Village Bank & Trust Financial Corp. - 10-K filing on 2017-03-31

Loans

12 Months Ended

Dec. 31, 2016

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 3.

Loans

Loans classified by type as of December 31, 2016 and 2015 are as follows (in thousands):

	2016		2015
Construction and land development
Residential	$	6,770	$	5,202
Commercial		27,092		25,948
		33,862		31,150
Commercial real estate
Owner occupied		66,021		69,256
Non-owner occupied		57,944		38,037
Multifamily		8,824		8,537
Farmland		310		388
		133,099		116,218
Consumer real estate
Home equity lines		20,691		20,333
Secured by 1-4 family residential,
First deed of trust		54,791		56,776
Second deed of trust		5,768		6,485
		81,250		83,594
Commercial and industrial loans (except those secured by real estate)		39,390		20,086
Guaranteed student loans		47,398		53,989
Consumer and other		2,101		1,734

Total loans		337,100		306,771
Deferred loan cost, net		660		670
Less: allowance for loan losses		(3,373)		(3,562)

	$	334,387	$	303,879

The Bank purchased portfolios of rehabilitated student loans guaranteed by the Department of Education (“DOE”). The guarantee covers approximately 98% of principal and accrued interest. The loans are serviced by a third-party servicer that specializes in handling the special needs of the DOE student loan programs.

Loans pledged as collateral with the Federal Home Loan Bank of Atlanta (“FHLB”) as part of their lending arrangements with the Company totaled $27,073,000 and $7,891,000 as of December 31, 2016 and 2015, respectively.

The following is a summary of loans directly or indirectly with executive officers or directors of the Company for the years ended December 31, 2016 and 2015 (in thousands):

	2016		2015

Beginning balance	$	8,073	$	8,258
Additions		2,703		5,504
Reductions		(3,065)		(5,689)

Ending balance	$	7,711	$	8,073

Executive officers and directors also had unused credit lines totaling $3,219,000 and $1,375,000 at December 31, 2016 and 2015, respectively. All loans and credit lines to executive officers and directors were made in the ordinary course of business at the Company’s normal credit terms, including interest rate and collateralization prevailing at the time for comparable transactions with other persons.

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

Year-end nonaccrual loans segregated by type as of December 31, 2016 and 2015 were as follows (in thousands):

	2016		2015
Construction and land development
Commercial	$	102	$	52
		102		52
Commercial real estate
Owner occupied		225		1,078
		225		1,078
Consumer real estate
Home equity lines		163		154
Secured by 1-4 family residential,
First deed of trust		1,404		1,498
Second deed of trust		72		421
		1,639		2,073
Commercial and industrial loans (except those secured by real estate)		430		508
Consumer and other		6		7

Total loans	$	2,402	$	3,718

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

Risk rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating. These assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral;

Risk rated 5 loans are defined as having potential weaknesses that deserve management’s close attention;

Risk rated 6 loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any; and

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

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

	Risk Rated		Risk Rated		Risk Rated		Risk Rated		Total
	1-4		5		6		7		Loans
December 31, 2016
Construction and land development
Residential	$	6,770	$	-	$	-	$	-	$	6,770
Commercial		25,342		1,648		102		-		27,092
		32,112		1,648		102		-		33,862
Commercial real estate
Owner occupied		58,788		3,565		3,668		-		66,021
Non-owner occupied		57,944		-		-		-		57,944
Multifamily		8,634		190		-		-		8,824
Farmland		310		-		-		-		310
		125,676		3,755		3,668		-		133,099
Consumer real estate
Home equity lines		19,501		487		703		-		20,691
Secured by 1-4 family residential
First deed of trust		49,648		2,847		2,296		-		54,791
Second deed of trust		5,399		125		244		-		5,768
		74,548		3,459		3,243		-		81,250
Commercial and industrial loans (except those secured by real estate)		39,390						-		39,390
Guaranteed student loans		46,009		739		650		-		47,398
Consumer and other		2,043		52		6		-		2,101

Total loans	$	319,778	$	9,653	$	7,669	$	-	$	337,100

	Risk Rated		Risk Rated		Risk Rated		Risk Rated		Total
	1-4		5		6		7		Loans
December 31, 2015
Construction and land development
Residential	$	5,202	$	-	$	-	$	-	$	5,202
Commercial		24,053		572		1,323				25,948
		29,255		572		1,323		-		31,150
Commercial real estate
Owner occupied		64,261		2,850		2,145		-		69,256
Non-owner occupied		35,887		2,055		95		-		38,037
Multifamily		8,337		200		-		-		8,537
Farmland		388		-		-		-		388
		108,873		5,105		2,240		-		116,218
Consumer real estate
Home equity lines		18,539		435		1,359		-		20,333
Secured by 1-4 family residential
First deed of trust		51,200		2,710		2,866		-		56,776
Second deed of trust		5,751		128		606		-		6,485
		75,490		3,273		4,831		-		83,594
Commercial and industrial loans (except those secured by real estate)		18,873		373		840				20,086
Guaranteed student loans		53,989		-		-		-		53,989
Consumer and other		1,649		62		23		-		1,734

Total loans	$	288,129	$	9,385	$	9,257	$	-	$	306,771

The following tables present the aging of the recorded investment in past due loans as of the dates indicated (in thousands):

													Recorded
					Greater								Investment >
	30-59 Days		60-89 Days		Than		Total Past				Total		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
December 31, 2016
Construction and land development
Residential	$	-	$	-	$	-	$	-	$	6,770	$	6,770	$	-
Commercial		-		-		-		-		27,092		27,092		-
		-		-		-		-		33,862		33,862		-
Commercial real estate
Owner occupied		-		-		-		-		66,021		66,021		-
Non-owner occupied		-		-		-		-		57,944		57,944		-
Multifamily		190		-		-		190		8,634		8,824		-
Farmland		-		-		-		-		310		310		-
		190		-		-		190		132,909		133,099		-
Consumer real estate
Home equity lines		-		-		-		-		20,691		20,691		-
Secured by 1-4 family residential
First deed of trust		414		63		-		477		54,314		54,791		-
Second deed of trust		128		-		-		128		5,640		5,768		-
		542		63		-		605		80,645		81,250		-
Commercial and industrial loans (except those secured by real estate)		15		62		-		77		39,313		39,390		-
Guaranteed student loans		2,743		1,923		8,174		12,840		34,558		47,398		8,174
Consumer and other		11		-		-		11		2,090		2,101		-

Total loans	$	3,501	$	2,048	$	8,174	$	13,723	$	323,377	$	337,100	$	8,174

													Recorded
					Greater								Investment >
	30-59 Days		60-89 Days		Than		Total Past				Total		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
December 31, 2015
Construction and land development
Residential	$	-	$	-	$	-	$	-	$	5,202	$	5,202	$	-
Commercial		-		-		-		-		25,948		25,948		-
		-		-		-		-		31,150		31,150		-
Commercial real estate
Owner occupied		327		-		-		327		68,929		69,256		-
Non-owner occupied		-		110		-		110		37,927		38,037		-
Multifamily		-		-		-		-		8,537		8,537		-
Farmland		-		-		-		-		388		388		-
		327		110		-		437		115,781		116,218		-
Consumer real estate
Home equity lines		-		-		-		-		20,333		20,333		-
Secured by 1-4 family residential
First deed of trust		163		292		-		455		56,321		56,776		-
Second deed of trust		94		-		-		94		6,391		6,485		-
		257		292		-		549		83,045		83,594		-
Commercial and industrial loans (except those secured by real estate)		-		-		-		-		20,086		20,086		-
Guaranteed student loans		7,816		1,252		8,590		17,658		36,331		53,989		8,590
Consumer and other		10		-		-		10		1,724		1,734		-

Total loans	$	8,410	$	1,654	$	8,590	$	18,654	$	288,117	$	306,771	$	8,590

Loans greater than 90 days past due are student loans that are guaranteed by the DOE which covers approximately 98% of the principal and interest. Accordingly, these loans will not be placed on nonaccrual status.

Loans are considered impaired when, based on current information and events it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Loans evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans are set forth in the following table as of the dates indicated (in thousands):

	December 31, 2016
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded
Construction and land development
Commercial	$	102	$	169	$	-
Commercial real estate
Owner occupied		1,487		1,487
Non-owner occupied		2,236		2,236		-
		3,723		3,723		-
Consumer real estate
Home equity lines		703		703		-
Secured by 1-4 family residential
First deed of trust		3,514		3,518		-
Second deed of trust		619		865		-
		4,836		5,086		-
Commercial and industrial loans (except those secured by real estate)		538		768		-
		9,199		9,746		-

With an allowance recorded
Construction and land development
Commercial		479		479		9
Commercial real estate
Owner occupied		4,117		4,132		86
Non-Owner occupied		-		-		-
		4,117		4,132		86
Consumer real estate
Secured by 1-4 family residential
First deed of trust		1,550		1,550		144
Second deed of trust		90		90		90
		1,640		1,640		234
Commercial and industrial loans (except those secured by real estate)		6		122		6
		6,242		6,373		335

Total
Construction and land development
Commercial		581		648		9
		581		648		9
Commercial real estate
Owner occupied		5,604		5,619		86
Non-owner occupied		2,236		2,236		-
		7,840		7,855		86
Consumer real estate
Home equity lines		703		703		-
Secured by 1-4 family residential,
First deed of trust		5,064		5,068		144
Second deed of trust		709		955		90
		6,476		6,726		234
Commercial and industrial loans (except those secured by real estate)		544		890		6
	$	15,441	$	16,119	$	335

	December 31, 2015
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded
Construction and land development
Commercial	$	123	$	190	$	-
Commercial real estate
Owner occupied		1,066		1,066
Non-owner occupied		2,418		2,418		-
		3,484		3,484		-
Consumer real estate
Home equity lines		1,238		1,247		-
Secured by 1-4 family residential
First deed of trust		3,984		3,988		-
Second deed of trust		962		1,232		-
		6,184		6,467		-
Commercial and industrial loans (except those secured by real estate)		690		920		-
		10,481		11,061		-

With an allowance recorded
Construction and land development
Commercial		1,699		1,699		2
Commercial real estate
Owner occupied		5,719		5,734		383
Non-Owner occupied		449		449		26
		6,168		6,183		409
Consumer real estate
Secured by 1-4 family residential
First deed of trust		1,775		1,775		324
Second deed of trust		250		250		98
		2,025		2,025		422
Commercial and industrial loans (except those secured by real estate)		136		238		18
		10,028		10,145		851

Total
Construction and land development
Commercial		1,822		1,889		2
		1,822		1,889		2
Commercial real estate
Owner occupied		6,785		6,800		383
Non-owner occupied		2,867		2,867		26
		9,652		9,667		409
Consumer real estate
Home equity lines		1,238		1,247		-
Secured by 1-4 family residential,
First deed of trust		5,759		5,763		324
Second deed of trust		1,212		1,482		98
		8,209		8,492		422
Commercial and industrial loans (except those secured by real estate)		826		1,158		18
	$	20,509	$	21,206	$	851

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

	December 31,
	2016				2015
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded
Construction and land development
Residential	$	-	$	-	$	61	$	-
Commercial		87		40		1,769		95
		87		40		1,830		95
Commercial real estate
Owner occupied		1,040		29		1,349		69
Non-owner occupied		2,501		106		4,435		121
Multifamily		-		-		-		-
Farmland		-		-		-		-
		3,541		135		5,784		190
Consumer real estate
Home equity lines		1,030		10		890		51
Secured by 1-4 family residential
First deed of trust		4,019		145		5,374		233
Second deed of trust		753		43		1,121		47
		5,802		198		7,385		331
Commercial and industrial loans (except those secured by real estate)		421		31		344		44
Consumer and other		-		-		9		1
		9,851		404		15,352		661

With an allowance recorded
Construction and land development
Commercial		1,118		25		844		23
Commercial real estate
Owner occupied		4,511		162		6,088		226
Non-Owner occupied		46		12		369		24
		4,557		174		6,457		250
Consumer real estate
Home equity lines		-		-		22		-
Secured by 1-4 family residential
First deed of trust		1,624		9		1,434		26
Second deed of trust		131		4		277		15
		1,755		13		1,733		41
Commercial and industrial loans (except those secured by real estate)		66		-		317		5
		7,496		212		9,351		319

Total
Construction and land development
Residential		-		-		61		-
Commercial		1,206		65		2,613		118
		1,206		65		2,674		118
Commercial real estate
Owner occupied		5,551		191		7,437		295
Non-owner occupied		2,547		118		4,804		145
Multifamily		-		-		-		-
Farmland		-		-		-		-
		8,098		309		12,241		440
Consumer real estate
Home equity lines		1,030		10		912		51
Secured by 1-4 family residential,
First deed of trust		5,643		154		6,808		259
Second deed of trust		884		47		1,398		62
		7,557		211		9,118		372
Commercial and industrial loans (except those secured by real estate)		487		31		661		49
Consumer and other		-		-		9		1
	$	17,348	$	616	$	24,703	$	980

As of December 31, 2016, 2015 and 2014, the Company had impaired loans of $2,402,000, $3,718,000 and $7,478,000, respectively, which were on nonaccrual status. These loans had valuation allowances of $97,000, $370,000 and $1,087,000 as of December 31, 2016, 2015 and 2014, respectively. Cumulative interest income that would have been recorded had nonaccrual loans been performing would have been $119,000, $146,000 and $224,000 for 2016, 2015 and 2014, respectively.

Included in impaired loans are loans classified as troubled debt restructurings (“TDRs”). A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrowers financial difficulties that it would not otherwise consider. For loans classified as impaired TDRs, the Company further evaluates the loans as performing or nonaccrual. To restore a nonaccrual loan that has been formally restructured in a TDR to accrual status, we perform a current, well documented credit analysis supporting a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms. Otherwise, the TDR must remain in nonaccrual status. The analysis considers the borrower’s sustained historical repayment performance for a reasonable period to the return-to-accrual date, but may take into account payments made for a reasonable period prior to the restructuring if the payments are consistent with the modified terms. A sustained period of repayment performance generally would be a minimum of six months and would involve payments in the form of cash or cash equivalents.

An accruing loan that is modified in a TDR can remain in accrual status if, based on a current well-documented credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before modification. The following is a summary of performing and nonaccrual TDRs and the related specific valuation allowance by portfolio segment as of December 31, 2016 (dollars in thousands).

							Specific
							Valuation
	Total		Performing		Nonaccrual		Allowance
December 31, 2016
Construction and land development
Commercial	$	479	$	479	$	-	$	9
		479		479		-		9
Commercial real estate
Owner occupied		4,342		4,117		225		86
Non-owner occupied		2,236		2,236		-		-
Multifamily		-		-		-		-
		6,578		6,353		225		86
Consumer real estate
Home equity lines		-		-		-		-
Secured by 1-4 family residential
First deeds of trust		3,853		3,012		841		139
Second deeds of trust		547		547		-		-
		4,400		3,559		841		139
Commercial and industrial loans (except those secured by real estate)		397		-		397		-
Consumer and other		-		-		-		-
	$	11,854	$	10,391	$	1,463	$	234

Number of loans		55		36		16		3

							Specific
							Valuation
	Total		Performing		Nonaccrual		Allowance
December 31, 2015
Construction and land development
Residential	$	-	$	-	$	-	$	-
Commercial		1,699		1,699		-		2
		1,699		1,699		-		2
Commercial real estate
Owner occupied		5,730		5,458		272		184
Non-owner occupied		2,866		2,866		-		26
Multifamily		-		-		-		-
		8,596		8,324		272		210
Consumer real estate
Home equity lines		87		-		87		-
Secured by 1-4 family residential
First deeds of trust		4,283		3,544		739		236
Second deeds of trust		693		693		-		1
		5,063		4,237		826		237
Commercial and industrial loans (except those secured by real estate)		127		-		127		18
Consumer and other		-		-		-		-
	$	15,485	$	14,260	$	1,225	$	467

Number of loans		66		51		15		13

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

	December 31, 2016						December 31, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Loans		Balance		Balance		Loans		Balance		Balance

Consumer real estate
Home equity lines		-	$	-	$	-		1	$	87	$	87
Secured by 1-4 family residential
First deed of trust		1		234		234		-		-		-
		1		234		234		1		87		87
Commercial and industrial loans (except those secured by real estate)		3		352		352
		4	$	586	$	586		1	$	87	$	87

The following table provides information about defaults on TDRs for the indicated periods (dollars in thousands).

	December 31, 2016				December 31, 2015
	Number of		Recorded		Number of		Recorded
	Loans		Balance		Loans		Balance

Commercial real estate
Owner occupied		1	$	225		1	$	156
		1		225		1		156
Consumer real estate
Secured by 1-4 family residential
First deed of trust		13		1,134		11		889
Second deed of trust		2		83		2		94
		15		1,217		13		983

Commercial and industrial (except those secured by real estate)		-		-		1		127
		16	$	1,442		15	$	1,266