The consolidated financial statements and
related footnotes of the Company are presented following.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and
2013
|
Note 1.
|
Summary of Significant Accounting Policies
|
The accounting and reporting policies of
Village Bank and Trust Financial Corp. and subsidiary (the “Company”) conform to accounting principles generally accepted
in the United States of America (“GAAP”) and to general practice within the banking industry. The following is a description
of the more significant of those policies:
Business
The Company is the holding company of Village
Bank (the “Bank”). The Bank opened to the public on December 13, 1999 as a traditional community bank offering deposit
and loan services to individuals and businesses in the Richmond, Virginia metropolitan area. Village Bank Mortgage Corporation
(“Village Mortgage”) is a full service mortgage banking company wholly-owned by the Bank.
The Bank is subject to regulations of certain
federal and state agencies and undergoes periodic examinations by those regulatory authorities. As a consequence of the extensive
regulation of commercial banking activities, the Bank’s business is susceptible to being affected by state and federal legislation
and regulations.
The majority of the Company’s real
estate loans are collateralized by properties in markets in the Richmond, Virginia metropolitan area. Accordingly, the ultimate
collectability of those loans collateralized by real estate is particularly susceptible to changes in market conditions in the
Richmond area.
Basis of presentation
and consolidation
The consolidated financial statements include
the accounts of the Company, the Bank and Village Mortgage. All material intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates
The preparation of the consolidated financial
statements in conformity with GAAP 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 balance sheets dates and revenues and expenses during
the reporting 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, and the
estimate of the fair value of assets held for sale.
Investment securities
At the time of purchase, debt securities
are classified into the following categories: held to maturity, available for sale or trading. Debt securities that the Company
has both the positive intent and ability to hold to maturity are classified as held to maturity. Held to maturity securities are
stated at amortized cost adjusted for amortization of premiums and accretion of discounts on purchase using a method that approximates
the effective interest method. Investments classified as trading or available for sale are stated at fair value. Changes in fair
value of trading investments are included in current earnings while changes in fair value of available for sale investments are
excluded from current earnings and reported, net of taxes, as a separate component of other comprehensive income. Presently, the
Company does not maintain a portfolio of trading securities or held to maturity.
The fair value of investment securities
held to maturity and available for sale is estimated based on quoted prices for similar assets determined by bid quotations received
from independent pricing services. Declines in the fair value of securities below their amortized cost that are other than temporary
are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than
their amortized cost basis, we consider our intent to sell the security, whether it is more likely than not that we will be required
to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing
an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.
Interest income is recognized when earned.
Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are
derived using the specific identification method for determining the cost of securities sold.
Loans held for sale
The Company, through the Bank’s mortgage
banking subsidiary, Village Bank Mortgage, originates residential mortgage loans for sale in the secondary market. Mortgage loans
originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value on an aggregate
basis as determined by outstanding commitments from investors. Upon entering into a commitment to originate a loan, the Company
locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus
limiting interest rate risk. Certain additional risks exist that the investor fails to meet its purchase obligation; however, based
on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation.
Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Residential mortgage loans held for sale
are sold to the permanent investor with the mortgage servicing rights released. Gains or losses on sales of mortgage loans are
recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Gains on
the sale of loans totaling approximately $6,076,000, $4,449,000 and $7,744,000 were realized during the years ended December 31,
2015, 2014 and 2013, respectively.
Once a residential mortgage loan is sold
to a permanent investor, the Company has no further involvement or retained interest in the loan. There are limited circumstances
in which the permanent investor can contractually require the Company to repurchase the loan. The Company makes no provision for
any such recourse related to loans sold as history has shown repurchase of loans under these circumstances has been remote.
The Company, through Village Mortgage,
enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding,
termed rate lock commitments. Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to
be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from
30 to 45 days. The Company protects itself from changes in interest rates during this period by requiring a firm purchase agreement
from a permanent investor before a loan can be closed. As a result, the Company is not exposed to losses nor will it realize gains
or losses related to its rate lock commitments due to changes in interest rates.
The fair value of rate lock commitments
and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts
are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and best efforts
contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the
rate lock commitments will close. Due to high correlation between rate lock commitments and best efforts contracts, no significant
gains or losses have occurred on the rate lock commitments.
At December 31, 2015, Village Mortgage
had rate lock commitments to originate mortgage loans aggregating approximately $9,132,000 and loans held for sale of approximately
$14,373,000. Village Mortgage has entered into corresponding commitments with third party investors to sell loans of approximately
$23,505,000. Under the best efforts contractual relationship with these investors, Village Mortgage is obligated to sell the loans,
and the investor is obligated to purchase the loans, only if the loans close. No other obligation exists. As a result of these
best efforts contractual relationships with these investors Village Mortgage is not exposed to losses, nor will it realize gains,
related to its rate lock commitments due to changes in interest rates.
Transfers of financial
assets
Transfers of financial assets are accounted
for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when:
(1) the assets have been isolated from the Bank and put presumptively beyond the reach of the transferor and its creditors, even
in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return
specific assets. Our transfers of financial assets are limited to commercial loan participations sold, which were insignificant
for 2015, 2014 and 2013, and the sale of residential mortgage loans in the secondary market; the extent of which are disclosed
in the Consolidated Statements of Cash Flows.
Loans
Loans are stated at the principal amount
outstanding, net of unearned income. Loan origination fees and certain direct loan origination costs are deferred and amortized
to interest income over the life of the loan as an adjustment to the loan’s yield over the term of the loan.
Interest is accrued on outstanding principal
balances, unless the Company considers collection to be doubtful. Commercial and unsecured consumer loans are designated as non-accrual
when payment is delinquent 90 days or at the point which the Company considers collection doubtful, if earlier. Mortgage loans
and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that such
amounts are collectible. When loans are placed in 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 as long as the
remaining recorded investment in the loan is deemed fully collectible. Loans may be placed back on accrual status when, in the
opinion of management, the circumstances warrant such action such as a history of timely payments subsequent to being placed on
nonaccrual status, additional collateral is obtained or the borrowers cash flows improve.
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. The total contractual amount of standby
letters of credit, whose contract amount represent credit risk was approximately $1,484,000 at December 31, 2015 and approximately
$1,571,000 at December 31, 2014.
Allowance for loan
losses
The allowance for loan losses is established
as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited
to the allowance.
The allowance represents an amount that,
in management’s judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s
judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans while taking into
consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect
a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of general and specific
components. The general component covers non-classified loans and is based on historical loss experience and risk characteristics
(i.e. trends in delinquencies and other non-performing loans, changes in economic conditions on both a local and national level,
and changes in the categories of loans comprising the loan portfolio) adjusted for qualitative factors. The specific component
relates to loans that we have concluded, based on the value of collateral, guarantees and any other pertinent factors, have known
losses. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral
value or observable market price) of the impaired loan is lower than the carrying value of that loan. An unallocated component
is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
A loan is considered impaired when, based
on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted
at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the
loan is collateral dependent.
Troubled debt restructurings
A loan or lease is accounted for as a troubled
debt restructuring if we, for economic or legal reasons related to the borrower’s financial condition, grant a significant
concession to the borrower that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets
from the debtor in partial or full satisfaction of the loan or lease, or a modification of terms such as a reduction of the stated
interest rate or balance of the loan or lease, a reduction of accrued interest, an extension of the maturity date at a stated interest
rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt
restructurings 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 troubled debt restructurings 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 troubled debt restructurings 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 troubled debt restructuring the allowance will be impacted
by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings
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 through or in lieu
of foreclosure is initially recorded at estimated fair value less estimated selling costs. Subsequent to the date of acquisition,
it is carried at the lower of cost or fair value, adjusted for net selling costs. If fair value declines subsequent to foreclosure
a valuation allowance is recorded through expense. Operating costs after acquisition are expensed as incurred. The valuation allowance
at December 31, 2015 was $1,748,000. Costs relating to the development and improvement of such property are capitalized when
appropriate, whereas those costs relating to holding the property are expensed.
Assets held for sale
Assets held for sale at December 31, 2015
are the Company’s previous headquarters building at the Watkins Centre and a branch building we previously closed. They were
transferred from premises and equipment to assets held for sale at cost less accumulated depreciation at the date of transfer,
December 31, 2013 and June 29, 2015 respectively, which were lower than their respective fair values, adjusted for net selling
costs, at that date. The Company periodically evaluates the value of assets held for sale and records an impairment charge for
any subsequent declines in fair value less selling costs.
Premises and equipment
Land is carried at cost. Premises and equipment
are carried at cost less accumulated depreciation and amortization. Depreciation of buildings and improvements is computed using
the straight-line method over the estimated useful lives of the assets of 39 years. Depreciation of equipment is computed using
the straight-line method over the estimated useful lives of the assets ranging from 3 to 7 years. Amortization of premises (leasehold
improvements) is computed using the straight-line method over the term of the lease or estimated lives of the improvements, whichever
is shorter.
Income taxes
Deferred income taxes are recognized for
the tax consequences of “temporary differences” by applying enacted tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The primary temporary differences
are the allowance for loan losses and depreciation and amortization. The effect on recorded deferred income taxes of a change in
tax laws or rates is recognized in income in the period that includes the enactment date. To the extent that available evidence
about the future raises doubt about the realization of a deferred income tax asset, a valuation allowance is established. A tax
position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in
a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not”
test, no tax benefit is recorded. The Company has not identified any material uncertain tax positions.
Consolidated statements
of cash flows
For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, due from banks (including cash items in process of collection), interest-bearing deposits
with banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash flows from loans originated
by the Bank and deposits are reported net. The Company did not pay income taxes in 2015, 2014 and 2013.
Comprehensive income
Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and distributions to owners. Total comprehensive income
(loss) consists of net income (loss) and other comprehensive income (loss). The Company’s other comprehensive income (loss)
and accumulated other comprehensive income (loss) are comprised of unrealized gains and losses on investment securities available
for sale and amortization of the unfunded pension liability. At December 31, 2015 and 2014 the accumulated other comprehensive
income was comprised of unrealized losses on securities available for sale of $439,000 and $644,000 and unfunded pension liability
of $68,000 and $77,000, respectively.
Earnings
per common share
Basic earnings (loss) per common share
represent net income available to common shareholders, which represents net income (loss) less dividends paid or payable to preferred
stock shareholders, divided by the weighted-average number of common shares outstanding during the period. For diluted earnings
per common share, net income available to common shareholders is divided by the weighted average number of common shares issued
and outstanding for each period plus amounts representing the dilutive effect of stock options, restricted stock, and warrants,
as well as any adjustment to income that would result from the assumed issuance. The effects of stock options, restricted stock,
and warrants are excluded from the computation of diluted earnings per common share in periods in which the effect would be antidilutive.
Stock options, restricted stock, and warrants are antidilutive if the underlying average market price of the stock that can be
purchased for the period is less than the exercise price of the option or warrant. Potential common shares that may be issued by
the Company relate solely to outstanding stock options, restricted stock, and warrants and are determined using the treasury stock
method.
Stock incentive 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 Company’s 2006 stock incentive
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. See Note 14 for more information on the stock
incentive plan.
Fair
values of financial instruments
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. See Note 17 for the methods and assumptions the Bank uses in estimating
fair values of financial instruments.
Insurance of Accounts, Assessments and
Regulation by the FDIC.
Our deposits are insured by the FDIC up to the limits set forth under applicable law, currently $250,000.
We are subject to the deposit insurance assessments of the DIF. The amount of the assessment is a function of the institution’s
risk category, of which there are four, and its assessment base. An institution’s risk category is determined according to
its supervisory ratings and capital levels and is used to determine the institution’s assessment rate. The assessment base
is an institution’s average consolidated total assets less its average tangible equity.
The FDIC is authorized to prohibit any
DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat
to the respective insurance fund. Also, the FDIC may initiate enforcement actions against banks, after first giving the institution’s
primary regulatory authority an opportunity to take such action. The FDIC may terminate the deposit insurance of any depository
institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition
imposed in writing by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent
termination of insurance if the institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution
at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years,
as determined by the FDIC. We are aware of no existing circumstances that could result in termination of our deposit insurance.
Segments
The Company has one reportable segment, “Community
Banking.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how
each of the activities supports the others. For example, lending is dependent upon the ability of the Company to fund itself with
deposits and borrowings while managing interest rates and credit risk. Accordingly, all significant operating decisions are based
upon analysis of the Company as one segment or unit.
New 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 are effective
for public business entities for annual periods beginning after December 15, 2014. The adoption of this guidance did 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 are effective for annual periods
beginning after December 15, 2014. The adoption of this guidance did 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, 2016, with early
adoption prohibited. In August 2015 the FASB issued ASU 2015-14 which changed the effective date by one year. 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
or results of operations.
In November 2015, the FASB issued ASU 2015-17,
“Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 eliminates the guidance in Topic 740, “Income Taxes”,
that required an entity to separate deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as
well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The
new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as
noncurrent on the balance sheet. As a result each jurisdiction will now only have one net noncurrent deferred tax asset or liability.
The guidance in this ASU is effective for public business entities for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2016. Early adoption is permitted as of the beginning of any interim or annual reporting period.
The Company does not expect this ASU to have a significant impact on its financial condition of results of operations.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition
and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to: (i) measure equity investments
at fair value through net income, with certain exceptions; (ii) present in Other Comprehensive Income the changes in instrument-specific
credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities
by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes
based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities
in combination with other deferred tax assets. The Update provides an election to subsequently measure certain nonmarketable equity
investments at cost less any impairment and adjusted for certain observable price changes. The Update also requires a qualitative
impairment assessment of such equity investments and amends certain fair value disclosure requirements. This ASU is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is only permitted
for the provision related to instrument-specific credit risk. The Company is currently assessing the impact of ASU 2016-01 will
have on its consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
“
Leases”.
This ASU requires lessees to recognize assets and liabilities arising from most operating leases on the statement of financial
position. The Company is currently evaluating the impact of ASU 2016-02, which is effective for the Company on January 1, 2019.
|
Note 2.
|
Investment securities available for sale
|
The amortized cost and estimated fair value
of investment securities available for sale as of December 31, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
34,286
|
|
|
$
|
-
|
|
|
$
|
(573
|
)
|
|
$
|
33,713
|
|
Mortgage-backed securities
|
|
|
3,043
|
|
|
|
1
|
|
|
|
(43
|
)
|
|
|
3,001
|
|
Municipals
|
|
|
1,255
|
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,584
|
|
|
$
|
1
|
|
|
$
|
(666
|
)
|
|
$
|
37,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
34,219
|
|
|
$
|
-
|
|
|
$
|
(872
|
)
|
|
$
|
33,347
|
|
Mortgage-backed securities
|
|
|
484
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
484
|
|
Municipals
|
|
|
5,815
|
|
|
|
2
|
|
|
|
(106
|
)
|
|
|
5,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,518
|
|
|
$
|
4
|
|
|
$
|
(980
|
)
|
|
$
|
39,542
|
|
Investment securities with book values of approximately $5,968,000
and $17,567,000 at December 31, 2015 and 2014, respectively, were pledged to secure deposit repurchase agreements.
Gross realized gains and losses pertaining
to available for sale securities are detailed as follows for the years ending December 31, 2015, 2014 and 2013 (in thousands):
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
$
|
13
|
|
|
$
|
218
|
|
|
$
|
217
|
|
Gross realized losses
|
|
|
(7
|
)
|
|
|
(428
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
(210
|
)
|
|
$
|
217
|
|
The Company sold approximately $8 million
and $22 million of investment securities available for sale at a gain of $6,000 and loss of $210,000 in 2015 and 2014
respectively. The sale of these securities, which had fixed interest rates, allowed the Company to decrease its exposure to
the anticipated upward movement in interest rates that would result in unrealized losses being recognized in
shareholders’ equity. In 2014, approximately $15 million of the proceeds from the sale of these securities were used to
purchase rehabilitated student loans that have variable interest rates that will increase as interest rates in general
increase.
Investment securities available for sale that
have an unrealized loss position at December 31, 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
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government Agencies
|
|
$
|
18,598
|
|
|
$
|
(329
|
)
|
|
$
|
15,115
|
|
|
$
|
(244
|
)
|
|
$
|
33,713
|
|
|
$
|
(573
|
)
|
Municipals
|
|
|
707
|
|
|
|
(14
|
)
|
|
|
497
|
|
|
|
(36
|
)
|
|
|
1,204
|
|
|
|
(50
|
)
|
Mortgage-backed securities
|
|
|
2,899
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,899
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,204
|
|
|
$
|
(386
|
)
|
|
$
|
15,612
|
|
|
$
|
(280
|
)
|
|
$
|
37,816
|
|
|
$
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
All of the unrealized losses are attributable
to increases in interest rates and not to credit deterioration. Currently, the Company believes that it is probable that the Company
will be able to collect all amounts due according to the contractual terms of the investments. Because the decline in market value
is attributable to changes in interest rates and not to credit quality, and because it is not more likely than not that the Company
will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does
not consider these investments to be other than temporarily impaired at December 31, 2015.
The amortized cost and estimated fair value
of investment securities available for sale as of December 31, 2015, by contractual maturity, are as follows (in thousands):
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
One to five years
|
|
$
|
13,111
|
|
|
$
|
12,926
|
|
Five to ten years
|
|
|
19,697
|
|
|
|
19,294
|
|
More than ten years
|
|
|
5,776
|
|
|
|
5,699
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,584
|
|
|
$
|
37,919
|
|
Loans classified by type as of December 31,
2015 and 2014 are as follows (in thousands):
|
|
2015
|
|
|
2014
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,202
|
|
|
$
|
4,315
|
|
Commercial
|
|
|
25,948
|
|
|
|
25,152
|
|
|
|
|
31,150
|
|
|
|
29,467
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
69,256
|
|
|
|
58,804
|
|
Non-owner occupied
|
|
|
38,037
|
|
|
|
38,892
|
|
Multifamily
|
|
|
8,537
|
|
|
|
11,438
|
|
Farmland
|
|
|
388
|
|
|
|
434
|
|
|
|
|
116,218
|
|
|
|
109,568
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
20,333
|
|
|
|
20,082
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
56,776
|
|
|
|
61,837
|
|
Second deed of trust
|
|
|
6,485
|
|
|
|
7,854
|
|
|
|
|
83,594
|
|
|
|
89,773
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
20,086
|
|
|
|
22,165
|
|
Guaranteed student loans
|
|
|
53,989
|
|
|
|
33,562
|
|
Consumer and other
|
|
|
1,734
|
|
|
|
1,611
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
306,771
|
|
|
|
286,146
|
|
Deferred loan cost, net
|
|
|
670
|
|
|
|
722
|
|
Less: allowance for loan losses
|
|
|
(3,562
|
)
|
|
|
(5,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
303,879
|
|
|
$
|
281,139
|
|
The Bank purchased two portfolios of rehabilitated
student loans guaranteed by the Department of Education (“DOE”) totaling approximately $15 million on June 10, 2015
and approximately $9 million on October 23, 2015. The Bank had previously purchased two portfolios of approximately $19 million
on July 29, 2014 and approximately $14 million on December 30, 2014. The guarantee covers approximately 98% of principal and accrued
interest. The loans are serviced by a third-party servicer that specializes in handling the special needs of the DOE student loan
programs.
Loans pledged as collateral with the Federal
Home Loan Bank of Atlanta (“FHLB”) as part of their lending arrangements with the Company totaled $7,891,000 at December
31, 2015. The Company had not pledged any loans at December 31, 2014.
The following is a summary of loans directly
or indirectly with executive officers or directors of the Company for the years ended December 31, 2015 and 2014 (in thousands):
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
8,258
|
|
|
$
|
7,929
|
|
Additions
|
|
|
5,504
|
|
|
|
4,888
|
|
Reductions
|
|
|
(5,689
|
)
|
|
|
(4,559
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
8,073
|
|
|
$
|
8,258
|
|
Executive officers and directors also had unused
credit lines totaling $1,375,000 and $1,670,000 at December 31, 2015 and 2014, respectively. All loans and credit lines to executive
officers and directors were made in the ordinary course of business at the Company’s normal credit terms, including interest
rate and collateralization prevailing at the time for comparable transactions with other persons.
Loans are considered past due if the required
principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status
when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when
required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered
past due as long as the remaining recorded investment in the loan is deemed fully collectible. When interest accrual is discontinued,
all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received
in excess of principal due. Loans are returned to accrual status when all principal and interest amounts contractually due are
brought to current and future payments are reasonably assured.
Year-end nonaccrual loans segregated by type
as of December 31, 2015 and 2014 were as follows (in thousands):
|
|
2015
|
|
|
2014
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
164
|
|
Commercial
|
|
|
52
|
|
|
|
217
|
|
|
|
|
52
|
|
|
|
381
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,078
|
|
|
|
2,316
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
21
|
|
|
|
|
1,078
|
|
|
|
2,337
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
154
|
|
|
|
800
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,498
|
|
|
|
2,416
|
|
Second deed of trust
|
|
|
421
|
|
|
|
702
|
|
|
|
|
2,073
|
|
|
|
3,918
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
508
|
|
|
|
819
|
|
Consumer and other
|
|
|
7
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
3,718
|
|
|
$
|
7,478
|
|
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.
|
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
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,202
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
Commercial
|
|
|
24,053
|
|
|
|
572
|
|
|
|
1,323
|
|
|
|
|
|
|
|
25,948
|
|
|
|
|
29,255
|
|
|
|
572
|
|
|
|
1,323
|
|
|
|
-
|
|
|
|
31,150
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
64,261
|
|
|
|
2,850
|
|
|
|
2,145
|
|
|
|
-
|
|
|
|
69,256
|
|
Non-owner occupied
|
|
|
35,887
|
|
|
|
2,055
|
|
|
|
95
|
|
|
|
-
|
|
|
|
38,037
|
|
Multifamily
|
|
|
8,337
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,537
|
|
Farmland
|
|
|
388
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
|
|
|
108,873
|
|
|
|
5,105
|
|
|
|
2,240
|
|
|
|
-
|
|
|
|
116,218
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
18,539
|
|
|
|
435
|
|
|
|
1,359
|
|
|
|
-
|
|
|
|
20,333
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
51,200
|
|
|
|
2,710
|
|
|
|
2,866
|
|
|
|
-
|
|
|
|
56,776
|
|
Second deed of trust
|
|
|
5,751
|
|
|
|
128
|
|
|
|
606
|
|
|
|
-
|
|
|
|
6,485
|
|
|
|
|
75,490
|
|
|
|
3,273
|
|
|
|
4,831
|
|
|
|
-
|
|
|
|
83,594
|
|
Commercial and industrial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(except those secured by real estate)
|
|
|
18,873
|
|
|
|
373
|
|
|
|
840
|
|
|
|
|
|
|
|
20,086
|
|
Guaranteed Student loans
|
|
|
53,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,989
|
|
Consumer and other
|
|
|
1,649
|
|
|
|
62
|
|
|
|
23
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
288,129
|
|
|
$
|
9,385
|
|
|
$
|
9,257
|
|
|
$
|
-
|
|
|
$
|
306,771
|
|
|
|
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 tables present the aging of the recorded investment
in past due loans 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
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
|
$
|
5,202
|
|
|
$
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,948
|
|
|
|
25,948
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,150
|
|
|
|
31,150
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
327
|
|
|
|
-
|
|
|
|
-
|
|
|
|
327
|
|
|
|
68,929
|
|
|
|
69,256
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
|
|
110
|
|
|
|
37,927
|
|
|
|
38,037
|
|
|
|
-
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,537
|
|
|
|
8,537
|
|
|
|
-
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388
|
|
|
|
388
|
|
|
|
-
|
|
|
|
|
327
|
|
|
|
110
|
|
|
|
-
|
|
|
|
437
|
|
|
|
115,781
|
|
|
|
116,218
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,333
|
|
|
|
20,333
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
163
|
|
|
|
292
|
|
|
|
-
|
|
|
|
455
|
|
|
|
56,321
|
|
|
|
56,776
|
|
|
|
-
|
|
Second deed of trust
|
|
|
94
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94
|
|
|
|
6,391
|
|
|
|
6,485
|
|
|
|
-
|
|
|
|
|
257
|
|
|
|
292
|
|
|
|
-
|
|
|
|
549
|
|
|
|
83,045
|
|
|
|
83,594
|
|
|
|
-
|
|
Commercial and industrial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(except those secured by real estate)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,086
|
|
|
|
20,086
|
|
|
|
-
|
|
Guaranteed student loans
|
|
|
7,816
|
|
|
|
1,252
|
|
|
|
8,590
|
|
|
|
17,658
|
|
|
|
36,331
|
|
|
|
53,989
|
|
|
|
8,590
|
|
Consumer and other
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
1,724
|
|
|
|
1,734
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
8,410
|
|
|
$
|
1,654
|
|
|
$
|
8,590
|
|
|
$
|
18,654
|
|
|
$
|
288,117
|
|
|
$
|
306,771
|
|
|
$
|
8,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 DOE 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):
|
|
December 31, 2015
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
123
|
|
|
$
|
190
|
|
|
$
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,066
|
|
|
|
1,066
|
|
|
|
|
|
Non-owner occupied
|
|
|
2,418
|
|
|
|
2,418
|
|
|
|
-
|
|
|
|
|
3,484
|
|
|
|
3,484
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,238
|
|
|
|
1,247
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
3,984
|
|
|
|
3,988
|
|
|
|
-
|
|
Second deed of trust
|
|
|
962
|
|
|
|
1,232
|
|
|
|
-
|
|
|
|
|
6,184
|
|
|
|
6,467
|
|
|
|
-
|
|
Commercial and industrial loans (except those secured by
real estate)
|
|
|
690
|
|
|
|
920
|
|
|
|
-
|
|
|
|
|
10,481
|
|
|
|
11,061
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,699
|
|
|
|
1,699
|
|
|
|
2
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,719
|
|
|
|
5,734
|
|
|
|
383
|
|
Non-Owner occupied
|
|
|
449
|
|
|
|
449
|
|
|
|
26
|
|
|
|
|
6,168
|
|
|
|
6,183
|
|
|
|
409
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,775
|
|
|
|
1,775
|
|
|
|
324
|
|
Second deed of trust
|
|
|
250
|
|
|
|
250
|
|
|
|
98
|
|
|
|
|
2,025
|
|
|
|
2,025
|
|
|
|
422
|
|
Commercial and industrial loans (except those secured by
real estate)
|
|
|
136
|
|
|
|
238
|
|
|
|
18
|
|
|
|
|
10,028
|
|
|
|
10,145
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,822
|
|
|
|
1,889
|
|
|
|
2
|
|
|
|
|
1,822
|
|
|
|
1,889
|
|
|
|
2
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
6,785
|
|
|
|
6,800
|
|
|
|
383
|
|
Non-owner occupied
|
|
|
2,867
|
|
|
|
2,867
|
|
|
|
26
|
|
|
|
|
9,652
|
|
|
|
9,667
|
|
|
|
409
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1,238
|
|
|
|
1,247
|
|
|
|
-
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
5,759
|
|
|
|
5,763
|
|
|
|
324
|
|
Second deed of trust
|
|
|
1,212
|
|
|
|
1,482
|
|
|
|
98
|
|
|
|
|
8,209
|
|
|
|
8,492
|
|
|
|
422
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
826
|
|
|
|
1,158
|
|
|
|
18
|
|
|
|
$
|
20,509
|
|
|
$
|
21,206
|
|
|
$
|
851
|
|
|
|
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
|
|
Non-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 valuation allowance and interest income recognized on those loans for periods indicated
(in thousands):
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
181
|
|
|
$
|
2
|
|
Commercial
|
|
|
1,769
|
|
|
|
95
|
|
|
|
3,642
|
|
|
|
205
|
|
|
|
|
1,830
|
|
|
|
95
|
|
|
|
3,823
|
|
|
|
207
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,349
|
|
|
|
69
|
|
|
|
1,705
|
|
|
|
93
|
|
Non-owner occupied
|
|
|
4,435
|
|
|
|
121
|
|
|
|
6,693
|
|
|
|
320
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
2,347
|
|
|
|
141
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
|
5,784
|
|
|
|
190
|
|
|
|
10,766
|
|
|
|
554
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
890
|
|
|
|
51
|
|
|
|
800
|
|
|
|
27
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
5,374
|
|
|
|
233
|
|
|
|
6,581
|
|
|
|
352
|
|
Second deed of trust
|
|
|
1,121
|
|
|
|
47
|
|
|
|
1,112
|
|
|
|
51
|
|
|
|
|
7,385
|
|
|
|
331
|
|
|
|
8,493
|
|
|
|
430
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
344
|
|
|
|
44
|
|
|
|
274
|
|
|
|
15
|
|
Consumer and other
|
|
|
9
|
|
|
|
1
|
|
|
|
26
|
|
|
|
2
|
|
|
|
|
15,352
|
|
|
|
661
|
|
|
|
23,382
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
844
|
|
|
|
23
|
|
|
|
601
|
|
|
|
33
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
6,088
|
|
|
|
226
|
|
|
|
5,853
|
|
|
|
272
|
|
Non-Owner occupied
|
|
|
369
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
6,457
|
|
|
|
250
|
|
|
|
5,853
|
|
|
|
272
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,434
|
|
|
|
26
|
|
|
|
1,464
|
|
|
|
45
|
|
Second deed of trust
|
|
|
277
|
|
|
|
15
|
|
|
|
263
|
|
|
|
11
|
|
|
|
|
1,733
|
|
|
|
41
|
|
|
|
1,727
|
|
|
|
56
|
|
Commercial and industrial loans (except those secured by
real estate)
|
|
|
317
|
|
|
|
5
|
|
|
|
570
|
|
|
|
33
|
|
|
|
|
9,351
|
|
|
|
319
|
|
|
|
8,751
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
61
|
|
|
|
-
|
|
|
|
181
|
|
|
|
2
|
|
Commercial
|
|
|
2,613
|
|
|
|
118
|
|
|
|
4,243
|
|
|
|
238
|
|
|
|
|
2,674
|
|
|
|
118
|
|
|
|
4,424
|
|
|
|
240
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
7,437
|
|
|
|
295
|
|
|
|
7,558
|
|
|
|
365
|
|
Non-owner occupied
|
|
|
4,804
|
|
|
|
145
|
|
|
|
6,693
|
|
|
|
320
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
2,347
|
|
|
|
141
|
|
Farmland
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
|
12,241
|
|
|
|
440
|
|
|
|
16,619
|
|
|
|
826
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
912
|
|
|
|
51
|
|
|
|
800
|
|
|
|
27
|
|
Secured by 1-4 family residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
6,808
|
|
|
|
259
|
|
|
|
8,045
|
|
|
|
397
|
|
Second deed of trust
|
|
|
1,398
|
|
|
|
62
|
|
|
|
1,375
|
|
|
|
62
|
|
|
|
|
9,118
|
|
|
|
372
|
|
|
|
10,220
|
|
|
|
486
|
|
Commercial and industrial loans (except those secured by
real estate)
|
|
|
661
|
|
|
|
49
|
|
|
|
844
|
|
|
|
48
|
|
Consumer and other
|
|
|
9
|
|
|
|
1
|
|
|
|
26
|
|
|
|
2
|
|
|
|
$
|
24,703
|
|
|
$
|
980
|
|
|
$
|
32,133
|
|
|
$
|
1,602
|
|
As of December 31, 2015, 2014 and 2013, the
Company had impaired loans of $3,718,000, $7,478,000 and $18,647,000, respectively, which were on nonaccrual status. These loans
had valuation allowances of $370,000, $1,087,000 and $1,189,000 as of December 31, 2015, 2014 and 2013, respectively. Cumulative
interest income that would have been recorded had nonaccrual loans been performing would have been $146,000, $224,000 and $1,093,000
for 2015, 2014 and 2013, respectively.
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 borrowers financial difficulties that it would
not otherwise consider. For loans classified as impaired TDRs, the Company further evaluates the loans as performing or nonaccrual.
To restore a nonaccrual loan that has been formally restructured in a TDR to accrual status, we perform a current, well documented
credit analysis supporting a return to accrual status based on the borrower’s financial condition and prospects for repayment
under the revised terms. Otherwise, the TDR must remain in nonaccrual status. The analysis considers the borrower’s sustained
historical repayment performance for a reasonable period to the return-to-accrual date, but may take into account payments made
for a reasonable period prior to the restructuring if the payments are consistent with the modified terms. A sustained period of
repayment performance generally would be a minimum of six months and would involve payments in the form of cash or cash equivalents.
An accruing loan that is modified in a TDR
can remain in accrual status if, based on a current well-documented credit analysis, collection of principal and interest in accordance
with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for
a reasonable period before modification. The following is a summary of performing and nonaccrual TDRs and the related specific
valuation allowance by portfolio segment as of December 31, 2015 (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
Specific
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
|
|
Total
|
|
|
Performing
|
|
|
Nonaccrual
|
|
|
Allowance
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
|
|
|
1,699
|
|
|
|
1,699
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
1,699
|
|
|
|
1,699
|
|
|
|
-
|
|
|
|
2
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
5,730
|
|
|
|
5,458
|
|
|
|
272
|
|
|
|
184
|
|
Non-owner occupied
|
|
|
2,866
|
|
|
|
2,866
|
|
|
|
-
|
|
|
|
26
|
|
Multifamily
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
8,596
|
|
|
|
8,324
|
|
|
|
272
|
|
|
|
210
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deeds of trust
|
|
|
4,283
|
|
|
|
3,544
|
|
|
|
739
|
|
|
|
236
|
|
Second deeds of trust
|
|
|
693
|
|
|
|
693
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
5,063
|
|
|
|
4,237
|
|
|
|
826
|
|
|
|
237
|
|
Commercial and industrial loans (except those secured by
real estate)
|
|
|
127
|
|
|
|
-
|
|
|
|
127
|
|
|
|
18
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
15,485
|
|
|
$
|
14,260
|
|
|
$
|
1,225
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
66
|
|
|
|
51
|
|
|
|
15
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
14,064
|
|
|
|
1,168
|
|
|
|
325
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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).
|
|
December 31, 2015
|
|
|
December 31, 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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
729
|
|
|
|
729
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
729
|
|
|
|
729
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
1
|
|
|
|
87
|
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
727
|
|
|
|
727
|
|
Second deed of trust
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
104
|
|
|
|
104
|
|
|
|
|
1
|
|
|
|
87
|
|
|
|
87
|
|
|
|
4
|
|
|
|
831
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
$
|
87
|
|
|
$
|
87
|
|
|
|
12
|
|
|
$
|
1,605
|
|
|
$
|
1,605
|
|
The following table provides information about
defaults on TDRs for the indicated periods (dollars in thousands).
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
7
|
|
Commercial
|
|
|
-
|
|
|
|
|
|
|
|
5
|
|
|
|
144
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
151
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1
|
|
|
|
156
|
|
|
|
1
|
|
|
|
160
|
|
|
|
|
1
|
|
|
|
156
|
|
|
|
1
|
|
|
|
160
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
11
|
|
|
|
889
|
|
|
|
14
|
|
|
|
1,037
|
|
Second deed of trust
|
|
|
2
|
|
|
|
94
|
|
|
|
2
|
|
|
|
104
|
|
|
|
|
13
|
|
|
|
983
|
|
|
|
16
|
|
|
|
1,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (except those secured by
real estate)
|
|
|
1
|
|
|
|
127
|
|
|
|
2
|
|
|
|
240
|
|
|
|
|
15
|
|
|
$
|
1,266
|
|
|
|
25
|
|
|
$
|
1,692
|
|
|
Note 4.
|
Allowance for loan losses
|
Activity in the allowance for loan losses was
as follows for the periods indicated (in thousands):
|
|
Beginning
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
34
|
|
|
$
|
(6
|
)
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
30
|
|
Commercial
|
|
|
202
|
|
|
|
292
|
|
|
|
(252
|
)
|
|
|
49
|
|
|
|
291
|
|
|
|
|
236
|
|
|
|
286
|
|
|
|
(252
|
)
|
|
|
51
|
|
|
|
321
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,837
|
|
|
|
(576
|
)
|
|
|
(127
|
)
|
|
|
33
|
|
|
|
1,167
|
|
Non-owner occupied
|
|
|
607
|
|
|
|
(151
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
460
|
|
Multifamily
|
|
|
77
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
Farmland
|
|
|
130
|
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
|
2,651
|
|
|
|
(866
|
)
|
|
|
(127
|
)
|
|
|
37
|
|
|
|
1,695
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
469
|
|
|
|
36
|
|
|
|
(62
|
)
|
|
|
5
|
|
|
|
448
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,345
|
|
|
|
(1,020
|
)
|
|
|
(103
|
)
|
|
|
380
|
|
|
|
602
|
|
Second deed of trust
|
|
|
275
|
|
|
|
(159
|
)
|
|
|
(55
|
)
|
|
|
50
|
|
|
|
111
|
|
|
|
|
2,089
|
|
|
|
(1,143
|
)
|
|
|
(220
|
)
|
|
|
435
|
|
|
|
1,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
506
|
|
|
|
(350
|
)
|
|
|
(162
|
)
|
|
|
100
|
|
|
|
94
|
|
Student loans
|
|
|
217
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
Consumer and other
|
|
|
30
|
|
|
|
60
|
|
|
|
(55
|
)
|
|
|
26
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,729
|
|
|
$
|
(2,000
|
)
|
|
$
|
(816
|
)
|
|
$
|
649
|
|
|
$
|
3,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,200
|
|
|
|
1,268
|
|
|
|
(631
|
)
|
|
|
-
|
|
|
|
1,837
|
|
Non-owner occupied
|
|
|
670
|
|
|
|
430
|
|
|
|
(518
|
)
|
|
|
25
|
|
|
|
607
|
|
Multifamily
|
|
|
19
|
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77
|
|
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
|
|
|
|
Beginning
|
|
|
Provision for
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Loan Losses
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
495
|
|
|
$
|
(462
|
)
|
|
$
|
-
|
|
|
$
|
102
|
|
|
$
|
135
|
|
Commercial
|
|
|
4,611
|
|
|
|
(3,482
|
)
|
|
|
(279
|
)
|
|
|
424
|
|
|
|
1,274
|
|
|
|
|
5,106
|
|
|
|
(3,944
|
)
|
|
|
(279
|
)
|
|
|
526
|
|
|
|
1,409
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,359
|
|
|
|
252
|
|
|
|
(454
|
)
|
|
|
43
|
|
|
|
1,200
|
|
Non-owner occupied
|
|
|
817
|
|
|
|
452
|
|
|
|
(619
|
)
|
|
|
20
|
|
|
|
670
|
|
Multifamily
|
|
|
23
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
Farmland
|
|
|
-
|
|
|
|
1,233
|
|
|
|
(896
|
)
|
|
|
-
|
|
|
|
337
|
|
|
|
|
2,199
|
|
|
|
1,933
|
|
|
|
(1,969
|
)
|
|
|
63
|
|
|
|
2,226
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
658
|
|
|
|
23
|
|
|
|
(266
|
)
|
|
|
9
|
|
|
|
424
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,358
|
|
|
|
2,493
|
|
|
|
(1,953
|
)
|
|
|
94
|
|
|
|
1,992
|
|
Second deed of trust
|
|
|
224
|
|
|
|
498
|
|
|
|
(367
|
)
|
|
|
39
|
|
|
|
394
|
|
|
|
|
2,240
|
|
|
|
3,014
|
|
|
|
(2,586
|
)
|
|
|
142
|
|
|
|
2,810
|
|
Commercial and industrial loans (except those secured by real estate)
|
|
|
1,162
|
|
|
|
145
|
|
|
|
(760
|
)
|
|
|
177
|
|
|
|
724
|
|
Consumer and other
|
|
|
101
|
|
|
|
25
|
|
|
|
(65
|
)
|
|
|
9
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,808
|
|
|
$
|
1,173
|
|
|
$
|
(5,659
|
)
|
|
$
|
917
|
|
|
$
|
7,239
|
|
Overall the recovery of loan losses recorded
for the year ended December 31, 2015 was due primarily to credit quality improvements and an enhanced model for evaluating inherent
losses in the Bank’s loan portfolio. Improvements in credit quality are provided in the following schedule:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Classified assets
|
|
$
|
15,375
|
|
|
$
|
30,684
|
|
|
$
|
61,690
|
|
Nonaccrual loans
|
|
|
3,718
|
|
|
|
7,478
|
|
|
|
18,647
|
|
Foreclosed real estate
|
|
|
6,249
|
|
|
|
12,638
|
|
|
|
16,742
|
|
During the fourth quarter of 2015, we adopted
a software solution for the analysis of the allowance for loan losses. While our methodology of evaluating the adequacy of the
allowance for loan losses generally did not change, the software is more robust in that it:
|
·
|
allows us to take a more measureable approach
to our evaluation of qualitative factors such as economic conditions that may affect loss experience; and
|
|
·
|
is widely used by community banks which
provides peer data that can be used as a benchmark for comparison to our analysis.
|
In addition
to the adoption of the software solution for our analysis, we reviewed the last twenty years of historical loss data for peer banks
in Virginia to assist us in our evaluation of environmental factors and other conditions that could affect the loan portfolio and
the overall adequacy of the allowance for loan losses.
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 acceptable given the continued higher level
of classified assets and was within a reasonable range around the estimate of losses. At December 31, 2015 the allowance for loan
losses included an unallocated portion of approximately $59,000.
Discussion of the recovery of loan losses related to specific loan
types are provided following:
|
·
|
The recovery of loan losses totaling $1,119,000
and $3,944,000 for the construction and land development loan portfolio during the years 2014 and 2013, respectively, was attributable
to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio. In both
years the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience
from 7.81% at December 31, 2012 to 4.82% at December 31, 2013 and to a net recovery of 0.27% at December 31, 2014. Also contributing
to the declines in the general component were declines of approximately $1,643,000 and $12,945,000 in the outstanding loan balance
of this portfolio at December 31, 2014 and 2013, respectively.
|
|
·
|
The recovery of loan losses totaling $866,000
for the commercial real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of
the allowance for loan losses as it related to this portfolio. The general component allocated to this portfolio declined primarily
as a result of declines in the historical loss experience from 0.96% in 2014 to 0.57% in 2015. In addition, net charge-offs on
this portfolio decreased from $1,220,000 in 2014 to $90,000 in 2015. Also contributing to the declines in the general component
were declines of approximately $6,179,000 and $7,021,000 in the outstanding loan balance of this portfolio at December 31, 2015
and 2014, respectively.
|
|
·
|
The recovery of loan losses totaling $1,143,000
for the consumer real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of the
allowance for loan losses as it related to this portfolio. The general component allocated to this portfolio declined primarily
as a result of declines in the historical loss experience from 1.36% in 2014 to 0.24% in 2015. In addition, net charge-offs on
this portfolio decreased from $562,000 in 2014 to a recovery of $215,000 in 2015.
|
Loans were evaluated for impairment as follows
for the periods indicated (in thousands):
|
|
Recorded Investment in Loans
|
|
|
|
Allowance
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans aquired
|
|
|
|
|
|
|
|
|
|
|
|
Loans aquired
|
|
|
|
Ending
|
|
|
|
|
|
|
|
|
with deteriorated
|
|
|
Ending
|
|
|
|
|
|
|
|
|
with deteriorated
|
|
|
|
Balance
|
|
|
Individually
|
|
|
Collectively
|
|
|
credit quaility
|
|
|
Balance
|
|
|
Individually
|
|
|
Collectively
|
|
|
credit quaility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
30
|
|
|
$
|
-
|
|
|
$
|
30
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
|
$
|
-
|
|
|
$
|
5,202
|
|
|
$
|
-
|
|
Commercial
|
|
|
291
|
|
|
|
2
|
|
|
|
289
|
|
|
|
-
|
|
|
|
25,948
|
|
|
|
1,822
|
|
|
|
24,126
|
|
|
|
-
|
|
|
|
|
321
|
|
|
|
2
|
|
|
|
319
|
|
|
|
-
|
|
|
|
31,150
|
|
|
|
1,822
|
|
|
|
29,328
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,167
|
|
|
|
383
|
|
|
|
784
|
|
|
|
-
|
|
|
|
69,256
|
|
|
|
6,785
|
|
|
|
62,471
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
460
|
|
|
|
26
|
|
|
|
434
|
|
|
|
-
|
|
|
|
38,037
|
|
|
|
2,867
|
|
|
|
35,170
|
|
|
|
-
|
|
Multifamily
|
|
|
51
|
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
|
|
8,537
|
|
|
|
-
|
|
|
|
8,537
|
|
|
|
-
|
|
Farmland
|
|
|
17
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
388
|
|
|
|
-
|
|
|
|
388
|
|
|
|
-
|
|
|
|
|
1,695
|
|
|
|
409
|
|
|
|
1,286
|
|
|
|
-
|
|
|
|
116,218
|
|
|
|
9,652
|
|
|
|
106,566
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
448
|
|
|
|
-
|
|
|
|
448
|
|
|
|
-
|
|
|
|
20,333
|
|
|
|
1,238
|
|
|
|
19,095
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
602
|
|
|
|
324
|
|
|
|
278
|
|
|
|
-
|
|
|
|
56,776
|
|
|
|
5,759
|
|
|
|
51,017
|
|
|
|
-
|
|
Second deed of trust
|
|
|
111
|
|
|
|
98
|
|
|
|
13
|
|
|
|
-
|
|
|
|
6,485
|
|
|
|
1,212
|
|
|
|
5,273
|
|
|
|
-
|
|
|
|
|
1,161
|
|
|
|
422
|
|
|
|
739
|
|
|
|
-
|
|
|
|
83,594
|
|
|
|
8,209
|
|
|
|
75,385
|
|
|
|
-
|
|
Commercial and industrial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(except those secured by real estate)
|
|
|
94
|
|
|
|
18
|
|
|
|
76
|
|
|
|
-
|
|
|
|
20,086
|
|
|
|
826
|
|
|
|
19,260
|
|
|
|
-
|
|
Student loans
|
|
|
230
|
|
|
|
-
|
|
|
|
230
|
|
|
|
|
|
|
|
53,989
|
|
|
|
-
|
|
|
|
53,989
|
|
|
|
-
|
|
Consumer and other
|
|
|
61
|
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,562
|
|
|
$
|
851
|
|
|
$
|
2,711
|
|
|
$
|
-
|
|
|
$
|
306,771
|
|
|
$
|
20,509
|
|
|
$
|
286,262
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,837
|
|
|
|
905
|
|
|
|
932
|
|
|
|
-
|
|
|
|
58,804
|
|
|
|
8,311
|
|
|
|
50,493
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
607
|
|
|
|
-
|
|
|
|
607
|
|
|
|
-
|
|
|
|
38,892
|
|
|
|
6,593
|
|
|
|
32,299
|
|
|
|
-
|
|
Multifamily
|
|
|
77
|
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
|
|
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
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
135
|
|
|
$
|
-
|
|
|
$
|
2,931
|
|
|
$
|
216
|
|
|
$
|
2,715
|
|
|
$
|
-
|
|
Commercial
|
|
|
1,274
|
|
|
|
227
|
|
|
|
1,047
|
|
|
|
-
|
|
|
|
28,179
|
|
|
|
5,205
|
|
|
|
22,974
|
|
|
|
-
|
|
|
|
|
1,409
|
|
|
|
227
|
|
|
|
1,182
|
|
|
|
-
|
|
|
|
31,110
|
|
|
|
5,421
|
|
|
|
25,689
|
|
|
|
-
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,200
|
|
|
|
673
|
|
|
|
527
|
|
|
|
-
|
|
|
|
73,584
|
|
|
|
11,713
|
|
|
|
61,871
|
|
|
|
-
|
|
Non-owner occupied
|
|
|
670
|
|
|
|
371
|
|
|
|
299
|
|
|
|
-
|
|
|
|
43,868
|
|
|
|
13,066
|
|
|
|
30,802
|
|
|
|
-
|
|
Multifamily
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
11,560
|
|
|
|
2,373
|
|
|
|
9,187
|
|
|
|
-
|
|
Farmland
|
|
|
337
|
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
|
|
1,463
|
|
|
|
117
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
|
2,226
|
|
|
|
1,044
|
|
|
|
1,182
|
|
|
|
-
|
|
|
|
130,475
|
|
|
|
27,269
|
|
|
|
103,206
|
|
|
|
-
|
|
Consumer real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines
|
|
|
424
|
|
|
|
-
|
|
|
|
424
|
|
|
|
-
|
|
|
|
21,246
|
|
|
|
1,630
|
|
|
|
19,616
|
|
|
|
-
|
|
Secured by 1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First deed of trust
|
|
|
1,992
|
|
|
|
484
|
|
|
|
1,508
|
|
|
|
-
|
|
|
|
66,873
|
|
|
|
10,361
|
|
|
|
56,512
|
|
|
|
-
|
|
Second deed of trust
|
|
|
394
|
|
|
|
32
|
|
|
|
362
|
|
|
|
-
|
|
|
|
8,675
|
|
|
|
1,257
|
|
|
|
7,418
|
|
|
|
-
|
|
|
|
|
2,810
|
|
|
|
516
|
|
|
|
2,294
|
|
|
|
-
|
|
|
|
96,794
|
|
|
|
13,248
|
|
|
|
83,546
|
|
|
|
-
|
|
Commercial and industrial loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(except those secured by real estate)
|
|
|
724
|
|
|
|
43
|
|
|
|
681
|
|
|
|
-
|
|
|
|
26,254
|
|
|
|
5,513
|
|
|
|
20,741
|
|
|
|
-
|
|
Consumer and other
|
|
|
70
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
1,930
|
|
|
|
32
|
|
|
|
1,898
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,239
|
|
|
$
|
1,830
|
|
|
$
|
5,409
|
|
|
$
|
-
|
|
|
$
|
286,563
|
|
|
$
|
51,483
|
|
|
$
|
235,080
|
|
|
$
|
-
|
|
|
Note 5.
|
Premises and equipment
|
The following is a summary of premises and
equipment as of December 31, 2015 and 2014 (in thousands):
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,858
|
|
|
$
|
4,930
|
|
Buildings and improvements
|
|
|
9,216
|
|
|
|
9,311
|
|
Furniture, fixtures and equipment
|
|
|
7,437
|
|
|
|
7,395
|
|
Total premises and equipment
|
|
|
21,511
|
|
|
|
21,636
|
|
Less: Accumulated depreciation and amortization
|
|
|
(7,840
|
)
|
|
|
(7,335
|
)
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
$
|
13,671
|
|
|
$
|
14,301
|
|
Depreciation and amortization of premises and
equipment for 2015, 2014 and 2013 amounted to $843,000, $681,000 and $1,311,000, respectively.
|
Note 6.
|
Investment in bank owned life insurance
|
The Bank is owner and designated beneficiary
on life insurance policies in the aggregate face amount of $14,254,000 covering certain of its directors and executive officers.
The earnings from these policies are used to offset expenses related to retirement plans. The cash surrender value of these policies
at December 31, 2015 and 2014 was approximately $7,130,000 and $6,947,000, respectively.
Deposits as of December 31, 2015 and 2014 were
as follows (in thousands):
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
78,282
|
|
|
$
|
77,496
|
|
Interest checking accounts
|
|
|
44,256
|
|
|
|
42,924
|
|
Money market accounts
|
|
|
64,841
|
|
|
|
64,987
|
|
Savings accounts
|
|
|
19,403
|
|
|
|
20,643
|
|
Time deposits of $250,000 and over
|
|
|
9,717
|
|
|
|
9,965
|
|
Other time deposits
|
|
|
148,349
|
|
|
|
162,845
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
364,848
|
|
|
$
|
378,860
|
|
The following are the scheduled maturities
of time deposits as of December 31, 2015 (in thousands):
|
|
|
|
|
Greater than
|
|
|
|
|
Year Ending
|
|
Less Than
|
|
|
or Equal to
|
|
|
|
|
December 31,
|
|
$250,000
|
|
|
$250,000
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
82,213
|
|
|
$
|
5,450
|
|
|
$
|
87,663
|
|
2017
|
|
|
26,551
|
|
|
|
1,146
|
|
|
|
27,697
|
|
2018
|
|
|
18,315
|
|
|
|
2,267
|
|
|
|
20,582
|
|
2019
|
|
|
4,816
|
|
|
|
-
|
|
|
|
4,816
|
|
2020
|
|
|
16,454
|
|
|
|
854
|
|
|
|
17,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,349
|
|
|
$
|
9,717
|
|
|
$
|
158,066
|
|
Deposits held at the Company by related parties,
which include officers, directors, greater than 5% shareholders and companies in which directors of the board have a significant
ownership interest, approximated $6,240,000 and $7,305,000 at December 31, 2015 and 2014, respectively.
The Company uses both short-term and long-term
borrowings to supplement deposits when they are available at a lower overall cost to the Company or they can be invested at a positive
rate of return.
As a member of the Federal Home Loan Bank of
Atlanta, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances from the FHLB. The Company
held $685,000 in FHLB stock at December 31, 2015 and $1,073,000 at December 31, 2014 which is held at cost and included in other
assets. 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.
The FHLB borrowings are secured by the pledge of U.S. Government agency securities, FHLB stock and qualified single family first
mortgage loans. The Company had FHLB advances of approximately $6,000,000 at December 31, 2015 maturing through 2018. At December
31, 2014 approximately $14,000,000 of advances was outstanding.
As of December 31, 2015, the Company had advances
from the FHLB that consisted of the following (in thousands):
|
|
Maturity
|
|
Interest
|
|
|
Advance
|
|
Type
|
|
Date
|
|
Rate
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Credit
|
|
02/25/2016
|
|
|
2.65
|
%
|
|
$
|
1,000
|
|
Fixed Rate Credit
|
|
04/11/2016
|
|
|
2.71
|
%
|
|
|
1,000
|
|
Fixed Rate Credit
|
|
06/01/2016
|
|
|
0.56
|
%
|
|
|
800
|
|
Fixed Rate Credit
|
|
12/01/2016
|
|
|
0.81
|
%
|
|
|
800
|
|
Fixed Rate Credit
|
|
06/01/2017
|
|
|
1.06
|
%
|
|
|
800
|
|
Fixed Rate Credit
|
|
12/01/2017
|
|
|
1.27
|
%
|
|
|
800
|
|
Fixed Rate Credit
|
|
06/01/2018
|
|
|
1.48
|
%
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,000
|
|
The Company uses federal funds purchased and
repurchase agreements for short-term borrowing needs. Securities sold under agreements to repurchase are classified as borrowings
and generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected
at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral
based on the fair value of the underlying securities. The carrying value of these repurchase agreements was $508,000 and $3,302,000
at December 31, 2015 and 2014, respectively.
Information related to borrowings as of December
31, 2015 and 2014 is as follows (dollars in thousands):
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Maximum outstanding during the year
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
$
|
14,000
|
|
|
$
|
18,000
|
|
Balance outstanding at end of year
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
6,000
|
|
|
|
14,000
|
|
Average amount outstanding during the year
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
9,027
|
|
|
|
15,468
|
|
Average interest rate during the year
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
1.88
|
%
|
|
|
2.16
|
%
|
Average interest rate at end of year
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
1.58
|
%
|
|
|
2.07
|
%
|
The following summarizes the tax effects of
temporary differences which comprise net deferred tax assets and liabilities at December 31, 2015 and 2014 (in thousands):
|
|
2015
|
|
|
2014
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
8,475
|
|
|
$
|
8,017
|
|
Capital loss carryforward
|
|
|
69
|
|
|
|
-
|
|
State net operating loss carryfoward
|
|
|
11
|
|
|
|
-
|
|
Allowance for loan losses
|
|
|
1,211
|
|
|
|
1,948
|
|
Unrealized loss on available-for-sale securities
|
|
|
226
|
|
|
|
332
|
|
Interest on nonaccrual loans
|
|
|
50
|
|
|
|
76
|
|
Expenses and writedowns related to foreclosed property
|
|
|
991
|
|
|
|
1,095
|
|
Merger stock options replacement
|
|
|
-
|
|
|
|
90
|
|
Stock compensation
|
|
|
140
|
|
|
|
45
|
|
Employee benefits
|
|
|
1,015
|
|
|
|
954
|
|
Pension expense
|
|
|
35
|
|
|
|
40
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
Other, net
|
|
|
38
|
|
|
|
32
|
|
Goodwill
|
|
|
39
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
12,300
|
|
|
|
12,684
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
43
|
|
|
|
11
|
|
Amortization of intangibles
|
|
|
34
|
|
|
|
67
|
|
Total deferred tax liabilities
|
|
|
77
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset prior to valuation allowance
|
|
|
12,223
|
|
|
|
12,606
|
|
|
|
|
|
|
|
|
|
|
Less Unrealized gain/(loss) on available-for-sale securities
|
|
|
(226
|
)
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset subject to valuation allowance
|
|
|
11,997
|
|
|
|
12,274
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
11,997
|
|
|
|
12,274
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
226
|
|
|
$
|
332
|
|
The net deferred tax asset is included in other
assets on the consolidated 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 for all of the net deferred tax asset that is dependent on future earnings of the Company of approximately
$12,274,000. At December 31, 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 December 31,
2015 of $11,997,000. The net operating losses available to offset future taxable income amounted to $23,563,000 at December 31,
2015 and begin expiring in 2028; $1,257,000 of such amount is subject to a limitation by Section 382 of the Internal Revenue Code
of 1986, as amended, to $908,000 per year.
The income tax expense (benefit) charged to
operations for the years ended December 31, 2015, 2014 and 2013 consists of the following (in thousands):
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
67
|
|
|
$
|
71
|
|
Deferred tax expense (benefit)
|
|
|
277
|
|
|
|
(401
|
)
|
|
|
(1,852
|
)
|
Valuation allowance
|
|
|
(277
|
)
|
|
|
334
|
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income taxes computed at
the federal statutory income tax rate to total income taxes is as follows for the years ended December 31, 2015, 2014 and 2013
(in thousands):
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
$
|
646
|
|
|
$
|
(1,037
|
)
|
|
$
|
(4,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed "expected" tax benefit
|
|
$
|
220
|
|
|
$
|
(352
|
)
|
|
$
|
(1,362
|
)
|
Valuation allowance change
|
|
|
(277
|
)
|
|
|
334
|
|
|
|
1,781
|
|
State taxes, net of fed
|
|
|
-
|
|
|
|
44
|
|
|
|
46
|
|
Cash surrender value of life insurance
|
|
|
(62
|
)
|
|
|
(62
|
)
|
|
|
(64
|
)
|
Other
|
|
|
119
|
|
|
|
36
|
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 years ended December 31,
2015, 2014 and 2013.
The Company is currently under an IRS examination
of its federal tax return for the year ended December 31, 2013. The outcome of this audit is currently unknown, but we do not believe
it will have a material impact on the Company’s financial condition or results of operations.
|
Note 10.
|
Earnings (loss) per share
|
The following table presents the basic and
diluted earnings per share computations (in thousands except per share data):
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - basic and diluted
|
|
$
|
646
|
|
|
$
|
(1,037
|
)
|
|
$
|
(4,007
|
)
|
Preferred stock dividend and accretion
|
|
|
(674
|
)
|
|
|
1,436
|
|
|
|
886
|
|
Preferred stock principal forgiveness
|
|
|
4,404
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock dividend forgiveness
|
|
|
2,215
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) available to common shareholders
|
|
$
|
6,591
|
|
|
$
|
(2,473
|
)
|
|
$
|
(4,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
1,166
|
|
|
|
334
|
|
|
|
271
|
|
Dilutive effect of common stock options and restricted stock awards
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
1,201
|
|
|
|
334
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic
|
|
$
|
5.65
|
|
|
$
|
(7.39
|
)
|
|
$
|
(18.06
|
)
|
Earnings (loss) per share - diluted
|
|
$
|
5.49
|
|
|
$
|
(7.39
|
)
|
|
$
|
(18.06
|
)
|
Outstanding options and warrants to purchase
common stock were considered in the computation of diluted earnings per share for the periods presented. Stock options for 6,830
and 5,338 shares of common stock were not included in computing diluted earnings per share in 2014 and 2013 respectively, because
their effects were anti-dilutive. Restricted stock awards for 14,642 and 320 shares of common stock were not included in computing
diluted earnings per share in 2014 and 2013 respectively because their effects were also anti-dilutive (see Notes 13 and 14).
|
Note 11.
|
Lease commitments
|
Certain premises and equipment are leased under
various operating leases. Total rent expense charged to operations was $422,000, $439,000 and $446,000 in 2015, 2014 and 2013,
respectively. At December 31, 2015, the minimum total rental commitment under such non-cancelable operating leases was as follows
(in thousands):
2016
|
|
$
|
399
|
|
2017
|
|
|
316
|
|
2018
|
|
|
314
|
|
2019
|
|
|
212
|
|
2020
|
|
|
206
|
|
|
|
|
|
|
|
|
$
|
1,447
|
|
|
Note 12.
|
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.
At December 31, 2015 and 2014, the Company
had outstanding the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk
(in thousands):
|
|
Contract
|
|
|
Contract
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Undisbursed credit lines
|
|
$
|
46,656
|
|
|
$
|
38,064
|
|
Commitments to extend or originate credit
|
|
|
9,132
|
|
|
|
9,207
|
|
Standby letters of credit
|
|
|
1,484
|
|
|
|
1,571
|
|
|
|
|
|
|
|
|
|
|
Total commitments to extend credit
|
|
$
|
57,272
|
|
|
$
|
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.
Concentrations of credit risk
–
Generally, the Company’s loans, commitments to extend credit, and standby letters of credit have been granted to customers
in 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 3. The distribution of commitments
to extend credit approximates the distribution of loans outstanding.
Consent Order
– On December 22,
2015, the Bank was notified by the Federal Deposit Insurance Corporation (the “FDIC”) and the Virginia Bureau of Financial
Institutions (the “Supervisory Authorities”) that the Consent Order (the “Consent Order”) under which the
Bank has been operating since February 3, 2012 was terminated effective December 14, 2015. While in place, the Consent Order’s
requirements and restraints on the Bank’s operations and activities included the following:
|
·
|
The Bank was required to retain a 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.
|
|
·
|
The Bank was required to maintain Tier
1 capital equal to or greater than 8% of its total assets, and total risk-based capital equal to or greater than 11% of the Bank’s
total risk-weighted assets.
|
|
·
|
The Bank was required to eliminate from
its books, by charge-off or collection, all assets or portions of assets classified “loss” and 50% of those classified
“doubtful.”
|
|
·
|
The Bank was prohibited from extending,
directly or indirectly, any additional credit to, or for the benefit of, any borrower who had a loan or other extension of credit
from the Bank that had been charged off or classified, in whole or in part, “loss” or “doubtful” and was
uncollected.
|
|
·
|
The Bank was prohibited from extending,
directly or indirectly, any additional credit to any borrower who had a loan or other extension of credit from the Bank that had
been classified “substandard.”
|
|
·
|
The Bank was required to notify the Supervisory
Authorities at least 60 days prior to undertaking asset growth that exceeded 10% or more per year or initiating material changes
in asset or liability composition.
|
|
·
|
The Bank was prohibited from declaring
or paying dividends, paying bonuses, or paying 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 was prohibited from making
any distributions of interest, principal, or other sums on subordinated debentures without prior written approval of the Supervisory
Authorities.
|
|
·
|
The Bank was prohibited from accepting,
renewing, or rolling over any brokered deposits unless it was in compliance with the requirements of the FDIC regulations governing
brokered deposits.
|
|
·
|
The Bank was required to prepare and submit
written plans or reports to the Supervisory Authorities concerning liquidity, contingency funding, interest rate risk, reducing
classified assets, lending and collection policies, internal loan review and grading system, managing the Bank’s other real
estate owned, overall operation of the Bank, budget for all categories of income and expense for the year 2011, managing interest
rate risk, and the Bank’s information technology function.
|
Under the Consent Order, the Bank’s board
of directors also 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 Consent Order.
Memorandum of Understanding –
As
indicated above, the Consent Order was terminated effective December 14, 2015. In place of the Consent Order, the Bank’s
board of directors has made certain written assurances to the Supervisory Authorities in the form of a Memorandum of Understanding
(the “MOU”) concerning asset quality, earnings, regulatory violations, minimum capital levels, asset growth, restrictions
on paying dividends and a requirement to furnish progress reports to the Supervisory Authorities. The MOU is considered an informal
regulatory action.
Written Agreement –
In June 2012,
the Company entered into a written agreement (“Written Agreement”) with the Federal Reserve Bank of Richmond (the “Reserve
Bank”). Pursuant to the terms of the Written Agreement, the Company developed and submitted to the Reserve Bank 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;
|
|
·
|
make 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.
|
The Company has taken numerous steps to comply
with the terms of the MOU and Written Agreement. As of December 31, 2015, we believe we have complied with all requirements of
the MOU and Written Agreement with the exception of the correction of the violations of Section 23A of the Federal Reserve Act
and Regulation W.
IRS Examination
– The Company
is currently under an IRS examination of its payroll tax filings for the periods ended December 31, 2013 and 2014. The outcome
of this audit is currently unknown, but we do not believe it will have a material impact on the Company’s financial condition
or results of operations.
|
Note 13.
|
Shareholders’ equity and regulatory matters
|
On May 1, 2009, as part of the Capital Purchase
Program (the “TARP 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 499,029
shares of the Company’s common stock at an initial exercise price of $4.43 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 accrued cumulative dividends at a rate of 5% until May 1, 2014 and now accrues at a 9% rate, unless the shares are redeemed
by the Company. The preferred stock is generally non-voting, other than on certain matters that could adversely affect the preferred
stock.
The Warrant was 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 December 31, 2015 was $2,077,477 (after forgiveness of $2,215,009 in accrued
dividends in connection with standby rights offering described below). This amount has been accrued for and is included in other
liabilities in the consolidated balance sheet.
In February 2012, the Bank entered into
the Consent Order with the Supervisory Authorities that provided that, within 90 days from the date of the order and during the
life of the order, the Bank must have a leverage capital ratio equal to or greater than 8% of its total assets, and total risk-based
capital equal to or greater than 11% of the Bank’s total risk-weighted assets. The MOU that replaced the Consent Order in
November 2015 provides that the Bank must maintain a leverage capital ratio of at least 8% and a total risk-based capital ratio
of at least 12%. At December 31, 2015, the Bank’s Tier 1 risk-based capital ratio was 12.85%, its total risk-based capital
ratio was 14.02% and its leverage ratio was 9.33%.
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 preferred stock
by private and institutional investors.
On December 4, 2013, the Company issued 67,907
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 $24.80 sale price for the common shares was 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 (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.
Quantitative measures are established by regulation
to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and
Tier 1 Capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 Capital to average assets (the Leverage ratio).
Federal regulatory agencies are required
by law to adopt regulations defining five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. The Bank met the ratio criteria to be categorized as a “well capitalized”
institution as of December 31, 2015, 2014 and 2013. However, due to the minimum capital ratios required by the prior Consent Order,
the Bank was considered adequately capitalized in 2014 and 2013. The MOU requires the Bank to maintain a leverage ratio of at least
8% and a total capital to risk-weighted assets ratio of at least 12%. Primarily as a result of the Company’s Rights Offering
and Standby Offering completed on March 27, 2015, the Bank’s leverage ratio increased to 9.33% and the total capital to risk-weighted
assets ratio was 14.02%, exceeding the ratios required by the MOU. 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 limitation 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
The capital amounts and ratios at December
31, 2015 and 2014 for the Company and the Bank are presented in the table below (dollars in thousands):
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
To be Well Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
42,397,000
|
|
|
|
13.90
|
%
|
|
$
|
24,394,000
|
|
|
|
8.00
|
%
|
|
$
|
30,492,000
|
|
|
|
10.00
|
%
|
Village Bank
|
|
|
42,695,000
|
|
|
|
14.02
|
%
|
|
|
24,369,000
|
|
|
|
8.00
|
%
|
|
|
30,461,000
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
35,977,000
|
|
|
|
11.80
|
%
|
|
|
12,197,000
|
|
|
|
4.00
|
%
|
|
|
18,295,000
|
|
|
|
6.00
|
%
|
Village Bank
|
|
|
39,133,000
|
|
|
|
12.85
|
%
|
|
|
12,184,000
|
|
|
|
4.00
|
%
|
|
|
18,277,000
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (Tier 1 capital to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
35,977,000
|
|
|
|
8.43
|
%
|
|
|
17,062,000
|
|
|
|
4.00
|
%
|
|
|
21,328,000
|
|
|
|
5.00
|
%
|
Village Bank
|
|
|
39,133,000
|
|
|
|
9.33
|
%
|
|
|
16,776,000
|
|
|
|
4.00
|
%
|
|
|
20,970,000
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank
|
|
|
39,133,000
|
|
|
|
12.85
|
%
|
|
|
13,707,000
|
|
|
|
4.50
|
%
|
|
|
15,231,000
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
31,946,000
|
|
|
|
11.17
|
%
|
|
$
|
22,875,000
|
|
|
|
8.00
|
%
|
|
$
|
28,594,000
|
|
|
|
10.00
|
%
|
Village Bank
|
|
|
34,253,000
|
|
|
|
12.08
|
%
|
|
|
22,926,000
|
|
|
|
8.00
|
%
|
|
|
28,358,000
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk- weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
21,037,000
|
|
|
|
7.36
|
%
|
|
|
11,437,000
|
|
|
|
4.00
|
%
|
|
|
17,156,000
|
|
|
|
6.00
|
%
|
Village Bank
|
|
|
30,681,000
|
|
|
|
10.82
|
%
|
|
|
11,343,000
|
|
|
|
4.00
|
%
|
|
|
17,015,000
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (Tier 1 capital to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
21,037,000
|
|
|
|
4.90
|
%
|
|
|
17,170,000
|
|
|
|
4.00
|
%
|
|
|
21,463,000
|
|
|
|
5.00
|
%
|
Village Bank
|
|
|
30,681,000
|
|
|
|
7.18
|
%
|
|
|
17,084,000
|
|
|
|
4.00
|
%
|
|
|
21,355,000
|
|
|
|
5.00
|
%
|
|
(1)
|
Under the Consent Order, the Bank was not considered well capitalized even though it met the ratio
requirements to be classified as such at December 31, 2014. The MOU requires the total capital to risk-weighted assets to be at
least 12% and the leverage ratio to be at least 8%.
|
The Company is currently prohibited by its
Written Agreement with the Reserve Bank from making dividend or interest payments on the TARP Program preferred stock or trust
preferred capital notes without prior regulatory approval. In addition, the MOU 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 of capital, without regulatory approval.
|
Note 14.
|
Stock incentive plan
|
In accordance with accounting standards the
Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost is recognized over the period during which an employee is required
to provide service in exchange for the award rather than disclosed in the financial statements.
The following table summarizes options outstanding
under the stock incentive plan at the indicated dates:
|
|
Year Ended December
31,
|
|
|
|
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
|
|
|
$
|
64.96
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
884
|
|
|
|
25.28
|
|
|
|
15.52
|
|
|
|
|
|
Forfeited
|
|
|
(3,901
|
)
|
|
|
168.79
|
|
|
|
95.85
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
25.28
|
|
|
|
80.33
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options outstanding,
end of period
|
|
|
2,929
|
|
|
$
|
24.47
|
|
|
$
|
12.71
|
|
|
$
|
-
|
|
|
|
6,830
|
|
|
$
|
92.34
|
|
|
$
|
57.97
|
|
|
$
|
-
|
|
Options exercisable,
end of period
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2013
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Per Share
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of period
|
|
|
15,977
|
|
|
$
|
155.36
|
|
|
$
|
74.40
|
|
|
|
|
|
Granted
|
|
|
1,760
|
|
|
|
25.28
|
|
|
|
9.76
|
|
|
|
|
|
Forfeited
|
|
|
(11,527
|
)
|
|
|
123.20
|
|
|
|
79.84
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
6,210
|
|
|
$
|
99.03
|
|
|
$
|
64.96
|
|
|
$
|
-
|
|
Options exercisable, end of period
|
|
|
4,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information
about stock options outstanding at December 31, 2015:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Years of
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Number of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Exercise Prices
|
|
Options
|
|
|
Life
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$16.00-$25.76
|
|
|
2,929
|
|
|
|
28.70
|
|
|
$
|
24.47
|
|
|
|
1,730
|
|
|
$
|
23.75
|
|
During the third quarter of 2015, we granted
certain officers 40,675 restricted shares of common stock with a weighted average fair market value of $19.72 at the date of grant.
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. 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 43,405
and 11,767 at December 31, 2015 and 2014, 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 non-vested share based compensation arrangements granted under the Incentive Plan as of December 31, 2015 and 2014 was
$514,000 and $329,000, respectively. The time based unamortized compensation of $514,000 is expected to be recognized over a weighted
average period of 2.27 years. There were no forfeitures of restricted stock awards in 2015 and 2014.
A summary of changes in the Company’s
nonvested restricted stock awards for the year follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant-Date
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Fair-Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
14,084
|
|
|
$
|
25.41
|
|
|
$
|
267,596
|
|
Granted
|
|
|
40,675
|
|
|
|
19.72
|
|
|
|
772,825
|
|
Vested
|
|
|
(11,354
|
)
|
|
|
15.99
|
|
|
|
(215,726
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
43,405
|
|
|
$
|
22.54
|
|
|
$
|
824,695
|
|
Stock-based compensation expense was $262,000,
$131,000, and $11,000 for the years ended December 31, 2015, 2014, and 2013, respectively.
|
Note 15.
|
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 was 2.69% and 2.40% at December 31, 2015 and 2014, respectively. 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 December 31, 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 December 31, 2015 was 1.94%. The securities may be redeemed at par at any time commencing in December 2012
until the securities mature in 2037. No amounts have been redeemed at December 31, 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 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 $1,273,000 in interest payments on the junior subordinated debt securities as of December 31, 2015. The Company
has been deferring interest payments since June 2011. Although we elected to defer payment of the interest due, the amounts has
been accrued in the consolidated balance sheet and included in interest expense in the consolidated statement of operations.
The Company received notification on February
26, 2016 from the Reserve Bank approving the payment of all accrued and deferred interest payments on trust preferred securities
bringing the Company current as of March 2016.
|
Note 16.
|
Retirement plans
|
401K Plan
: The Bank provides a qualified
401K plan to all eligible employees which is administered through the Virginia Bankers Association Benefits Corporation. Employees
are eligible to participate in the plan after three months of employment. Eligible employees may, subject to statutory limitations,
contribute a portion of their salary to the plan through payroll deduction. Due to the recent economic conditions the Bank ceased
its matching program in 2009 however beginning January 2013 the Bank reinstituted the 401K match. The Bank provided a matching
contribution of $.50 for every $1.00 the participant contributes up to the first 4% of their salary. Participants are fully vested
in their own contributions and vest equally over three years of service in the Bank’s matching contributions. Total contributions
to the plan for the years ended December 31, 2015, 2014 and 2013 were $159,000, $150,000 and $165,000, respectively.
Supplemental Executive Retirement Plan
:
The Bank established the Village Bank Supplemental Executive Retirement Plan (the “SERP”) on January 1, 2005 to provide
supplemental retirement income to certain executive officers as designated by the Personnel Committee, later replaced by the Compensation
Committee, and approved by the board of directors. While we are subject to the regulatory agreements, the respective regulatory
agencies also review and approve new participants or changes in benefits under the SERP. The SERP is an unfunded employee pension
plan under the provisions of ERISA. An eligible employee, once designated by the Committee and approved by the board of directors
in writing to participate in the SERP, becomes a participant in the SERP 60 days following such approval (unless an earlier participation
date is approved). There are currently five executive officers who participate in the SERP. The retirement benefit to be received
by a participant is determined by the Committee and approved by the board of directors and is payable in equal monthly installments
over the period specified in the SERP for each respective participant, commencing on the first day of the month following a participant’s
retirement or termination of employment, provided the participant has been employed by the Bank for a minimum of 10 years. The
Compensation Committee, in its sole discretion, may choose to treat a participant who has experienced a termination of employment
on or after attaining age 65 but prior to completing his service requirement as having completed his service requirement. At December
31, 2015 and 2014, the Bank’s liability under the SERP was $1,972,000 and $1,840,000, respectively, and expense for the years
ended December 31, 2015, 2014 and 2013 was $201,000, $257,000 and $462,000, respectively. The increase in cash surrender value
of the BOLI related to the participants was $183,000, $182,000 and $189,000 for the years ended December 31, 2015, 2014 and 2013,
respectively.
Directors’ Deferral Plan
: The
Bank established the Village Bank Outside Directors Deferral Plan (the “Directors Deferral Plan”) on January 1, 2005
under which non-employee directors of Village Bank have the opportunity to defer receipt of all or a portion of certain compensation
until retirement or departure from the board of directors. Deferral of compensation under the Directors Deferral Plan is voluntary
by non-employee directors and to participate in the plan a director must file a deferral election as provided in the plan. A director
shall become an active participant with respect to a plan year (as defined in the plan) only if he is expected to have compensation
during the plan year and he timely files a deferral election. A separate account is established for each participant in the plan
and each account shall, in addition to compensation deferred at the election of the participant, be credited with interest on the
balance of the account, the rate of such interest to be established by the board of directors in its sole discretion at the beginning
of each plan year. For those directors electing to purchase stock, the obligation will only be settled by delivery of the fixed
number of shares they purchased. At December 31, 2015 and 2014, the Bank’s liability under the Directors Deferral Plan was
$82,000 and $206,000, respectively, and expense for the years ended December 31, 2015, 2014 and 2013 was $87,000, $123,000 and
$165,000, respectively. In the first quarter of 2015 and the fourth quarter of 2013 certain directors electing to purchase common
stock with funds from their deferred compensation accounts causing the December 31, 2015 and December 31, 2103 liability to be
lower than the December 31, 2014 liability. A rabbi trust was established to hold the shares. At December 31, 2015 and 2014 the
trust held 48,055 and 35,389 shares of Company common stock totaling $1,034,382 and $877,644, respectively.
Effective January 1, 2008, the Company adopted
the provisions of FASB Codification Topic 820:
Fair Value Measurements
which defines fair value, establishes a framework
for measuring fair value under U.S GAAP, and expands disclosures about fair value measurements.
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 when economic or other circumstances
dictate a need to obtain an updated appraisal of the property, 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, or the net book value on the applicable
business’s financial statements if not considered significant using observable market data. Likewise, values for inventory
and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). 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 fair value less costs to sell. 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
held for sale:
assets held for sale were transferred from premises and equipment at cost less accumulated depreciation at the
date of transfer. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any
subsequent declines in fair value less selling costs. 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 assets held for sale 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 asset held for sale as nonrecurring Level 3
.
Assets measured at fair value under Topic 820
on a recurring and non-recurring basis are summarized below (in thousands):
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2015 Using
|
|
|
|
|
|
|
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
|
|
$
|
33,713
|
|
|
|
3,307
|
|
|
|
30,406
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
3,001
|
|
|
|
-
|
|
|
|
3,001
|
|
|
|
-
|
|
Municipals
|
|
|
1,205
|
|
|
|
-
|
|
|
|
1,205
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets - Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
20,509
|
|
|
|
-
|
|
|
|
16,331
|
|
|
|
4,178
|
|
Assets held for sale
|
|
|
12,631
|
|
|
|
-
|
|
|
|
12,631
|
|
|
|
-
|
|
Real estate owned
|
|
|
6,249
|
|
|
|
-
|
|
|
|
6,190
|
|
|
|
59
|
|
|
|
Fair Value Measurement
|
|
|
|
at December 31, 2014 Using
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
484
|
|
|
|
-
|
|
|
|
484
|
|
|
|
-
|
|
Municipals
|
|
|
5,711
|
|
|
|
-
|
|
|
|
5,711
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Financial Assets - Non-Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
32,280
|
|
|
|
-
|
|
|
|
30,028
|
|
|
|
2,252
|
|
Assets held for sale
|
|
|
11,743
|
|
|
|
|
|
|
|
11,743
|
|
|
|
-
|
|
Real estate owned
|
|
|
12,638
|
|
|
|
-
|
|
|
|
12,168
|
|
|
|
470
|
|
The following table presents qualitative information
about Level 3 fair value measurements for financial instruments for the years ended December 31, 2015 and 2014 (dollars in thousands):
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - real estate secured
|
|
$
|
1,042
|
|
|
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
|
|
$
|
605
|
|
|
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%)
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
12,631
|
|
|
Appraisal (1) or Internal Valuation (2)
|
|
Selling costs
|
|
6%-10% (7%)
|
|
|
|
|
|
|
|
|
Discount for lack of marketability and age of appraisal
|
|
6%-30% (15%)
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
Range
|
|
|
Fair Value
|
|
|
Valuation
|
|
Unobservable
|
|
(Weighted
|
|
|
Estimate
|
|
|
Techniques
|
|
Input
|
|
Average)
|
|
|
|
|
|
|
|
|
|
|
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%)
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
11,743
|
|
|
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.
|
The following table presents the changes in
the Level 3 fair value category for the years ended December 31, 2015 and 2014 (in thousands):
|
|
Impaired
|
|
|
Real Estate
|
|
|
Assets Held
|
|
|
|
|
|
|
Loans
|
|
|
Owned
|
|
|
for Sale
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
4,253
|
|
|
$
|
1,529
|
|
|
$
|
11,601
|
|
|
$
|
17,383
|
|
Total realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
381
|
|
|
|
-
|
|
|
|
381
|
|
Included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net transfers in and/or out of Level 3
|
|
|
(1,990
|
)
|
|
|
(573
|
)
|
|
|
142
|
|
|
|
(2,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
2,263
|
|
|
$
|
1,337
|
|
|
$
|
11,743
|
|
|
$
|
15,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
|
142
|
|
|
|
-
|
|
|
|
142
|
|
Included in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net transfers in and/or out of Level 3
|
|
|
(616
|
)
|
|
|
(1,420
|
)
|
|
|
888
|
|
|
|
(1,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
1,647
|
|
|
$
|
59
|
|
|
$
|
12,631
|
|
|
$
|
14,337
|
|
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, the Company’s creditworthiness, 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 quarter 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 held-to-maturity and available-for-sale is estimated based on quoted prices for similar assets or
liabilities determined by bid quotations received from independent pricing services. 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.
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.
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Level in Fair
|
|
2015
|
|
|
2014
|
|
|
|
Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Hierarchy
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Level 1
|
|
$
|
17,076
|
|
|
$
|
17,076
|
|
|
$
|
25,115
|
|
|
$
|
25,115
|
|
Cash equivalents
|
|
Level 2
|
|
|
186
|
|
|
|
186
|
|
|
|
23,988
|
|
|
|
23,988
|
|
Investment securities available for sale
|
|
Level 1
|
|
|
3,307
|
|
|
|
3,307
|
|
|
|
-
|
|
|
|
-
|
|
Investment securities available for sale
|
|
Level 2
|
|
|
34,612
|
|
|
|
34,612
|
|
|
|
39,542
|
|
|
|
39,542
|
|
Federal Home Loan Bank stock
|
|
Level 2
|
|
|
685
|
|
|
|
685
|
|
|
|
1,073
|
|
|
|
1,073
|
|
Loans held for sale
|
|
Level 2
|
|
|
14,373
|
|
|
|
14,373
|
|
|
|
9,914
|
|
|
|
9,914
|
|
Loans
|
|
Level 2
|
|
|
286,262
|
|
|
|
274,230
|
|
|
|
253,855
|
|
|
|
249,942
|
|
Impaired loans
|
|
Level 2
|
|
|
18,862
|
|
|
|
18,862
|
|
|
|
30,028
|
|
|
|
30,028
|
|
Impaired loans
|
|
Level 3
|
|
|
1,647
|
|
|
|
1,647
|
|
|
|
2,263
|
|
|
|
2,263
|
|
Assets held for sale
|
|
Level 2
|
|
|
12,631
|
|
|
|
12,631
|
|
|
|
11,743
|
|
|
|
11,743
|
|
Other real estate owned
|
|
Level 2
|
|
|
6,190
|
|
|
|
6,190
|
|
|
|
12,168
|
|
|
|
12,168
|
|
Other real estate owned
|
|
Level 3
|
|
|
59
|
|
|
|
59
|
|
|
|
470
|
|
|
|
470
|
|
Bank owned life insurance
|
|
Level 3
|
|
|
7,130
|
|
|
|
7,130
|
|
|
|
6,947
|
|
|
|
6,947
|
|
Accrued interest receivable
|
|
Level 2
|
|
|
2,060
|
|
|
|
2,060
|
|
|
|
1,372
|
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
Level 2
|
|
|
364,848
|
|
|
|
365,294
|
|
|
|
378,860
|
|
|
|
379,857
|
|
FHLB borrowings
|
|
Level 2
|
|
|
6,000
|
|
|
|
6,004
|
|
|
|
14,000
|
|
|
|
14,065
|
|
Trust preferred securities
|
|
Level 2
|
|
|
8,764
|
|
|
|
8,984
|
|
|
|
8,764
|
|
|
|
7,274
|
|
Other borrowings
|
|
Level 2
|
|
|
508
|
|
|
|
508
|
|
|
|
3,302
|
|
|
|
3,303
|
|
Accrued interest payable
|
|
Level 2
|
|
|
1,346
|
|
|
|
1,346
|
|
|
|
1,167
|
|
|
|
1,167
|
|
|
Note 18.
|
Parent corporation only financial statements
|
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Balance Sheet
(in thousands)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
3,494
|
|
|
$
|
84
|
|
Investment in subsidiaries
|
|
|
38,665
|
|
|
|
30,158
|
|
Investment in special purpose subsidiary
|
|
|
264
|
|
|
|
264
|
|
Prepaid expenses and other assets
|
|
|
45
|
|
|
|
2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,468
|
|
|
$
|
32,568
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Balance due to nonbank subsidiaries
|
|
$
|
8,764
|
|
|
$
|
8,764
|
|
Other liabilities
|
|
|
3,345
|
|
|
|
4,746
|
|
Total liabilities
|
|
|
12,109
|
|
|
|
13,510
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
23
|
|
|
|
59
|
|
Common stock
|
|
|
5,562
|
|
|
|
1,339
|
|
Additional paid-in capital
|
|
|
58,498
|
|
|
|
58,188
|
|
Warrant surplus
|
|
|
732
|
|
|
|
732
|
|
Accumulated deficit
|
|
|
(33,949
|
)
|
|
|
(40,539
|
)
|
Stock in directors rabbi trust
|
|
|
(1,034
|
)
|
|
|
(878
|
)
|
Directors deferred fees obligation
|
|
|
1,034
|
|
|
|
878
|
|
Accumulated other comprehensive loss
|
|
|
(507
|
)
|
|
|
(721
|
)
|
Total shareholders' equity
|
|
|
30,359
|
|
|
|
19,058
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,468
|
|
|
$
|
32,568
|
|
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Statements of Operations and Comprehensive
(Income) Loss
Years Ended December 31, 2015, 2014 and 2013
(in thousands)
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Village Bank money market
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on accrued and upaid dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
Interest on trust preferred securities
|
|
|
213
|
|
|
|
215
|
|
|
|
183
|
|
Total interest expense
|
|
|
213
|
|
|
|
215
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(203
|
)
|
|
|
(214
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Write down of assets held for sale
|
|
|
1,759
|
|
|
|
-
|
|
|
|
-
|
|
Supplies
|
|
|
48
|
|
|
|
54
|
|
|
|
57
|
|
Professional and outside services
|
|
|
412
|
|
|
|
53
|
|
|
|
54
|
|
Other
|
|
|
52
|
|
|
|
52
|
|
|
|
35
|
|
Total noninterest expense
|
|
|
2,271
|
|
|
|
159
|
|
|
|
146
|
|
Net loss before undistributed income (loss) of subsidiary
|
|
|
(2,474
|
)
|
|
|
(373
|
)
|
|
|
(381
|
)
|
Undistributed income (loss) of subsidiary
|
|
|
3,120
|
|
|
|
(664
|
)
|
|
|
(3,626
|
)
|
Net income (loss) before income tax expense (benefit)
|
|
|
646
|
|
|
|
(1,037
|
)
|
|
|
(4,007
|
)
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
646
|
|
|
$
|
(1,037
|
)
|
|
$
|
(4,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
860
|
|
|
$
|
2,080
|
|
|
$
|
(7,679
|
)
|
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
(in thousands)
|
|
December
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
646
|
|
|
$
|
(1,037
|
)
|
|
$
|
(4,007
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Writedown on assets held for sale
|
|
|
1,759
|
|
|
|
-
|
|
|
|
-
|
|
Undistributed (income) loss of subsidiary
|
|
|
(3,120
|
)
|
|
|
664
|
|
|
|
3,626
|
|
(Increase) decrease in other assets
|
|
|
258
|
|
|
|
(239
|
)
|
|
|
(8
|
)
|
Increase (decrease) in other liabilities
|
|
|
(19
|
)
|
|
|
247
|
|
|
|
252
|
|
Net cash used in operating activities
|
|
|
(476
|
)
|
|
|
(365
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
(1,684
|
)
|
Net cash used in investing activities
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
(1,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
(79
|
)
|
|
|
(11
|
)
|
|
|
1,684
|
|
Net proceeds from sale of common stock, net of expenses of $990
|
|
|
8,965
|
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
8,886
|
|
|
|
(11
|
)
|
|
|
1,684
|
|
Net increase (decrease) in cash
|
|
|
3,410
|
|
|
|
(376
|
)
|
|
|
(135
|
)
|
Cash, beginning of year
|
|
|
84
|
|
|
|
460
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
3,494
|
|
|
$
|
84
|
|
|
$
|
460
|
|