts of estimated impairment for
individually evaluated loans and groups of loans are added together for a total estimate of loan losses. This estimate of losses
is compared to our allowance for loan losses as of the evaluation date and, if the estimate of losses is greater than the allowance,
an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which
the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the
estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision
for loan losses. We recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related
to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the
allowance is too high. If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate
to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material
to the financial statements.
The allowance
for loan losses at each of the periods presented includes an amount that could not be identified to individual types of
loans referred to as the unallocated portion of the allowance. We recognize the inherent imprecision
in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range
around the estimate of losses is derived and used to ascertain whether the allowance is too high. We concluded that the unallocated
portion of the allowance was warranted given the continued higher level of classified assets and was within a reasonable range
around the estimate of losses.
Troubled debt restructurings
A loan is accounted for as a TDR if we,
for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would
not otherwise consider. A TDR may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or
a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest,
an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new
loan with similar risk, or some combination of these concessions. TDRs can be in either accrual or nonaccrual status. Nonaccrual
TDRs are included in nonperforming loans. Accruing TDRs are generally excluded from nonperforming loans as it is considered probable
that all contractual principal and interest due under the restructured terms will be collected. TDRs generally remain categorized
as nonperforming loans and leases until a six-month payment history has been maintained.
In accordance with current accounting
guidance, loans modified as TDRs are, by definition, considered to be impaired loans. Impairment for these loans is measured
on a loan-by-loan basis similar to other impaired loans as described above under Allowance for loan losses.
Certain loans modified as TDRs may have been previously measured for impairment under a general allowance methodology (i.e., pooling),
thus at the time the loan is modified as a TDR the allowance will be impacted by the difference between the results of these two
measurement methodologies. Loans modified as TDRs that subsequently default are factored into the determination of the allowance
in the same manner as other defaulted loans.
Real estate acquired in settlement
of loans
Real estate acquired in settlement of
loans represent properties acquired through foreclosure or physical possession. Write-downs to fair value less cost to sell
of foreclosed assets at the time of transfer are charged to allowance for loan losses. Subsequent to foreclosure, the Company
periodically evaluates the value of foreclosed assets held for sale and records an impairment charge for any subsequent declines
in fair value less selling costs. Subsequent declines in value are charged to operations. Fair value is based on an
assessment of information available at the end of a reporting period and depends upon a number of factors, including historical
experience, economic conditions, and issues specific to individual properties. The evaluation of these factors involves
subjective estimates and judgments that may change.
Income taxes
The Company uses the asset and liability
method of accounting for income taxes. Under this method, 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 or settled. If
current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance may be established. Management
considers the determination of this valuation allowance to be a critical accounting policy due to the need to exercise significant
judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future
taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors
change. A valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss
carry backs decline, or if management projects lower levels of future taxable income. Management determined that as
of September 30, 2015 and December 31, 2014, the objective negative evidence represented by the Company’s recent losses
outweighed the more subjective positive evidence and, as a result, recognized a valuation allowance of $12,072,000 and $12,274,000
respectively, representing all of the net deferred tax asset that is dependent on future earnings of the Company at the indicated
date.
Impact
of inflation and changing prices
The Company’s consolidated financial
statements included herein have been prepared in accordance with generally accepted accounting principles in the United States
of America, which require the Company to measure financial position and operating results primarily in terms of historical dollars.
Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation
on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in interest
rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While
interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in
the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the
Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary
and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4 – CONTROLS AND PROCEDURES
The Company’s Chief Executive Officer
and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30,
2015. Based on that evaluation, management concluded that the Company’s disclosure controls and procedures were effective
as of September 30, 2015 in ensuring that all material information required to be disclosed in reports that it files or submits
under the Exchange Act is recorded, processed summarized and reported with the time periods specified in SEC rules and regulations
and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management is also
responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. There were no changes in our internal control over financial reporting identified
in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected,
or are reasonably likely to materially affect, internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the course of its operations, the Company
may become a party to legal proceedings. Except as previously reported, there are no material pending legal proceedings to which
the Company is party or of which the property of the Company is subject.
ITEM 1A – RISK FACTORS
Not applicable.
ITEM 2 – UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 – DEFAULTS UPON SENIOR
SECURITIES
The Company is currently prohibited by
its Written Agreement with the Reserve Bank from making dividend or interest payments on the preferred stock or trust preferred
capital notes without prior regulatory approval. In addition, the Consent Order with the Supervisory Authorities provides that
the Bank will not pay any dividends, pay bonuses or make any other form of payment outside the ordinary course of business resulting
in a reduction in capital, without regulatory approval. At September 30, 2015, the aggregate amount of all of the Company’s
total accrued but deferred dividend payments on the preferred stock was $1,903,175.
ITEM 4 – MINE SAFETY DISCLOSURES
None.
ITEM 5 – OTHER INFORMATION
Not applicable.
ITEM 6 – EXHIBITS
|
31.1 |
Certification
of Chief Executive Officer |
|
|
|
|
31.2 |
Certification
of Chief Financial Officer |
|
|
|
|
32.1 |
Statement
of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|
|
|
|
101 |
The
following materials from the Village Bank and Trust Financial Corp. Quarterly Report on Form 10-Q for the quarter ended September
30, 2015 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements
of Operations, (iii) Consolidated Statements of Changes in Comprehensive Income, (iv) Consolidated Statements of Shareholders'
Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. |
SIGNATURES
In accordance with the requirements of
the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
VILLAGE
BANK AND TRUST FINANCIAL CORP. |
|
|
|
Date:
November 4, 2015 |
By: |
/s/
William G. Foster, Jr. |
|
William
G. Foster, Jr. |
|
President
and Chief Executive Officer |
|
|
|
Date:
November 4, 2015 |
By: |
/s/
C. Harril Whitehurst, Jr. |
|
C.
Harril Whitehurst, Jr. |
|
Executive
Vice President and Chief Financial Officer |
EXHIBIT INDEX
Exhibit |
|
|
Number |
|
Document |
|
|
|
31.1 |
|
Certification
of Chief Executive Officer |
|
|
|
31.2 |
|
Certification
of Chief Financial Officer |
|
|
|
32.1 |
|
Statement
of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
|
|
|
101 |
|
The
following materials from the Village Bank and Trust Financial Corp. Quarterly Report on Form 10-Q for the quarter ended September
30, 2015 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements
of Operations, (iii) Consolidated Statements of Changes in Comprehensive Income, (iv) Consolidated Statements of Shareholders'
Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, William G. Foster, Jr., certify that:
| 1. | I have reviewed the Quarterly Report
on Form 10-Q of Village Bank and Trust Financial Corp. for the quarter ended September
30, 2015; |
| 2. | Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
| (a) | designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
| (b) | designed such internal control
over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of
the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting;
and |
| 5. | The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
| (b) | any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 4, 2015 |
By: |
/s/
William G. Foster, Jr. |
|
William
G. Foster, Jr. |
|
President and |
|
Chief
Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, C. Harril Whitehurst, Jr., certify
that:
| 1. | I have reviewed the Quarterly Report
on Form 10-Q of Village Bank and Trust Financial Corp. for the quarter ended September
30, 2015; |
| 2. | Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
| 4. | The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have: |
| (a) | designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
| (b) | designed such internal control
over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of
the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting;
and |
| 5. | The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
| (b) | any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
Date:
November 4, 2015 |
By: |
/s/
C. Harril Whitehurst, Jr. |
|
C.
Harril Whitehurst, Jr. |
|
Executive
Vice President and |
|
Chief
Financial Officer |
Exhibit 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report
on Form 10-Q of Village Bank and Trust Financial Corp. (the “Company”) for the period ended September 30, 2015, the
undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that based on their knowledge and belief: (1) the Form 10-Q
for the period ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, and (2) the information contained in the Form 10-Q for the period ended September 30, 2015 fairly presents,
in all material respects, the financial condition and results of operations of the Company as of and for the periods presented.
/s/
William G. Foster, Jr. |
|
Date: November 4,
2015 |
William G. Foster, Jr. |
|
|
President and Chief Executive Officer |
|
|
|
|
|
/s/
C. Harril Whitehurst, Jr. |
|
Date: November 4, 2015 |
C. Harril Whitehurst, Jr. |
|
|
Executive Vice
President and Chief Financial Officer |
|
|
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