Attached files
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EX-31.2 - EXHIBIT 31.2 - Village Bank & Trust Financial Corp. | v438813_ex31-2.htm |
EX-31.1 - EXHIBIT 31.1 - Village Bank & Trust Financial Corp. | v438813_ex31-1.htm |
EX-32.1 - EXHIBIT 32.1 - Village Bank & Trust Financial Corp. | v438813_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 0-50765
VILLAGE BANK AND TRUST FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Virginia | 16-1694602 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
13319 Midlothian Turnpike, Midlothian, Virginia | 23113 | |
(Address of principal executive offices) | (Zip code) |
804-897-3900
(Registrant’s telephone number, including area code)
Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨ | Accelerated Filer ¨ |
Non-Accelerated Filer ¨ (Do not check if smaller reporting company) | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
1,417,775 shares of common stock, $4.00 par value, outstanding as of April 24, 2016
Village Bank and Trust Financial Corp.
Form 10-Q
TABLE OF CONTENTS
2 |
Part I – Financial Information
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Balance Sheets |
March 31, 2016 (Unaudited) and December 31, 2015 |
(in thousands, except share data) |
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 22,653 | $ | 17,076 | ||||
Federal funds sold | 8,069 | 186 | ||||||
Total cash and cash equivalents | 30,722 | 17,262 | ||||||
Investment securities available for sale | 27,186 | 37,919 | ||||||
Loans held for sale | 9,150 | 14,373 | ||||||
Loans | ||||||||
Outstandings | 313,246 | 306,771 | ||||||
Allowance for loan losses | (3,611 | ) | (3,562 | ) | ||||
Deferred fees and costs, net | 688 | 670 | ||||||
Total loans, net | 310,323 | 303,879 | ||||||
Other real estate owned, net of valuation allowance | 6,134 | 6,249 | ||||||
Assets held for sale | 11,800 | 12,631 | ||||||
Premises and equipment, net | 13,586 | 13,671 | ||||||
Bank owned life insurance | 7,178 | 7,130 | ||||||
Accrued interest receivable | 2,038 | 2,060 | ||||||
Other assets | 4,873 | 4,767 | ||||||
$ | 422,990 | $ | 419,941 | |||||
Liabilities and Shareholders' Equity | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest bearing demand | $ | 78,986 | $ | 78,282 | ||||
Interest bearing | 290,098 | 286,566 | ||||||
Total deposits | 369,084 | 364,848 | ||||||
Federal Home Loan Bank advances | 5,000 | 6,000 | ||||||
Long-term debt - trust preferred securities | 8,764 | 8,764 | ||||||
Other borrowings | 558 | 508 | ||||||
Accrued interest payable | 91 | 1,346 | ||||||
Other liabilities | 8,226 | 8,116 | ||||||
Total liabilities | 391,723 | 389,582 | ||||||
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, 2016 and December 31, 2015 | 23 | 23 | ||||||
Common stock, $4 par value - 10,000,000 shares authorized; 1,417,775 shares issued and outstanding at March 31, 2016 and December 31, 2015 | 5,562 | 5,562 | ||||||
Additional paid-in capital | 58,664 | 58,497 | ||||||
Accumulated deficit | (33,724 | ) | (33,948 | ) | ||||
Common stock warrant | 732 | 732 | ||||||
Stock in directors rabbi trust | (1,034 | ) | (1,034 | ) | ||||
Directors deferred fees obligation | 1,034 | 1,034 | ||||||
Accumulated other comprehensive income (loss) | 10 | (507 | ) | |||||
Total shareholders' equity | 31,267 | 30,359 | ||||||
$ | 422,990 | $ | 419,941 |
See accompanying notes to consolidated financial statements.
3 |
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Operations |
Three Months Ended March 31, 2016 and 2015 |
(Unaudited) |
(in thousands, except per share data) |
2016 | 2015 | |||||||
Interest income | ||||||||
Loans | $ | 3,765 | $ | 3,624 | ||||
Investment securities | 120 | 155 | ||||||
Federal funds sold | 13 | 18 | ||||||
Total interest income | 3,898 | 3,797 | ||||||
Interest expense | ||||||||
Deposits | 599 | 636 | ||||||
Borrowed funds | 40 | 122 | ||||||
Total interest expense | 639 | 758 | ||||||
Net interest income | 3,259 | 3,039 | ||||||
Provision for loan losses | - | - | ||||||
Net interest income after provision for loan losses | 3,259 | 3,039 | ||||||
Noninterest income | ||||||||
Service charges and fees | 536 | 592 | ||||||
Gain on sale of loans | 1,146 | 1,229 | ||||||
Gain on sale of investment securities, net | 109 | 7 | ||||||
Rental income | 320 | 239 | ||||||
Other | 85 | 103 | ||||||
Total noninterest income | 2,196 | 2,170 | ||||||
Noninterest expense | ||||||||
Salaries and benefits | 2,659 | 2,668 | ||||||
Commissions | 249 | 292 | ||||||
Occupancy | 448 | 478 | ||||||
Equipment | 183 | 187 | ||||||
Supplies | 79 | 70 | ||||||
Professional and outside services | 718 | 647 | ||||||
Advertising and marketing | 85 | 72 | ||||||
Foreclosed assets, net | 101 | 132 | ||||||
FDIC insurance premium | 62 | 234 | ||||||
Other operating expense | 469 | 434 | ||||||
Total noninterest expense | 5,053 | 5,214 | ||||||
Income (loss) before income taxes | 402 | (5 | ) | |||||
Income tax expense | - | - | ||||||
Net income (loss) | 402 | (5 | ) | |||||
Preferred stock dividends and amortization of discount | (178 | ) | (163 | ) | ||||
Preferred stock principal forgiveness | - | 4,404 | ||||||
Preferred stock dividend forgiveness | - | 2,215 | ||||||
Net income available to common shareholders | $ | 224 | $ | 6,451 | ||||
Earnings per share, basic | $ | 0.16 | $ | 15.77 | ||||
Earnings per share, diluted | $ | 0.16 | $ | 15.40 |
See accompanying notes to consolidated financial statements.
4 |
Village Bank and Trust Financial Corp. and Subsidiary |
Consolidated Statements of Comprehensive Income |
Three Months Ended March 31, 2016 and 2015 |
(Unaudited) |
(in thousands) |
2016 | 2015 | |||||||
Net income (loss) | $ | 402 | $ | (5 | ) | |||
Other comprehensive income | ||||||||
Unrealized holding gains arising during the period | 889 | 658 | ||||||
Tax effect | 302 | 224 | ||||||
Net change in unrealized holding gains on securities available for sale, net of tax | 587 | 434 | ||||||
Reclassification adjustment | ||||||||
Reclassification adjustment for gains realized in net income (loss) | (109 | ) | (7 | ) | ||||
Tax effect | (37 | ) | (2 | ) | ||||
Reclassification for gains included in net income, net of tax | (72 | ) | (5 | ) | ||||
Minimum pension adjustment | 3 | 3 | ||||||
Tax effect | 1 | 1 | ||||||
Minimum pension adjustment, net of tax | 2 | 2 | ||||||
Total other comprehensive income | 517 | 431 | ||||||
Total comprehensive income | $ | 919 | $ | 426 |
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, 2016 and 2015 |
(Unaudited) |
(dollar amounts in thousands) |
Directors | Accumulated | |||||||||||||||||||||||||||||||||||
Additional | Stock in | Deferred | Other | |||||||||||||||||||||||||||||||||
Preferred | Common | Paid-in | Accumulated | Directors | Fees | Comprehensive | ||||||||||||||||||||||||||||||
Stock | Stock | Capital | Deficit | Warrant | Rabbi Trust | Obligation | Income (Loss) | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2015 | $ | 23 | $ | 5,562 | $ | 58,497 | $ | (33,948 | ) | $ | 732 | $ | (1,034 | ) | $ | 1,034 | $ | (507 | ) | $ | 30,359 | |||||||||||||||
Preferred stock dividend | - | - | - | (178 | ) | - | - | - | - | (178 | ) | |||||||||||||||||||||||||
Stock based compensation | - | - | 167 | - | - | - | - | - | 167 | |||||||||||||||||||||||||||
Minimum pension adjustment (net of income taxes of $1) | - | - | - | - | - | - | - | 2 | 2 | |||||||||||||||||||||||||||
Net income | - | - | - | 402 | - | - | - | - | 402 | |||||||||||||||||||||||||||
Change in unrealized gain (loss) on investment securities available-for-sale, net of reclassification and tax effect | - | - | - | - | - | - | - | 515 | 515 | |||||||||||||||||||||||||||
Balance, March 31, 2016 | $ | 23 | $ | 5,562 | $ | 58,664 | $ | (33,724 | ) | $ | 732 | $ | (1,034 | ) | $ | 1,034 | $ | 10 | $ | 31,267 | ||||||||||||||||
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 |
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, 2016 and 2015 |
(Unaudited) |
(dollars in thousands) |
2016 | 2015 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income (loss) | $ | 402 | $ | (5 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 203 | 214 | ||||||
Deferred income taxes | 123 | (15 | ) | |||||
Valuation allowance (recovery) deferred income taxes | (123 | ) | 15 | |||||
Write-down of other real estate owned | 72 | 80 | ||||||
Valuation allowance other real estate owned | (15 | ) | (14 | ) | ||||
Gain on securities sold | (109 | ) | (7 | ) | ||||
Gain on loans sold | (1,146 | ) | (1,229 | ) | ||||
(Gain) loss on sale of other real estate owned | 2 | (67 | ) | |||||
Stock compensation expense | 167 | 80 | ||||||
Proceeds from sale of mortgage loans | 37,624 | 43,727 | ||||||
Origination of mortgage loans for sale | (31,255 | ) | (48,808 | ) | ||||
Amortization of premiums and accretion of discounts on securities, net | 57 | 71 | ||||||
Decrease (increase) in interest receivable | 22 | (52 | ) | |||||
Increase in bank owned life insurance | (48 | ) | (48 | ) | ||||
Decrease (increase) in other assets | 462 | (273 | ) | |||||
Increase (decrease) in interest payable | (1,255 | ) | 53 | |||||
Increase (decrease) in other liabilities | (68 | ) | 252 | |||||
Net cash provided by (used in) operating activities | 5,115 | (6,026 | ) | |||||
Cash Flows from Investing Activities | ||||||||
Purchases of available for sale securities | - | (3,206 | ) | |||||
Proceeds from the sale or calls of available for sale securities | 11,565 | 6,611 | ||||||
Net increase in loans | (6,444 | ) | (1,336 | ) | ||||
Proceeds from sale of other real estate owned | 56 | 1,154 | ||||||
Purchases of premises and equipment | (118 | ) | (801 | ) | ||||
Net cash provided by investing activities | 5,059 | 2,422 | ||||||
Cash Flows from Financing Activities | ||||||||
Net proceeds from sale of common stock, net of expenses of $990 | - | 8,965 | ||||||
Net increase (decrease) in deposits | 4,236 | (2,028 | ) | |||||
Net decrease in Federal Home Loan Bank advances | (1,000 | ) | (1,000 | ) | ||||
Net increase (decrease) in other borrowings | 50 | (745 | ) | |||||
Net cash provided by financing activities | 3,286 | 5,192 | ||||||
Net increase in cash and cash equivalents | 13,460 | 1,588 | ||||||
Cash and cash equivalents, beginning of period | 17,262 | 49,103 | ||||||
Cash and cash equivalents, end of period | $ | 30,722 | $ | 50,691 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash payments for interest | $ | 1,894 | $ | 705 | ||||
Supplemental Schedule of Non Cash Activities | ||||||||
Real estate owned assets acquired in settlement of loans | $ | 1 | $ | - | ||||
Dividends on preferred stock accrued | $ | 178 | $ | 163 | ||||
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, 2016 and 2015
(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, 2016 is not necessarily indicative of the results to be expected for the full year ending December 31, 2016. 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, 2015 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, 2016 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 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, | ||||||||
2016 | 2015 | |||||||
Numerator | ||||||||
Net income (loss) - basic and diluted | $ | 402 | $ | (5 | ) | |||
Preferred stock dividend and accretion | (178 | ) | (163 | ) | ||||
Preferred stock principal forgiveness | - | 4,404 | ||||||
Preferred stock dividend forgiveness | - | 2,215 | ||||||
Net income available to common shareholders | $ | 224 | $ | 6,451 | ||||
Denominator | ||||||||
Weighted average shares outstanding - basic | 1,418 | 409 | ||||||
Dilutive effect of common stock options and restricted stock awards | - | 10 | ||||||
Weighted average shares outstanding - diluted | 1,418 | 419 | ||||||
Earnings per share - basic | $ | 0.16 | $ | 15.77 | ||||
Earnings per share - diluted | $ | 0.16 | $ | 15.40 |
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 2,616 and 6,485 shares were not included in computing diluted earnings per share for the three months ended March 31, 2016 and 2015, respectively, because their effects were anti-dilutive.
Note 4 – Investment securities available for sale
At March 31, 2016 and December 31, 2015, 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, 2016 | ||||||||||||||||||||||||
US Government Agencies | ||||||||||||||||||||||||
One to five years | $ | 11,000 | $ | 11,253 | $ | 49 | $ | - | $ | 11,302 | 0.91 | % | ||||||||||||
Five to ten years | 8,000 | 8,520 | 92 | - | 8,612 | 2.73 | % | |||||||||||||||||
More than ten years | 3,190 | 3,197 | - | (14 | ) | 3,183 | 1.07 | % | ||||||||||||||||
22,190 | 22,970 | 141 | (14 | ) | 23,097 | 1.31 | % | |||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
One to five years | 1,708 | 1,750 | 5 | (4 | ) | 1,751 | 1.35 | % | ||||||||||||||||
More than ten years | 1,050 | 1,098 | 1 | (1 | ) | 1,098 | 1.30 | % | ||||||||||||||||
2,758 | 2,848 | 6 | (5 | ) | 2,849 | 1.37 | % | |||||||||||||||||
Municipals | ||||||||||||||||||||||||
More than ten years | 1,130 | 1,253 | - | (13 | ) | 1,240 | 3.72 | % | ||||||||||||||||
1,130 | 1,253 | - | (13 | ) | 1,240 | 3.72 | % | |||||||||||||||||
Total investment securities | $ | 26,078 | $ | 27,071 | $ | 147 | $ | (32 | ) | $ | 27,186 | 1.43 | % | |||||||||||
December 31, 2015 | ||||||||||||||||||||||||
US Government Agencies | ||||||||||||||||||||||||
One to five years | $ | 11,000 | $ | 11,270 | $ | - | $ | (157 | ) | $ | 11,113 | 0.91 | % | |||||||||||
Five to ten years | 18,500 | 19,697 | - | (403 | ) | 19,294 | 2.32 | % | ||||||||||||||||
More than ten years | 3,312 | 3,319 | - | (13 | ) | 3,306 | 0.85 | % | ||||||||||||||||
32,812 | 34,286 | - | (573 | ) | 33,713 | 1.51 | % | |||||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
One to five years | 1,794 | 1,841 | - | (28 | ) | 1,813 | 1.30 | % | ||||||||||||||||
More than ten years | 1,149 | 1,202 | 1 | (15 | ) | 1,188 | 1.34 | % | ||||||||||||||||
2,943 | 3,043 | 1 | (43 | ) | 3,001 | 1.35 | % | |||||||||||||||||
Municipals | ||||||||||||||||||||||||
More than ten years | 1,130 | 1,255 | - | (50 | ) | 1,205 | 3.72 | % | ||||||||||||||||
1,130 | 1,255 | - | (50 | ) | 1,205 | 3.72 | % | |||||||||||||||||
Total investment securities | $ | 36,885 | $ | 38,584 | $ | 1 | $ | (666 | ) | $ | 37,919 | 1.57 | % |
Investment securities with book values of approximately $5,156,000 and $5,968,000 at March 31, 2016 and December 31, 2015, 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 periods indicated (dollars in thousands):
Three Months | ||||||||
Ended March 31, | ||||||||
2016 | 2015 | |||||||
Gross realized gains | $ | 109 | $ | 13 | ||||
Gross realized losses | - | (6 | ) | |||||
$ | 109 | $ | 7 |
10 |
The Company sold approximately $11 million and $7 million of investment securities available for sale at a net gain of $109,000 and $7,000 for the three months ended March 31, 2016 and 2015, 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.
Investment securities available for sale that have an unrealized loss position at March 31, 2016 and December 31, 2015 are detailed below (dollars 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, 2016 | ||||||||||||||||||||||||
US Government Agencies | $ | 3,183 | $ | (13 | ) | $ | 2,002 | $ | (1 | ) | $ | 5,185 | $ | (14 | ) | |||||||||
Municipals | 511 | (1 | ) | 520 | (12 | ) | 1,031 | (13 | ) | |||||||||||||||
Mortgage-backed securities | 1,001 | (1 | ) | 870 | (4 | ) | 1,871 | (5 | ) | |||||||||||||||
$ | 4,695 | $ | (15 | ) | $ | 3,392 | $ | (17 | ) | $ | 8,087 | $ | (32 | ) | ||||||||||
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 | ) |
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 March 31, 2016.
11 |
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, 2016 | December 31, 2015 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Construction and land development | ||||||||||||||||
Residential | $ | 7,632 | 2.44 | % | $ | 5,202 | 1.70 | % | ||||||||
Commercial | 24,476 | 7.82 | % | 25,948 | 8.46 | % | ||||||||||
32,108 | 10.26 | % | 31,150 | 10.15 | % | |||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | 70,801 | 22.60 | % | 69,256 | 22.58 | % | ||||||||||
Non-owner occupied | 41,848 | 13.36 | % | 38,037 | 12.40 | % | ||||||||||
Multifamily | 8,429 | 2.69 | % | 8,537 | 2.78 | % | ||||||||||
Farmland | 382 | 0.12 | % | 388 | 0.13 | % | ||||||||||
121,460 | 38.77 | % | 116,218 | 37.88 | % | |||||||||||
Consumer real estate | ||||||||||||||||
Home equity lines | 21,784 | 6.95 | % | 20,333 | 6.63 | % | ||||||||||
Secured by 1-4 family residential, | ||||||||||||||||
First deed of trust | 56,061 | 17.90 | % | 56,776 | 18.51 | % | ||||||||||
Second deed of trust | 6,202 | 1.98 | % | 6,485 | 2.11 | % | ||||||||||
84,047 | 26.83 | % | 83,594 | 27.25 | % | |||||||||||
Commercial and industrial loans (except those secured by real estate) | 24,388 | 7.79 | % | 20,086 | 6.55 | % | ||||||||||
Guaranteed student loans | 49,445 | 15.78 | % | 53,989 | 17.60 | % | ||||||||||
Consumer and other | 1,798 | 0.57 | % | 1,734 | 0.57 | % | ||||||||||
Total loans | 313,246 | 100.0 | % | 306,771 | 100.0 | % | ||||||||||
Deferred loan cost, net | 688 | 670 | ||||||||||||||
Less: allowance for loan losses | (3,611 | ) | (3,562 | ) | ||||||||||||
$ | 310,323 | $ | 303,879 |
The Bank purchased portfolios of rehabilitated student loans guaranteed by the Department of Education (“DOE”). 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 arrangement with the Company totaled $7,807,000 and $7,891,000 at March 31, 2016 and December 31, 2015, respectively.
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; |
12 |
· | 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 (dollars in thousands):
Risk Rated | Risk Rated | Risk Rated | Risk Rated | Total | ||||||||||||||||
1-4 | 5 | 6 | 7 | Loans | ||||||||||||||||
March 31, 2016 | ||||||||||||||||||||
Construction and land development | ||||||||||||||||||||
Residential | $ | 7,632 | $ | - | $ | - | $ | - | $ | 7,632 | ||||||||||
Commercial | 22,514 | 565 | 1,397 | - | 24,476 | |||||||||||||||
30,146 | 565 | 1,397 | - | 32,108 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 64,881 | 4,795 | 1,125 | - | 70,801 | |||||||||||||||
Non-owner occupied | 40,508 | 1,247 | 93 | - | 41,848 | |||||||||||||||
Multifamily | 8,232 | 197 | - | - | 8,429 | |||||||||||||||
Farmland | 382 | - | - | - | 382 | |||||||||||||||
114,003 | 6,239 | 1,218 | - | 121,460 | ||||||||||||||||
Consumer real estate | ||||||||||||||||||||
Home equity lines | 19,994 | 432 | 1,358 | - | 21,784 | |||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||||||
First deed of trust | 50,309 | 2,888 | 2,864 | - | 56,061 | |||||||||||||||
Second deed of trust | 5,474 | 127 | 601 | - | 6,202 | |||||||||||||||
75,777 | 3,447 | 4,823 | - | 84,047 | ||||||||||||||||
Commercial and industrial loans (except those secured by real estate) | 22,672 | 1,195 | 521 | - | 24,388 | |||||||||||||||
Guaranteed student loans | 49,445 | - | - | - | 49,445 | |||||||||||||||
Consumer and other | 1,731 | 60 | 7 | - | 1,798 | |||||||||||||||
Total loans | $ | 293,774 | $ | 11,506 | $ | 7,966 | $ | - | $ | 313,246 | ||||||||||
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 |
13 |
The following table presents the aging of the recorded investment in past due loans and leases as of the dates indicated (dollars 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 | ||||||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||||||||||
Construction and land development | ||||||||||||||||||||||||||||
Residential | $ | - | $ | - | $ | - | $ | - | $ | 7,632 | $ | 7,632 | $ | - | ||||||||||||||
Commercial | 34 | - | - | 34 | 24,442 | 24,476 | - | |||||||||||||||||||||
34 | - | - | 34 | 32,074 | 32,108 | - | ||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||
Owner occupied | - | - | - | - | 70,801 | 70,801 | - | |||||||||||||||||||||
Non-owner occupied | - | - | - | - | 41,848 | 41,848 | - | |||||||||||||||||||||
Multifamily | - | - | - | - | 8,429 | 8,429 | - | |||||||||||||||||||||
Farmland | - | - | - | - | 382 | 382 | - | |||||||||||||||||||||
- | - | - | - | 121,460 | 121,460 | - | ||||||||||||||||||||||
Consumer real estate | ||||||||||||||||||||||||||||
Home equity lines | 92 | - | - | 92 | 21,692 | 21,784 | - | |||||||||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||||||||||||||
First deed of trust | 480 | 96 | - | 576 | 55,485 | 56,061 | - | |||||||||||||||||||||
Second deed of trust | 115 | - | - | 115 | 6,087 | 6,202 | - | |||||||||||||||||||||
687 | 96 | - | 783 | 83,264 | 84,047 | - | ||||||||||||||||||||||
Commercial and industrial
loans (except those secured by real estate) | 97 | - | - | 97 | 24,291 | 24,388 | - | |||||||||||||||||||||
Guaranteed student loans | 3,434 | 2,332 | 8,436 | 14,202 | 35,243 | 49,445 | 8,436 | |||||||||||||||||||||
Consumer and other | 29 | - | - | 29 | 1,769 | 1,798 | - | |||||||||||||||||||||
Total loans | $ | 4,281 | $ | 2,428 | $ | 8,436 | $ | 15,145 | $ | 298,101 | $ | 313,246 | $ | 8,436 |
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 |
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 (dollars in thousands):
14 |
March 31, 2016 | ||||||||||||
Unpaid | ||||||||||||
Recorded | Principal | Related | ||||||||||
Investment | Balance | Allowance | ||||||||||
With no related allowance recorded | ||||||||||||
Construction and land development | ||||||||||||
Commercial | $ | 52 | $ | 119 | $ | - | ||||||
Commercial real estate | ||||||||||||
Owner occupied | 599 | 599 | ||||||||||
Non-owner occupied | 2,621 | 2,621 | - | |||||||||
3,220 | 3,220 | - | ||||||||||
Consumer real estate | ||||||||||||
Home equity lines | 1,238 | 1,247 | - | |||||||||
Secured by 1-4 family residential | ||||||||||||
First deed of trust | 4,090 | 4,121 | - | |||||||||
Second deed of trust | 1,106 | 1,376 | - | |||||||||
6,434 | 6,744 | - | ||||||||||
Commercial and industrial loans (except those secured by real estate) | 368 | 598 | - | |||||||||
10,074 | 10,681 | - | ||||||||||
With an allowance recorded | ||||||||||||
Construction and land development | ||||||||||||
Commercial | 1,764 | 1,764 | 91 | |||||||||
Commercial real estate | ||||||||||||
Owner occupied | 5,141 | 5,156 | 159 | |||||||||
Non-Owner occupied | 93 | 93 | 2 | |||||||||
5,234 | 5,249 | 161 | ||||||||||
Consumer real estate | ||||||||||||
Secured by 1-4 family residential | ||||||||||||
First deed of trust | 1,892 | 1,892 | 338 | |||||||||
Second deed of trust | 97 | 97 | 97 | |||||||||
1,989 | 1,989 | 435 | ||||||||||
Commercial and industrial loans (except those secured by real estate) | 143 | 245 | 8 | |||||||||
9,130 | 9,247 | 695 | ||||||||||
Total | ||||||||||||
Construction and land development | ||||||||||||
Commercial | 1,816 | 1,883 | 91 | |||||||||
1,816 | 1,883 | 91 | ||||||||||
Commercial real estate | ||||||||||||
Owner occupied | 5,740 | 5,755 | 159 | |||||||||
Non-owner occupied | 2,714 | 2,714 | 2 | |||||||||
8,454 | 8,469 | 161 | ||||||||||
Consumer real estate | ||||||||||||
Home equity lines | 1,238 | 1,247 | - | |||||||||
Secured by 1-4 family residential, | ||||||||||||
First deed of trust | 5,982 | 6,013 | 338 | |||||||||
Second deed of trust | 1,203 | 1,473 | 97 | |||||||||
8,423 | 8,733 | 435 | ||||||||||
Commercial and industrial loans (except those secured by real estate) | 511 | 843 | 8 | |||||||||
$ | 19,204 | $ | 19,928 | $ | 695 |
15 |
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 |
16 |
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 (dollars in thousands):
For the Three Months Ended March 31, | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Average | Interest | Average | Interest | |||||||||||||
Recorded | Income | Recorded | Income | |||||||||||||
Investment | Recognized | Investment | Recognized | |||||||||||||
With no related allowance recorded | ||||||||||||||||
Construction and land development | ||||||||||||||||
Residential | $ | - | $ | - | $ | 232 | $ | 1 | ||||||||
Commercial | 98 | 11 | 2,967 | 39 | ||||||||||||
98 | 11 | 3,199 | 40 | |||||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | 816 | 14 | 1,680 | 17 | ||||||||||||
Non-owner occupied | 2,631 | 34 | 6,563 | 87 | ||||||||||||
Multifamily | - | - | 968 | 6 | ||||||||||||
Farmland | - | - | 14 | - | ||||||||||||
3,447 | 48 | 9,225 | 110 | |||||||||||||
Consumer real estate | ||||||||||||||||
Home equity lines | 1,287 | - | 800 | 4 | ||||||||||||
Secured by 1-4 family residential | ||||||||||||||||
First deed of trust | 4,092 | 47 | 6,401 | 90 | ||||||||||||
Second deed of trust | 1,057 | 12 | 1,183 | 14 | ||||||||||||
6,436 | 59 | 8,384 | 108 | |||||||||||||
Commercial and industrial loans (except those secured by real estate) | 797 | 7 | 227 | 2 | ||||||||||||
Consumer and other | 15 | - | 19 | - | ||||||||||||
10,793 | 125 | 21,054 | 260 | |||||||||||||
With an allowance recorded | ||||||||||||||||
Construction and land development | ||||||||||||||||
Commercial | 1,743 | 6 | 587 | 4 | ||||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | 5,600 | 57 | 6,597 | 66 | ||||||||||||
Non-Owner occupied | 94 | 5 | 102 | 1 | ||||||||||||
5,694 | 62 | 6,699 | 67 | |||||||||||||
Consumer real estate | ||||||||||||||||
Home equity lines | 30 | - | - | - | ||||||||||||
Secured by 1-4 family residential | ||||||||||||||||
First deed of trust | 2,042 | 6 | 1,285 | - | ||||||||||||
Second deed of trust | 149 | 2 | 254 | |||||||||||||
2,221 | 8 | 1,539 | - | |||||||||||||
Commercial and industrial loans (except those secured by real estate) | 138 | - | 493 | 5 | ||||||||||||
9,796 | 76 | 9,318 | 76 | |||||||||||||
Total | ||||||||||||||||
Construction and land development | ||||||||||||||||
Residential | - | - | 232 | 1 | ||||||||||||
Commercial | 1,842 | 17 | 3,554 | 43 | ||||||||||||
1,842 | 17 | 3,786 | 44 | |||||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | 6,416 | 71 | 8,277 | 83 | ||||||||||||
Non-owner occupied | 2,725 | 39 | 6,665 | 88 | ||||||||||||
Multifamily | - | - | 968 | 6 | ||||||||||||
Farmland | - | - | 14 | - | ||||||||||||
9,141 | 110 | 15,924 | 177 | |||||||||||||
Consumer real estate | ||||||||||||||||
Home equity lines | 1,317 | - | 800 | 4 | ||||||||||||
Secured by 1-4 family residential, | ||||||||||||||||
First deed of trust | 6,134 | 53 | 7,686 | 90 | ||||||||||||
Second deed of trust | 1,206 | 14 | 1,437 | 14 | ||||||||||||
8,657 | 67 | 9,923 | 108 | |||||||||||||
Commercial and industrial loans (except those secured by real estate) | 936 | 7 | 720 | 7 | ||||||||||||
Consumer and other | 15 | - | 19 | - | ||||||||||||
$ | 20,589 | $ | 201 | $ | 30,372 | $ | 336 |
17 |
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 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 for the periods indicated (dollars in thousands).
Specific | ||||||||||||||||
Valuation | ||||||||||||||||
Total | Performing | Nonaccrual | Allowance | |||||||||||||
March 31, 2016 | ||||||||||||||||
Construction and land development | ||||||||||||||||
Residential | $ | - | $ | - | $ | - | $ | - | ||||||||
Commercial | 1,694 | 1,694 | - | 80 | ||||||||||||
1,694 | 1,694 | - | 80 | |||||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | 5,688 | 5,429 | 259 | 159 | ||||||||||||
Non-owner occupied | 2,714 | 2,714 | - | 2 | ||||||||||||
8,402 | 8,143 | 259 | 161 | |||||||||||||
Consumer real estate | ||||||||||||||||
Home equity lines | 85 | - | 85 | - | ||||||||||||
Secured by 1-4 family residential | ||||||||||||||||
First deeds of trust | 4,242 | 3,260 | 982 | 275 | ||||||||||||
Second deeds of trust | 686 | 686 | - | - | ||||||||||||
5,013 | 3,946 | 1,067 | 275 | |||||||||||||
Commercial and industrial loans (except those secured by real estate) | 119 | - | 119 | 1 | ||||||||||||
Consumer and other | - | - | - | - | ||||||||||||
$ | 15,228 | $ | 13,783 | $ | 1,445 | $ | 517 |
18 |
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 | 825 | 237 | |||||||||||||
Commercial and industrial loans (except those secured by real estate) | 127 | - | 127 | 18 | ||||||||||||
Consumer and other | - | - | - | - | ||||||||||||
$ | 15,485 | $ | 14,260 | $ | 1,225 | $ | 467 |
There were no TDRs identified during the three months ended March 31, 2016 and 2015.
The following table summarizes defaults on TDRs identified for the indicated periods (dollars in thousands):
March 31, 2016 | March 31, 2015 | |||||||||||||||
Number of | Recorded | Number of | Recorded | |||||||||||||
Loans | Balance | Loans | Balance | |||||||||||||
Commercial real estate | ||||||||||||||||
Owner occupied | - | $ | - | 1 | $ | 406 | ||||||||||
- | - | 1 | 406 | |||||||||||||
Consumer real estate | ||||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||
First deed of trust | 1 | 262 | 1 | 121 | ||||||||||||
Second deed of trust | 3 | 181 | - | - | ||||||||||||
4 | 443 | 1 | 121 | |||||||||||||
Commercial and industrial (except those secured by real estate) | 1 | 119 | - | - | ||||||||||||
5 | $ | 562 | 2 | $ | 527 |
19 |
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, 2016 | ||||||||||||||||||||
Construction and land development | ||||||||||||||||||||
Residential | $ | 30 | $ | 13 | $ | - | $ | 1 | $ | 44 | ||||||||||
Commercial | 291 | 62 | - | - | 353 | |||||||||||||||
321 | 75 | - | 1 | 397 | ||||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 1,167 | (182 | ) | - | - | 985 | ||||||||||||||
Non-owner occupied | 460 | (59 | ) | - | 1 | 402 | ||||||||||||||
Multifamily | 51 | - | - | - | 51 | |||||||||||||||
Farmland | 17 | (138 | ) | - | 125 | 4 | ||||||||||||||
1,695 | (379 | ) | - | 126 | 1,442 | |||||||||||||||
Consumer real estate | ||||||||||||||||||||
Home equity lines | 448 | (57 | ) | - | 1 | 392 | ||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||||||
First deed of trust | 602 | (35 | ) | (27 | ) | 6 | 546 | |||||||||||||
Second deed of trust | 111 | (19 | ) | - | 5 | 97 | ||||||||||||||
1,161 | (111 | ) | (27 | ) | 12 | 1,035 | ||||||||||||||
Commercial and industrial loans (except those secured by real estate) | 94 | (23 | ) | - | 24 | 95 | ||||||||||||||
Guaranteed student loans | 230 | 63 | (87 | ) | - | 206 | ||||||||||||||
Consumer and other | 2 | (2 | ) | (1 | ) | 1 | - | |||||||||||||
Unallocated | 59 | 377 | - | - | 436 | |||||||||||||||
$ | 3,562 | $ | - | $ | (115 | ) | $ | 164 | $ | 3,611 |
Beginning | Provision for | Ending | ||||||||||||||||||
Balance | Loan Losses | Charge-offs | Recoveries | Balance | ||||||||||||||||
Three Months Ended March 31, 2015 | ||||||||||||||||||||
Construction and land development | ||||||||||||||||||||
Residential | $ | 34 | $ | 51 | $ | - | $ | 1 | $ | 86 | ||||||||||
Commercial | 202 | 242 | (115 | ) | 1 | 330 | ||||||||||||||
236 | 293 | (115 | ) | 2 | 416 | |||||||||||||||
Commercial real estate | ||||||||||||||||||||
Owner occupied | 1,837 | 59 | - | - | 1,896 | |||||||||||||||
Non-owner occupied | 607 | 76 | - | - | 683 | |||||||||||||||
Multifamily | 77 | 39 | - | - | 116 | |||||||||||||||
Farmland | 130 | (125 | ) | - | - | 5 | ||||||||||||||
2,651 | 49 | - | - | 2,700 | ||||||||||||||||
Consumer real estate | ||||||||||||||||||||
Home equity lines | 469 | 214 | - | - | 683 | |||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||||||
First deed of trust | 1,345 | (429 | ) | - | 358 | 1,274 | ||||||||||||||
Second deed of trust | 275 | (67 | ) | - | 9 | 217 | ||||||||||||||
2,089 | (282 | ) | - | 367 | 2,174 | |||||||||||||||
Commercial and industrial loans (except those secured by real estate) | 506 | (52 | ) | (162 | ) | 12 | 304 | |||||||||||||
Student Loans | 217 | - | - | - | 217 | |||||||||||||||
Consumer and other | 30 | (8 | ) | (2 | ) | 13 | 33 | |||||||||||||
$ | 5,729 | $ | - | $ | (279 | ) | $ | 394 | $ | 5,844 |
20 |
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 | |||||||||||||
Guaranteed student loans | 217 | 13 | - | - | 230 | |||||||||||||||
Consumer and other | 30 | 1 | (55 | ) | 26 | 2 | ||||||||||||||
Unallocated | - | 59 | - | - | 59 | |||||||||||||||
$ | 5,729 | $ | (2,000 | ) | $ | (816 | ) | $ | 649 | $ | 3,562 |
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.
Discussion of the recovery of loan losses related to specific loan types are provided following:
· | The recovery of loan losses totaling $379,000 for the commercial real estate portfolio in the first quarter of 2016 was 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 0.57% in 2015 to 0.41% in the first quarter of 2016. In addition, the portfolio was in a net-recovery position of $126,000 for the first quarter of 2016. |
· | The recovery of loan losses totaling $111,000 for the consumer real estate portfolio in the first quarter of 2016 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 0.24% in 2015 to 0.03% in the first quarter of 2016. |
21 |
· | 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 net recovery of $215,000 in 2015. |
22 |
Loans were evaluated for impairment as follows for the periods indicated (dollars in thousands):
Recorded Investment in Loans | ||||||||||||||||||||||||||||||||
Allowance | Loans | |||||||||||||||||||||||||||||||
Loans acquired | Loans acquired | |||||||||||||||||||||||||||||||
Ending | with deteriorated | Ending | with deteriorated | |||||||||||||||||||||||||||||
Balance | Individually | Collectively | credit quality | Balance | Individually | Collectively | credit quality | |||||||||||||||||||||||||
Period Ended March 31, 2016 | ||||||||||||||||||||||||||||||||
Construction and land development | ||||||||||||||||||||||||||||||||
Residential | $ | 44 | $ | - | $ | 44 | $ | - | $ | 7,632 | $ | - | $ | 7,632 | $ | - | ||||||||||||||||
Commercial | 353 | 91 | 262 | - | 24,476 | 1,816 | 22,660 | - | ||||||||||||||||||||||||
397 | 91 | 306 | - | 32,108 | 1,816 | 30,292 | - | |||||||||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||||||||||
Owner occupied | 985 | 159 | 826 | - | 70,801 | 5,740 | 65,061 | - | ||||||||||||||||||||||||
Non-owner occupied | 402 | 2 | 400 | - | 41,848 | 2,714 | 39,134 | - | ||||||||||||||||||||||||
Multifamily | 51 | - | 51 | - | 8,429 | - | 8,429 | - | ||||||||||||||||||||||||
Farmland | 4 | - | 4 | - | 382 | - | 382 | - | ||||||||||||||||||||||||
1,442 | 161 | 1,281 | - | 121,460 | 8,454 | 113,006 | - | |||||||||||||||||||||||||
Consumer real estate | ||||||||||||||||||||||||||||||||
Home equity lines | 392 | - | 392 | - | 21,784 | 1,238 | 20,546 | - | ||||||||||||||||||||||||
Secured by 1-4 family residential | ||||||||||||||||||||||||||||||||
First deed of trust | 546 | 338 | 208 | - | 56,061 | 5,982 | 50,079 | - | ||||||||||||||||||||||||
Second deed of trust | 97 | 97 | - | - | 6,202 | 1,203 | 4,999 | - | ||||||||||||||||||||||||
1,035 | 435 | 600 | - | 84,047 | 8,423 | 75,624 | - | |||||||||||||||||||||||||
Commercial and industrial
loans (except those secured by real estate) | 95 | 8 | 87 | - | 24,388 | 511 | 23,877 | - | ||||||||||||||||||||||||
Student loans | 206 | - | 206 | 49,445 | - | 49,445 | - | |||||||||||||||||||||||||
Consumer and other | 436 | - | 436 | - | 1,798 | - | 1,798 | - | ||||||||||||||||||||||||
$ | 3,611 | $ | 695 | $ | 2,916 | $ | - | $ | 313,246 | $ | 19,204 | $ | 294,042 | $ | - | |||||||||||||||||
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 | $ | - |
23 |
Note 6 – Deposits
Deposits as of March 31, 2016 and December 31, 2015 were as follows (dollars in thousands):
March 31, 2016 | December 31, 2015 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Demand accounts | $ | 78,986 | 21.4 | % | $ | 78,282 | 21.4 | % | ||||||||
Interest checking accounts | 44,130 | 12.0 | % | 44,256 | 12.1 | % | ||||||||||
Money market accounts | 66,447 | 18.0 | % | 64,841 | 17.8 | % | ||||||||||
Savings accounts | 20,373 | 5.5 | % | 19,403 | 5.3 | % | ||||||||||
Time deposits of $250,000 and over | 14,241 | 3.9 | % | 9,717 | 2.7 | % | ||||||||||
Other time deposits | 144,907 | 39.2 | % | 148,349 | 40.7 | % | ||||||||||
Total | $ | 369,084 | 100.0 | % | $ | 364,848 | 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, 2016 was 2.78%. 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, 2016 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, 2016 was 2.03%. 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, 2016 and there are no plans to do so. The principal asset of the Trust is $3.6 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
The Trust Preferred Capital Notes may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be included in Tier 2 capital.
The obligations of the Company with respect to the issuance of the Trust Preferred Capital Notes constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the Trust Preferred Capital Notes. Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related Trust Preferred Capital Notes and require a deferral of common dividends.
24 |
The Company had been deferring interest payments since June 2011. Although we elected to defer payment of the interest due, the amounts had 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 Federal Reserve Bank of Richmond (the “Reserve Bank”) approving the payment of all accrued and deferred interest payments on the trust preferred securities. On March 15, 2016, the Company made the regularly-scheduled quarterly interest payment and repaid all of the accrued and deferred interest on the trust preferred securities totaling $1,332,633, bringing the Company current as of such date. Although the Company intends to make future regularly-scheduled quarterly interest payments on the trust preferred securities, no assurance can be given that it will do so. The Reserve Bank’s approval was limited to the interest payments due through March 15, 2016 and, under the terms of the Company’s Written Agreement with the Reserve Bank, the Company must seek approval before making any future quarterly interest payments on the trust preferred securities.
Note 8 – Stock incentive plan
The Village Bank and Trust Financial Corp. Incentive Plan, which was adopted on February 28, 2006, authorized the issuance of up to 48,750 shares of common stock (after the reverse stock split) (the “2006 Plan”). On May 26, 2015, the Company’s shareholders approved the adoption of the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (the “2015 Plan”) authorizing the issuance of up to 60,000 shares of common stock. The 2015 Plan was adopted to replace the 2006 Plan and any new awards will be made pursuant to the 2015 Plan. The prior awards made under the 2006 Plan were unchanged by the adoption of the 2015 Plan and continue to be governed by the terms of the 2006 Plan.
The following table summarizes stock options outstanding under the stock incentive plan at the indicated dates:
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||||||||||
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 | 2,929 | $ | 24.47 | $ | 12.71 | 6,830 | $ | 92.34 | $ | 52.74 | ||||||||||||||||||||||
Granted | - | - | - | - | - | - | ||||||||||||||||||||||||||
Forfeited | - | - | - | - | - | - | ||||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | ||||||||||||||||||||||||||
Options outstanding, end of period | 2,929 | $ | 24.47 | $ | 12.71 | $ | - | 6,830 | $ | 92.34 | $ | 52.74 | $ | - | ||||||||||||||||||
Options exercisable, end of period | 1,730 | 5,286 |
25 |
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. These restricted stock awards have three-year grading 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 47,348 and 14,096 at March 31, 2016 and 2015, respectively.
The fair value of the stock is calculated under the same methodology as stock options and the expense is recognized over the vesting period. Unamortized stock-based compensation related to nonvested share based compensation arrangements granted under the stock incentive plan as of March 31, 2016 and 2015, was $841,163 and $403,046, respectively. The time based unamortized compensation of $428,743 is expected to be recognized over a weighted average period of 2.09 years.
Stock-based compensation expense was approximately $167,000 and $80,000 for the three months ended March 31, 2016 and 2015, respectively.
Note 9 — Fair value
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.
Financial Accounting Standards Board (“FASB”) Codification Topic 820: Fair Value Measurements and Disclosures establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:
Level 1 Inputs — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 Inputs — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 Inputs — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods to determine the fair value of each type of financial instrument:
26 |
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.
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 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.
27 |
Assets and liabilities measured at fair value under Topic 820 on a recurring and non-recurring basis are summarized below for the indicated dates (dollars in thousands):
Fair Value Measurement | ||||||||||||||||
at March 31, 2016 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 | $ | 23,097 | $ | 3,183 | $ | 19,914 | $ | - | ||||||||
Mortgage-backed securities | 2,849 | - | 2,849 | - | ||||||||||||
Municipals | 1,240 | - | 1,240 | - | ||||||||||||
Financial Assets - Non-Recurring | ||||||||||||||||
Impaired loans | 19,204 | - | 17,600 | 1,604 | ||||||||||||
Assets held for sale | 11,800 | - | 11,800 | - | ||||||||||||
Real estate owned | 6,134 | - | 6,075 | 59 |
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 | - | 18,862 | 1,647 | ||||||||||||
Assets held for sale | 12,631 | - | 12,631 | - | ||||||||||||
Real estate owned | 6,249 | - | 6,190 | 59 |
28 |
The following tables present qualitative information about Level 3 fair value measurements for financial instruments measured at fair value at March 31, 2016 and December 31, 2015 (dollars in thousands):
March 31, 2016 | ||||||||||
Range | ||||||||||
Fair Value | Valuation | Unobservable | (Weighted | |||||||
Estimate | Techniques | Input | Average) | |||||||
(In thousands) | ||||||||||
Impaired loans - real estate secured | $ | 983 | 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 | $ | 621 | 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 | $ | 11,800 | Appraisal (1) or Internal Valuation (2) | Selling costs< |