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EX-32.1 - EXHIBIT 32.1 - Village Bank & Trust Financial Corp.tm2111691d1_ex32-1.htm
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EX-31.1 - EXHIBIT 31.1 - Village Bank & Trust Financial Corp.tm2111691d1_ex31-1.htm

 

 

 

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, 2021

 

¨ 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

incorporation or organization)

(I.R.S. Employer

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $4.00 per share VBFC Nasdaq Capital Market

 

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨

 

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

 

Large Accelerated Filer ¨   Accelerated Filer ¨
Non-Accelerated Filer x   Smaller Reporting Company x
Emerging growth company ¨    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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.

 

1,466,800 shares of common stock, $4.00 par value, outstanding as of April 30, 2021

 

 

 

 

 

 

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, 2021 (unaudited) and December 31, 2020 3
   
Consolidated Statements of Income For the Three Months Ended March 31, 2021 and 2020 (unaudited) 4
   
Consolidated Statements of Comprehensive Income For the Three Months Ended March 31, 2021 and 2020 (unaudited) 5
   
Consolidated Statements of Shareholders’ Equity For the Three Months Ended March 31, 2021 and 2020 (unaudited) 6
   
Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2021 and 2020 (unaudited) 7
   
Notes to Consolidated Financial Statements (unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
   
Item 4. Controls and Procedures 53
   
Part II – Other Information  
   
Item 1. Legal Proceedings 54
   
Item 1A. Risk Factors 54
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
   
Item 3. Defaults Upon Senior Securities 54
   
Item 4. Mine Safety Disclosures 54
   
Item 5. Other Information 54
   
Item 6. Exhibits 55
   
Signatures 56

 

2

 

 

Part I – Financial Information  

 

ITEM 1 – FINANCIAL STATEMENTS

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Balance Sheets
March 31, 2021 (Unaudited) and December 31, 2020*
(in thousands, except share and per share data)

 

   March 31,   December 31, 
   2021   2020 
Assets          
Cash and due from banks  $24,252   $12,709 
Federal funds sold   10,670    30,742 
Total cash and cash equivalents   34,922    43,451 
Investment securities available for sale, at fair value   42,371    40,844 
Restricted stock, at cost   694    825 
Loans held for sale   17,031    34,421 
Loans          
Outstandings   592,177    561,003 
Allowance for loan losses   (3,992)   (3,970)
Deferred fees and costs, net   (3,311)   (2,048)
Total loans, net   584,874    554,985 
Other real estate owned, net of valuation allowance   336    336 
Premises and equipment, net   11,898    11,779 
Bank owned life insurance   12,260    7,806 
Accrued interest receivable   4,793    4,943 
Other assets   6,442    6,846 
Total Assets  $715,621   $706,236 
Liabilities and Shareholders' Equity          
Liabilities          
Deposits          
Noninterest bearing demand  $245,582   $222,305 
Interest bearing   374,474    366,077 
Total deposits   620,056    588,382 
Long-term debt - trust preferred securities   8,764    8,764 
Subordinated debt, net   5,636    5,628 
Other borrowings   17,136    41,529 
Accrued interest payable   134    194 
Other liabilities   8,357    9,743 
Total liabilities   660,083    654,240 
Shareholders' equity          
Common stock, $4 par value, 10,000,000 shares authorized; 1,466,800 shares issued and outstanding at March 31, 2021 and 1,466,516 shares issued and outstanding at December 31, 2020   5,796    5,794 
Additional paid-in capital   54,593    54,510 
Accumulated deficit   (4,841)   (8,738)
Stock in directors rabbi trust   (730)   (771)
Directors deferred fees obligation   730    771 
Accumulated other comprehensive income (loss)   (10)   430 
Total shareholders' equity   55,538    51,996 
           
Total liabilities and shareholders' equity  $715,621   $706,236 

 

* Derived from audited consolidated financial statements

 

See accompanying notes to consolidated financial statements.

 

3

 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Income
Three Months Ended March 31, 2021 and 2020
(Unaudited)
(in thousands, except per share data)

 

   Three Months Ended
March 31,
 
   2021   2020 
Interest income          
Loans  $6,778   $5,369 
Investment securities   250    270 
Federal funds sold   3    45 
Total interest income   7,031    5,684 
           
Interest expense          
Deposits   493    900 
Borrowed funds   162    357 
Total interest expense   655    1,257 
           
Net interest income   6,376    4,427 
Provision for loan losses   -    400 
Net interest income after provision for loan losses   6,376    4,027 
           
Noninterest income          
Service charges and fees   536    518 
Mortgage banking income, net   3,491    1,370 
Gain on sale of investment securities, net   -    12 
Gain on sale of Small Business Administration loans   -    86 
Other   143    74 
Total noninterest income   4,170    2,060 
           
Noninterest expense          
Salaries and benefits   3,421    3,022 
Occupancy   352    326 
Equipment   256    200 
Supplies   41    38 
Professional and outside services   691    716 
Advertising and marketing   118    78 
FDIC insurance premium   66    60 
Other operating expense   568    510 
Total noninterest expense   5,513    4,950 
           
Income before income tax expense   5,033    1,137 
Income tax expense   1,136    239 
           
Net income  $3,897   $898 
           
Earnings per share, basic  $2.66   $0.62 
Earnings per share, diluted  $2.66   $0.62 

 

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, 2021 and 2020
(Unaudited)
(in thousands)

 

   Three Months Ended 
   March 31, 
   2021   2020 
Net income  $3,897   $898 
Other comprehensive income (loss)          
Unrealized holding gains (losses) arising during the period   (560)   384 
Tax effect   118    (81)
Net change in unrealized holding gains (losses) on securities available for sale, net of tax   (442)   303 
           
Reclassification adjustment          
Reclassification adjustment for gains realized in income   -    (12)
Tax effect   -    3 
Reclassification for gains included in net income, net of tax   -    (9)
           
Minimum pension adjustment   3    3 
Tax effect   (1)   (1)
Minimum pension adjustment, net of tax   2    2 
           
           
Total other comprehensive income (loss)   (440)   296 
Total comprehensive income  $3,457   $1,194 

 

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, 2021 and 2020
(Unaudited)
(In thousands)
                             
                   Directors   Accumulated     
       Additional       Stock in   Deferred   Other     
   Common   Paid-in   Accumulated   Directors   Fees   Comprehensive     
   Stock   Capital   Deficit   Rabbi Trust   Obligation   Income (loss)   Total 
Balance, December 31, 2020  $5,794   $54,510   $(8,738)  $(771)  $771   $430   $51,996 
                                    
Restricted stock redemption   -    -    -    41    (41)   -    - 
Vesting of restricted stock   2    (2)   -    -    -    -    - 
Stock based compensation   -    85    -    -    -    -    85 
Net income   -    -    3,897    -    -    -    3,897 
Other comprehensive income (loss)   -    -    -    -    -    (440)   (440)
Balance, March 31, 2021   5,796    54,593    (4,841)   (730)   730    (10)   55,538 
                                    
Balance, December 31, 2019  $5,779   $54,285   $(17,292)  $(856)  $856   $142   $42,914 
                                    
Restricted stock redemption   -    -    -    85    (85)   -    - 
Vesting of restricted stock   -    -    -    -    -    -    - 
Stock based compensation   -    54    -    -    -    -    54 
Net income   -    -    898    -    -    -    898 
Other comprehensive income   -    -    -    -    -    296    296 
Balance, March 31, 2020  $5,779   $54,339   $(16,394)  $(771)  $771   $438   $44,162 

 

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, 2021 and 2020
(Unaudited)
(in thousands)
     
   Three Months Ended 
   March 31, 
   2021   2020 
Cash Flows from Operating Activities          
Net income  $3,897   $898 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   142    149 
Amortization of debt issuance costs   8    9 
Deferred income taxes   (83)   239 
Provision for loan losses   -    400 
Gain on sale of investment securities   -    (12)
Gain on sale of Small Business Administration loans   -    (86)
Gain on sales of loans held for sale   (4,175)   (2,084)
Loss on sale and disposal of premises and equipment   10    - 
Stock compensation expense   85    54 
Proceeds from sale of mortgage loans   112,769    51,959 
Origination of mortgage loans held for sale   (91,204)   (54,372)
Amortization of premiums and accretion of discounts on securities, net   43    67 
Increase in bank owned life insurance   (46)   (45)
Net change in:          
Interest receivable   150    19 
Other assets   607    307 
Interest payable   (60)   (7)
Other liabilities   (1,386)   1,324 
Net cash provided by (used in) operating activities   20,757    (1,181)
           
Cash Flows from Investing Activities          
Purchases of available for sale securities   (6,378)   (1,013)
Proceeds from the sale of available for sale securities   -    7,936 
Proceeds from maturities, calls and paydowns of available for sale securities   4,248    1,248 
Net increase in loans   (29,889)   (5,935)
Purchases of premises and equipment, net   (271)   (42)
Purchase of bank owned life insurance   (4,408)   - 
Redemptions (purchase) of restricted stock, net   131    (320)
Net cash (used in) provided by investing activities   (36,567)   1,874 
           
Cash Flows from Financing Activities          
Net increase in deposits   31,674    25,635 
Repayments of Federal Home Loan Bank advances   -    7,000 
Net decrease in other borrowings   (24,393)   (5,317)
Net cash provided by financing activities   7,281    27,318 
           
Net (decrease) increase in cash and cash equivalents   (8,529)   28,011 
Cash and cash equivalents, beginning of period   43,451    19,967 
           
Cash and cash equivalents, end of period  $34,922   $47,978 
           
Supplemental Disclosure of Cash Flow Information          
Cash payments for interest  $715   $1,264 
Supplemental Schedule of Non-Cash Activities          
Unrealized gains (losses) on securities available for sale  $(560)  $372 
Right of use assets obtained in exchange for new operating lease liabilities  $243   $- 
Minimum pension adjustment  $3   $3 

 

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, 2021 and 2020

(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, Village Bank Mortgage Corporation. All material intercompany balances and transactions have been eliminated in consolidation.

 

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, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021. 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, 2020 as filed with the Securities and Exchange Commission (“SEC”).

 

Note 2 - Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and statements of income 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 including impaired loans and troubled debt restructurings (“TDRs”).

 

Note 3 - Earnings per common share

 

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

 

   Three Months Ended March 31, 
   2021   2020 
Numerator          
Net income - basic and diluted  $3,897   $898 
           
Denominator          
Weighted average shares outstanding - basic   1,467    1,454 
Dilutive effect of common stock options   -    - 
           
Weighted average shares outstanding - diluted  $1,467   $1,454 
           
Earnings per share – basic  $2.66   $0.62 
Earnings per share – diluted  $2.66   $0.62 

 

8

 

 

Applicable guidance requires that outstanding, unvested share-based payment awards that contain voting rights and rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Accordingly, the weighted average number of shares of the Company’s common stock used in the calculation of basic and diluted net income per common share includes unvested shares of the Company’s outstanding restricted common stock.

 

The vesting of 6,238 and 4,155 at March 31, 2021 and 2020, respectively, of the unvested restricted units included in Note 10 “Stock incentive plan” was dependent upon meeting certain performance criteria. As of March 31, 2021 and 2020, it was indeterminable whether these unvested restricted units would vest and as such the underlying shares were excluded from common shares issued and outstanding at such date and were not included in the computation of earnings per share for such period.

 

Note 4 – Investment securities available for sale

 

The amortized cost and fair value of investment securities available for sale as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized     
   Cost   Gains   Losses   Fair Value 
March 31, 2021                    
U.S. Government agency obligations  $5,840   $66   $-   $5,906 
Mortgage-backed securities   26,931    482    (428)   26,985 
Municipals   1,283    -    (83)   1,200 
Subordinated debt   8,286    79    (85)   8,280 
                     
   $42,340   $627   $(596)  $42,371 
                     
December 31, 2020                    
U.S. Government agency obligations  $8,048   $94   $-   $8,142 
Mortgage-backed securities   23,412    645    (51)   24,006 
Subordinated debt   8,795    37    (136)   8,696 
                     
   $40,255   $776   $(187)  $40,844 

 

At March 31, 2021 and December 31, 2020, the Company had no investment securities pledged to secure borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”).

 

Gross realized gains and losses pertaining to available for sale securities are detailed as follows for the periods indicated (in thousands):

 

   Three Months 
   Ended March 31, 
   2021   2020 
Gross realized gains  $-   $39 
Gross realized losses   -    (27)
           
   $-   $12 

 

The Company sold approximately $7,900,000 of investment securities available for sale at a net gain of $12,000 in 2020. The sales of these securities, which had fixed interest rates, allowed the Company to decrease its exposure to upward movement in interest rates that would result in unrealized losses being recognized in shareholders’ equity.

 

9

 

 

Investment securities available for sale that have an unrealized loss position at March 31, 2021 and December 31, 2020 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, 2021                              
Mortgage-backed securities  $14,218   $(428)  $-   $-   $14,218   $(428)
Municipals   1,200    (83)   -    -    1,200    (83)
Subordinated debt   1,294    (10)   1,434    (75)   2,728    (85)
                               
   $16,712   $(521)  $1,434   $(75)  $18,146   $(596)
                               
December 31, 2020                              
Mortgage-backed securities  $5,475   $(51)  $-   $-   $5,475   $(51)
Subordinated debt   1,747    (11)   2,807    (125)   4,554    (136)
                               
   $7,222   $(62)  $2,807   $(125)  $10,029   $(187)

 

As of March 31, 2021, there were ten investments available for sale totaling $16,712,000 that were in a continuous loss position for less than 12 months and had an unrealized loss of $521,000. There were four investments available for sale totaling $1,434,000 that had been in a continuous loss position for more than 12 months and had an unrealized loss of $75,000.

 

All of the unrealized losses are attributable to movements 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 fair 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, 2021.

 

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2021, by contractual maturity, are as follows (in thousands):

 

   Amortized     
   Cost   Fair Value 
Less than one year  $4,007   $4,025 
One to five years   263    266 
Five to ten years   9,808    9,848 
More than ten years   28,262    28,232 
           
Total  $42,340   $42,371 

 

10

 

 

Note 5 – Loans and allowance for loan losses

 

Loans classified by type as of March 31, 2021 and December 31, 2020 are as follows (dollars in thousands):

 

   March 31, 2021   December 31, 2020 
   Amount   %   Amount   % 
Construction and land development                    
Residential  $7,164    1.21%  $8,103    1.44%
Commercial   22,436    3.79%   21,466    3.82%
    29,600    5.00%   29,569    5.26%
Commercial real estate                    
Owner occupied   99,677    16.83%   99,784    17.79%
Non-owner occupied   125,202    21.14%   121,184    21.60%
Multifamily   9,086    1.53%   9,889    1.75%
Farmland   358    0.06%   367    0.07%
    234,323    39.56%   231,224    41.21%
Consumer real estate                    
Home equity lines   18,128    3.06%   18,394    3.28%
Secured by 1-4 family residential,                    
First deed of trust   58,028    9.80%   57,089    10.18%
Second deed of trust   10,661    1.80%   11,097    1.98%
    86,817    14.66%   86,580    15.44%
Commercial and industrial loans (except those secured by real estate)   209,381    35.36%   181,088    32.28%
Guaranteed student loans   29,062    4.91%   29,657    5.29%
Consumer and other   2,994    0.51%   2,885    0.52%
                     
Total loans   592,177    100.0%   561,003    100.0%
Deferred fees and costs, net   (3,311)        (2,048)     
Less: allowance for loan losses   (3,992)        (3,970)     
   $584,874        $554,985      

 

The Bank has a purchased portfolio 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.

 

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans were $159,769,000 as of March 31, 2021, which was the result of the origination of $68,852,000 in second round PPP loans offset by the forgiveness of $45,872,000 in first round PPP loans, during the quarter. PPP loans have provided essential funds to over 2,200 businesses and nonprofits and protected more than 28,000 jobs in our community. Below is a breakdown by loan size as of March 31, 2021 (dollars in thousands):

 

   Round 1   Round 2   Total 
Loan Size  # of Loans   $ of Loans   # of Loans   $ of Loans   # of Loans   $ of Loans 
< $350,000   1,484   $41,939    644   $42,685    2,128   $84,624 
$350,000 - $2 million   36    25,876    40    26,167    76    52,043 
> $2 million   6    23,102    -    -    6    23,102 
      Total   1,526   $90,917    684   $68,852    2,210   $159,769 

 

11

 

 

Loans pledged as collateral with the FHLB as part of their lending arrangement with the Company totaled $44,419,000 and $65,587,000 as of March 31, 2021 and December 31, 2020, respectively.

 

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due as long as the remaining recorded investment in the loan is deemed fully collectible. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

The following table provides information on nonaccrual loans segregated by type at the dates indicated (in thousands):

 

   March 31,   December 31, 
   2021   2020 
Commercial real estate          
Non-owner occupied  $300   $303 
    300    303 
Consumer real estate          
Home equity lines   300    300 
Secured by 1-4 family residential          
First deed of trust   627    630 
Second deed of trust   303    317 
    1,228    1,247 
Commercial and industrial loans (except those secured by real estate)   25    27 
Total loans  $1,555   $1,577 

 

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 net worth and paying capacity of the obligor or of the collateral pledged, if any; and

 

·Risk rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

12

 

 

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, 2021                         
Construction and land development                         
Residential  $7,164   $-   $-   $-   $7,164 
Commercial   22,343    93    -    -    22,436 
    29,507    93    -    -    29,600 
Commercial real estate                         
Owner occupied   88,027    7,999    3,651    -    99,677 
Non-owner occupied   120,271    4,244    687    -    125,202 
Multifamily   9,086    -    -    -    9,086 
Farmland   358    -    -    -    358 
    217,742    12,243    4,338    -    234,323 
Consumer real estate                         
Home equity lines   17,203    625    300    -    18,128 
Secured by 1-4 family residential                         
First deed of trust   54,764    2,132    1,132    -    58,028 
Second deed of trust   9,045    1,199    417    -    10,661 
    81,012    3,956    1,849    -    86,817 
Commercial and industrial loans (except those secured by real estate)   205,611    3,459    311    -    209,381 
Guaranteed student loans   29,062    -    -    -    29,062 
Consumer and other   2,955    39    -    -    2,994 
Total loans  $565,889   $19,790   $6,498   $-   $592,177 

 

   Risk Rated   Risk Rated   Risk Rated   Risk Rated   Total 
   1-4   5   6   7   Loans 
December 31, 2020                         
Construction and land development                         
Residential  $8,103   $-   $-   $-   $8,103 
Commercial   21,370    96    -    -    21,466 
    29,473    96    -    -    29,569 
Commercial real estate                         
Owner occupied   88,066    9,405    2,313    -    99,784 
Non-owner occupied   116,161    4,244    779    -    121,184 
Multifamily   9,889    -    -    -    9,889 
Farmland   367    -    -    -    367 
    214,483    13,649    3,092    -    231,224 
Consumer real estate                         
Home equity lines   17,298    796    300    -    18,394 
Secured by 1-4 family residential                         
First deed of trust   53,731    2,212    1,146    -    57,089 
Second deed of trust   9,425    1,236    436    -    11,097 
    80,454    4,244    1,882    -    86,580 
Commercial and industrial loans (except those secured by real estate)   178,217    2,602    269    -    181,088 
Guaranteed student loans   29,657    -    -    -    29,657 
Consumer and other   2,844    41    -    -    2,885 
Total loans  $536,336   $20,632   $5,243   $-   $561,003 

 

13

 

 

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

 

                           Recorded 
           Greater               Investment > 
   30-59 Days   60-89 Days   Than   Total Past       Total   90 Days and 
   Past Due   Past Due   90 Days   Due   Current   Loans   Accruing 
March 31, 2021                                   
Construction and land development                                   
Residential  $-   $-   $-   $-   $7,164   $7,164   $- 
Commercial   -    -    -    -    22,436    22,436    - 
    -    -    -    -    29,600    29,600    - 
Commercial real estate                                   
Owner occupied   -    -    -    -    99,677    99,677    - 
Non-owner occupied   -    -    -    -    125,202    125,202    - 
Multifamily   -    -    -    -    9,086    9,086    - 
Farmland   -    -    -    -    358    358    - 
    -    -    -    -    234,323    234,323    - 
Consumer real estate                                   
Home equity lines   559    -    -    559    17,569    18,128    - 
Secured by 1-4 family residential                                   
First deed of trust   375         -    375    57,653    58,028    - 
Second deed of trust   -    -    -    -    10,661    10,661    - 
    934    -    -    934    85,883    86,817    - 
Commercial and industrial loans (except those secured by real estate)   -    -    -    -    209,381    209,381    - 
Guaranteed student loans   712    673    2,504    3,889    25,173    29,062    2,504 
Consumer and other   -    -    -    -    2,994    2,994    - 
Total loans  $1,646   $673   $2,504   $4,823   $587,354   $592,177   $2,504 

 

                           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, 2020                                   
Construction and land development                                   
Residential  $-   $-   $-   $-   $8,103   $8,103   $- 
Commercial   -    -    -    -    21,466    21,466    - 
    -    -    -    -    29,569    29,569    - 
Commercial real estate                                   
Owner occupied   86    -    -    86    99,698    99,784    - 
Non-owner occupied   -    -    -    -    121,184    121,184    - 
Multifamily   -    -    -    -    9,889    9,889    - 
Farmland   -    -    -    -    367    367    - 
    86    -    -    86    231,138    231,224    - 
Consumer real estate                                   
Home equity lines   -    -    -    -    18,394    18,394    - 
Secured by 1-4 family residential                                   
First deed of trust   133         -    133    56,956    57,089    - 
Second deed of trust   -    57    -    57    11,040    11,097    - 
    133    57    -    190    86,390    86,580    - 
Commercial and industrial loans (except those secured by real estate)   25    -    -    25    181,063    181,088    - 
Guaranteed student loans   1,428    1,009    2,193    4,630    25,027    29,657    2,193 
Consumer and other   1    -    -    1    2,884    2,885    - 
Total loans  $1,673   $1,066   $2,193   $4,932   $556,071   $561,003   $2,193 

 

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 and are not considered to be impaired.

 

Loans are considered impaired when, based on current information and events it is probable the Company will be unable to collect all amounts when 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, non-guaranteed 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.

 

14

 

 

Impaired loans are set forth in the following table as of the dates indicated (in thousands):

 

   March 31, 2021   December 31, 2020 
       Unpaid           Unpaid     
   Recorded   Principal   Related   Recorded   Principal   Related 
   Investment   Balance   Allowance   Investment   Balance   Allowance 
With no related allowance recorded                              
Commercial real estate                              
Owner occupied  $5,224   $5,239   $-   $2,780   $2,795   $- 
Non-owner occupied   1,895    1,895    -    1,991    1,991    - 
    7,119    7,134    -    4,771    4,786    - 
Consumer real estate                              
Home equity lines   300    300    -    300    300    - 
Secured by 1-4 family residential                              
First deed of trust   2,106    2,110    -    1,937    1,940    - 
Second deed of trust   742    1,035    -    699    992    - 
    3,148    3,445    -    2,936    3,232    - 
Commercial and industrial loans (except those secured by real estate)   202    202    -    141    141    - 
    10,469    10,781    -    7,848    8,159    - 
With an allowance recorded                              
Commercial real estate                              
Owner occupied   -    -    -    1,125    1,125    9 
    -    -    -    1,125    1,125    9 
Consumer real estate                              
Secured by 1-4 family residential                              
First deed of trust   152    152    8    74    74    8 
    152    152    8    74    74    8 
Commercial and industrial loans (except those secured by real estate)   -    -    -    -    -    - 
    152    152    8    1,199    1,199    17 
Total                              
Commercial real estate                              
Owner occupied   5,224    5,239    -    3,905    3,920    9 
Non-owner occupied   1,895    1,895    -    1,991    1,991    - 
    7,119    7,134    -    5,896    5,911    9 
Consumer real estate                              
Home equity lines   300    300    -    300    300    - 
Secured by 1-4 family residential,                              
First deed of trust   2,258    2,262    8    2,011    2,014    8 
Second deed of trust   742    1,035    -    699    992    - 
    3,300    3,597    8    3,010    3,306    8 
Commercial and industrial loans (except those secured by real estate)   202    202    -    141    141    - 
   $10,621   $10,933   $8   $9,047   $9,358   $17 

 

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, 
   2021   2020 
   Average   Interest   Average   Interest 
   Recorded   Income   Recorded   Income 
   Investment   Recognized   Investment   Recognized 
With no related allowance recorded                    
Construction and land development Commercial  $146   $-   $315   $- 
    146    -    315    - 
Commercial real estate                    
Owner occupied   3,849    58    2,696    29 
Non-owner occupied   1,921    30    2,324    32 
    5,770    88    5,020    61 
Consumer real estate                    
Home equity lines   300    8    363    4 
Secured by 1-4 family residential                    
First deed of trust   2,064    23    2,072    19 
Second deed of trust   762    11    740    14 
    3,126    42    3,175    37 
Commercial and industrial loans (except those secured by real estate)   162    -    646    - 
Consumer and other   -    -    1    - 
    9,204    130    9,157    98 
With an allowance recorded                    
Commercial real estate                    
Owner occupied   562    -    1,420    15 
Non-Owner occupied   -    -    -    - 
    562    -    1,420    15 
Consumer real estate                    
Secured by 1-4 family residential                    
First deed of trust   94    3    136    1 
Second deed of trust   26    -    78    - 
    120    3    214    1 
Commercial and industrial loans (except those secured by real estate)   84    -    162    6 
Consumer and other   -    -    4    - 
    766    3    1,800    22 
Total                    
Construction and land development Commercial  $146   $-   $315   $- 
    146    -    315    - 
Commercial real estate                    
Owner occupied   4,411    58    4,116    44 
Non-owner occupied   1,921    30    2,324    32 
    6,332    88    6,440    76 
Consumer real estate                    
Home equity lines   300    8    363    4 
Secured by 1-4 family residential,                    
First deed of trust   2,158    26    2,208    20 
Second deed of trust   788    11    818    14 
    3,246    45    3,389    38 
Commercial and industrial loans (except those secured by real estate)   246    -    808    6 
Consumer and other   -    -    5    - 
   $9,970   $133   $10,957   $120 

 

16

 

 

 

Included in impaired loans are loans classified as 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, 2021                              
Commercial real estate                    
Owner occupied  $3,367   $3,367   $-   $- 
Non-owner occupied   1,895    1,595    300    - 
    5,262    4,962    300    - 
Consumer real estate                    
Secured by 1-4 family residential                    
First deeds of trust   1,717    1,171    546    8 
Second deeds of trust   606    545    61    - 
    2,323    1,716    607    8 
Commercial and industrial loans (except those secured by real estate)   25    -    25    - 
   $7,610   $6,678   $932   $8 
                     
Number of loans   35    28    7    2 

 

               Specific 
               Valuation 
   Total   Performing   Nonaccrual   Allowance 
December 31, 2020                    
Commercial real estate                    
Owner occupied  $3,396   $3,396   $-   $9 
Non-owner occupied   1,991    1,688    303    - 
    5,387    5,084    303    9 
Consumer real estate                    
Secured by 1-4 family residential                    
First deeds of trust   1,460    910    550    8 
Second deeds of trust   617    556    61    - 
    2,077    1,466    611    8 
Commercial and industrial loans (except those secured by real estate)   27    -    27    - 
   $7,491   $6,550   $941   $17 
                     
Number of loans   34    27    7    2 

 

17

 

 

The following table provides information about TDRs identified during the indicated periods (dollars in thousands).

 

   Three Months Ended   Three Months Ended 
   March 31, 2021   March 31, 2020 
       Pre-   Post-       Pre-   Post- 
       Modification   Modification       Modification   Modification 
   Number of   Recorded   Recorded   Number of   Recorded   Recorded 
   Loans   Balance   Balance   Loans   Balance   Balance 
Secured by 1-4 family residential                              
First deed of trust   1   $267   $267    -   $     -   $      - 
                               
    1   $267   $267    -   $-   $- 

 

There were no defaults on TDR’s that were modified as TDRs during the prior 12 month period ended March 31, 2021 and 2020.

 

The CARES Act, as amended by the Consolidated Appropriations Act 2021 (“CAA”), permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. As of March 31, 2021 and December 31, 2020, the Company had approximately $19.0 million and $38.0 million in loans still under their modified terms, respectively. The Company’s modification program primarily included payment deferrals and interest only modifications.

 

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

 

       Provision for             
   Beginning   (Recovery of)           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
Three Months Ended March 31, 2021                         
Construction and land development                         
Residential  $214   $(114)  $-   $-   $100 
Commercial   285    (117)   -    -    168 
    499    (231)   -    -    268 
Commercial real estate                         
Owner occupied   1,047    (148)   -    -    899 
Non-owner occupied   1,421    (135)   -    -    1,286 
Multifamily   47    (9)   -    -    38 
Farmland   2    (1)   -    -    1 
    2,517    (293)   -    -    2,224 
Consumer real estate                         
Home equity lines   24    (9)   -    -    15 
Secured by 1-4 family residential                         
First deed of trust   166    (21)   -    1    146 
Second deed of trust   79    (26)   -    14    67 
    269    (56)   -    15    228 
Commercial and industrial loans (except those secured by real estate)   408    (13)   -    15    410 
Student loans   87    (3)   (8)   -    76 
Consumer and other   36    2    -    -    38 
Unallocated   154    594    -    -    748 
                          
   $3,970   $-   $(8)  $30   $3,992 

 

18

 

 

       Provision for             
   Beginning   (Recovery of)           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
Three Months Ended March 31, 2020                         
Construction and land development                         
Residential  $48   $170   $-   $1   $219 
Commercial   137    133    -    -    270 
    185    303    -    1    489 
Commercial real estate                         
Owner occupied   671    188    -    -    859 
Non-owner occupied   831    227    -    -    1,058 
Multifamily   85    (17)   -    -    68 
Farmland   2    (1)   -    -    1 
    1,589    397    -    -    1,986 
Consumer real estate                         
Home equity lines   271    (231)   -    -    40 
Secured by 1-4 family residential                         
First deed of trust   343    (189)   -    3    157 
Second deed of trust   64    8    -    4    76 
    678    (412)   -    7    273 
Commercial and industrial loans (except those secured by real estate)   572    (31)   (135)   3    409 
Student loans   108    16    (20)   -    104 
Consumer and other   30    9    (1)   3    41 
Unallocated   24    118    -    -    142 
                          
   $3,186   $400   $(156)  $14   $3,444 

 

       Provision for             
   Beginning   (Recovery of)           Ending 
   Balance   Loan Losses   Charge-offs   Recoveries   Balance 
Year Ended December 31, 2020                         
Construction and land development                         
Residential  $48   $141   $-   $25   $214 
Commercial   137    148    -    -    285 
    185    289    -    25    499 
Commercial real estate                         
Owner occupied   671    376    -    -    1,047 
Non-owner occupied   831    590    -    -    1,421 
Multifamily   85    (38)   -    -    47 
Farmland   2    -    -    -    2 
    1,589    928    -    -    2,517 
Consumer real estate                         
Home equity lines   271    (247)   -    -    24 
Secured by 1-4 family residential                         
First deed of trust   343    (190)   -    13    166 
Second deed of trust   64    45    (85)   55    79 
    678    (392)   (85)   68    269 
Commercial and industrial loans (except those secured by real estate)   572    (58)   (135)   29    408 
Student loans   108    27    (48)   -    87 
Consumer and other   30    26    (24)   4    36 
Unallocated   24    130    -    -