Company Quick10K Filing
Village Bank & Trust Financial
Price34.00 EPS2
Shares1 P/E16
MCap49 P/FCF-22
Net Debt0 EBIT8
TEV49 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-12
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10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-09
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10-K 2017-12-31 Filed 2018-03-30
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10-K 2016-12-31 Filed 2017-03-31
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10-K 2015-12-31 Filed 2016-03-30
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10-K 2012-12-31 Filed 2013-03-26
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8-K 2020-05-19
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8-K 2018-03-21
8-K 2018-02-27
8-K 2018-02-20
8-K 2018-01-30
8-K 2018-01-16

VBFC 10Q Quarterly Report

Part I - Financial Information
Item 1 - Financial Statements
Note 1 - Principles of Presentation
Note 2 - Use of Estimates
Note 3 - Earnings per Common Share
Note 4 - Investment Securities Available for Sale
Note 5 - Loans and Allowance for Loan Losses
Note 6 - Deposits
Note 7 - Borrowings
Note 8 - Leases
Note 9 - Trust Preferred Securities
Note 10 - Subordinated Debt
Note 11 - Stock Incentive Plan
Note 12 - Fair Value
Note 13 - Segment Reporting
Note 14 - Shareholders' Equity and Regulatory Matters
Note 15 - Commitments and Contingencies
Note 16 - Mortgage Banking and Derivatives
Note 17 - Recent Accounting Pronouncements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
EX-31.1 tm2014657d1_ex31-1.htm
EX-31.2 tm2014657d1_ex31-2.htm
EX-32.1 tm2014657d1_ex32-1.htm

Village Bank & Trust Financial Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
56044833622411202012201420172020
Assets, Equity
1511730-42015201620182020
Rev, G Profit, Net Income
30186-6-18-302012201420172020
Ops, Inv, Fin

10-Q 1 tm2014657-1_10q.htm FORM 10-Q

 

 

 

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, 2020

 

¨ 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)

 

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

 

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

 

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

 

1,453,759 shares of common stock, $4.00 par value, outstanding as of April 30, 2020

 

 

 

 

 

 

Village Bank and Trust Financial Corp.

Form 10-Q

 

TABLE OF CONTENTS

 

Part I – Financial Information 3
   
Item 1. Financial Statements 3
   
Consolidated Balance Sheets  
March 31, 2020 (unaudited) and December 31, 2019 3
   
Consolidated Statements of Income  
For the Three Months Ended  
March 31, 2020 and 2019 (unaudited) 4
   
Consolidated Statements of Comprehensive Income  
For the Three Months Ended  
March 31, 2020 and 2019 (unaudited) 5
   
Consolidated Statements of Shareholders’ Equity  
For the Three Months Ended  
March 31, 2020 and 2019 (unaudited) 6
   
Consolidated Statements of Cash Flows  
For the Three Months Ended  
March 31, 2020 and 2019 (unaudited) 7
   
Notes to Consolidated Financial Statements (unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
   
Item 4. Controls and Procedures 53
   
Part II – Other Information 54
   
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 55
   
Item 4. Mine Safety Disclosures 55
   
Item 5. Other Information 55
   
Item 6. Exhibits 56
   
Signatures 57

 

2

 

 

 

Part I – Financial Information

 

ITEM 1 – FINANCIAL STATEMENTS

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Balance Sheets
March 31, 2020 (Unaudited) and December 31, 2019*
(in thousands, except share and per share data)

 

   March 31,   December 31, 
   2020   2019 
Assets          
Cash and due from banks  $23,613   $19,967 
Federal funds sold   24,365    - 
Total cash and cash equivalents   47,978    19,967 
Investment securities available for sale, at fair value   39,081    46,937 
Restricted stock, at cost   2,355    2,035 
Loans held for sale, at fair value   17,219    12,722 
Loans          
Outstandings   435,234    429,295 
Allowance for loan losses   (3,444)   (3,186)
Deferred fees and costs, net   704    764 
Total loans, net   432,494    426,873 
Other real estate owned, net of valuation allowance   526    526 
Assets held for sale   514    514 
Premises and equipment, net   11,929    12,036 
Bank owned life insurance   7,657    7,612 
Accrued interest receivable   2,578    2,597 
Other assets   7,874    8,494 
           
Total Assets  $570,205   $540,313 
           
Liabilities and Shareholders' Equity          
Liabilities          
Deposits          
Noninterest bearing demand  $139,660   $131,228 
Interest bearing   329,183    311,980 
Total deposits   468,843    443,208 
Federal Home Loan Bank advances   36,000    29,000 
Long-term debt - trust preferred securities   8,764    8,764 
Subordinated debt, net   5,604    5,595 
Other borrowings   -    5,317 
Accrued interest payable   214    221 
Other liabilities   6,618    5,294 
Total liabilities   526,043    497,399 
           
Shareholders' equity          
Common stock, $4 par value, 10,000,000 shares authorized;          
1,453,759 shares issued and outstanding at March 31, 2020 and 1,453,009 shares issued and outstanding at December 31, 2019   5,779    5,779 
Additional paid-in capital   54,339    54,285 
Accumulated deficit   (16,394)   (17,292)
Common stock warrant   -    - 
Stock in directors rabbi trust   (771)   (856)
Directors deferred fees obligation   771    856 
Accumulated other comprehensive income   438    142 
Total shareholders' equity   44,162    42,914 
           
Total liabilities and shareholders' equity  $570,205   $540,313 

 

* 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, 2020 and 2019
(Unaudited)
(in thousands, except per share data)

 

   Three Months Ended 
   2020   2019 
Interest income          
Loans  $5,369   $5,365 
Investment securities   270    293 
Federal funds sold   45    51 
Total interest income   5,684    5,709 
           
Interest expense          
Deposits   900    882 
Borrowed funds   357    361 
Total interest expense   1,257    1,243 
           
Net interest income   4,427    4,466 
Provision for loan losses   400    - 
Net interest income after provision for  loan losses   4,027    4,466 
           
Noninterest income          
Service charges and fees   518    458 
Mortgage banking income, net   1,370    787 
Gain on sale of investment securities   12    101 
Gain on sale of Small Business Administration loans   86    92 
Other   74    80 
Total noninterest income   2,060    1,518 
           
Noninterest expense          
Salaries and benefits   3,022    2,936 
Occupancy   326    349 
Equipment   200    226 
Supplies   38    41 
Professional and outside services   716    809 
Advertising and marketing   78    58 
Foreclosed assets, net   -    1 
FDIC insurance premium   60    90 
Other operating expense   510    489 
Total noninterest expense   4,950    4,999 
           
Income before income tax expense   1,137    985 
Income tax expense   239    176 
           
Net income  $898   $809 
           
Earnings per share, basic  $0.62   $0.56 
Earnings per share, diluted  $0.62   $0.56 

 

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, 2020 and 2019
(Unaudited)
(in thousands)

 

   Three Months Ended 
   March 31, 
   2020   2019 
Net income  $898   $809 
Other comprehensive income          
Unrealized holding gains arising during the period   384    510 
Tax effect   (81)   (107)
Net change in unrealized holding gains on securities available for sale, net of tax   303    403 
           
Reclassification adjustment          
Reclassification adjustment for gains realized in income   (12)   (101)
Tax effect   3    21 
Reclassification for gains included in net income, net of tax   (9)   (80)
           
Minimum pension adjustment   3    3 
Tax effect   (1)   (1)
Minimum pension adjustment, net of tax   2    2 
           
           
Total other comprehensive income   296    325 
           
        Total comprehensive income  $1,194   $1,134 

 

See accompanying notes to consolidated financial statements.        

 

5

 

 

Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Shareholders' Equity
(Unaudited)
(In thousands)

 

                       Directors   Accumulated     
       Additional       Common   Stock in   Deferred   Other     
   Common   Paid-in   Accumulated   Stock   Directors   Fees   Comprehensive     
   Stock   Capital   Deficit   Warrant   Rabbi Trust   Obligation   Income   Total 
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 
                                         
Balance, December 31, 2018  $5,707   $53,212   $(21,769)  $732   $(883)  $883   $(749)  $37,133 
                                         
Restricted stock redemption   -    -    -    -    27    (27)   -    - 
Vesting of restricted stock   13    (13)   -    -    -    -    -    - 
Stock based compensation   -    46    -    -    -    -    -    46 
Net income   -    -    809    -    -    -    -    809 
Other comprehensive income   -    -    -    -    -    -    325    325 
Balance, March 31, 2019  $5,720   $53,245   $(20,960)  $732   $(856)  $856   $(424)  $38,313 

 

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, 2020 and 2019
(Unaudited)
(in thousands)
 

 

   2020   2019 
Cash Flows from Operating Activities          
Net income  $898   $809 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   149    268 
Amortization of debt issuance costs   9    8 
Deferred income taxes   239    - 
Provision for loan losses   400    177 
(Gain) loss on sale of investment securities   (12)   (101)
Gain on sales of loans held for sale   (2,084)   (928)
Stock compensation expense   54    46 
Proceeds from sale of mortgage loans   51,959    30,310 
Origination of mortgage loans held for sale   (54,372)   (28,472)
Amortization of premiums and accretion of discounts on securities, net   67    31 
Increase in bank owned life insurance   (45)   (37)
Net change in:          
Interest receivable   19    (67)
Other assets   307    (1,152)
Interest payable   (7)   20 
Other liabilities   1,324    1,847 
Net cash (used in) provided by operating activities   (1,095)   2,759 
           
Cash Flows from Investing Activities          
Purchases of available for sale securities   (1,013)   (4,632)
Proceeds from the sale of available for sale securities   7,936    6,491 
Proceeds from maturities, calls and paydowns of available for sale securities   1,248    1,038 
Net increase in loans   (6,021)   (3,428)
Purchases of premises and equipment, net   (42)   (184)
Purchase of restricted stock   (320)   (34)
Net cash provided by (used in) by investing activities   1,788    (749)
           
Cash Flows from Financing Activities          
Net increase in deposits   25,635    4,353 
Net increase in Federal Home Loan Bank advances   7,000    - 
Net decrease in other borrowings   (5,317)   - 
Net cash provided by financing activities   27,318    4,353 
           
Net increase in cash and cash equivalents   28,011    6,363 
Cash and cash equivalents, beginning of period   19,967    19,543 
           
Cash and cash equivalents, end of period  $47,978   $25,906 
           
Supplemental Disclosure of Cash Flow Information          
Cash payments for interest  $1,264   $1,223 
Supplemental Schedule of Non-Cash Activities          
Unrealized gains (losses) on securities available for sale  $370   $409 
Right of use assets obtained in exchange for new operating lease liabilities  $-   $1,405 
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, 2020 and 2019

(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, 2020 is not necessarily indicative of the results to be expected for the full year ending December 31, 2020. 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, 2019 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”), the valuation allowance on the deferred tax asset, valuation of other real estate owned (“OREO”) and the estimate of the fair value of assets held for sale.

 

Note 3 – Earnings per common share

 

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

 

   Three Months Ended March 31, 
   2020   2019 
Numerator          
Net income - basic and diluted  $898   $809 
           
Denominator          
Weighted average shares outstanding - basic   1,454    1,435 
Dilutive effect of common stock options   -    - 
           
Weighted average shares outstanding - diluted   1,454    1,435 
           
Earnings per share - basic  $0.62   $0.56 
Earnings per share - diluted  $0.62   $0.56 

 

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 4,155 and 8,650 at March 31, 2020 and 2019, respectively, of the unvested restricted units included in Note 11 “Stock incentive plan” was dependent upon meeting certain performance criteria. As of March 31, 2020 and 2019, 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.

 

Outstanding options and warrants to purchase common stock were considered in the computation of diluted earnings per share for the periods presented. Stock options for 514 and 578 shares were not included in computing diluted earnings per share for the three months ended March 31, 2020 and 2019, respectively, because their effects were anti-dilutive. Additionally, the impact of the warrant to acquire shares of the Company’s common stock in connection with the Company’s participation in the Troubled Asset Relief Program is not included for the period ended March 31, 2019, as the warrant was anti-dilutive. The warrant expired on May 1, 2019 and as such was not included in the period ended March 31, 2020.

 

Note 4 – Investment securities available for sale

 

The amortized cost and fair value of investment securities available for sale as of March 31, 2020 and December 31, 2019 are as follows (in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized     
   Cost   Gains   Losses   Fair Value 
March 31, 2020                    
U.S. Government agency obligations  $12,706   $154   $(3)  $12,857 
Mortgage-backed securities   17,989    631    -    18,620 
Subordinated debt   7,779    43    (218)   7,604 
                     
   $38,474   $828   $(221)  $39,081 
                     
December 31, 2019                    
U.S. Government agency obligations  $14,797   $57   $(9)  $14,845 
Mortgage-backed securities   25,124    204    (26)   25,302 
Subordinated debt   6,779    91    (80)   6,790 
                     
   $46,700   $352   $(115)  $46,937 

 

At March 31, 2020 the Company had investment securities with a fair value of approximately $6,196,000 pledged to secure borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”). At December 31, 2019, the Company had no investment securities pledged to secure borrowings from the FHLB.

 

9 

 

 

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, 
   2020   2019 
Gross realized gains  $39   $101 
Gross realized losses   (27)   - 
           
   $12   $101 

 

The Company sold approximately $7,900,000 and $6,500,000 in 2020 and 2019, respectively, of investment securities available for sale at a net gain of $12,000 in 2020 and $101,000 in 2019. 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.

 

Investment securities available for sale that have an unrealized loss position at March 31, 2020 and December 31, 2019 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, 2020                              
U.S. Government agency obligations  $-   $-   $1,201   $(3)  $1,201   $(3)
Subordinated debt   4,344    (136)   418    (82)   4,762    (218)
                               
   $4,344   $(136)  $1,619   $(85)  $5,963   $(221)
                               
December 31, 2019                              
U.S. Government agency obligations  $2,001   $(1)  $5,368   $(8)  $7,369   $(9)
Mortgage-backed securities   2,747    (26)   -    -    2,747    (26)
Subordinated debt   759    (6)   940    (74)   1,699    (80)
                               
   $5,507   $(33)  $6,308   $(82)  $11,815   $(115)

 

As of March 31, 2020, there were $1.6 million, or six issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $85,000 and consisted of U.S. Government agency obligations, and subordinated debt.

 

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, 2020.

 

10 

 

 

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

 

   Amortized     
   Cost   Fair Value 
Less than one year  $6,208   $6,257 
One to five years   4,489    4,557 
Five to ten years   10,114    9,989 
More than ten years   17,663    18,278 
           
Total  $38,474   $39,081 

 

Note 5 – Loans and allowance for loan losses

 

Loans classified by type as of March 31, 2020 and December 31, 2019 are as follows (dollars in thousands):

 

   March 31, 2020   December 31, 2019 
   Amount   %   Amount   % 
Construction and land development                    
Residential  $8,143    1.87%  $7,887    1.84%
Commercial   24,027    5.52%   24,063    5.60%
    32,170    7.39%   31,950    7.44%
Commercial real estate                    
Owner occupied   103,210    23.71%   98,353    22.91%
Non-owner occupied   115,278    26.49%   116,508    27.14%
Multifamily   14,046    3.23%   13,332    3.10%
Farmland   150    0.03%   156    0.04%
    232,684    53.46%   228,349    53.19%
Consumer real estate                    
Home equity lines   20,590    4.73%   21,509    5.01%
Secured by 1-4 family residential,                    
First deed of trust   57,352    13.18%   55,856    13.01%
Second deed of trust   11,348    2.61%   10,411    2.43%
    89,290    20.52%   87,776    20.45%
Commercial and industrial loans                    
(except those secured by real estate)   45,838    10.53%   45,074    10.50%
Guaranteed student loans   32,251    7.41%   33,525    7.81%
Consumer and other   3,001    0.69%   2,621    0.60%
                     
Total loans   435,234    100.0%   429,295    100.0%
Deferred fees and costs, net   704         764      
Less: allowance for loan losses   (3,444)        (3,186)     
                     
   $432,494        $426,873      

 

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.

 

Loans pledged as collateral with the FHLB as part of their lending arrangement with the Company totaled $49,013,000 and $49,736,000 as of March 31, 2020 and December 31, 2019, respectively.

 

11 

 

 

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, 
   2020   2019 
Commercial real estate          
Owner occupied  $-   $497 
    -    497 
Consumer real estate          
Home equity lines   300    300 
Secured by 1-4 family residential          
First deed of trust   745    842 
Second deed of trust   62    63 
    1,107    1,205 
Commercial and industrial loans          
(except those secured by real estate)   210    166 
           
Total loans  $1,317   $1,868 

 

 

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, 2020                         
Construction and land development                         
Residential  $7,825   $318   $-   $-   $8,143 
Commercial   23,542    185    300    -    24,027 
    31,367    503    300    -    32,170 
Commercial real estate                         
Owner occupied   92,362    8,759    2,089    -    103,210 
Non-owner occupied   114,560    226    492    -    115,278 
Multifamily   13,903    143    -    -    14,046 
Farmland   150    -    -    -    150 
    220,975    9,128    2,581    -    232,684 
Consumer real estate                         
Home equity lines   19,585    705    300    -    20,590 
Secured by 1-4 family residential                         
First deed of trust   54,634    1,594    1,124    -    57,352 
Second deed of trust   11,136    13    199    -    11,348 
    85,355    2,312    1,623    -    89,290 
Commercial and industrial loans (except those secured by real estate)   44,026    1,301    511    -    45,838 
Guaranteed student loans   32,251    -    -    -    32,251 
Consumer and other   2,954    47    -    -    3,001 
                          
Total loans  $416,928   $13,291   $5,015   $-   $435,234 

 

   Risk Rated   Risk Rated   Risk Rated   Risk Rated   Total 
   1-4   5   6   7   Loans 
December 31, 2019                         
Construction and land development                         
Residential  $7,887   $-   $-   $     -   $7,887 
Commercial   23,758    -    305    -    24,063 
    31,645    -    305    -    31,950 
Commercial real estate                         
Owner occupied   90,146    8,072    135    -    98,353 
Non-owner occupied   115,781    230    497    -    116,508 
Multifamily   13,186    146    -    -    13,332 
Farmland   71    85    -    -    156 
    219,184    8,533    632    -    228,349 
Consumer real estate                         
Home equity lines   20,486    723    300    -    21,509 
Secured by 1-4 family residential                         
First deed of trust   53,200    1,660    996    -    55,856 
Second deed of trust   10,130    167    114    -    10,411 
    83,816    2,550    1,410    -    87,776 
Commercial and industrial loans (except those secured by real estate)   41,837    2,891    346    -    45,074 
Guaranteed student loans   33,525    -    -    -    33,525 
Consumer and other   2,621    -    -    -    2,621 
                          
Total loans  $412,628   $13,974   $2,693   $-   $429,295 

 

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, 2020                                   
Construction and land development                                   
Residential  $-   $-   $-   $-   $8,143   $8,143   $- 
Commercial   -    -    -    -    24,027    24,027    - 
    -    -    -    -    32,170    32,170    - 
Commercial real estate                                   
Owner occupied   758    -    -    758    102,452    103,210    - 
Non-owner occupied   -    -    -    -    115,278    115,278    - 
Multifamily   -    -    -    -    14,046    14,046    - 
Farmland   -    -    -    -    150    150    - 
    758    -    -    758    231,926    232,684    - 
Consumer real estate                                   
Home equity lines   120    -    -    120    20,470    20,590    - 
Secured by 1-4 family residential                                   
First deed of trust   227    217    -    444    56,908    57,352    - 
Second deed of trust   49    -    -    49    11,299    11,348    - 
    396    217    -    613    88,677    89,290    - 
Commercial and industrial loans (except those secured by real estate)   417    427    -    844    44,994    45,838    - 
Guaranteed student loans   1,929    652    2,765    5,346    26,905    32,251    2,765 
Consumer and other   -    4    -    4    2,997    3,001    - 
                                    
Total loans  $3,500   $1,300   $2,765   $7,565   $427,669   $435,234   $2,765 

 

                           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, 2019                                   
Construction and land development                                   
Residential  $-   $-   $-   $-   $7,887   $7,887   $- 
Commercial   -    -    -    -    24,063    24,063    - 
    -    -    -    -    31,950    31,950    - 
Commercial real estate                                   
Owner occupied   701    -    -    701    97,652    98,353    - 
Non-owner occupied   -    -    -    -    116,508    116,508    - 
Multifamily   -    -    -    -    13,332    13,332    - 
Farmland   -    -    -    -    156    156    - 
    701    -    -    701    227,648    228,349    - 
Consumer real estate                                   
Home equity lines   52    -    -    52    21,457    21,509    - 
Secured by 1-4 family residential                                   
First deed of trust   290    -    -    290    55,566    55,856    - 
Second deed of trust   133    -    -    133    10,278    10,411    - 
    475    -    -    475    87,301    87,776    - 
Commercial and industrial loans (except those secured by real estate)   773    -    -    773    44,301    45,074    - 
Guaranteed student loans   1,694    1,309    2,567    5,570    27,955    33,525    2,567 
Consumer and other   4    -    -    4    2,617    2,621    - 
                                    
Total loans  $3,647   $1,309   $2,567   $7,523   $421,772   $429,295   $2,567 

 

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, 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, 2020   December 31, 2019 
       Unpaid           Unpaid     
   Recorded   Principal   Related   Recorded   Principal   Related 
   Investment   Balance   Allowance   Investment   Balance   Allowance 
With no related allowance recorded                              
Construction and land development                              
Commercial  $300   $300   $       -   $337   $337   $             - 
    300    300    -    337    337    - 
Commercial real estate                              
Owner occupied   2,582    2,597    -    2,089    2,104    - 
Non-owner occupied   2,128    2,128    -    2,304    2,304    - 
    4,710    4,725    -    4,393    4,408    - 
Consumer real estate                              
Home equity lines   300    300    -    300    300    - 
Secured by 1-4 family residential                              
First deed of trust   2,128    2,128    -    1,752    1,774    - 
Second deed of trust   904    1,112    -    752    960    - 
    3,332    3,540    -    2,804    3,034    - 
Commercial and industrial loans (except those secured by real estate)   161    161    -    211    373    - 
    8,503    8,726    -    7,745    8,152    - 
                               
With an allowance recorded                              
Commercial real estate                              
Owner occupied   1,403    1,403    13    1,414    1,414    15 
    1,403    1,403    13    1,414    1,414    15 
Consumer real estate                              
Secured by 1-4 family residential                              
First deed of trust   77    77    9    78    78    9 
    77    77    9    78    78    9 
Commercial and industrial loans (except those secured by real estate)   180    342    48    135    334    135 
    1,660    1,822    70    1,627    1,826    159 
                               
Total                              
Construction and land development                              
Commercial   300    300    -    337    337    - 
    300    300    -    337    337    - 
Commercial real estate                              
Owner occupied   3,985    4,000    13    3,503    3,518    15 
Non-owner occupied   2,128    2,128    -    2,304    2,304    - 
    6,113    6,128    13    5,807    5,822    15 
Consumer real estate                              
Home equity lines   300    300    -    300    300    - 
Secured by 1-4 family residential,                              
First deed of trust   2,205    2,205    9    1,830    1,852    9 
Second deed of trust   904    1,112    -    752    960    - 
    3,409    3,617    9    2,882    3,112    9 
Commercial and industrial loans (except those secured by real estate)   341    503    48    346    707    135 
   $10,163   $10,548   $70   $9,372   $9,978   $159 

 

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, 
   2020   2019 
   Average   Interest   Average   Interest 
   Recorded   Income   Recorded   Income 
   Investment   Recognized   Investment   Recognized 
With no related allowance recorded                    
Construction and land development                    
Residential  $-   $           -   $267   $               - 
Commercial   315    -    475    - 
    315    -    742    - 
Commercial real estate                    
Owner occupied   2,696    29    3,460    42 
Non-owner occupied   2,324    32    2,597    23 
    5,020    61    6,057    65 
Consumer real estate                    
Home equity lines   363    4    550    - 
Secured by 1-4 family residential                    
First deed of trust   2,072    19    2,972    42 
Second deed of trust   740    14    704    13 
    3,175    37    4,226    55 
Commercial and industrial loans (except those secured by real estate)   646    -    477    8 
Consumer and other   1    -    1    - 
    9,157    98    11,503    128 
                     
With an allowance recorded                    
Construction and land development                    
Commercial   -    -    26    - 
Commercial real estate                    
Owner occupied   1,420    15    1,461    15 
    1,420    15    1,461    15 
Consumer real estate                    
Secured by 1-4 family residential                    
First deed of trust   136    1    262    3 
Second deed of trust   78    -    162    2 
    214    1    424    5 
Commercial and industrial loans (except those secured by real estate)   162    6    176    - 
Consumer and other   4    -    14    - 
    1,800    22    2,101    20 
                     
Total                    
Construction and land development                    
Residential  $-   $-   $267   $- 
Commercial   315    -    501    - 
    315    -    768    - 
Commercial real estate                    
Owner occupied   4,116    44    4,921    57 
Non-owner occupied   2,324    32    2,597    23 
    6,440    76    7,518    80 
Consumer real estate                    
Home equity lines   363    4    550    - 
Secured by 1-4 family residential,                    
First deed of trust   2,208    20    3,234    45 
Second deed of trust   818    14    866    15 
    3,389    38    4,650    60 
Commercial and industrial loans (except those secured by real estate)   808    6    653    8 
Consumer and other   5    -    15    - 
   $10,957   $120   $13,604   $148 

 

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, 2020                    
Commercial real estate                    
Owner occupied  $3,462   $3,462   $-   $13 
Non-owner occupied   2,128    2,128             -                - 
    5,590    5,590    -    13 
Consumer real estate                    
Secured by 1-4 family residential                    
First deeds of trust   1,630    1,128    502    9 
Second deeds of trust   816    754    62    - 
    2,446    1,882    564    9 
Commercial and industrial loans (except those secured by real estate)   210    -    210    48 
   $8,246   $7,472   $774   $70 
                     
Number of loans   37    28    9    4 

 

               Specific 
               Valuation 
   Total   Performing   Nonaccrual   Allowance 
December 31, 2019                    
Commercial real estate                    
Owner occupied  $3,502   $3,502   $-   $15 
Non-owner occupied   2,304    1,807    497            - 
    5,806    5,309    497    15 
Consumer real estate                    
Secured by 1-4 family residential                    
First deeds of trust   1,641    881    760    9 
Second deeds of trust   752    689    63    - 
    2,393    1,570    823    9 
Commercial and industrial loans (except those secured by real estate)   211    180    31    - 
   $8,410   $7,059   $1,351   $24 
                     
Number of loans   38    29    9    3 

 

17 

 

 

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

 

   Three Months Ended   Three Months Ended 
   March 31, 2020   March 31, 2019 
       Pre-   Post-       Pre-   Post- 
       Modification   Modification       Modification   Modification 
   Number of   Recorded   Recorded   Number of   Recorded   Recorded 
   Loans   Balance   Balance   Loans   Balance   Balance