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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________

 

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

__________

 

Commission file number: 0-50765

 

VILLAGE BANK AND TRUST FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

Virginia   16-1694602
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
13319 Midlothian Turnpike, Midlothian, Virginia   23113
(Address of principal executive offices)   (Zip code)

 

804-897-3900

(Registrant’s telephone number, including area code)

 

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ¨   Accelerated Filer ¨
Non-Accelerated Filer ¨  (Do not check if smaller reporting company) Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

1,403,647 shares of common stock, $4.00 par value, outstanding as of May 15, 2015

 

 
 

 

Village Bank and Trust Financial Corp.

Form 10-Q

 

TABLE OF CONTENTS

 

Part I – Financial Information  
     
  Item 1.  Financial Statements  
     
  Consolidated Balance Sheets March 31, 2015 (unaudited) and December 31, 2014 3
     
  Consolidated Statements of Operations For the Three Months Ended March 31, 2015 and 2014 (unaudited) 4
     
  Consolidated Statements of Changes in Comprehensive Income  For the Three Months Ended  March 31, 2015 and 2014 (unaudited) 5
     
  Consolidated Statements of Shareholders’ Equity For the Three Months Ended March 31, 2015 and 2014 (unaudited) 6
     
  Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2015 and 2014 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8
     
  Item 2. Management’s Discussion and Analysis of Financial Condition   and Results of Operations 36
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk 57
     
  Item 4. Controls and Procedures 57
     
Part II – Other Information  
     
  Item 1.  Legal Proceedings 58
     
  Item 1A. Risk Factors 58
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 58
     
  Item 3.  Defaults Upon Senior Securities 58
     
  Item 4.  Mine Safety Disclosures 58
     
  Item 5.  Other Information 58
     
  Item 6.  Exhibits 59
     
Signatures 60

 

2
 

 

Part I – Financial Information

 

ITEM 1 – FINANCIAL STATEMENTS

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Balance Sheets
March 31, 2015 (Unaudited) and December 31, 2014
(dollars in thousands, except per share data)

 

   March 31,   December 31, 
   2015   2014 
Assets          
Cash and due from banks  $12,019   $25,115 
Federal funds sold   38,672    23,988 
Total cash and cash equivalents   50,691    49,103 
Investment securities available for sale   36,723    39,542 
Loans held for sale   16,224    9,914 
Loans          
Outstandings   287,398    286,146 
Allowance for loan losses   (5,844)   (5,729)
Deferred fees and costs   934    722 
    282,488    281,139 
Other real estate owned, net of valuation allowance   11,472    12,638 
Asset held for sale   13,507    13,502 
Premises and equipment, net   14,888    14,301 
Bank owned life insurance   6,995    6,947 
Accrued interest receivable   1,424    1,372 
Other assets   5,316    5,546 
           
   $439,728   $434,004 
           
Liabilities and Shareholders' Equity          
Liabilities          
Deposits          
Noninterest bearing demand  $74,001   $77,496 
Interest bearing   302,831    301,364 
Total deposits   376,832    378,860 
Federal Home Loan Bank advances   13,000    14,000 
Long-term debt - trust preferred securities   8,764    8,764 
Other borrowings   2,557    3,302 
Accrued interest payable   1,220    1,167 
Other liabilities   7,100    8,853 
Total liabilities   409,473    414,946 
           
Shareholders' equity          
Preferred stock, $4 par value, $1,000 liquidation preference,1,000,000 shares authorized; 5,715 shares issued and outstanding at March 31, 2015, 14,738 shares issued and oustanding at December 31, 2014   23    59 
Common stock, $4 par value, 10,000,000 shares authorized; 1,403,647 shares issued and outstanding at March 31, 2015 350,622 shares issued and outstanding at December 31, 2014   5,553    1,339 
Additional paid-in capital   58,325    58,188 
Retained earnings (deficit)   (34,088)   (40,539)
Common stock warrant   732    732 
Stock in directors rabbi trust   (1,034)   (878)
Directors deferred fees obligation   1,034    878 
Accumulated other comprehensive loss   (290)   (721)
Total shareholders' equity   30,255    19,058 
           
   $439,728   $434,004 

 

See accompanying notes to consolidated financial statements.

 

3
 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Operations
Three Months Ended March 2015 and 2014
(dollars in thousands, except per share data)

 

   2015   2014 
Interest income          
Loans  $3,624   $3,971 
Investment securities   155    332 
Federal funds sold   18    19 
Total interest income   3,797    4,322 
           
Interest expense          
Deposits   636    786 
Borrowed funds   122    162 
Total interest expense   758    948 
           
Net interest income   3,039    3,374 
Provision for loan losses   -    100 
Net interest income after provision          
for loan losses   3,039    3,274 
           
Noninterest income          
Service charges and fees   592    483 
Gain on sale of loans   1,229    811 
Gain on sale of investment securities   7    - 
Rental income   239    257 
Other   103    123 
Total noninterest income   2,170    1,674 
           
Noninterest expense          
Salaries and benefits   2,668    2,770 
Commissions   292    222 
Occupancy   478    483 
Equipment   187    206 
Supplies   70    88 
Professional and outside services   647    639 
Advertising and marketing   72    83 
Expenses related to foreclosed real estate   132    283 
Other operating expense   668    831 
Total noninterest expense   5,214    5,605 
           
Net loss   (5)   (657)
           
Preferred stock dividends and amortization of discount   (163)   (314)
Preferred stock principal forgiveness   4,404    - 
Preferred stock dividend forgiveness   2,215    - 
Net income (loss) available to          
common shareholders  $6,451   $(971)
           
           
Earnings (loss) per share, basic  $15.77   $(2.91)
Earnings (loss) per share, diluted  $15.40   $(2.91)

 

See accompanying notes to consolidated financial statements.

 

4
 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Changes in Comprehensive Income
Three Months Ended March 31, 2015 and 2014
(Unaudited)
(dollars in thousands)

 

   2015   2014 
         
Net loss  $(5)  $(657)
Other comprehensive income (loss)          
Unrealized holding gains (losses) arising during the period   658    1,826 
Tax effect   224    621 
Net change in unrealized holding gains (losses) on securities available for sale, net of tax   434    1,205 
           
Reclassification adjustment          
Reclassification adjustment for gains realized in income   (7)   - 
Tax effect   (2)   - 
Reclassification for gains included in net income, net of tax   (5)   - 
           
Minimum pension adjustment   3    3 
Tax effect   1    1 
Minimum pension adjustment, net of tax   2    2 
           
Total other comprehensive income   431    1,207 
           
Total comprehensive income  $426   $550 

 

See accompanying notes to consolidated financial statements.

 

5
 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 2015 and 2014
(dollar amounts in thousands) (Unaudited)

 

                               Directors         
           Additional           Discount on   Stock in   Deferred   Accumulated     
   Preferred   Common   Paid-in   Accumulated       Preferred   Directors   Fees   Other     
   Stock   Stock   Capital   Deficit   Warrant   Stock   Rabbi Trust   Obligation   loss   Total 
                                         
Balance, December 31, 2014  $59   $1,339   $58,188   $(40,539)  $732   $-   $(878)  $878   $(721)  $19,058 
Preferred stock dividend   -    -    -    (163)   -    -    -    -    -    (163)
Restricted stock issuance   -    7    (85)   -    -    -    (156)   156    -    (78)
Issuance of common stock, net of offering expense of $1,200   -    2,875    5,842    -    -    -    -    -    -    8,717 
Preferred stock exchanged for common stock   (18)   1,332    (1,314)                                 - 
Preferred stock principal forgiveness   (18)   -    (4,386)   4,404    -    -    -    -    -    - 
Preferred stock dividend forgiveness   -    -    -    2,215    -    -    -    -    -    2,215 
Stock based compensation   -    -    80    -    -    -    -    -    -    80 
Minimum pension adjustment (net of income taxes of $1)   -    -    -    -    -    -    -    -    2    2 
Net loss   -    -    -    (5)   -    -    -    -    -    (5)
Change in unrealized gain (loss) on investment securities available-for-sale, net of reclassification and tax effect   -    -    -    -    -    -    -    -    429    429 
                                                   
Balance, March 31, 2015  $23   $5,553   $58,325   $(34,088)  $732   $-   $(1,034)  $1,034   $(290)  $30,255 
                                                   
Balance, December 31, 2013  $59   $21,353   $38,054   $(38,066)  $732   $(50)  $(878)  $878   $(3,838)  $18,244 
Amortization of preferred stock discount   -    -    -    (37)   -    37    -    -         - 
Preferred stock dividend   -    -    -    (277)   -    -    -    -    -    (277)
Stock based compensation   -    -    10    -    -    -    -    -         10 
Minimum pension adjustment   -         -                                  - 
(net of income taxes of $1)   -    -    -    -    -    -    -    -    2    2 
Net loss   -    -         (657)   -    -         -    -    (657)
Change in unrealized gain (loss) on investment securities available-for-sale, net of reclassification and tax effect   -    -    -    -    -    -    -    -    1,205    1,205 
                                                   
Balance, March 31, 2014  $59   $21,353   $38,064   $(39,037)  $732   $(13)  $(878)  $878   $(2,631)  $18,527 

 

See accompanying notes to consolidated financial statements.

 

6
 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2015 and 2014
(Unaudited)
(dollars in thousands)

 

   2015   2014 
         
Cash Flows from Operating Activities          
Net loss  $(5)  $(657)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   214    171 
Deferred income taxes   (15)   (310)
Valuation allowance deferred income taxes   15    267 
Provision for loan losses   -    100 
Write-down of other real estate owned   80    135 
Valuation allowance other real estate owned   (14)   (134)
(Gain) Loss on securities sold   (7)   - 
Gain on loans sold   (1,229)   (811)
Gain on sale of premises and equipment   -    (3)
(Gain) Loss on sale of other real estate owned   (67)   (37)
Stock compensation expense   80    10 
Proceeds from sale of mortgage loans   43,727    29,989 
Origination of mortgage loans for sale   (48,808)   (30,793)
Amortization of premiums and accretion of discounts on securities, net   71    108 
Decrease (increase) in interest receivable   (52)   146 
Increase in bank owned life insurance   (48)   (48)
Increase in other assets   (273)   (284)
Increase in interest payable   53    159 
Increase in other liabilities   252    639 
Net cash used in operating activities   (6,026)   (1,353)
           
Cash Flows from Investing Activities          
Purchases of available for sale securities   (3,206)   - 
Proceeds from the sale or calls of available for sale securities   6,611    127 
Net decrease (increase) in loans   (1,336)   11,001 
Proceeds from sale of other real estate owned   1,154    2,448 
Purchases of premises and equipment   (801)   (714)
Proceeds from sale of premises and equipment   -    17 
Net cash provided by  investing activities   2,422    12,879 
           
Cash Flows from Financing Activities          
Net proceeds from sale of common stock, net of expenses of $990   8,965    - 
Net increase (decrease) in deposits   (2,028)   5,589 
Net decrease in Federal Home Loan Bank Advances   (1,000)   (1,000)
Net increase (decrease) in other borrowings   (745)   190 
Net cash provided by financing activities   5,192    4,779 
           
Net increase in cash and cash equivalents   1,588    16,305 
Cash and cash equivalents, beginning of period   49,103    40,209 
           
Cash and cash equivalents, end of period  $50,691   $56,514 
           
Supplemental Disclsoure of Cash Flow Information          
Cash payments for interest  $705   $789 
Supplemental Schedule of Non Cash Activities          
Real estate owned assets acquired in settlement of loans  $-   $1,358 
Dividends on preferred stock accrued  $163   $277 
Non-Cash conversion of preferred shares  $4,619   $- 
Forgiveness of principal and accrued dividends  $6,619   $- 

 

See accompanying notes to consolidated financial statements.

 

7
 

 

Village Bank and Trust Financial Corp. and Subsidiary

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

Note 1 - Principles of presentation

 

Village Bank and Trust Financial Corp. (the “Company”) is the holding company of Village Bank (the “Bank”). The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s subsidiary. All material intercompany balances and transactions have been eliminated in consolidation.

 

On August 6, 2014, the Company filed Articles of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission to effect a reverse stock split of its outstanding common stock which became effective on August 8, 2014. As a result of the reverse split, every sixteen shares of the Company’s issued and outstanding common stock were consolidated into one issued and outstanding share of common stock. The computations of basic and diluted earnings (loss) per share have been adjusted retroactively to reflect the reverse stock split.

 

In the opinion of management, the accompanying condensed consolidated financial statements of the Company have been prepared on the accrual basis in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, all adjustments that are, in the opinion of management, necessary for a fair presentation have been included. The results of operations for the three month period ended March 31, 2015 is not necessarily indicative of the results to be expected for the full year ending December 31, 2015. The unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (“SEC”).

 

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of March 31, 2015 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

 

Note 2 - Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and statements of operations for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses and its related provision, the valuation allowance on the deferred tax asset, and the estimate of the fair value of assets held for sale.

 

8
 

 

Note 3 - Earnings (loss) per common share

 

The following table presents the basic and diluted earnings (loss) per common share computation (in thousands, except per share data):

 

   Three Months Ended March 31, 
   2015   2014 
Numerator          
Net loss - basic and diluted  $(5)  $(657)
Preferred stock dividend and accretion   (163)   (314)
Preferred stock principal forgiveness   4,404    - 
Preferred stock dividend forgiveness   2,215    - 
Net income (loss) available to common shareholders  $6,451   $(971)
           
Denominator          
Weighted average shares outstanding - basic   409    334 
Dilutive effect of common stock options and restricted stock awards   10    - 
           
Weighted average shares outstanding - diluted   419    334 
           
Earnings (loss) per share - basic  $15.77   $(2.91)
Earnings (loss) per share - diluted  $15.40   $(2.91)

 

Outstanding options and warrants to purchase common stock were considered in the computation of diluted earnings (loss) per share for the periods presented. Stock options for 6,485 and 5,104 were not included in computing diluted earnings (loss) per share for the three months ended March 31, 2015 and 2014, respectively, because their effects were anti-dilutive. Warrants for 31,190 shares of common stock were not included in computing earnings (loss) per share in 2015 and 2014 because their effects were also anti-dilutive.

 

Note 4 – Investment securities available for sale

 

At March 31, 2015 and December 31, 2014, all of our securities were classified as available-for-sale. The following table presents the composition of our investment portfolio at the dates indicated (dollars in thousands):

 

9
 

 

           Gross   Gross   Estimated     
   Par   Amortized   Unrealized   Unrealized   Fair   Average 
   Value   Cost   Gains   Losses   Value   Yield 
March 31, 2015                              
US Government Agencies                              
One to five years  $10,000   $10,206   $-   $(71)  $10,135    1.27%
Five to ten years   20,500    21,970    -    (244)   21,726    2.29%
More than ten years   997    999    -    -    999    0.55%
    31,497    33,175    -    (315)   32,860    1.73%
Mortgage-backed securities                              
One to five years   2,128    2,189    -    (4)   2,185    1.31%
More than ten years   412    422    1    -    423    0.25%
    2,540    2,611    1    (4)   2,608    1.14%
Municipals                              
More than ten years   1,130    1,262    7    (14)   1,255    4.15%
    1,130    1,262    7    (14)   1,255    4.15%
                               
Total investment securities  $35,167   $37,048   $8   $(333)  $36,723    1.77%
                               
December 31, 2014                              
US Government Agencies                              
One to Five years  $10,000   $10,324   $-   $(225)  $10,099    1.10%
Five to ten years   22,500    23,895    -    (647)   23,248    1.98%
    32,500    34,219    -    (872)   33,347    1.71%
Mortgage-backed securities                              
More than ten years   471    484    2    (2)   484    0.31%
Municipals                              
Five to ten years   1,000    1,131    -    (20)   1,111    2.50%
More than ten years   4,130    4,684    2    (86)   4,600    2.89%
    5,130    5,815    2    (106)   5,711    2.82%
                               
Total investment securities  $38,101   $40,518   $4   $(980)  $39,542    1.85%

 

Investment securities available for sale that have an unrealized loss position at March 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 
March 31, 2015                              
US Government Agencies   15,542    (175)   16,318    (140)   31,860    (315)
Municipals   1,085    (3)   306    (1)   1,391    (4)
Mortgage-backed securities   -    -    525    (14)   525    (14)
                               
   $16,627   $(178)  $17,149   $(155)  $33,776   $(333)
                               
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)

 

10
 

 

Management does not believe that any individual unrealized loss as of March 31, 2015 and December 31, 2014 is other than a temporary impairment. These unrealized losses are primarily attributable to changes in interest rates. As of March 31, 2015, management does not have the intent to sell any of the securities classified as available for sale and management believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Approximately $20 million of these securities are pledged against current and potential fundings.

 

Note 5 – Loans and allowance for loan losses

 

The following table presents the composition of our loan portfolio (excluding mortgage loans held for sale) at the dates indicated (dollars in thousands):

 

   March 31, 2015   December 31, 2014 
   Amount   %   Amount   % 
Construction and land development                    
Residential  $7,189    2.5%  $4,315    1.5%
Commercial   22,706    7.9%   25,152    8.8%
    29,895    10.4%   29,467    10.3%
Commercial real estate                    
Owner occupied   64,305    22.4%   58,804    20.6%
Non-owner occupied   38,340    13.3%   38,892    13.6%
Multifamily   9,204    3.2%   11,438    4.0%
Farmland   408    0.1%   434    0.2%
    112,257    39.1%   109,568    38.3%
Consumer real estate                    
Home equity lines   19,011    6.6%   20,082    7.0%
Secured by 1-4 family residential,                    
First deed of trust   61,819    21.5%   61,837    21.6%
Second deed of trust   8,077    2.8%   7,854    2.7%
    88,907    30.9%   89,773    31.4%
Commercial and industrial loans (except those secured by real estate)   21,764    7.6%   22,165    7.7%
Guaranteed Student loans   33,004    11.5%   33,562    11.7%
Consumer and other    1,571    0.5%   1,611    0.6%
                     
Total loans   287,398    100.0%   286,146    100.0%
Deferred loan cost, net   934         722      
Less: allowance for loan losses   (5,844)        (5,729)     
                     
   $282,488        $281,139      

 

The Company assigns risk rating classifications to its loans. These risk ratings are divided into the following groups:

 

·Risk rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating. These assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral;
·Risk rated 5 loans are defined as having potential weaknesses that deserve management’s close attention;
·Risk rated 6 loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any;

 

11
 

 

·Risk rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable; and
·Loans rated 6 or 7 are considered “Classified” loans for regulatory classification purposes.

 

The following tables provide information on the risk rating of loans at the dates indicated (in thousands):

 

   Risk Rated   Risk Rated   Risk Rated   Risk Rated   Total 
   1-4   5   6   7   Loans 
March 31, 2015                         
Construction and land development                         
Residential  $6,943   $-   $246   $-   $7,189 
Commercial   19,137    1,842    1,727         22,706 
    26,080    1,842    1,973    -    29,895 
Commercial real estate                         
Owner occupied   54,252    5,787    4,266    -    64,305 
Non-owner occupied   35,928    1,674    738    -    38,340 
Multifamily   8,996    208    -    -    9,204 
Farmland   408              -    408 
    99,584    7,669    5,004    -    112,257 
Consumer real estate                         
Home equity lines   17,034    327    1,650    -    19,011 
Secured by 1-4 family residential                         
First deed of trust   53,039    4,129    4,651    -    61,819 
Second deed of trust   6,637    387    1,053    -    8,077 
    76,710    4,843    7,354    -    88,907 
Commercial and industrial loans (except those secured by real estate)   19,181    2,021    562    -    21,764 
Guaranteed Student loans   33,004    -    -    -    33,004 
Consumer and other   1,462    71    38    -    1,571 
                          
Total loans  $223,017   $16,446   $14,931   $-   $287,398 
                          
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 

 

12
 

 

The following table presents the aging of the recorded investment in past due loans and leases as of the dates indicated (in thousands):

 

           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 
March 31, 2015                                   
Construction and land development                                   
Residential  $-   $-   $-   $-   $7,189   $7,189   $- 
Commercial   103    -    -    103    22,603    22,706    - 
    103    -    -    103    29,792    29,895    - 
Commercial real estate                                   
Owner occupied   -    -    -    -    64,305    64,305    - 
Non-owner occupied   -    -    -    -    38,340    38,340    - 
Multifamily   -    -    -    -    9,204    9,204    - 
Farmland   -    -    -    -    408    408    - 
    -    -    -    -    112,257    112,257    - 
Consumer real estate                                   
Home equity lines   8    30    -    38    18,973    19,011    - 
Secured by 1-4 family residential                                   
First deed of trust   535    67    13    615    61,204    61,819    13 
Second deed of trust   -    -    -    -    8,077    8,077    - 
    543    97    13    653    88,254    88,907    13 
Commercial and industrial loans (except those secured by real estate)   131    -    -    131    21,633    21,764    - 
Student loans   896    6,805    985    8,686    24,318    33,004    985 
Consumer and other   -    -    -    -    1,571    1,571    - 
                                    
Total loans  $1,673   $6,902   $998   $9,573   $277,825   $287,398   $998 
                                    
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    - 
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 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):

 

13
 

 

   March 31, 2015 
       Unpaid     
   Recorded   Principal   Related 
   Investment   Balance   Allowance 
With no related allowance recorded               
Construction and land development               
Residential  $246   $246   $- 
Commercial   2,951    2,951    - 
    3,197    3,197    - 
Commercial real estate               
Owner occupied   1,677    1,677      
Non-owner occupied   6,548    6,548    - 
Multifamily   -    -    - 
Farmland   -    -    - 
    8,225    8,225    - 
Consumer real estate               
Home equity lines   800    800    - 
Secured by 1-4 family residential               
First deed of trust   6,470    6,474    - 
Second deed of trust   1,290    1,560    - 
    8,560    8,834    - 
Commercial and industrial loans (except those secured by real estate)   118    186    - 
Consumer and other   15    15    - 
    20,115    20,457    - 
                
With an allowance recorded               
Construction and land development               
Commercial   788    788    88 
Commercial real estate               
Owner occupied   6,588    6,603    738 
Non-Owner occupied   101    101    - 
    6,689    6,704    738 
Consumer real estate               
Secured by 1-4 family residential               
First deed of trust   741    741    191 
Second deed of trust   253    253    139 
    994    994    330 
Commercial and industrial loans (except those secured by real estate)   581    683    34 
    9,052    9,169    1,190 
                
Total               
Construction and land development               
Residential   246    246    - 
Commercial   3,739    3,739    88 
    3,985    3,985    88 
Commercial real estate               
Owner occupied   8,265    8,280    738 
Non-owner occupied   6,649    6,649    - 
Multifamily   -    -    - 
Farmland   -    -    - 
    14,914    14,929    738 
Consumer real estate               
Home equity lines   800    800    - 
Secured by 1-4 family residential,               
First deed of trust   7,211    7,215    191 
Second deed of trust   1,543    1,813    139 
    9,554    9,828    330 
                
Commercial and industrial loans (except those secured by real estate)   699    869    34 
Consumer and other   15    15    - 
   $29,167   $29,626   $1,190 

 

14
 

 

   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 

 

15
 

 

The following is a summary of average recorded investment in impaired loans with and without a valuation allowance and interest income recognized on those loans for the periods indicated (in thousands):

 

   For the Three Months Ended March 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  $232   $1    172    2 
Commercial   2,967    39    4,133    56 
    3,199    40    4,305    58 
Commercial real estate                    
Owner occupied   1,680    17    2,328    27 
Non-owner occupied   6,563    87    11,402    133 
Multifamily   968    6    2,366    35 
Farmland   14    -    21    - 
    9,224    110    16,117    195 
Consumer real estate                    
Home equity lines   800    4    1,644    14 
Secured by 1-4 family residential                    
First deed of trust   6,401    90    7,780    85 
Second deed of trust   1,183    14    1,353    14 
    8,384    108    10,777    113 
Commercial and industrial loans (except those secured by real estate)   227    2    806    12 
Consumer and other   19    -    33    1 
    21,053    260    32,038    379 
                     
With an allowance recorded                    
Construction and land development                    
Commercial   587    4    609    8 
Commercial real estate                    
Owner occupied   6,597    66    9,874    146 
Non-Owner occupied   102    1    1,299    - 
    6,699    67    11,173    146 
Consumer real estate                    
Secured by 1-4 family residential                    
First deed of trust   1,285    -    1,833    - 
Second deed of trust   254    -    -    - 
    1,539    -    1,833    - 
Commercial and industrial loans (except those secured by real estate)   493    5    116      
    9,318    76    13,731    154 
                     
Total                    
Construction and land development                    
Residential   232    1    172    2 
Commercial   3,554    43    4,742    64 
    3,785    44    4,914    66 
Commercial real estate                    
Owner occupied   8,277    83    12,202    173 
Non-owner occupied   6,665    88    12,701    133 
Multifamily   968    6    2,366    35 
Farmland   14    -    21    - 
    15,924    177    27,290    341 
Consumer real estate                    
Home equity lines   800    4    1,644    14 
Secured by 1-4 family residential,                    
First deed of trust   7,685    90    9,613    85 
Second deed of trust   1,437    14    1,353    14 
    9,922    108    12,610    113 
Commercial and industrial loans (except those secured by real estate)   721    7    922    12 
Consumer and other   19    -    33    1 
   $30,371   $336   $45,769   $533 

 

16
 

 

Included in impaired loans are loans classified as troubled debt restructurings (“TDRs”). A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. For loans classified as impaired TDRs, the Company further evaluates the loans as performing or nonperforming. If, at the time of restructure, the loan is not considered nonaccrual, it will be classified as performing. TDRs originally classified as nonperforming are able to be reclassified as performing if, subsequent to restructure, they experience six months of payment performance according to the restructured terms. The following is a summary of performing and nonaccrual TDRs and the related specific valuation allowance by portfolio segment as of the dates indicated (dollars in thousands):

 

               Valuation 
   Total   Performing   Nonaccrual   Allowance 
March 31, 2015                    
Construction and land development                    
Residential  $7    -   $7   $- 
Commercial   3,146    3,019    127    - 
    3,153    3,019    134    - 
Commercial real estate                    
Owner occupied   6,283    5,560    723    132 
Non-owner occupied   6,649    6,548    101    - 
    12,932    12,108    824    132 
Consumer real estate                    
Secured by 1-4 family residential                    
First deeds of trust   6,740    5,229    1,511    124 
Second deeds of trust   756    653    103    - 
    7,496    5,882    1,614    124 
Commercial and industrial loans (except those secured by real estate)   136    -    136    22 
Consumer and other   14    -    14    - 
   $23,731   $21,009   $2,722   $278 
                     
Number of loans   99    69    30    10 

 

17
 

 

               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):

 

   March 31, 2015   March 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   -    -    -    1    411    411 
    -    -    -    1    411    411 
    -   $-   $-    2   $456   $456 

 

18
 

 

The following table summarizes defaults on TDRs identified for the indicated periods (dollars in thousands):

 

   Three Months Ended   Three Months Ended 
   March 31, 2015   March 31, 2014 
   Number of   Recorded   Number of   Recorded 
   Loans   Balance   Loans   Balance 
Commercial real estate                    
Owner occupied   1   $406    1   $470 
Non-owner occupied   -    -    1    450 
    1    406    2    920 
Consumer real estate                    
Secured by 1-4 family residential                    
First deed of trust   1    121    3    604 
Second deed of trust   -    -    1    18 
Total consumer real estate   1    121    4    622 
Commercial and industrial loans (except those secured by real estate)   -    -    1    136 
Consumer and other   -    -    1    20 
Total   2   $527    8   $1,698 

 

Activity in the allowance for loan losses is as follows for the periods indicated (dollars in thousands):

 

   Beginning   Provision for           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
                     
Three Months Ended March 31, 2015                         
Construction and land development                         
Residential  $34   $-   $-   $1   $35 
Commercial   202    -    (115)   1    88 
    236    -    (115)   2    123 
Commercial real estate                         
Owner occupied   1,836    -    -    -    1,836 
Non-owner occupied   607    -    -    -    607 
Multifamily   78    -    -    -    78 
Farmland   130    -    -    -    130 
    2,651    -    -    -    2,651 
Consumer real estate                         
Home equity lines   469    -    -    -    469 
Secured by 1-4 family residential                         
First deed of trust   1,345    -    -    358    1,703 
Second deed of trust   275    -    -    9    284 
    2,089    -    -    367    2,456 
Commercial and industrial loans (except those secured by real estate)   506    -    (162)   12    356 
Student Loans   217    -    -    -    217 
Consumer and other   30    -    (2)   13    41 
                          
   $5,729   $-   $(279)  $394   $5,844 

 

19
 

  

   Beginning   Provision for           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
                          
Three Months Ended March 31, 2014                         
Construction and land development                         
Residential  $135   $5   $-   $-   $140 
Commercial   1,274    (421)   (22)   18    849 
    1,409    (416)   (22)   18    989 
Commercial real estate                         
Owner occupied   1,199    654    -    -    1,853 
Non-owner occupied   670    (471)   (199)   -    - 
Multifamily   20    (2)   (1)   -    17 
Farmland   337    168    (96)   -    409 
    2,226    349    (296)   -    2,279 
Consumer real estate                         
Home equity lines   424    223    (181)   -    466 
Secured by 1-4 family residential                         
First deed of trust   1,992    (65)   (185)   13    1,755 
Second deed of trust   394    12    (77)   -    329 
    2,810    170    (443)   13    2,550 
Commercial and industrial loans                         
(except those secured by real estate)   724    45    (33)   24    760 
Consumer and other   70    (48)   (2)   2    22 
                          
   $7,239   $100   $(796)  $57   $6,600 

 

   Beginning   Provision for           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
Year Ended December 31, 2014                         
Construction and land development                         
Residential  $135   $(103)  $-   $2   $34 
Commercial   1,274    (1,016)   (100)   44    202 
    1,409    (1,119)   (100)   46    236 
Commercial real estate                         
Owner occupied   1,199    1,268    (631)   -    1,836 
Non-owner occupied   670    430    (518)   25    607 
Multifamily   20    58    -    -    78 
Farmland   337    (111)   (96)   -    130 
    2,226    1,645    (1,245)   25    2,651 
Consumer real estate                         
Home equity lines   424    506    (476)   15    469 
Secured by 1-4 family residential                         
First deed of trust   1,992    (442)   (277)   72    1,345 
Second deed of trust   394    (223)   (86)   190    275 
    2,810    (159)   (839)   277    2,089 
Commercial and industrial loans                         
(except those secured by real estate)   724    (447)   (172)   401    506 
Student loans   -    217    -    -    217 
Consumer and other   70    (37)   (25)   22    30 
   $7,239   $100   $(2,381)  $771   $5,729 

 

20
 

 

Loans were evaluated for impairment as follows for the periods indicated (dollars 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 
                                 
Period Ended March 31, 2015                                        
Construction and land development                                        
Residential  $35   $-   $35   $-   $7,189   $246   $6,943   $- 
Commercial   88    88    -    -    22,706    3,739    18,967    - 
    123    88    35    -    29,895    3,985    25,910    - 
Commercial real estate                                        
Owner occupied   1,836    738    1,098    -    64,305    8,265    56,040    - 
Non-owner occupied   607    -    607    -    38,340    6,649    31,691    - 
Multifamily   78    -    78    -    9,204    -    9,204    - 
Farmland   130    -    130    -    408    -    408    - 
    2,651    738    1,913    -    112,257    14,914    97,343    - 
Consumer real estate                                        
Home equity lines   469    -    469    -    19,011    800    18,211    - 
Secured by 1-4 family residential                                        
First deed of trust   1,703    191    1,512    -    61,819    7,211    54,608    - 
Second deed of trust   284    139    145    -    8,077    1,543    6,534    - 
    2,456    330    2,126    -    88,907    9,554    79,353    - 
Commercial and industrial loans                                        
(except those secured by real estate)   356    34    322    -    21,764    699    21,065    - 
Student loans   217    -    217         33,004    -    33,004    - 
Consumer and other   41    -    41    -    1,571    15    1,556    - 
                                         
   $5,844   $1,190   $4,654   $-   $287,398   $29,167   $258,231   $- 
                                         
Year Ended December 31, 2014                                        
Construction and land development                                        
Residential  $34   $-   $34   $-   $4,315   $164   $4,151   $- 
Commercial   202    26    176    -    25,152    3,968    21,184    - 
    236    26    210    -    29,467    4,132    25,335    - 
Commercial real estate                                        
Owner occupied   1,836    905    931    -    58,804    8,311    50,493    - 
Non-owner occupied   607    -    607    -    38,892    6,593    32,299    - 
Multifamily   78    -    78    -    11,438    2,322    9,116    - 
Farmland   130    -    130    -    434    21    413    - 
    2,651    905    1,746    -    109,568    17,247    92,321    - 
Consumer real estate                                        
Home equity lines   469    -    469    -    20,082    800    19,282    - 
Secured by 1-4 family residential                                        
First deed of trust   1,345    200    1,145    -    61,837    7,900    53,937    - 
Second deed of trust   275    142    133    -    7,854    1,360    6,494    - 
    2,089    342    1,747    -    89,773    10,060    79,713    - 
Commercial and industrial loans                                        
(except those secured by real estate)   506    239    267    -    22,165    818    21,347    - 
Student loans   217    -    217         33,562    -    33,562    - 
Consumer and other   30    -    30    -    1,611    23    1,588    - 
                                         
   $5,729   $1,512   $4,217   $-   $286,146   $32,280   $253,866   $- 

 

21
 

  

Note 6 – Deposits

 

Deposits as of March 31, 2015 and December 31, 2014 were as follows (dollars in thousands):

 

   March 31, 2015   December 31, 2014 
   Amount   %   Amount   % 
                 
Demand accounts   74,001    19.6%  $77,496    20.5%
Interest checking accounts   46,478    12.3%   42,924    11.3%
Money market accounts   68,436    18.2%   64,987    17.2%
Savings accounts   21,112    5.6%   20,643    5.4%
Time deposits of $100,000 and over   73,866    19.6%   75,559    19.9%
Other time deposits   92,939    24.7%   97,251    25.7%
                     
Total  $376,832    100.0%  $378,860    100.0%

 

Note 7 – Trust preferred securities

 

During the first quarter of 2005, Southern Community Financial Capital Trust I, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable securities. On February 24, 2005, $5.2 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The securities have a LIBOR-indexed floating rate of interest (three-month LIBOR plus 2.15%) which adjusts, and is payable, quarterly. The interest rate at March 31, 2015 was 2.38%. 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 March 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 March 31, 2015 was 1.63%. 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 March 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 debt securities with like maturities and like interest rates to the Trust Preferred Capital Notes.

 

The Trust Preferred Capital Notes may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be included in Tier 2 capital.

 

22
 

  

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 $1,111,857 in interest payments on the junior subordinated debt securities as of March 31, 2015. The Company has been deferring interest payments since June 2011. Although the Company elected to defer payment of the interest due, the amount has been accrued and is included in interest expense in the consolidated statement of operations.

 

Note 8 – Stock incentive plan

 

The Company has a stock incentive plan which authorizes the issuance of up to 48,750 shares of common stock (after the reverse stock split) to assist the Company in recruiting and retaining key personnel.

 

The following table summarizes stock options outstanding under the stock incentive plan at the indicated dates:

 

   Three Months Ended March 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         6,119   $98.40   $59.04      
Granted   -    -    -         -    -    -      
Forfeited   -    -    -         (234)   193.92    80.32      
Exercised   -    -    -         -    -    -      
Options outstanding, end of period   6,830   $92.34   $52.74   $-    5,885   $94.72   $58.24   $- 
Options exercisable, end of period   5,286                   4,412                

 

The fair value of the stock is calculated under the same methodology as stock options and the expense is recognized over the vesting period. Unamortized stock-based compensation related to nonvested share based compensation arrangements granted under the stock incentive plan as of March 31, 2015 and 2014, was $403,046 and $91,428, respectively. The time based unamortized compensation of $303,726 is expected to be recognized over a weighted average period of 2.36 years.

 

Stock-based compensation expense was $79,566 and $9,584 for the three months ended March 31, 2015 and 2014, respectively.

 

23
 

  

Note 9 — Fair value

 

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.

 

Financial Accounting Standards Board (“FASB”) Codification Topic 820: Fair Value Measurements and Disclosures establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:

 

Level 1 Inputs — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2 Inputs — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 Inputs — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The Company used the following methods to determine the fair value of each type of financial instrument:

 

Securities: Fair values for securities available-for-sale are obtained from an independent pricing service. The prices are not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agency obligations and mortgage backed securities that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace (Levels 1 and 2).

 

Impaired loans: The fair values of impaired loans are measured for impairment using the fair value of the collateral for collateral-dependent loans on a nonrecurring basis. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than two years old, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal if deemed significant using observable market data. Likewise, values for inventory and account 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.

 

24
 

  

Real Estate Owned: Real estate owned assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, real estate owned assets are carried at net realizable value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring level 3.

 

Assets and liabilities measured at fair value under Topic 820 on a recurring and non-recurring basis are summarized below for the indicated dates:

 

   Fair Value Measurement 
   at March 31, 2015 Using 
   (In thousands) 
       Quoted Prices         
       in Active   Other   Significant 
       Markets for   Observable   Unobservable 
   Carrying   Identical Assets   Inputs   Inputs 
   Value   (Level 1)   (Level 2)   (Level 3) 
Financial Assets - Recurring                    
US Government Agencies  $32,860    -    32,860    - 
MBS   2,608    -    2,608    - 
Municipals   1,255    -    1,255    - 
Residential loans held for sale   16,224    -    16,224    - 
              -      
Financial Assets - Non-Recurring                    
Impaired loans   29,167    -    27,282    1,885 
Real estate owned   11,472    -    11,413    59 

 

25
 

  

   Fair Value Measurement 
   at December 31, 2014 Using 
   (In thousands) 
       Quoted Prices         
       in Active   Other   Significant 
       Markets for   Observable   Unobservable 
   Carrying   Identical Assets   Inputs   Inputs 
   Value   (Level 1)   (Level 2)   (Level 3) 
Financial Assets - Recurring                    
US Government Agencies  $33,347    -    33,347    - 
MBS   484    -    484    - 
Municipals   5,711    -    5,711    - 
Residential loans held for sale   9,914    -    9,914    - 
              -      
Financial Assets - Non-Recurring                    
Impaired loans   32,280    -    30,017    2,263 
Real estate owned   12,638    -    12,168    470 

 

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value at March 31, 2015:

 

   March 31, 2015
             Range
   Fair Value   Valuation  Unobservable  (Weighted
   Estimate   Techniques  Input  Average)
   (In thousands)
              
Impaired loans - real estate secured  $1,242   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  $643   Appraisal (1) or Discounted Cash Flow  Selling costs  10%
           Discount for lack of marketability or practical life  0%-50% (20%)
Real estate owned  $59   Appraisal (1) or Internal Valuation (2)  Selling costs  6%-10% (7%)
           Discount for lack of marketability and age of appraisal  6%-30% (15%)

 

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which generally included various level 3 inputs which are not identifiable

(2) Internal valuations may be conducted to determine Fair Value for assets with nominal carrying balances

 

26
 

 

   December 31, 2014
             Range
   Fair Value   Valuation  Unobservable  (Weighted
   Estimate   Techniques  Input  Average)
   (In thousands)
              
Impaired loans - real estate secured  $1,438   Appraisal (1) or Internal Valuation (2)  Selling costs  6%-10% (7%)
           Discount for lack of marketability and age of appraisal  6%-30% (10%)
Impaired loans - non-real estate secured  $825   Appraisal (1) or Discounted Cash Flow  Selling costs  10%
           Discount for lack of marketability or practical life  0%-50% (20%)
Real estate owned  $470   Appraisal (1) or Internal Valuation (2)  Selling costs  6%-10% (7%)
           Discount for lack of marketability and age of appraisal  6%-30% (15%)

 

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which generally included various level 3 inputs which are not identifiable

(2) Internal valuations may be conducted to determine Fair Value for assets with nominal carrying balances

 

In general, fair value of securities is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon market prices determined by an outside, independent entity that primarily uses as inputs, observable market-based parameters. Fair value of loans held for sale is based upon internally developed models that primarily use as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

 

Cash and cash equivalents – The carrying amount of cash and cash equivalents approximates fair value.

 

Investment securities – The fair value of investment securities available-for-sale is estimated based on bid quotations received from independent pricing services for similar assets. The carrying amount of other investments approximates fair value.

 

Loans – For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For all other loans, fair values are calculated by discounting the contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loans, or by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

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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.

 

      March 31,   December 31, 
      2015   2014 
   Level in Fair                
   Value  Carrying   Estimated   Carrying   Estimated 
   Hierarchy  Value   Fair Value   Value   Fair Value 
   (In thousands)
Financial assets                       
Cash  Level 1  $12,019   $12,019   $25,115   $25,115 
Cash equivalents  Level 2   38,672    38,672    23,988    23,988 
Investment securities available for sale  Level 2   36,723    36,723    39,542    39,542 
Federal Home Loan Bank stock  Level 2   940    940    1,073    1,073 
Loans held for sale  Level 2   16,224    16,224    9,914    9,914 
Loans  Level 2   258,231    255,879    253,866    249,942 
Impaired loans  Level 2   27,282    27,291    30,017    30,028 
Impaired loans  Level 3   1,885    1,885    2,263    2,263 
Other real estate owned  Level 2   11,413    11,413    12,168    12,168 
Other real estate owned  Level 3   59    59    470    470 
Accrued interest receivable  Level 2   1,424    1,424    1,372    1,372 
                        
Financial liabilities                       
Deposits  Level 2   376,832    377,395    378,860    379,857 
FHLB borrowings  Level 2   13,000    13,081    14,000    14,065 
Trust preferred securities  Level 2   8,764    9,214    8,764    7,274 
Other borrowings  Level 2   2,557    2,557    3,302    3,303 
Accrued interest payable  Level 2   1,220    1,220    1,167    1,167 

 

Note 10 – Shareholders’ equity and regulatory matters

 

On May 1, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 14,738 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $4.00 per share, having a liquidation preference of $1,000 per share (the “preferred stock”) and (ii) a warrant (the “Warrant”) to purchase 31,190 shares of the Company’s common stock at an initial exercise price of $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 common stock warrants was determined to be $10,742,000 with 95% of the aggregate attributable to the preferred stock and 5% attributable to the common stock 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 common stock 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 is being accreted as a discount on the preferred stock using the effective interest rate method over five years.

 

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The preferred stock qualifies as Tier 1 capital and paid cumulative dividends at a rate of 5% until May 1, 2014, at which time the rate increased to 9%. The preferred stock is generally non-voting, other than on certain matters that could adversely affect the preferred stock.

 

The Warrant is immediately exercisable. The Warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of common stock, and upon certain issuances of common stock at or below a specified price relative to the then-current market price of common stock. The Warrant expires ten years from the issuance date. Pursuant to the Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.

 

In accordance with the Company’s written agreement with the Federal Reserve Bank of Richmond (the “Reserve Bank”), the Company has been deferring quarterly cash dividends on the preferred stock since May 2011. The total arrearage on such preferred stock as of March 31, 2015 was $1,566,096 (after forgiveness of $2,215,009 in accrued dividends in connection with the standby rights offering described below). This amount has been accrued for and is included in other liabilities in the consolidated balance sheet.

 

In November 2013, the Company participated in a successful auction of the Company’s preferred stock by the Treasury that resulted in the purchase of the securities by private and institutional investors.

 

On December 4, 2013, the Company issued 1,086,500 new shares of common stock through a private placement to directors and executive officers. The sale raised $1,684,075 in new capital for the Company. The $1.55 sale price for the common shares was equal to the stock’s book value at September 30, 2013, which represented a 30% premium over the closing price of the stock on December 3, 2013.

 

On August 6, 2014, the Company filed Articles of Amendment to its Articles of Incorporation with the Virginia State Corporation Commission to affect a reverse stock split of its outstanding common stock which became effective on August 8, 2014. As a result of the reverse split, every sixteen shares of the Company’s issued and outstanding common stock were consolidated into one issued and outstanding share of common stock.

 

On March 27, 2015, the Company completed a rights offering to shareholders (the “Rights Offering”) and concurrent standby offering to Kenneth R. Lehman (the “Standby Offering”), in which the Company issued an aggregate of 1,051,866 shares of common stock (the total number of shares offered) at $13.87 per share for aggregate gross proceeds of $14,589,381 (including the value of the Company’s preferred stock exchanged by Mr. Lehman for shares of common stock of $4,618,813). In connection with the Rights Offering, 283,293 shares were issued to shareholders upon exercise of their basic subscription rights and 191,773 shares were issued to shareholders upon exercise of their oversubscription privileges (approximately 36.9% of the total number of shares requested pursuant to oversubscription privileges). In connection with the Standby Offering, Mr. Lehman purchased an aggregate of 576,800 shares of the Company’s common stock, 333,007 of which were issued in exchange for 9,023 shares of the Company’s preferred stock and 243,793 of which were purchased for cash. Also, as part of the Standby Offering, Mr. Lehman forgave $2,215,009 in accrued and unpaid dividends on the preferred stock.

 

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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.

 

Approximately $92,000 in unpaid preferred stock dividends at March 31, 2014, was reclassified from interest expense to equity as they are considered dividends and not interest expense. There was no effect on income to common shareholders as a result of the reclassification.

 

Note 11 – Commitments and contingencies

 

Off-balance-sheet risk – The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the financial statements. The contract amounts of these instruments reflect the extent of involvement that the Company has in particular classes of instruments.

 

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, and to potential credit loss associated with letters of credit issued, is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans and other such on-balance sheet instruments.

 

The Company had outstanding the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk at the dates indicated (dollars in thousands):

 

   March 31,   December 31, 
   2015   2014 
         
Undisbursed credit lines  $33,706   $38,064 
Commitments to extend or originate credit   19,277    9,207 
Standby letters of credit   1,568    1,571 
           
Total commitments to extend credit  $54,551   $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.

 

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Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

 

Concentrations of credit risk – All of the Company’s loans, commitments to extend credit, and standby letters of credit have been granted to customers 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 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding.

 

Consent Order – In February 2012, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (“Consent Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the Virginia Bureau of Financial Institutions (collectively, the “Supervisory Authorities”), and the Supervisory Authorities have issued the related Consent Order (the “Order”) effective February 3, 2012. The description of the Consent Agreement and the Order is set forth below:

 

Management. The Order requires that the Bank have and retain qualified management, including at a minimum a chief executive officer, senior lending officer and chief operating officer, with qualifications and experience commensurate with their assigned duties and responsibilities. The Bank was required to retain a bank consultant to develop a written analysis and assessment of the Bank’s management and staffing needs for the purpose of providing qualified management for the Bank. Following receipt of the consultant’s management report, the Bank was required to formulate a written management plan that incorporated the findings of the management report, a plan of action in response to each recommendation contained in the management report, and a timeframe for completing each action.

 

Capital Requirements. During the life of the Order, the Bank must have Tier 1 capital equal to or greater than 8 percent of its total assets, and total risk-based capital equal to or greater than 11 percent of the Bank’s total risk-weighted assets. The Bank was required to submit a written capital plan to the Supervisory Authorities that included a contingency plan in the event that the Bank fails to maintain the minimum capital ratios required in the Order, submit a capital plan that is acceptable to the Supervisory Authorities, or implement or adhere to the capital plan.

 

Charge-offs. The Order requires the Bank to eliminate from its books, by charge-off or collection, all assets or portions of assets classified “Loss” and 50 percent of those classified “Doubtful”. If an asset is classified “Doubtful”, the Bank may, in the alternative, charge off the amount that is considered uncollectible in accordance with the Bank’s written analysis of loan or lease impairment. The Order also prevents the Bank from extending, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, on whole or in part, “loss” or “doubtful” and is uncollected. The Bank may not extend, directly or indirectly, any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been classified “substandard.” These limitations do not apply if the Bank’s failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank.

 

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Asset Growth. While the Order is in effect, the Bank must notify the Supervisory Authorities at least 60 days prior to undertaking asset growth that exceeds 10% or more per year or initiating material changes in asset or liability composition. The Bank’s asset growth cannot result in noncompliance with the capital maintenance provisions of the Order unless the Bank receives prior written approval from the Supervisory Authorities.

 

Restriction on Dividends and Other Payments. While the Order is in effect, the Bank cannot declare or pay dividends, pay bonuses, or pay any form of payment outside the ordinary course of business resulting in a reduction of capital without the prior written approval of the Supervisory Authorities. In addition, the Bank cannot make any distributions of interest, principal, or other sums on subordinated debentures without prior written approval of the Supervisory Authorities.

 

Brokered Deposits. The Order provides that the Bank may not accept, renew, or roll over any brokered deposits unless it is in compliance with the requirements of the FDIC regulations governing brokered deposits. These regulations prohibit undercapitalized institutions from accepting, renewing, or rolling over any brokered deposits and also prohibit undercapitalized institutions from soliciting deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in the institution’s market area. An “adequately capitalized” institution may not accept, renew, or roll over brokered deposits unless it has applied for and been granted a waiver by the FDIC.

 

Written Plans and Other Material Terms. Under the terms of the Order, the Bank was required to prepare and submit the following written plans or reports to the Supervisory Authorities:

 

·Plan to improve liquidity, contingency funding, interest rate risk, and asset liability management;
·Plan to reduce assets of $250,000 or greater classified “doubtful” and “substandard”;
·Revised lending and collection policy to provide effective guidance and control over the Bank’s lending and credit administration functions;
·Effective internal loan review and grading system;
·Policy for managing the Bank’s other real estate;
·Business/strategic plan covering the overall operation of the Bank;
·Plan and comprehensive budget for all categories of income and expense for the year 2011;
·Policy and procedures for managing interest rate risk; and
·Assessment of the Bank’s information technology function.

 

Under the Order, the Bank’s board of directors agreed to increase its participation in the affairs of the Bank, including assuming full responsibility for the approval of policies and objectives for the supervision of all of the Bank’s activities. The Bank was also required to establish a board committee to monitor and coordinate compliance with the Order.

 

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The Order will remain in effect until modified or terminated by the Supervisory Authorities.

 

While subject to the Order, we expect that our management and board of directors will continue to focus considerable time and attention on taking corrective actions to comply with the terms. In addition, certain provisions of the Order described above will continue to adversely impact the Company’s businesses and results of operations.

 

Written Agreement – In June 2012, the Company entered into a written agreement with the Federal Reserve Bank of Richmond. Pursuant to the terms of the Written Agreement, the Company developed and submitted to the Reserve Bank for approval written plans to maintain sufficient capital and correct any violations of Section 23A of the Federal Reserve Act and Regulation W. In addition, the Company submitted a written statement of its planned sources and uses of cash for debt service, operation expenses, and other purposes.

 

The Company also has agreed that it will not, without prior regulatory approval:

·pay or declare any dividends;
·take any other form of payment representing a reduction in Bank’s capital;
·make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities;
·incur, increase or guarantee any debt; or
·purchase or redeem any shares of its stock.

 

Since entering into the Order and the Written Agreement, the Company has taken numerous steps to comply with their terms. As of March 31, 2015, we believe we have complied with all requirements of the Order and the Written Agreement with the exception of the correction of noncompliance with Section 23A of Regulation W of the Federal Reserve Act in the Written Agreement.

 

As previous