EX-99.1 2 tv499393_ex99-1.htm EXHIBIT 99.1


Exhibit 99.1



News Release

For Immediate Release





Midlothian, Virginia, July 27, 2018. Village Bank and Trust Financial Corp. (the “Company”) (NASDAQ symbol: VBFC), parent company of Village Bank (the “Bank”), today reported unaudited results for the second quarter of 2018. Net income for the second quarter of 2018 amounted to $641,000, or $0.45 per fully diluted share. For the six month period ended June 30, 2018, net income was $1,053,000; and net income available to common shareholders, which deducts from net income the dividends on preferred stock, was $940,000, or $0.66 per fully diluted share.


“Our team is firing on all cylinders right now,” commented Bill Foster, President and CEO of the Company. “The market likes the business savvy, responsiveness and caring service we provide. You can see it reflected in our loan, deposit and mortgage banking results. I am very pleased with our momentum and excited about the prospects for the remainder of the year.”


Financial Highlights


The second quarter results were very positive for the Company with notable increases in net interest income and net interest margin coupled with strong growth in loans and low cost transaction deposits. Highlights for the second quarter of 2018 are as follows:


·Return on average tangible common equity was 7.42% for Q2 2018 compared to 3.52% for Q1 2018 and 1.28% for Q2 2017.
·Net interest margin of 3.76% for Q2 2018 increased by two basis points from 3.74% for Q1 2018 and by 27 basis points from 3.49% for Q2 2017.
·Net interest income amounted to $4,228,000 for Q2 2018, an increase of $217,000, or 5.4%, over Q1 2018, and an increase of $706,000, or 20.0%, over Q2 2017. This was the result of both volume and margin improvements driven by solid organic growth in commercial loans and low cost relationship deposits. As discussed in our Letter to Shareholders on February 20, 2018, our balance sheet is asset sensitive (meaning assets reprice faster than liabilities in a rising interest rate environment) and the increases in the Federal Funds target by the Board of Governors of the Federal Reserve System (“Federal Reserve”) in December 2017 and March 2018 had a positive impact on net interest income. The June 2018 Federal Funds increase will begin to have its impact in Q3 2018.







·Gross loans held for investment increased by $15.6 million, or 4.0%, from Q1 2018, and by $63.6 million, or 18.7%, from Q2 2017. Core loans (excludes purchased student and USDA loans) increased by $17.4 million, or 5.1%, from Q1 2018, and by $64.9 million, or 21.9%, from Q2 2017.
·Total deposits increased by $11.5 million, or 2.7%, from Q1 2018, and by $27.6 million, or 6.8%, from Q2 2017. More importantly, low cost relationship deposits (total deposits less time deposits) increased by $6.5 million, or 2.4%, from Q1 2018, and by $22.8 million, or 8.8%, from Q2 2017. Additionally, noninterest bearing account balances increased by $6.6 million, or 5.8%, from Q1 2018, and by $20.2 million, or 20.1%, from Q2 2017, and at June 30, 2018, represent 27.9% of total deposits.


Key Operating Metrics


At our annual shareholders meeting on May 22, 2018, we identified operating metrics we are driving to achieve our goal of becoming a high performing bank and producing a return on average tangible common equity in excess of 12%. Those metrics for the dates indicated were as follows:


Key Operating Metrics
Metrics  Y 2015   Y 2016   Y 2017   Q1 2018   Q2 2018   2019 Target
Commercial Banking Segment                            
Net Interest Income/Average Assets   2.88%   3.03%   3.15%   3.37%   3.39%  >3.50%
Provision/Average Assets   (0.47%)   -    -    -    -   <0.15%
Noninterest Income/Average Assets   0.76%   0.86%   0.44%   0.43%   0.48%  >0.50%
Noninterest Expense/Average Assets   4.20%   3.63%   3.28%   3.21%   3.30%  <2.90%
Mortgage Banking Segment                            
Net Income Before Tax/Average Assets   0.24%   0.29%   0.01%   (0.18)%   0.08%  >0.30%


During Q2 2018, we continued to make good progress in reaching our 2019 objectives for the commercial banking segment’s net interest income to average assets and noninterest income to average assets metrics. The commercial banking segment’s noninterest expense to average assets ratio was elevated in Q2 2018 due in part to one time per year costs for our annual loan review, public filings and shareholder disclosures. We have strategies in place that should allow us to show improvement in this metric in the latter half of 2018, and the metric will improve as we continue to grow assets. The mortgage banking segment posted net income before tax of $94,000 during Q2 2018, which improved the segment’s net income before tax to average assets metric from Q1 2018. The mortgage banking segment had a pre-tax loss in Q1 2018 which negatively impacts this metric year-to-date. We believe that mortgage profitability will continue to improve during the latter half of the year and we expect that the mortgage banking segment will be profitable for the year.






Earnings by Segment


The following table presents operating results by operating segment for the indicated periods (in thousands):


Operating Results by Segment
   Q2 2018   Q1 2018   Q4 2017   Q3 2017   Q2 2017 
Pretax earnings by Segment                         
Commercial banking  $700   $701   $236   $406   $194 
Mortgage banking   94    (217)   (25)   (27)   137 
Total pretax income   794    484    211    379    331 
Income tax expense   153    72    4,233    106    94 
Net income (loss)  $641   $412   $(4,022)  $273   $237 


The commercial banking segment had another strong quarter posting pretax earnings of $700,000 for the second quarter of 2018 resulting primarily from growth in loans and net interest margin expansion. If the Federal Reserve continues to raise short-term interest rates during 2018, we expect that the Company will continue to experience increasing margins during the remainder of 2018.


Our new expansion into the Williamsburg, Virginia market continues to contribute to our loan and deposit growth. We remain excited about this new market and continue to believe it will begin generating a monthly profit during the second half of 2018 and will be a meaningful contributor to pretax income in 2019.


The mortgage banking segment posted pretax earnings of $94,000 in the second quarter of 2018 compared to a pretax loss of $217,000 in the seasonally slow first quarter of 2018. The losses posted during the prior three quarters primarily stem from the changes in leadership and tight inventories of homes for sale. Additionally, mortgage loan applications are up year over year by 20%, and we carried strong pipelines into the third quarter.


Loan Growth


We have produced strong loan growth over the last twelve months, with total loans held for investment increasing by $63.6 million, or 18.7%, from Q2 2017. Core loans increased by $64.9 million, or 21.9%, from Q2 2017.


The asset types we have been strategically targeting - commercial and industrial business loans, owner occupied commercial real estate, and income producing property loans (non-owner occupied commercial real estate) - continue to grow representing 57.5%, 54.8% and 53.5% of our total loan portfolio at Q2 2018, Q4 2017 and Q2 2017, respectively.


During the quarter, we continued to allow the purchased government guaranteed student loan portfolio to run off. It now represents 10.4% of our total loan portfolio vs. 12.4% at Q4 2017 and 12.8% at Q2 2017.






The following table provides additional details (in thousands):


Loans Outstanding
Loan Type  Q2 2018   Q1 2018   Q4 2017   Q3 2017   Q2 2017 
C&I + Owner occupied commercial real estate  $139,633   $131,322   $121,510   $112,481   $115,921 
Nonowner occupied commercial real estate   92,132    86,894    80,501    68,223    65,963 
Consumer/Residential   90,643    90,358    88,228    81,708    77,500 
Acquisition, development and construction   36,654    33,284    30,817    35,048    34,950 
Student   42,133    43,896    45,805    47,643    43,422 
Other   2,155    1,973    1,848    1,899    1,985 
Total loans  $403,350   $387,727   $368,709   $347,002   $339,741 


Credit metrics continue to compare favorably to our peers as follows:


Credit Metrics
  Village    Peer Group 
Metric  Q2 2018   Q1 2018   Q1 2018(2) 
Allowance for Loan and Lease Losses/Nonperforming Loans   166.48%   159.11%   168.88%
Nonperforming Loans/Loans (excluding Guaranteed Loans)   0.56%   0.64%   0.96%
Nonperforming Assets/Bank Total Assets (1)   0.53%   0.64%   0.94%


(1) Nonperforming assets excluding performing troubled debt restructurings.

(2) Source - SNL data for VA Banks <$1 Billion as of March 31, 2018.  




The following table provides the composition of our deposits at the dates indicated (in thousands):


Deposits Outstanding
Deposit Type   Q2 2018    Q1 2018    Q4 2017    Q3 2017    Q2 2017 
Noninterest-bearing demand  $120,718   $114,088   $104,138   $103,396   $100,488 
Interest checking   48,742    50,145    48,042    48,673    48,916 
Money market   83,016    81,722    82,523    81,423    81,673 
Savings   29,042    29,043    27,596    27,601    27,653 
Time deposits   151,465    146,500    149,325    146,311    146,661 
Total deposits  $432,983   $421,498   $411,624   $407,404   $405,391 


Total deposits increased by $11.5 million, or 2.7%, from Q1 2018, and by $27.6 million, or 6.8%, from Q2 2017. The majority of the growth occurred in low cost relationship deposits (checking, money market and savings) which increased by $6.5 million, or 2.4%, from Q1 2018, and by $22.8 million, or 8.81%, from Q2 2017. This growth is a result of our focus on building customer relationships that provide lower cost deposits. Interest expense on deposits increased by $70,000, or 11.9%, from Q2 2017 to Q2 2018. The rate paid on deposits increased from 0.80% to 0.85% for the same period.








The Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board’s Small Bank Holding Company Policy Statement issued in February 2015, and is no longer obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies.


As previously disclosed, on March 21, 2018 the Company issued $5.7 million of fixed-to-floating rate subordinated notes due March 31, 2028 in a private placement. On March 30, 2018, the proceeds from the subordinated notes were used to redeem the remaining 5,027 shares ($5,027,000 aggregate liquidation value) of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, plus accrued dividends.


The Bank’s capital ratios at the indicated dates were as follows:


Bank Capital Ratios
Ratio  Q2 2018   Q1 2018   Q4 2017   Q3 2017   Q2 2017 
Common equity tier 1   11.28%   11.70%   11.96%   13.23%   13.33%
Tier 1   11.28%   11.70%   11.96%   13.23%   13.33%
Total capital   12.11%   12.61%   12.88%   14.23%   14.36%
Tier 1 leverage   9.00%   9.08%   9.18%   9.51%   9.64%


During the next three quarters, we expect to be generating a return on equity that meets or exceeds our asset growth rate which will allow us to rebuild capital ratios. In the meantime based on our analysis, we believe that we have sufficient capital to execute our strategies and absorb adversity.


About Village Bank and Trust Financial Corp.


Village Bank and Trust Financial Corp. was organized under the laws of the Commonwealth of Virginia as a bank holding company whose activities consist of investment in its wholly-owned subsidiary, Village Bank. Village Bank is a full-service Virginia-chartered community bank headquartered in Midlothian, Virginia with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”).  The Bank has ten branch offices. Village Bank and its wholly-owned subsidiary, Village Bank Mortgage Corporation, offer a complete range of financial products and services, including commercial loans, consumer credit, mortgage lending, checking and savings accounts, certificates of deposit, and 24-hour banking.






Forward-Looking Statements


In addition to historical information, this press release may contain forward-looking statements. For this purpose, any statement, that is not a statement of historical fact may be deemed to be a forward-looking statement. These forward-looking statements may include statements regarding profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy and financial and other goals. Forward-looking statements often use words such as “believes,” “expects,” “plans,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends” or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements.


There are many factors that could have a material adverse effect on the operations and future prospects of the Company including, but not limited to:


·changes in assumptions underlying the establishment of allowances for loan losses, and other estimates;
·the risks of changes in interest rates on levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;
·the effects of future economic, business and market conditions;
·our inability to maintain our regulatory capital position;
·the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions despite security measures implemented by the Company;
·changes in market conditions, specifically declines in the residential and commercial real estate market, volatility and disruption of the capital and credit markets, soundness of other financial institutions we do business with;
·risks inherent in making loans such as repayment risks and fluctuating collateral values;
·changes in operations of Village Bank Mortgage Corporation as a result of the activity in the residential real estate market;
·legislative and regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and other changes in banking, securities, and tax laws and regulations and their application by our regulators, and changes in scope and cost of FDIC insurance and other coverages;
·exposure to repurchase loans sold to investors for which borrowers failed to provide full and accurate information on or related to their loan application or for which appraisals have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor;
·governmental monetary and fiscal policies;
·changes in accounting policies, rules and practices;
·reliance on our management team, including our ability to attract and retain key personnel;







·competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
·demand, development and acceptance of new products and services;
·problems with technology utilized by us;
·changing trends in customer profiles and behavior; and
·other factors described from time to time in our reports filed with the Securities and Exchange Commission (“SEC”).


Additional factors, that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available on the SEC’s Web site at www.sec.gov.


For further information contact Donald M. Kaloski, Jr., Executive Vice President and CFO at 804-897-3900 or dkaloski@villagebank.com.






Financial Highlights

(Dollars in thousands, except per share amounts)


  June 30,   March 31,   December 31,   September 30,   June 30, 
   2018   2018   2017   2017   2017 
  (Unaudited)   (Unaudited)      (Unaudited)   (Unaudited) 
Balance Sheet Data                         
Total assets  $506,352   $488,819   $476,974   $464,706   $462,255 
Investment securities   47,137    48,302    49,711    44,834    43,052 
Loans held for sale   9,106    5,372    8,047    5,641    11,028 
Loans, net   400,928    385,036    366,169    344,435    337,129 
Deposits   432,983    421,498    411,624    407,404    405,391 
Borrowings   35,479    29,931    22,648    10,364    10,364 
Shareholders' equity   34,794    34,230    39,334    43,634    43,468 
Book value per share  $24.26   $23.87   $23.98   $26.98   $26.89 
Total shares outstanding   1,433,947    1,434,136    1,430,751    1,430,854    1,429,346 
Asset Quality Ratios                         
Allowance for loan losses to:                         
Loans, net of deferred fees and costs   0.79%   0.86%   0.88%   0.93%   0.96%
Nonaccrual loans   166.48%   159.11%   139.61%   128.90%   168.66%
Nonperforming assets to total assets   0.53%   0.64%   0.86%   0.93%   0.81%


    Three Months Ended 
  June 30,   March 31,   December 31,   September 30,   June 30, 
   2018   2018   2017   2017   2017 
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Selected Operating Data                         
Interest income  $5,152   $4,777   $4,594   $4,380   $4,192 
Interest expense   924    766    724    688    670 
Net interest income before                         
provision for loan losses   4,228    4,011    3,870    3,692    3,522 
Provision for loan losses   -    -    -    -    - 
Noninterest income   1,667    1,333    1,518    1,646    1,765 
Noninterest expense   5,101    4,860    5,177    4,959    4,956 
Income before income tax expense   794    484    211    379    331 
Income tax expense (1)   153    72    4,233    106    94 
Net income (loss) (1)   641    412    (4,022)   273    237 
Net income (loss) available to common                         
shareholders (1)   641    299    (4,135)   160    123 
Earnings (loss) per share                         
Basic  $0.45   $0.21   $(2.92)  $0.11   $0.09 
Diluted  $0.45   $0.21   $(2.92)  $0.11   $0.09 
Performance Ratios                         
Return on average assets   0.52%   0.35%   (3.42)%   0.24%   0.21%
Return on average equity   7.44%   4.24%   (36.35)%   2.47%   2.18%
Return on average tangible common equity   7.44%   3.52%   (42.21)%   1.63%   1.28%
Net interest margin   3.76%   3.74%   3.66%   3.53%   3.49%


(1) Net income and net income available to common shareholders for the three months ended December 31, 2017 were negatively impacted by the write-down of the net deferred tax asset of approximately $4,181,000 as a result of the reduction in the corporate income tax rate.