EDGAR 10-K Filing

Company CIK: 1290476
Filing Year: 2025
Filename: 1290476_10-K_2025_0001558370-25-003706.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Village Bank and Trust Financial Corp. (“Company”) was incorporated in January 2003 and was organized under the laws of the Commonwealth of Virginia as a bank holding company. The Company has three wholly owned subsidiaries: Village Bank (the “Bank”), Southern Community Financial Capital Trust I, and Village Financial Statutory Trust II. The Bank has one active wholly owned subsidiary: Village Bank Mortgage Corporation (the “Mortgage Company”), a full service mortgage banking company. The Company is the holding company of and successor to the Bank. Effective April 30, 2004, the Company acquired all of the outstanding stock of the Bank in a statutory share exchange transaction. Unless the context suggest otherwise, the terms “we”, “us” and “our” refer collectively to the Company, the Bank, and the Mortgage Company.
The Bank is the primary operating business of the Company. The Bank offers a wide range of banking and related financial services, including checking, savings, certificates of deposit and other depository services, and commercial, real estate and consumer loans, primarily in the Richmond, Virginia and Williamsburg, Virginia metropolitan areas. The Bank was organized in 1999 as a Virginia chartered bank to engage in a general banking business to serve the communities in and around Richmond, Virginia and expanded its services to Williamsburg, Virginia in 2017. Deposits with the Bank are insured to the maximum amount provided by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a comprehensive range of financial services and products and specializes in providing customized financial services to small and medium sized businesses, professionals, and individuals. The Bank provides its customers with personal customized service utilizing modern technology and delivery channels.
Bank revenues are derived from interest and fees received in connection with loans, deposits, and mortgage services. Administrative and operating expenses are the major expenses, followed by interest paid on deposits and borrowings. Revenues from the Mortgage Company consist primarily of gains from the sale of loans and loan origination fees and its major expenses consist of personnel, occupancy, data processing, and other operating expenses. In 2024, revenue (after intercompany eliminations) generated by the Bank totaled $43.1 million and the Mortgage Company generated $3.2 million in revenue.
Segment Reporting
The Company has two reportable segments: traditional commercial banking and mortgage banking. For more financial data and other information about each of the Company’s operating segments, refer to Note 19 “Segment Reporting” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Business Strategy
We have pursued strategies aimed at helping us achieve long-term total shareholder returns that rank in the top quartile of a nationwide peer group. To achieve this goal, we strived to deliver a top quartile return on equity, produce sustainable earnings growth, achieve best quartile earnings volatility in our industry and deliver best quartile asset quality in the worst part of the economic cycle. Our business strategies include the following:
● Build full service banking relationships with high quality local companies by being problem solvers and business builders, not just bankers. We will continue to field a team of bankers and leaders who are both great bankers and exceptional business people. We will have the capital, capabilities and connections to help business owners achieve their goals and overcome obstacles to their success. We target win-win outcomes. We expect to be disciplined lenders
during the good times so that during difficult times we can support our good clients, win high quality relationships and recruit talented bankers while other banks focus on their own challenges. Real estate lending will continue to be an important part of our business. We intend to be diligent in managing overall portfolio concentrations, and we will focus on real estate sectors and sponsors that we expect to perform better during difficult times. We target wealth building real estate investors. We will understand the needs and goals of our business clients and their owners so that we can help them fulfill those needs and achieve those goals. We will target deposit only relationships as actively as we will target full loan and deposit relationships. Wherever possible and prudent, we will purchase products and services from the companies that do business with us to support our clients and thank them for their business.
● Build long-term, mutually beneficial banking relationships with individuals and families in our market area. We will offer the basic financial products and services individuals and families in our communities need backed by exceptionally professional and caring service. We offer convenience and flexibility through in person, online, mobile and telephonic options for enrolling in new services, handling transactions and seeking service. We want to help our clients thrive on their journey through life. Through our own team members and business partners, we will help clients develop plans for handling the big moments they will encounter along the way. We will use technology to understand our clients, serve their needs and grow our business.
● Grow the Mortgage Company’s profitability and positive contribution to our brand. We intend to add loan officers and production teams, more fully identify and serve the mortgage needs of bank clients, appropriately leverage available grant programs, offer portfolio mortgage products, and enhance our marketing efforts to grow mortgage banking revenues. We plan to continue to treat mortgage banking as a specialty line of business. We will continue to differentiate ourselves by treating the homeowners, realtors, builders and financial advisors who refer their clients to us with exceptionally professional and caring service.
● Build and sustain the economics of our balance sheet, income statement and business model:
o Defend and expand our Net Interest Margin by improving the mix of both assets and funding wherever possible.
o Build and grow other non-interest income services to leverage our return on assets (“ROA”) and return on equity (“ROE”).
o Streamline and rationalize our processes and organization to improve productivity and efficiency.
o Include a prudent amount of debt in our holding company capital structure to leverage a strong ROA into an even stronger ROE.
● Achieve excellence in risk management. We strive to achieve best quartile performance on credit quality metrics in the worst part of the business cycle and sustainable earnings growth over the long term. Risk taking is a fundamental part of banking. Top performing banks are very good at identifying, understanding, measuring, monitoring, managing, mitigating and getting paid for the risks the organization takes. We are committed to building and sustaining the culture, talent, tools, policies, processes and discipline needed to be a top performer in our risk management functions.
● Be the place where exceptional people want to work. We are committed to achieving great things and need teammates who share that commitment. We will sustain our fun, fulfilling and rewarding work environment built on trust and teamwork. We know that we will achieve our goals by fielding a team of champions, not by building our business around individual stars. We are a meritocracy where every individual knows he or she can make a difference every day, where their individual contributions are valued, where we invest in our teammates, and where we hold people accountable. We will invest in technology to leverage the talents of our associates and provide the flexibility to allow them to manage their work and life priorities effectively. We will offer benefits and resources intended to help our team members be fit to thrive on their journey through life. When we make difficult business decisions, we will do so with sensitivity to and understanding of the consequences of those decisions.
● Make a lasting difference in our communities. We will invest our work, wisdom and wealth to help our communities prepare young people for success in life, help families navigate the complex maze of modern life and support and honor the individuals who serve and protect us. We believe that we can be particularly effective in serving our many stakeholders by being a leader in education and workforce development initiatives in our community because success in these areas will help individuals and families provide for themselves and will provide businesses with the talented employees they need to grow and prosper.
Market Area
The Company, the Bank, and the Mortgage Company are headquartered in Chesterfield County and primarily serve the Central Virginia region and the Richmond and Williamsburg metropolitan statistical areas. We currently conduct business from nine full-service branch banking offices, and a mortgage loan production office in Central Virginia in the counties of Chesterfield, Hanover, Henrico, Powhatan, James City, and the city of Richmond.
Banking Services
Deposit Services. Deposits are a major source of our funding. The Bank offers a full range of deposit services that are typically available in most banks and other financial institutions including checking accounts, savings accounts and other time deposits of various types, ranging from daily money market accounts to longer term certificates of deposit and Individual Retirement Accounts. These deposit accounts are offered at rates competitive with other institutions in our market area. We service our deposit clients in our full-service branches, at drive-up windows, at our ATMs, through our customer care team and through technology such as online banking, mobile banking applications and remote deposit capture for business clients. We have not applied for permission to establish a trust department and offer trust services. The Bank is not a member of the Federal Reserve System. Deposits are insured under the Federal Deposit Insurance Act of 1950 (the “FDI Act”) to the limits provided thereunder.
Lending Services. We offer a full range of short-to-medium term commercial and personal loans. We also provide a wide range of real estate finance services. Our primary focus is on making loans in the Central Virginia and greater Williamsburg markets where we have branch banking offices. We offer residential construction-to-permanent financing to clients of the Mortgage Company.
● Commercial Business Lending. We make secured and unsecured loans to small- and medium-sized businesses for purposes such as funding working capital needs (including inventory and receivables), business expansion (including acquisition of real estate and improvements) and purchase of equipment and machinery. We also make loans under Small Business Administration and state sponsored business loan programs. In our underwriting, we evaluate the earnings and cash flows of the business, guarantor support and both the need for and the protection offered by the collateral for the loan.
● Commercial Real Estate Acquisition, Development, Construction and Mortgage Lending. We make loans to our clients for the purposes of acquiring, developing, constructing and owning commercial real estate. These properties may be owner-occupied or may be held for investment purposes and repaid from rental income or from the sale of the property.
● Consumer Lending. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education and personal investments. We also originate fixed and variable rate mortgage loans and real estate construction and acquisition loans. Residential loans originated by our mortgage company are usually sold in the secondary mortgage market.
● Loan Participations. We sell loan participations in the ordinary course of business when a loan originated by us exceeds our legal lending limit or we otherwise deem it prudent to share the risk with another lending institution. Additionally, we purchase loan participations from other banks, usually without recourse against that bank. We underwrite purchased loan participations in accordance with normal underwriting practices.
● Loan Purchases. We purchase Federal Rehabilitated Student Loan portfolios when approved by the board of directors. These loans are guaranteed by the U.S. Department of Education (“DOE”) which covers approximately 98% of the principal and interest. These loans are serviced by a third party servicer that specializes in handling these types of loans.
We also purchase the guaranteed portion of United State Department of Agriculture Loans (“USDA”) which are guaranteed by the USDA for 100% of the principal and interest. The originating institution holds the unguaranteed portion of the loan and services the loan. These loans are typically purchased at a premium. In the event of a loan default or early prepayment the Bank may need to write off any unamortized premium.
Lending Limit. As of December 31, 2024, our legal lending limit for loans to one borrower was approximately $13,973,000.
Competition
We encounter strong competition from other local commercial banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, financial technology companies, and other financial institutions. A number of these competitors are well-established. Competition for loans is keen, and pricing is important. Most of our competitors have substantially greater resources and higher lending limits than ours and offer certain services, such as extensive and established branch networks and trust services, which we do not provide at the present time. Deposit competition also is strong, and we may have to pay higher interest rates to attract deposits. Nationwide banking institutions and their branches have increased competition in our markets, and federal legislation adopted in 1999 allows non-banking companies, such as insurance and investment firms, to establish or acquire banks. We believe that the Company can capitalize on recent merger activity to attract customers from the acquired institutions.
At June 30, 2024, the latest date such information is available from the FDIC, the Bank’s deposit market share in Chesterfield County was 4.36%, 4.99% in Hanover County, 11.88% in Powhatan County, 1.12% in the Richmond metropolitan statistical area, 0.99% in Henrico County and 0.63% in James City County.
Supervision and Regulation
We are subject to extensive regulation by certain federal and state agencies and receive periodic examinations by those regulatory authorities. As a consequence, our business is affected by state and federal legislation and regulations.
The discussion below is only a summary of the principal laws and regulations that comprise the regulatory framework applicable to us. The descriptions of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, do not purport to be complete and are qualified in their entirety by reference to applicable laws and regulations.
General. The Company is qualified as a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is registered as such with the Board of Governors of the Federal Reserve System (the "Federal Reserve"). As a bank holding company, the Company is subject to supervision, regulation and examination by the Federal Reserve and is required to file various reports and additional information with the Federal Reserve. The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation and examination by the Bureau of Financial Institutions of the Virginia State Corporation Commission (the "BFI"). The Bank is a Virginia chartered bank and is not a member of the Federal Reserve System. The Bank is subject to regulation, supervision and examination by the FDIC and the BFI.
The Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Dodd-Frank Act significantly restructured the financial regulatory regime in the United States and has had a broad impact on the financial services industry as a result of the significant regulatory and compliance changes required under the act.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”), which became effective May 24, 2018, amended the Dodd-Frank Act to provide regulatory relief for certain smaller and regional financial institutions, such as the Company and the Bank. The EGRRCPA, among other things, provides financial institutions with less than $10 billion in total consolidated assets with relief from certain capital requirements and exempts banks with less than $250 billion in total consolidated assets from the enhanced prudential standards and the company-run and supervisory stress tests required under the Dodd-Frank Act.
The Dodd-Frank Act has had, and may in the future have, a material impact on the Company’s operations, particularly through increased compliance costs resulting from new and possible future consumer and fair lending regulations. The future changes resulting from the Dodd-Frank Act may affect the profitability of business activities, require changes to certain business practices, impose more stringent regulatory requirements, or otherwise adversely affect the business and financial condition of the Company and the Bank. These changes may also require the Company to invest significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements.
Reporting Obligations Under Securities Laws. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the requirement to file with the Securities and Exchange Commission (the “SEC”) annual, quarterly and other reports on the financial condition and performance of the organization. The Company’s common stock is listed on the Nasdaq Capital Market and, as a result, the Company is subject to the rules and listing standards adopted by The Nasdaq Stock Market, LLC (“Nasdaq”). The Company is also affected by the corporate responsibility and accounting reform legislation signed into law on July 30, 2002, known as the Sarbanes-Oxley Act of 2002 (the “SOX Act”), and the related rules and regulations. The SOX Act includes provisions that, among other things, require that periodic reports containing financial statements that are filed with the SEC be accompanied by chief executive officer and chief financial officer certifications as to the accuracy and compliance with law, additional disclosure requirements and corporate governance and other related rules. The Company has expended considerable time and money in complying with the rules and regulations of the SEC and Nasdaq, and with the SOX Act, and expects to continue to incur additional expenses in the future.
Bank Holding Company Act. The Federal Reserve has jurisdiction under the BHC Act to approve any bank or non-bank acquisition, merger or consolidation proposed by a bank holding company. The BHC Act, and other applicable laws and regulations, generally limit the activities of a bank holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is so closely related to banking or to managing or controlling banks as to be a proper incident thereto.
In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Support of Subsidiary Institutions. Under the Dodd-Frank Act, and previously under Federal Reserve policy, the Company is required to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support can be required at times when it would not be in the best interest of the Company’s shareholders or creditors to provide it. In the event of the Company’s bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee and entitled to a priority of payment. The Company has periodically raised capital and contributed it to the Bank to support the Bank’s operations.
Privacy Legislation. Several laws, including the Right To Financial Privacy Act and the Gramm-Leach-Bliley Act, provide protections against the transfer and use of customer information by financial institutions. Financial Institutions generally are prohibited from disclosing customer information to non-affiliated third parties, unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial institutions must disclose their specific privacy policies to their customers annually and must conduct an internal risk assessment of their ability to protect customer information.
In October 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule regarding personal financial data rights that is designed to promote “open banking.” The final rule requires, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties, upon request, certain covered transaction, account, and payment information. On the same day the final rule was released, certain industry participants filed a complaint against the CFPB challenging the final rule. This legal challenge has since been paused to allow time for the CFPB to assess the rule and determine whether it aligns with the agency’s current policy objectives.
Mergers and Acquisitions. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the “Interstate Banking Act”), generally permits well capitalized and adequately managed bank holding companies to acquire banks in any state, and preempts all state laws restricting the ownership by a bank holding company of banks in more than one state. The Interstate Banking Act also permits a bank to merge with an out-of-state bank and convert any offices into branches of the resulting bank if both states have not opted out of interstate branching; and permits a bank to acquire branches from an out-of-state bank if the law of the state where the branches are located permits the interstate branch acquisition. Under the Dodd-Frank Act, a bank holding company or bank must be well capitalized and well managed to engage in an interstate acquisition. Bank holding companies and banks are required to obtain prior Federal Reserve approval to acquire more than 5% of a class of voting securities, or substantially all of the assets, of a bank holding company, bank or savings association. The Interstate Banking Act and the Dodd-Frank Act permit banks to establish and operate de novo interstate branches to the same extent a bank chartered by the host state may establish branches. Virginia law permits branching across state lines, provided there is reciprocity with the state in which the out-of-state bank is based.
Limits on the Payment of Dividends. The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. Virtually all of the Company’s cash revenues will result from dividends paid to it by the Bank, which is subject to laws and regulations that limit the amount of dividends that it can pay. Under Virginia law, a bank may not declare a dividend in excess of its accumulated retained earnings without approval by the BFI. As of December 31, 2024, the Bank’s retained earnings were $17,283,000. In addition, the Bank may not declare or pay any dividend if, after making the dividend, the Bank would be "undercapitalized," as defined in FDIC regulations.
The FDIC and the state have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. Both the FDIC and the state have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice.
In addition, the Company is subject to certain regulatory requirements to maintain capital at or above regulatory minimums. These regulatory requirements regarding capital affect our dividend policies. Regulators have indicated that holding companies should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. In addition, the Federal Reserve has issued guidelines that bank holding companies should inform and consult with the Federal Reserve in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure.
Insurance of Accounts, Assessments and Regulation by the FDIC. Our deposits are insured by the FDIC up to the limits set forth under applicable law, currently $250,000. We are subject to the deposit insurance assessments of the Deposit Insurance Fund (“DIF”). The deposit insurance assessment base is average total assets minus average tangible equity. The FDIC uses a “financial ratios method” based on CAMELS composite ratings to determine assessment rates for small established institutions with less than $10 billion of assets, such as the Bank. The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk (“CAMELS”). CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions.
The FDIC is authorized to prohibit any DIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the respective insurance fund. Also, the FDIC may initiate enforcement actions against banks, after first giving the institution’s primary regulatory authority an opportunity to take such action. The FDIC may terminate the deposit insurance of any depository institution if it determines, after a hearing, that the
institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed in writing by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance if the institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined by the FDIC. We are aware of no existing circumstances that could result in termination of our deposit insurance.
Capital Adequacy. Both the Company and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve, in the case of the Company, and the FDIC, in the case of the Bank. The Federal Reserve and the FDIC have adopted rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision (the “Basel Committee”) and certain provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). The Basel III Capital Rules implement minimum capital ratios and establish risk weightings that are applied to many classes of assets held by community banks, including applying higher risk weightings to certain commercial real estate loans.
The Basel III Capital Rules require banks and bank holding companies to comply with the following minimum capital ratios: (1) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (2) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (3) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (4) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the minimum plus the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”). Under the SBHC Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules. The SBHC Policy Statement does not apply to the Bank and the Bank must comply with the Basel III Capital Rules. The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the FDI Act, as described below.
Prompt Corrective Action. Federal banking agencies have broad powers to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” These terms are defined under uniform regulations issued by each of the federal banking agencies regulating these institutions. An insured depository institution that is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities.
To be well capitalized under these regulations, a bank must have the following minimum capital ratios: (1) a common equity Tier 1 capital ratio of at least 6.5%; (2) a Tier 1 risk-based capital ratio of at least 8.0%; (3) a total risk-based capital ratio of at least 10.0%; and (4) a leverage ratio of at least 5.0%. At December 31, 2024, the Bank’s common equity Tier 1 capital ratio was 13.82%, its Tier 1 risk-based capital ratio was 13.82%, its total risk-based capital ratio was 14.45% and its leverage ratio was 11.56%. Accordingly, as of December 31, 2024, the Bank met the minimum ratios to be classified as well capitalized. More information concerning our regulatory ratios at December 31, 2024 is included in Note 13 to the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Restrictions on Transactions with Affiliates. Both the Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of: (1) a bank’s loans or extensions of credit, including purchases of assets subject to an agreement to repurchase, to affiliates; (2) a bank’s investment in affiliates; (3) assets a
bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve; (4) the amount of loans or extensions of credit to third parties collateralized by the securities or debt obligations of affiliates; (5) transactions involving the borrowing or lending of securities and any derivative transaction that results in credit exposure to an affiliate; and (6) a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate.
The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Bank must also comply with other provisions designed to avoid acquiring low-quality assets from its affiliates.
The Company and the Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.
The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.
The Dodd-Frank Act also provides that an insured depository institution may not purchase an asset from, or sell an asset to a bank insider (or their related interests) unless (1) the transaction is conducted on market terms between the parties, and (2) if the proposed transaction represents more than 10% of the capital stock and surplus of the insured institution, it has been approved in advance by a majority of the institution’s non-interested directors.
Incentive Compensation Policies and Restrictions. In July 2010, the federal banking agencies issued guidance that applies to all banking organizations supervised by the agencies (thereby including both the Company and the Bank). Pursuant to the guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk management; and (3) be supported by strong corporate governance including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation. At December 31, 2024, we had not been made aware of any instances of non-compliance with this guidance. The Dodd-Frank Act requires the appropriate federal regulators to establish standards prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or bank that provides an insider or other employee with “excessive compensation” or that could lead to a material financial loss to such firm. These standards have not yet been established.
The Nasdaq Stock Market, LLC, the exchange on which our common stock is listed, enacted a listing rule that became effective in 2023 requiring listed companies to adopt policies mandating the recovery or “clawback” of excess incentive compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. The Company has adopted a clawback policy compliant with such rule, a copy of which is attached as Exhibit 97 to this Form 10-K.
Anti-Money Laundering Laws and Regulations. The Company is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (“AML laws”). This category of laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020.
The AML laws and their implementing regulations require insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes.
Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls.
Reporting Terrorist Activities. The Office of Foreign Assets Control (“OFAC”), which is a division of the Department of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.
Mortgage Banking Regulation. The Mortgage Company is subject to the rules and regulations by the Department of Housing and Urban Development, the Federal Housing Administration, the Department of Veteran Affairs and state regulatory authorities with respect to originating, processing, servicing and selling mortgage loans. Those rules and regulations, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in some cases, restrict certain loan features, and fix maximum interest rates and fees. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the Home Ownership Equity Protection Act, and the regulations promulgated thereunder. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.
Other Safety and Soundness Regulations. There are a number of obligations and restrictions imposed on depository institutions by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event the depository institution becomes in danger of default or is in default. The Federal banking agencies also have broad powers under current Federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized, as defined by the law. Federal regulatory authorities also have broad enforcement powers over us, including the power to impose fines and other civil and criminal penalties, and to appoint a receiver in order to conserve the assets of any such institution for the benefit of depositors and other creditors. At December 31, 2024, the Bank met the ratio requirements to be classified as a well capitalized financial institution.
Loans-to-One Borrower. Under applicable laws and regulations the amount of loans and extensions of credit which may be extended by a bank to any one borrower, including related entities, generally may not exceed 15% of the sum of the capital, surplus, and loan loss reserve of the institution.
Consumer Financial Protection. The Company is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. If the Company fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank
regulatory approval for merger or acquisition transactions the Company may wish to pursue or being prohibited from engaging in such transactions even if approval is not required.
The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, and giving it responsibility for implementing, examining, and enforcing compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-depository companies that offer one or more consumer financial products or services. The CFPB has broad rule making authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.
In February 2025, the Trump administration halted the CFPB’s operations, and its employees were instructed to cease all supervision and examination activity. As a result, the future of the CFPB and its impact on our business are uncertain.
Community Reinvestment. The requirements of the Community Reinvestment Act (“CRA”) are applicable to the Company and the Bank. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. A financial institution’s efforts in meeting community credit needs currently are evaluated as part of the examination process pursuant to 12 assessment factors. These factors also are considered in evaluating mergers, acquisitions and applications to open a branch or facility. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank was rated “satisfactory” in its most recent CRA evaluation.
On October 24, 2023, the federal bank regulatory agencies issued a final rule to modernize their respective CRA regulations. The revised rule substantially alters the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026 and revised data reporting requirements taking effect January 1, 2027. Among other things, the revised rule evaluates lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities. The final rule has been subject to an injunction since March 29, 2024, and the effective dates will be extended pending resolution of the lawsuit.
Cybersecurity. In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If the Company fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.
On November 18, 2021, the federal bank regulatory agencies issued a final rule, effective April 1, 2022, imposing new notification requirements for cybersecurity incidents. The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material
portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
In July 2023, the SEC issued a final rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies that are subject to the reporting requirements of the Exchange Act. Specifically, the final rule requires current reporting about material cybersecurity incidents, periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risk, management’s role in implementing cybersecurity policies and procedures, and the board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk. See Item 1C. Cybersecurity of this Form 10-K for a discussion of the Company’s cybersecurity risk management, strategy and governance.
To date, we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
Future Legislation and Regulation. Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner.
Employees
As of December 31, 2024, the Company and its subsidiaries had a total of 133 full-time employees and 3 part-time employees. None of the Company’s employees is covered by a collective bargaining agreement. The Company considers its relations with its employees to be good.
The Company has a Code of Ethics for directors, officers and all employees of the Company and its subsidiaries, which is applicable to the Company’s Chief Executive Officer, Chief Financial Officer and other principal financial officers. The Code addresses such topics as protection and proper use of Company assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting and conflicts of interest. A copy of the Code will be provided, without charge, to any shareholder upon written request to the Secretary of the Company, whose address is 13319 Midlothian Turnpike, Midlothian, Virginia 23113.
Additional Information
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. Electronic copies of our SEC filings are available on the SEC’s Internet site (http://www.sec.gov).
The Company’s Internet address is http://www.villagebank.com. At that address, we make available, free of charge, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act (see “Investor Relations” section of website), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC (except for exhibits). Requests should be directed to Donald M. Kaloski, Jr., Chief Financial Officer, Village Bank and Trust Financial Corp., 13319 Midlothian Turnpike, Midlothian, VA 23113.
The information on the websites listed above is not and should not be considered to be part of this annual report on Form 10-K and is not incorporated by reference in this document.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent to our business. Investors should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial, may also impair our business and operations. If any of the following risks adversely affects our business, financial condition or results of operations, the value of our common stock could decline.
The Merger with TowneBank may distract management of the Company from its other responsibilities.
The Merger could cause management of the Company to focus its time and energies on matters related to the Merger that otherwise would be directed to the Company’s business and operations. Any such distraction on the part of management of the Company, if significant, could affect its ability to service existing business and develop new business and may adversely affect the business and earnings of the Company.
Termination of the Agreement with TowneBank could negatively impact the Company.
Each of the Company’s and TowneBank’s obligation to consummate the Merger remains subject to a number of conditions which must be fulfilled to consummate the Merger, and there can be no assurance that all of the conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all. Any delay in completing the Merger could cause the Company not to realize some or all of the benefits that the Company expects to achieve if the Merger is successfully completed within its expected timeframe. If the Agreement is terminated, the Company’s business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Agreement is terminated, the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed. TowneBank and/or the Company may be subject to litigation related to any failure to complete the Merger or to proceedings commenced against either company to perform obligations under the Agreement. If the Agreement is terminated under certain circumstances, including circumstances involving a change in recommendation by the Company’s board of directors, the Company may be required to pay to TowneBank a termination fee of $4.8 million.
In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Agreement. If the Merger is not completed, the Company would have to recognize these expenses and would have committed substantial time and resources by management, without the Company’s shareholders receiving cash proceeds from the Merger. In addition, failure to consummate the Merger also may result in negative reactions from the financial markets or from the Company’s customers, vendors and employees.
The Agreement with TowneBank limits the ability of the Company to pursue alternatives to the Merger.
The Agreement contains customary “no-shop” provisions that, subject to limited exceptions, limit the ability of the Company to initiate, solicit, endorse, encourage or knowingly facilitate any inquiries or proposals with respect to any competing third-party proposals to acquire all or a significant part of the Company. In addition, under certain circumstances, if the Agreement is terminated and the Company consummates a similar transaction with a party other than TowneBank, the Company must pay to TowneBank a fee of $4.8 million. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or
proposing the acquisition even if it were prepared to pay consideration, with respect to the Company or its shareholders, with a higher per share market price than that proposed in the Merger.
The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effects of the Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. Retention of certain employees by the Company may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with the Company or the combined company following the Merger. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company or the combined company following the Merger, the Company’s business could be harmed. In addition, the Company has agreed to operate its business in the ordinary course prior to the closing of the Merger and from taking certain specified actions without the consent of TowneBank. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the Company’s business, financial condition and results of operations.
Shareholders of the Company and/or TowneBank may file lawsuits against the Company, TowneBank and/or the directors and officers of either company in connection with the Merger. One of the conditions to the closing is that no order, decree or injunction by any court or governmental entity of competent jurisdiction that would enjoin or prohibit the completion of the Merger be in effect. If any plaintiff were successful in obtaining an injunction prohibiting the Company or TowneBank from completing the Merger or any of the other transactions contemplated by the Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in significant costs to the Company, including any cost associated with the indemnification of the Company’s directors and officers. The Company may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the Merger. Shareholder lawsuits may divert management attention from management of the Company’s business or operations. Such litigation could have an adverse effect on the Company’s business, financial condition and results of operations and could prevent or delay the completion of the Merger.
Risk Related to the Company’s Lending Activities
Our credit standards and on-going credit assessment processes might not protect us from significant credit losses.
We take credit risk by virtue of making loans and extending loan commitments and letters of credit. We manage credit risk through a program of underwriting standards, the review of certain credit decisions and an ongoing process of assessment of the quality of the credit already extended. In addition, our credit administration function employs risk management techniques intended to promptly identify problem loans. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding future undue credit risk, and credit losses will occur in the future and they may be significant.
Our allowance for credit losses may be insufficient.
We maintain an allowance for credit losses, which consists of the allowance for credit losses on loans, reserve for unfunded commitments, and the allowance on securities. The allowance for credit losses on loans is established as losses are estimated to have occurred through a provision for credit losses charged to earnings. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.
The level of the allowance for credit losses on loans reflects management’s evaluation of the level of loans outstanding, the level of nonperforming loans, historical loan loss experience, delinquency trends, underlying collateral values, the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic
conditions. The determination of the appropriate level of the allowance for credit losses on loans inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Although we believe the allowance for credit losses on loans is a reasonable estimate of expected losses in the loan portfolio, we cannot precisely predict such losses or be certain that the allowance for credit losses on loans will be adequate in the future. Deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside our control, may require an increase in the allowance for credit losses on loans. In addition, bank regulatory agencies and our auditors periodically review our allowance for credit losses on loans and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for credit losses on loans, we will need additional provisions to increase the allowance for credit losses on loans.
Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition.
Our nonperforming assets adversely affect our net income in various ways. Nonperforming assets, (which include nonaccrual loans and other real estate owned, but exclude loans past due 90 days and still accruing as these loans are rehabilitated student loans which have a 98% guarantee by the DOE of principal and interest), were $332,000, or 0.04% of total assets, as of December 31, 2024. When we receive collateral through foreclosures and similar proceedings, we are required to mark the related loan to the then fair value of the collateral less estimated selling costs, which may result in a loss. An increased level of nonperforming assets also increases our risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. We utilize various techniques such as workouts, restructurings and loan sales to manage problem assets. Increases in or negative changes in the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect our business, results of operations and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that we will avoid increases in nonperforming loans in the future.
We have a high concentration of loans secured by real estate, and a downturn in the local real estate market could materially and negatively affect our business.
We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, residential mortgages, home equity loans and lines of credit, consumer and other loans. Many of these loans are secured by real estate (both residential and commercial) located principally in the Commonwealth of Virginia. As of December 31, 2024, 82.14% of all loans were secured by mortgages on real property. A major change in the real estate market, such as deterioration in the value of this collateral, or in the local or national economy, could adversely affect our customers’ ability to pay these loans, which in turn could impact us. If there is a decline in real estate values, especially in our market area, the collateral for loans would deteriorate and provide significantly less security. The ability to recover on defaulted loans by selling the real estate collateral could then be diminished and we would be more likely to suffer losses.
A portion of our loan portfolio consists of construction and land development loans, and a decline in real estate values and economic conditions would adversely affect the value of the collateral securing the loans and have an adverse effect on our financial condition.
At December 31, 2024, approximately 9.35% of our loan portfolio, or $57,869,000, consisted of construction and land development loans. Construction financing typically involves a higher degree of credit risk than financing on improved, owner-occupied real estate and improved, income producing real estate. Risk of loss on a construction or land development loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction or development, the marketability of the property, and the bid price and estimated cost (including interest) of construction or development. If the estimate of construction or development costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders and developers, the cost breakdown of construction or development is provided by the builder or developer. Although our underwriting criteria are designed to evaluate and minimize the risks
of each construction or land development loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to our operations. In addition, construction and land development loans are dependent on the successful completion of the projects they finance. Loans secured by vacant or unimproved land are generally riskier than loans secured by improved property. These loans are more susceptible to adverse conditions in the real estate market and local economy.
We have a significant concentration of credit exposure in commercial real estate, and loans with this type of collateral are viewed as having more risk of default.
As of December 31, 2024, we had approximately $317,821,000 in loans secured by commercial real estate, representing approximately 51.36% of total loans outstanding at that date. The real estate consists primarily of non-owner-operated properties and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt. It may be more difficult for commercial real estate borrowers to repay their loans in a timely manner, as commercial real estate borrowers’ abilities to repay their loans frequently depends on the successful rental of their properties. Cash flows may be affected significantly by general economic conditions, and a downturn in the local economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Some degree of instability in the commercial real estate markets is expected in the coming quarters as loans are refinanced in markets with higher vacancy rates under current economic conditions. The outlook for commercial real estate remains dependent on the broader economic environment and, specifically, how major subsectors respond to a higher interest rate environment and higher prices for commodities, goods and services. Because our loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our percentage of non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our financial condition.
Our banking regulators generally give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital as a result of commercial real estate lending growth and exposures, which could have a material adverse effect on our results of operations.
Our focus on lending to small to mid-sized community-based businesses may increase our credit risk.
Most of our commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market area in which we operate negatively impact this important customer sector, our results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by us in recent years and the borrowers may not have experienced a complete business or economic cycle. The deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations.
We rely upon independent appraisals to determine the value of the real estate which secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.
A significant portion of our loan portfolio consists of loans secured by real estate. We rely upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment which adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of our loans may be more or less valuable than anticipated at the time the loans were made. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, we may not be able to recover the outstanding balance of the loan and will suffer a loss.
We are exposed to risk of environmental liabilities with respect to properties to which we take title.
In the course of our business we may foreclose and take title to real estate, potentially becoming subject to environmental liabilities associated with the properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. Costs associated with investigation or remediation activities can be substantial. If we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business.
Risk Related to Market Interest Rates
Our business is subject to interest rate risk, and variations in interest rates may negatively affect financial performance.
Changes in the interest rate environment may reduce our profits. It is expected that we will continue to realize income from the differential or “spread” between the interest earned on loans, securities, and other interest earning assets, and interest paid on deposits, borrowings and other interest bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest earning assets and interest bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. Management cannot ensure that it can minimize our interest rate risk. While an increase in the general level of interest rates may increase the loan yield and the net interest margin, it may adversely affect the ability of certain borrowers with variable rate loans to pay the interest and principal of their obligations. Also, when the difference between long-term interest rates and short-term interest rates is small or when short-term interest rates exceed long-term interest rates, our margins may decline and our earnings may be adversely affected. Accordingly, changes in levels of market interest rates could materially and adversely affect the net interest spread, asset quality, loan origination volume and our overall profitability.
Risks Related to the Company’s Business, Industry and Markets
We face strong and growing competition from financial services companies and other companies that offer banking and other financial services, which could negatively affect our business.
We encounter substantial competition from other financial institutions in our market area and competition is increasing. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that we offer in our service area. These competitors include national, regional and community banks. We also face competition from many other types of financial institutions, including finance companies, mutual and money market fund providers, brokerage firms, insurance companies, credit unions, financial subsidiaries of certain industrial corporations, financial technology (“fintech”) companies and mortgage companies. In particular, the activity of fintech companies has grown significantly over recent years and is expected to continue to grow. Fintech companies have and may continue to offer bank or bank-like products and some fintech companies have applied for bank charters. In addition, other fintech companies have partnered with existing banks to allow them to offer deposit products to their customers. Increased competition may result in reduced business for us.
Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain loans and deposits, and range and quality of products and services provided, including new technology-driven products and services. If we are unable to attract and retain banking customers, we may be unable to continue to grow loan and deposit portfolios and our results of operations and financial condition may otherwise be adversely affected.
Consumers may decide not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. The activity and prominence of so-called marketplace lenders and other technological financial service companies have grown significantly over recent years and are expected to continue growing. In addition, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, digital wallets or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. If we are unable to address the competitive pressures that we face, we could lose market share, which could result in reduced net revenue and profitability and lower returns. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Our ability to operate profitably may be dependent on our ability to integrate or introduce various technologies into our operations.
The market for financial services, including banking and consumer finance services, is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, online banking and tele-banking. Our ability to compete successfully in our market may depend on the extent to which we are able to exploit such technological changes. If we are not able to afford such technologies, properly or timely anticipate or implement such technologies, or effectively train our staff to use such technologies, our business, financial condition or operating results could be adversely affected.
Changes in economic conditions, especially in the areas in which we conduct operations, could materially and negatively affect our business.
Our business is directly impacted by economic conditions, legislative and regulatory changes, changes in government monetary and fiscal policies, and inflation, all of which are beyond our control. A deterioration in economic conditions, whether caused by global, national or local concerns, especially within our market area, could result in the following potentially material consequences: loan delinquencies increasing; problem assets and foreclosures increasing; demand for products and services decreasing; low cost or non-interest bearing deposits decreasing; and collateral for loans, especially real estate, declining in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans. An economic downturn could result in losses that materially and adversely affect our business.
We may be adversely impacted by changes in market conditions.
We are directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. As a financial institution, market risk is inherent in the financial instruments associated with our operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and trading account assets and liabilities. A few of the market conditions that may shift from time to time, thereby exposing us to market risk, include fluctuations in interest rates, equity and futures prices, and price deterioration or changes in value due to changes in market perception or actual credit quality of issuers. Our investment securities portfolio, in particular, may be impacted by market conditions beyond our control, including rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and inactivity or instability in the credit markets. Any changes in these conditions, in current accounting principles or interpretations of these principles could impact our assessment of fair value and thus the determination of other-than-temporary impairment of the securities in the investment securities portfolio.
Our mortgage banking revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact our profits.
Mortgage banking income, net of commissions, represented approximately 42.33% of total noninterest income, excluding loss on sale of investment securities, net, for the year ended December 31, 2024. The success of our mortgage company is dependent upon our ability to originate loans and sell them to investors at or near current volumes. Loan production levels are sensitive to changes in the level of interest rates and changes in economic conditions. Any sustained period of decreased activity caused by fewer refinancing transactions, higher interest rates, housing price pressure or loan underwriting restrictions would adversely affect our mortgage originations and, consequently, could significantly reduce our income from mortgage banking activities. As a result, these conditions would also adversely affect our results of operations.
Risk Related to Liquidity
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could reduce our access to liquidity sources include a downturn in the economy, difficult credit markets or the liquidity needs of our depositors. A substantial majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while a substantial portion of our assets are loans, which cannot be called or sold in the same time frame. We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason. Our access to deposits may be negatively impacted by, among other factors, changes in interest rates which could promote increased competition for deposits, including from new fintech competitors, or provide customers with alternative investment options. Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Furthermore, as many regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed “too big to fail” or remove deposits from the banking system entirely. As of December 31, 2024, approximately 35.84% of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Unrealized losses in our securities portfolio could affect liquidity.
As market interest rates increased in 2022 and 2023, we experienced significant unrealized losses on our available for sale securities portfolio. Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive loss in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios. We actively monitor our available for sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost bases, which may be at maturity. Nonetheless, our access to liquidity sources could be affected by unrealized losses if securities must be sold at a loss; tangible capital ratios continue to decline from an increase in unrealized losses or realized credit losses; the Federal Home Loan Bank of Atlanta (“FHLB”) or other funding sources reduce capacity; or bank regulators impose restrictions on us that impact the level of interest rates we may pay on deposits or our ability to access brokered deposits. Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
During the year ended December 31, 2023, the Company executed a securities repositioning and balance sheet deleveraging strategy by selling available for sale securities with a total book value of $55,195,000 and a weighted average yield of 1.48% at a pre-tax loss of $4,986,000. The net proceeds from the sale were used to reduce FHLB borrowings by
$15.0 million costing 5.57% and the remaining funds were reinvested back into the securities portfolio with a weighted average yield of 5.48%, with a duration of 3.4 years, and a weighted average life of 5.0 years. The transaction was structured to improve the forward run rate on earnings, add interest rate risk protection to a higher level for longer and potential down rate environments, while improving tangible common equity and maintaining our strong liquidity position.
Risk Related to the Company’s Operations
We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our operations.
We are a relationship-driven organization, and currently depend heavily on the services of a number of key management and business development personnel. These officers have primary contact with our customers and are extremely important in maintaining personalized relationships with our customer base and producing new business, which is a key aspect of our business strategy and earnings momentum. The unexpected loss of key personnel could materially and adversely affect our results of operations and financial condition.
The success of our strategy depends on our ability to identify and retain individuals with experience and relationships in our markets.
In order to be successful, we must identify and retain experienced key management members and sales staff with local expertise and relationships. Competition for qualified personnel is intense and there is a limited number of qualified persons with knowledge of and experience in the community banking and mortgage industry in our chosen geographic market. Even if we identify individuals that we believe could assist us in building our franchise, we may be unable to recruit these individuals away from their current employers. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy. Our inability to identify, recruit and retain talented personnel could limit our growth and could materially adversely affect our business, financial condition and results of operations.
If we are unable to successfully implement and manage our growth strategy, our results of operations and financial condition may be adversely affected.
We may not be able to successfully implement our growth strategy if we are unable to identify attractive markets, locations or opportunities to expand in the future. In addition, the ability to manage growth successfully depends on whether we can maintain adequate capital levels, cost controls and asset quality, and successfully integrate any acquired branch offices or banks. We cannot assure you that any integration efforts relating to our growth strategy will be successful. In implementing our growth strategy by opening new branches or acquiring branches or banks, we expect to incur increased personnel, occupancy and other operating expenses. In the case of new branches, we must absorb those higher expenses while we begin to generate new deposits; there is also further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding earning assets.
We may consider acquiring other businesses or expanding into new product lines that we believe will help us fulfill our strategic objectives. We expect that other banking and financial companies, some of which have significantly greater resources, will compete with us to acquire financial services businesses. This competition could increase prices for potential acquisitions that we believe are attractive. Acquisitions may also be subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate acquisitions that we believe are in our best interests.
When we enter into new markets or new lines of business, our lack of history and familiarity with those markets, clients and lines of business may lead to unexpected challenges or difficulties that inhibit our success. Our plans to expand could depress earnings in the short run, even if we efficiently execute a growth strategy leading to long-term financial benefits.
We are subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.
We are exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees, operational errors, clerical or record-keeping errors, and errors resulting from faulty or disabled computer or communications systems.
Reputational risk, or the risk to our earnings and capital from negative public opinion, could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to attract and keep customers and employees and can expose us to litigation and regulatory action.
Further, if any of our financial, accounting, or other data processing systems fail or have other significant issues, we could be adversely affected. We depend on internal systems and outsourced technology to support these data storage and processing operations. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. We could be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems and from the effects of outages or other failures involving power or communications systems operated by others. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or communications outages), which may give rise to disruption of service to customers and to financial loss or liability. In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot guarantee that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.
If any of the foregoing risks materialize, it could have a material adverse effect on our business, financial condition and results of operations.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our results of operation and financial condition.
Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal control, we may discover material weaknesses or significant deficiencies in our internal control that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our inability to maintain the operating effectiveness of the controls described above could result in a material misstatement to our financial statements or other disclosures, which could have an adverse effect on our business, financial condition or results of operations. In addition, any failure to maintain effective controls or to timely effect any necessary improvement of our internal and disclosure controls could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operation and financial condition.
We depend on the accuracy and completeness of information about clients and counterparties and our financial condition could be adversely affected if we rely on misleading information.
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a client’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of that client. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially misleading.
We rely on other companies to provide key components of our business infrastructure.
Third parties provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While we have selected these third party vendors carefully, we do not control their actions. Any problem caused by these third parties, including poor performance of services, failure to provide services, disruptions in communication services proved by a vendor and failure to handle current or higher volumes, could adversely affect our ability to deliver products and services to our customers and otherwise conduct our business, and may harm our reputation. Financial or operational difficulties of a third party vendor could also hurt our operations if those difficulties interface with the vendor’s ability to serve us. Replacing these third party vendors could also create significant delay and expense. Accordingly, use of such third parties creates an unavoidable inherent risk to our business operations.
Our information systems may experience an interruption or breach in security.
In the ordinary course of business, we collect and store sensitive data, including proprietary business information and personally identifiable information of our customers and employees, in systems and on networks. The secure processing, maintenance and use of this information is critical to operations and our business strategy. While we have policies and procedures designed to protect our networks, computers and data from failure, interruption, damage or unauthorized access, there can be no assurance that a breach will not occur or, if it does, that it will be adequately addressed. The occurrence of any failure, interruption, damage or security breach of our communications and information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny or expose us to civil litigation and possible financial liability, any of which could adversely affect our business.
Risk Related to the Company’s Regulatory Environment
Changes in accounting standards could impact reported earnings.
From time to time there are changes in the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For information regarding recent accounting pronouncements and their effect on us, see “Recent Accounting Pronouncements” in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting, or reporting, including changes in them or our failure to comply with them, may adversely affect us.
We are subject to extensive regulation and supervision that govern almost all aspects of our operations. These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities, limit the dividends or distributions that we can pay, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs.
We are currently facing increased regulation and supervision of our industry as a result of the financial crisis in the banking and financial markets. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, our costs and limit our ability to pursue business opportunities. Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.
Regulatory capital standards may have an adverse effect on our profitability, lending, and ability to pay dividends on our securities.
We are subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital that we must maintain. From time to time, regulators implement changes to these regulatory capital adequacy guidelines. If we fail to meet these minimum capital guidelines and/or other regulatory requirements, our financial condition would be materially and adversely affected. The Basel III Capital Rules require bank holding companies and their subsidiaries to maintain significantly more capital as a result of higher required capital levels and more demanding regulatory capital risk weightings and calculations. While the Company is exempt from these capital requirements under the Federal Reserve’s SBHC Policy Statement, the Bank is not exempt and must comply. The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the FDI Act. Satisfying capital requirements may require us to limit our banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect our business, financial condition and results of operations.
Scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.
We face scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure. In March 2024, the SEC adopted rules requiring public companies, such as the Company, to provide climate-related disclosures in their annual reports and registration statements. Investor advocacy groups, investment funds and influential investors may also focus on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues. Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Risk Related to the Company’s Common Stock
Our common stock is thinly traded which may limit the ability of shareholders to sell their shares and may increase price volatility.
Our common stock is listed on the Nasdaq Capital Market under the symbol “VBFC.” Our common stock is thinly traded and has substantially less liquidity than the average trading market for many other publicly traded companies. Mr. Lehman’s significant share ownership also limits the number of shares available to other investors and the liquidity of our common stock. We cannot assure you that a more active trading market for our common stock will develop or be sustained. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within our control. The number of active buyers and sellers of our common stock at any particular time may be limited. Therefore, our shareholders may not be able to sell their shares at the volume, prices, or times that they desire. Shareholders should be financially prepared and able to hold shares for an indefinite period.
In addition, thinly traded stocks can be more volatile than more widely traded stocks. Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include, but are not limited to, changes in analysts’ recommendations or projections, developments related to our business, operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, irrational exuberance on the part of investors, and other issues related to the financial services industry. Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Our ability to pay dividends is limited, and we may be unable to pay future dividends.
Our ability to pay dividends is limited by regulatory restrictions and our need to maintain sufficient capital. The ability of the Bank to pay dividends to the Company also will be limited by the Bank's obligations to maintain sufficient capital, earnings and liquidity and by other general restrictions on its dividends under federal and state bank regulatory requirements. Under Virginia law, a bank may not declare a dividend in excess of its accumulated retained earnings without approval by the BFI. Any future financing arrangements that we enter into may also limit our ability to pay dividends to our shareholders. If we do not satisfy these regulatory requirements or arrangements, we will be unable to pay dividends on our common stock. Further, even if we have earnings and available cash in an amount sufficient to pay dividends to our shareholders, the board of directors, in its sole discretion, may decide to retain them and therefore not pay dividends in the future.
If we fail to pay interest on or otherwise default on our subordinated notes and subordinated debt securities, we will be prohibited from paying dividends or distributions on our common stock.
As of December 31, 2024, we had $5,700,000 of subordinated notes and $8,764,000 of subordinated debt securities outstanding. The agreements under which the subordinated notes and subordinated debt securities were issued prohibit us from paying any dividends on our common stock or making any other distributions to our shareholders upon our failure to make any required payment of principal or interest or during the continuance of an event of default under the applicable agreement. Events of default generally consist of, among other things, certain events of bankruptcy, insolvency or liquidation relating to us. If we were to fail to make a required payment of principal or interest on our subordinated notes or subordinated debt securities, it could have a material adverse effect on the market value of our common stock.
Our governing documents and Virginia law contain anti-takeover provisions that could negatively impact our shareholders.
Our articles of incorporation and bylaws and the Virginia Stock Corporation Act contain certain provisions designed to enhance the ability of our board of directors to deal with attempts to acquire control of the Company. These provisions, among others, provide that a plan of merger, share exchange, sale of all or substantially all of our assets, or similar transaction must be approved and recommended by the affirmative vote of two-thirds of the directors in office or by the affirmative vote of 80% or more of all of the votes entitled to be cast on such transaction by each voting group entitled to
vote, and limit the ability of shareholders to call a special meeting. These provisions and the ability to set the voting rights, preferences and other terms of any series of preferred stock that may be issued, may be deemed to have an anti-takeover effect and may discourage takeovers (which certain shareholders may deem to be in their best interest). To the extent that such takeover attempts are discouraged, temporary fluctuations in the market price of our common stock resulting from actual or rumored takeover attempts may be inhibited. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even though such transactions may be favorable to the interests of shareholders, and could potentially adversely affect the market price of our common stock.
Our largest shareholder, Kenneth R. Lehman, has significant influence over our business through his share ownership and his interests may not align with the interests of other holders of our common stock.
According to the Form 4 filed by Mr. Lehman with the SEC on December 16, 2020, Mr. Lehman owns 768,379 shares, or approximately 51.29%, of the Company’s outstanding common stock. Due to this ownership, he is able to influence the outcome of any matter submitted to a vote of our shareholders. In addition, Mr. Lehman previously served on the boards of directors of the Company and the Bank and management regularly seeks guidance and perspective from him given his extensive industry experience. Mr. Lehman owns significant shares of other financial institutions, some of which may compete with us. These affiliations may create conflicts of interest that could incentivize him to take or approve actions with respect to other institutions that may have a negative impact on us (e.g. marketing efforts, product pricing, lending policies, business combination transactions, etc.). While we believe Mr. Lehman’s significant investment in the Company provides some protection in this regard, Mr. Lehman’s interests may not directly align with the interests of other holders of our common stock.
If Mr. Lehman acquires more than 66.67% of the Company’s outstanding shares of common stock, it will cause the acceleration of benefits under certain of our employment and benefit agreements, which will cause us to incur additional compensation expenses.
Certain of our employment and benefit agreements include customary provisions that provide for additional or accelerated compensation in the event of a change of control of the Company. If Mr. Lehman acquires more than 66.67% of the Company’s outstanding shares of common stock, it will cause the acceleration of benefits under some of these agreements. As described above, to the Company’s knowledge, Mr. Lehman owned approximately 51.29% of our outstanding common stock as of December 31, 2024.
Our change of control agreements provide for “double-trigger” acceleration of change of control benefits, which means the benefits are only payable if the employee experiences a qualifying termination of employment in connection with a change of control. Mr. Lehman’s acquisition of more than 66.67% of the Company’s outstanding common stock would not automatically result in the payment or acceleration of change of control benefits under these agreements. However, under certain circumstances, if the Company were to terminate these employees or the employees were to voluntarily resign following Mr. Lehman’s acquisition of more than 66.67% of the Company’s outstanding common stock, the Company would incur significant additional expenses.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. Federal and state legislatures and regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These climate-related initiatives could include increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. To the extent that these initiatives lead to the promulgation of new regulations or supervisory guidance applicable to us, we would likely experience increased compliance costs and other compliance-related risks.
The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact our financial condition and results of operations; however, the physical effects of climate change may also directly impact us. Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in our loan portfolio. Additionally, if insurance obtained by borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to borrowers, the collateral securing loans may be negatively impacted by climate change, which could impact our financial condition and results of operations. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.
Severe weather, natural disasters, acts of war or terrorism, trade restrictions and tariffs, public health issues, and other external events could significantly impact our business.
Severe weather, natural disasters, acts of war or terrorism, trade restrictions and tariffs, public health issues, and other adverse external events could have a significant impact on our ability to conduct business. In addition, such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. The occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our executive and administrative offices are owned by the Bank and are located at 13319 Midlothian Turnpike, Midlothian, Virginia 23113 in Chesterfield County. The current location also houses the principal office of the Mortgage Company.
In addition to its executive offices, the Bank owns six full service branch buildings including the land and leases an additional three full service branch buildings. Three of our branch offices are located in Chesterfield County, with two branch offices in Hanover County, one in Henrico County, one in Powhatan County, one in the city of Richmond and one in James City County.
Our properties are maintained in good operating condition and we believe they are suitable and adequate for our operational needs. Management believes that, upon expiration of each of the Company’s leases, it will be able to extend the lease on satisfactory terms or relocate to another acceptable location.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its operations, the Company is a party to various legal proceedings. As of the date of this report, there are no pending or threatened proceedings against the Company that, if determined adversely, would have a material effect on the business, results of operations, or financial position of the Company.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market and Dividend Information
Shares of the Company’s common stock trade on the Nasdaq Capital Market under the symbol “VBFC”.
The Company declared quarterly cash dividends totaling $0.72 and $0.66 per common share for the years ended December 31, 2024 and 2023, respectively. All dividends paid are limited by the requirement to meet capital requirements issued by the regulatory authorities, and future declarations are subject to financial performance and regulatory guidelines.
The amount and declaration of future cash dividends are subject to the Board of Directors’ approval. In making its decision on the payment of dividends, the Board of Directors considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder returns, market conditions and other factors. A discussion of certain restrictions and limitations on the ability of the Bank to pay dividends to the Company, and the ability of the Company to pay dividends to shareholders of its common stock, is set forth in Item 1 - “Business” under “Supervision and Regulation.”
Holders
At March 15, 2025, there were 1,498,097 shares of common stock outstanding held by approximately 841 shareholders of record.
For information concerning the Company’s Equity Compensation Plans, see Item 12 - “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”
Purchases of Equity Securities
The Company did not repurchase any of its common stock during 2024 or 2023.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding and evaluating the financial condition, changes in financial condition and the results of operations of the Company, consisting of the parent company and its wholly-owned subsidiary, the Bank. This discussion should be read in conjunction with the consolidated financial statements and other financial information contained elsewhere in this report.
Caution About Forward-Looking Statements
In addition to historical information, this report 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 credit 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:
● the merger of the Company and the Bank with and into TowneBank (the “Merger”) may not be consummated in a timely manner or at all, which may adversely affect the Company’s business and the price of the Company’s common stock;
● the Company and TowneBank may fail to satisfy other conditions to the consummation of the Merger or fail to meet expectations regarding the timing and consummation of the Merger;
● an event, change or other circumstance could give rise to the termination of the Merger;
● the announcement or pendency of the Merger could adversely affect the Company’s business relationships, results of operations, employees and business generally;
● the proposed Merger may disrupt current plans and operations of the Company and cause difficulties in the Company’s employee retention;
● the proposed Merger may divert management’s attention from the Company’s ongoing business operations;
● legal proceedings may be instituted against the Company related to the Merger;
● the amount of unexpected costs, fees, expenses and other charges related to the Merger;
● changes in assumptions underlying the establishment of allowances for credit 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 ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company’s or banking industry’s reputation becomes damaged;
● the effects of future economic, business and market conditions;
● legislative and regulatory changes, including the Dodd-Frank 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;
● 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, and soundness of other financial institutions with which we do business;
● risks inherent in making loans such as repayment risks and fluctuating collateral values;
● changes in operations of the Mortgage Company as a result of the activity in the residential real estate market;
● 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;
● geopolitical conditions, including trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to trade restrictions and tariffs, acts or threats of terrorism and/or military conflicts, negatively impacting business and economic conditions in the U.S. and abroad;
● 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;
● the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;
● changing trends in customer profiles and behavior; and
● other factors described from time to time in our reports filed with the SEC.
For additional information on factors that could materially influence the forward-looking statements included in this report, see the risk factors in Item 1A - “Risk Factors” in this report. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made. In addition, past results of operations are not necessarily indicative of future results.
Merger Agreement
On September 23, 2024, the Company, the Bank and TowneBank entered into an Agreement and Plan of Reorganization (the “Agreement”), which provides that, subject to the terms and conditions set forth in the Agreement, the Company and the Bank will merge with and into TowneBank (the “Merger”), with TowneBank being the surviving corporation in the Merger. Under the terms of the Agreement, shareholders of the Company will receive $80.25 per share in cash for each share of the Company’s common stock outstanding immediately prior to the Merger.
The Agreement and the transactions contemplated thereby have been approved by the shareholders of the Company, the Federal Deposit Insurance Corporation (“FDIC”), and the Bureau of Financial Institutions of the State Corporation Commission of the Commonwealth of Virginia. The Merger remains subject to other customary closing conditions. The Company and TowneBank anticipate closing the Merger at the end of the first quarter of 2025.
General
The Company’s primary source of earnings is net interest income and income from mortgage banking activities, and its principal market risk exposure is interest rate risk. The Company is not able to predict market interest rate fluctuations and its asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the Company’s results of operations and financial condition.
Although we endeavor to minimize the credit risk inherent in the Company’s loan portfolio, we must necessarily make various assumptions and judgments about the collectability of the loan portfolio based on our experience and evaluation of economic conditions. If such assumptions or judgments prove to be incorrect, the current allowance for credit losses may not be sufficient to cover loan losses and additions to the allowance for credit losses may be necessary, which would have a negative impact on net income.
Results of Operations
The following presents management’s discussion and analysis of the financial condition of the Company at December 31, 2024 and 2023, and results of operations for the Company for the years ended December 31, 2024 and 2023. This discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto appearing elsewhere in this Annual Report.
Summary
The Company recorded net income of $7,017,000, or $4.69 per fully diluted share, in 2024, compared to net income of $1,918,000, or $1.29 per fully diluted share, in 2023.
On January 1, 2023, the Commercial Banking Segment adopted the current expected credit loss (“CECL”) methodology for estimating credit losses, which resulted in an increase of $150,000 in the allowance for credit losses on January 1, 2023 to $3.52 million. The allowance for credit losses included an allowance for credit losses on loans of $3.24 million and a reserve for unfunded commitments of $277,000.
As of December 31, 2024, the allowance for credit losses was $4.03 million and included an allowance for credit losses on loans of $3.70 million and a reserve for unfunded commitments of $328,200. As of December 31, 2023, the allowance for credit losses was $3.73 million and included an allowance for credit losses on loans of $3.42 million and a reserve for unfunded commitments of $306,000.
During the year ended December 31, 2023, the Company executed a securities repositioning and balance sheet deleveraging strategy by selling available for sale securities with a total book value of $55,195,000 and a weighted average yield of 1.48% at a pre-tax loss of $4,986,000. The net proceeds from the sale were used to reduce FHLB borrowings by $15.0 million costing 5.57% and the remaining funds were reinvested back into the securities portfolio with a weighted average yield of 5.48%, with a duration of 3.4 years, and a weighted average life of 5.0 years. The transaction was structured to improve the forward run rate on earnings, add interest rate risk protection to a higher level for longer and potential down rate environments, while improving tangible common equity and maintaining our strong liquidity position.
Net interest income
Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin” or “NIM”) is calculated by dividing tax equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity.
For the Year Ended December 31,
Change
(dollars in thousands)
Average interest-earning assets
$
709,512
$
692,895
$
16,617
Interest income
$
39,990
$
33,274
$
6,716
Yield on interest-earning assets
5.64
%
4.80
%
0.84
%
Average interest-bearing liabilities
$
437,158
$
419,661
$
17,497
Interest expense
$
12,591
$
7,986
$
4,605
Cost of interest-bearing liabilities
2.88
%
1.90
%
0.98
%
Net interest income
$
27,399
$
25,288
$
2,111
Net interest margin
3.86
%
3.65
%
0.21
%
The following are variances of note for the year ended December 31, 2024 compared to the year ended December 31, 2023:
● NIM increased by 21 basis points to 3.86% for the year ended December 31, 2024 compared to 3.65% for the year ended December 31, 2023. The compression was driven by the following:
o The yield on our earning assets increased by 84 basis points to 5.64% for the twelve months ended December 31, 2024 compared to 4.80% for the twelve months ended December 31, 2023. The increase in our yield on earning assets continues to be a result of improvement in our earning asset mix as well as the impact of the rise in interest rates during 2023 and 2024.
o The increased yield on earning assets was offset by the cost of interest-bearing liabilities increasing by 98 basis points to 2.88% for the twelve months ended December 31, 2024 compared to 1.90% for the twelve months ended December 31, 2023. The increase in our cost of funds was driven by an increase in the rate paid on variable rate debt and market pressures on deposit rates. The rate paid on money market deposit accounts increased 118 basis points to 3.15% for the twelve months ended December 31, 2024 compared to 1.97% for the twelve months ended December 31, 2023, and the rate paid on time deposits increased 170 basis points to 3.46% for the twelve months ended December 31, 2024 compared to 1.76% for the twelve months ended December 31, 2023. The increase in the rate on time deposits was impacted heavily by the addition of $20.0 million in brokered time deposits at a weighted average rate of 4.89% during the three months ended March 31, 2024. During the twelve months ended December 31, 2024, $15.0 million in brokered time deposits at a weighted average rate of 4.93% matured and were not replaced due to core deposit growth during the period.
o While the rate paid on interest bearing liabilities increased by 98 basis points for the twelve months ended December 31, 2024, overall cost of funds increased by 67 basis points, 1.86% for the twelve months ended December 31, 2024 compared to 1.19% for the twelve months ended December 31, 2023. The lower increase in cost of funds was driven by our strong non-interest bearing deposits level, which remained near 38% of our deposit base.
The following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, shareholders’ equity and related income, expense and corresponding weighted-average yields and rates (dollars in thousands). The average balances used in these tables and other statistical data were calculated using daily average balances. We have no tax exempt assets for the periods presented.
Average Balance Sheets, Income and Expense, Yields and Rates
Year Ended December 31, 2024
Year Ended December 31, 2023
Interest
Interest
Average
Income/
Yield
Average
Income/
Yield
Balance
Expense
Rate
Balance
Expense
Rate
Loans
Commercial
$
94,034
$
6,500
6.91
%
$
86,065
$
5,507
6.40
%
Real estate - residential
130,854
8,023
8.19
%
107,593
6,288
5.84
%
Real estate - commercial
307,188
15,779
6.86
%
285,752
13,412
4.69
%
Real estate - construction
50,240
3,317
8.82
%
49,481
2,255
4.56
%
Student loans
14,788
1,005
9.08
%
19,716
1,326
6.73
%
Consumer
4,460
8.34
%
4,270
7.78
%
Loans net of deferred fees
601,564
34,996
5.82
%
552,877
29,120
5.27
%
Loans held for sale
6,790
6.54
%
5,582
6.68
%
Investment securities
84,598
3,621
4.28
%
124,315
3,198
2.57
%
Federal funds and other
16,560
5.61
%
10,121
5.76
%
Total interest earning assets
709,512
39,990
5.64
%
692,895
33,274
4.80
%
Allowance for credit losses
(3,619)
(3,295)
Cash and due from banks
10,638
11,279
Premises and equipment, net
11,661
11,845
Other assets
24,163
23,454
Total assets
$
752,355
$
736,178
Interest bearing deposits
Interest checking
$
71,479
$
0.74
%
$
79,744
$
0.53
%
Money market
220,552
6,956
3.15
%
197,720
3,896
1.97
%
Savings
31,128
0.16
%
42,559
0.16
%
Certificates
65,152
2,255
3.46
%
51,587
1.76
%
Total deposits
388,311
9,787
2.52
%
371,610
5,295
1.42
%
Borrowings
Long-term debt - trust
preferred securities
8,790
7.25
%
8,789
6.92
%
FHLB advances
34,202
1,626
4.75
%
33,356
1,571
4.71
%
Subordinated debt, net
5,700
9.40
%
5,699
8.83
%
Other borrowings
3.23
%
4.35
%
Total interest bearing liabilities
437,158
12,591
2.88
%
419,661
7,986
1.90
%
Noninterest bearing deposits
240,284
249,711
Other liabilities
4,130
2,944
Total liabilities
681,572
672,316
Equity capital
70,783
63,862
Total liabilities and capital
$
752,355
$
736,178
Net interest income before provision for credit losses
$
27,399
$
25,288
Interest spread - average yield on interest earning assets, less average rate on interest bearing liabilities
2.76
%
2.90
%
Net interest margin (net interest income expressed as a percentage of average earning assets)
3.86
%
3.65
%
Interest income and interest expense are affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities. The following table analyzes changes in net interest income attributable to changes in the volume of interest-sensitive assets and liabilities compared to changes in interest rates. Nonaccrual loans are included in average loans outstanding. The changes in interest due to both rate and volume have been allocated to changes due to volume and changes due to rate in proportion to the relationship of the absolute dollar amounts of the changes in each (dollars in thousands).
2024 vs. 2023
Increase (Decrease)
Due to Changes in
Volume
Rate
Total
Interest income
Loans
$
2,709
$
3,167
$
5,876
Loans held for sale
(8)
Investment securities
(392)
Fed funds sold and other
(15)
Total interest income
2,757
3,959
6,716
Interest expense
Deposits
Interest checking
(38)
Money market
2,567
3,060
Savings
(18)
-
(18)
Certificates
1,061
1,349
Total deposits
3,767
4,492
Borrowings
Long-term debt - trust preferred securities
-
FHLB Advances
Subordinated debt, net
-
Other borrowings
(2)
(2)
(4)
Total interest expense
3,809
4,605
Net interest income
$
1,961
$
$
2,111
Provision for (recovery of) credit losses
On January 1, 2023, the Commercial Banking Segment adopted the CECL methodology for estimating credit losses, which resulted in an increase of $150,000 in the allowance for credit losses on January 1, 2023. The allowance for credit losses included an allowance for credit losses on loans of $3.24 million and a reserve for unfunded commitments of $277,000.
As of December 31, 2024, the allowance for credit losses was $4.03 million and included an allowance for credit losses on loans of $3.70 million and a reserve for unfunded commitments of $328,200.
The Company recorded a provision for credit losses for loans of $128,000 for the year ended December 31, 2024, which was the result of loan growth supported by stable macroeconomic conditions and credit quality remaining strong. Non-performing loans as a percentage of loans were consistent, 0.05% at December 31, 2024 compared to 0.05% at December 31, 2023.
The Company recorded a provision for credit losses for unfunded commitments of $21,800 for the year ended December 31, 2024, which was driven by an increase in the total commitments outstanding at December 31, 2024.
As of December 31, 2023, the allowance for credit losses was $3.73 million and included an allowance for credit losses on loans of $3.42 million and a reserve for unfunded commitments of $306,000.
The Company recorded a provision for credit losses for loans of $21,000 for the year ended December 31, 2023, which was the result of loan growth being offset by improved credit metrics as non-performing loans as a percentage of loans decreased from 0.12% at December 31, 2022 to 0.05% at December 31, 2023, and the impact of $162,000 in net-recoveries for the period. The Company recorded a provision for credit losses for unfunded commitments of $29,000 for the year ended December 31, 2023, which was driven by an increase in the total commitments outstanding at December 31, 2023.
The allowance for credit losses on loans to total loans ratio at the Company is 0.60% as of December 31, 2024 compared to the peer average of 1.13%. Management considers this level of allowance sufficient and appropriate based on the current economic conditions, projections for unemployment, current asset quality and assessment of the Company’s loan portfolio when compared to peer data.
For more financial data and other information about the provision for credit losses refer to section, “Balance Sheet Analysis” under this Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Note 4 “Allowance for Credit Losses” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Noninterest income (loss)
Noninterest income (loss) includes service charges and fees on deposit accounts, fee income related to loan origination, gains and losses on sale of mortgage loans and securities held for sale. The most significant noninterest income item has been mortgage banking income, net of commissions for the years ended December 31, 2024 and 2023, respectively.
For the Year Ended
December 31,
Change
$
%
(dollars in thousands)
Service charges and fees
$
2,643
$
2,738
$
(95)
(3.5)
%
Mortgage banking income, net
2,523
1,690
49.3
%
Loss on sale of investment securities, net
(74)
(4,986)
4,912
(98.5)
%
Other
52.1
%
Total noninterest income (loss)
$
5,886
$
(36)
$
5,922
(16,450.0)
%
The increase in noninterest income of $5,922,000 for the year ended December 31, 2024, was the result of the following:
● The $4,912,000 decrease in loss on sale of investment securities was the result of the balance sheet reposition strategy completed during the year ended December 31, 2023.
● The $95,000 decrease in service charges and fees was driven by lower interchange fee income, increased charge-offs related to deposits accounts and lower fees related to insufficient funds transactions.
● The $833,000 increase in mortgage banking income, net during the year ended December 31, 2024 was impacted by the following:
o Result of efforts to expand revenue opportunities and improve gross margins on loans sold, and
o The fair value of forward sales commitments associated with the Mortgage Banking Segment’s loans held for sale and interest rate lock commitments was adjusted to properly reflect the timing of income recognition in the life cycle of the interest rate lock commitments and loans held for sale, which resulted in a $233,900
increase to net income for the period. This increase was a one-time adjustment and is not expected to be recurring. Mortgage revenue is expected to normalize going forward.
● The $272,000 increase in other income was primarily because of the recognition of $186,000 in death benefits related to the death of a former executive and dividends received from the FHLB related to the higher outstanding balance of advances during the year ended December 31, 2024.
Noninterest expense
Noninterest expense includes all expenses of the Company with the exception of interest expense on deposits and borrowings, provision for credit losses and income taxes. Some of the primary components of noninterest expense are salaries and benefits, occupancy and equipment costs and professional and outside services. Over the last two years, the most significant noninterest expense item has been salaries and benefits, representing 58% of noninterest expense in 2024 and 2023, respectively.
For the Year Ended
December 31,
Change
$
%
(dollars in thousands)
Salaries and benefits
$
14,225
$
13,389
$
6.2
%
Occupancy
1,217
1,242
(25)
(2.0)
%
Equipment
1,314
1,112
18.2
%
Supplies
21.0
%
Data processing
1,934
1,943
(9)
(0.5)
%
Professional and outside services
2,574
1,598
61.1
%
Advertising and marketing
(41)
(10.1)
%
FDIC insurance premium
14.1
%
Other operating expense
2,310
2,889
(579)
(20.0)
%
Total noninterest expense
$
24,473
$
23,037
$
1,436
6.2
%
● The $836,000 increase in salaries and benefits expense was driven primarily by annual merit increases and increased benefits costs.
● Equipment expenses increased by $202,000 as a result of increased costs associated with new hardware and associated software costs.
● Professional and outside expenses increased by $976,000 primarily due to $932,000 in merger related expenses during the period.
● Other operating expenses decreased by $579,000 primarily as a result of a decrease in check and card fraud during the year ended December 31, 2024.
Income taxes
The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Income tax expense for the years ended December 31, 2024 and 2023, was $1,645,000 and $247,000, respectively, resulting in an effective tax rate of 18.99% and 11.4%, respectively. The increase in the effective tax rate was primarily related to a decrease in the tax credit received related to state taxes attributed to the Company and the mortgage banking segment. The Bank is not subject to Virginia income taxes, and instead is subject to a franchise tax based on bank capital.
The Company has a net deferred tax asset which is included in other assets on the balance sheet. For more financial data and other information about income taxes refer to Note 1 “Summary of Significant Accounting Policies” and Note 9 “Income Taxes” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Balance Sheet Analysis
Investment securities
At December 31, 2024 and 2023, all of our investment securities were classified as available for sale.
The following table presents additional information pertaining to the composition of our investment securities portfolio at amortized cost, by maturity (dollars in thousands).
December 31, 2024
Weighted
Amortized
Average
Cost
Yield 1
U.S. Government agency obligations
Maturing one to five years
$
4.79
%
Maturing five to ten years
4.41
%
Total U.S. Government agency obligations
4.42
%
Mortgage-backed securities
Maturing less than one year
2,130
4.26
%
Maturing one to five years
7,615
4.72
%
Maturing five to ten years
5,458
4.89
%
Maturing more than ten years
56,612
3.52
%
Total Mortgage-backed securities
71,815
3.77
%
Municipals
Maturing more than 10 years
2,261
2.17
%
Total Municipals
2,261
2.17
%
Subordinated debt
Maturing one to five years
1,250
8.33
%
Maturing five to ten years
10,462
4.59
%
Total Subordinated debt
11,712
4.99
%
Total investment securities
$
86,401
3.90
%
1 The weighted average yield is calculated based on the relative amortized costs of the securities.
For more financial data and other information about investment securities refer to Note 1 “Summary of Significant Accounting Policies” and Note 2 “Investment Securities Available for Sale” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Loans
One of management’s objectives is to maintain the high quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of and the designation of lending limits for each borrower. The portfolio strategies include seeking industry, loan type and loan size diversification in order to minimize credit concentration risk. Management also focuses on originating loans in markets with which the Company is familiar.
Approximately 81% of all loans are secured by mortgages on real property located principally in the Commonwealth of Virginia. Approximately 3% of the loan portfolio consists of rehabilitated student loans purchased by the Bank from 2014 to 2017 (see discussion following). The Company’s commercial and industrial loan portfolio represents approximately 15% of all loans. Loans in this category are typically made to individuals and small and medium-sized businesses, and range between $250,000 and $2.5 million. Based on underwriting standards, commercial and industrial loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory, and real property. The collateral securing any loan may depend on the type of loan and may vary in value based on market conditions. The remainder of our loan portfolio is in consumer loans which represent less than 1% of the total.
The following tables present the composition of our loan portfolio at the dates indicated (dollars in thousands).
December 31, 2024
December 31, 2023
Amount
%
Amount
%
Construction and land development
Residential
$
19,283
3.12
%
$
10,471
1.82
%
Commercial
38,586
6.23
%
37,024
6.44
%
57,869
9.35
%
47,495
8.26
%
Commercial real estate
Owner occupied
130,216
21.04
%
122,666
21.33
%
Non-owner occupied
169,635
27.41
%
154,855
26.93
%
Multifamily
17,656
2.86
%
12,743
2.22
%
Farmland
0.05
%
0.06
%
317,821
51.36
%
290,590
50.54
%
Consumer real estate
Home equity lines
24,497
3.96
%
21,557
3.75
%
Secured by 1-4 family residential,
First deed of trust
94,674
15.30
%
95,638
16.63
%
Second deed of trust
13,460
2.17
%
11,337
1.97
%
132,631
21.43
%
128,532
22.35
%
Commercial and industrial loans
(except those secured by real estate)
93,144
15.05
%
86,203
14.99
%
Guaranteed student loans
13,261
2.14
%
17,923
3.12
%
Consumer and other
4,138
0.67
%
4,265
0.74
%
Total loans
618,864
100.00
%
575,008
100.00
%
Deferred fees and costs, net
Less: allowance for credit losses
(3,696)
(3,423)
$
615,779
$
572,388
The following table presents the maturity and sensitivity of the loan portfolio at December 31, 2024 (in thousands):
Due After
Due After
Five Years
One Year
Through
Due After
Due After One Year
Due in One
Through
Fifteen
Fifteen
Adjustable
Year or Less
Five Years
Years
Years
Totals
Fixed Rates
Rates
Construction and land development
Residential
$
13,273
$
5,981
$
$
-
$
19,283
$
6,010
$
-
Commercial
17,890
13,684
7,012
-
38,586
16,648
4,048
31,163
19,665
7,041
-
57,869
22,658
4,048
Commercial real estate
Owner occupied
17,479
70,657
33,566
8,514
130,216
110,979
1,758
Non-owner occupied
21,714
119,319
26,906
1,696
169,635
145,215
2,706
Multifamily
2,321
15,335
-
-
17,656
13,122
2,213
Farmland
-
-
-
41,814
205,325
60,472
10,210
317,821
269,316
6,691
Consumer real estate
Home equity lines
23,239
1,258
-
-
24,497
1,258
-
Secured by 1-4 family residential,
First deed of trust
12,877
71,544
7,689
2,564
94,674
50,082
31,715
Second deed of trust
4,160
7,387
13,460
12,369
37,070
73,761
11,849
9,951
132,631
63,709
31,852
Commercial and industrial loans
(except those secured by real estate)
32,625
37,394
21,098
2,027
93,144
59,434
1,085
Guaranteed student loans
13,261
-
-
-
13,261
-
-
Consumer and other
3,096
1,042
-
-
4,138
1,042
-
Total loans
$
159,029
$
337,187
$
100,460
$
22,188
$
618,864
$
416,159
$
43,676
For more financial data and other information about loans refer to Note 1 “Summary of Significant Accounting Policies” and Note 3 “Loans” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Allowance for Credit losses
We monitor and maintain an allowance for credit losses to absorb an estimate of expected losses inherent in the loan portfolio. The following table presents the credit loss experience on loans for the dates indicated (dollars in thousands).
Provision for
(Recovery of)
Ratio of Net
Beginning
Credit Losses
Ending
Average
(Charge-offs) to
Balance
on Loans
Charge-offs
Recoveries
Balance
Loans
Average Loans
Year Ended December 31, 2024
Construction and land development
Residential
$
$
$
-
$
-
$
$
13,347
-
%
Commercial
(3)
-
-
36,894
-
%
-
-
50,241
-
%
Commercial real estate
Owner occupied
-
-
126,279
-
%
Non-owner occupied
1,467
-
-
1,535
163,660
-
%
Multifamily
-
-
17,011
-
%
Farmland
(2)
-
-
-
%
1,923
-
-
2,081
307,187
-
%
Consumer real estate
Home equity lines
(14)
-
22,514
0.04
%
Secured by 1-4 family residential
First deed of trust
(5)
-
95,541
0.00
%
Second deed of trust
(101)
-
12,799
0.90
%
(120)
-
130,854
0.10
%
Commercial and industrial loans
(except those secured by real estate)
-
94,034
0.04
%
Guaranteed student loans
(25)
-
14,788
(0.17)
%
Consumer and other
(8)
-
4,460
0.02
%
Unallocated
-
-
-
-
%
$
3,423
$
$
(25)
$
$
3,696
$
601,564
0.02
%
Provision for
Impact of
(Recovery of)
Ratio of Net
Beginning
adopting
Credit Losses
Ending
Average
(Charge-offs) to
Balance
ASC 326
on Loans
Charge-offs
Recoveries
Balance
Loans
Average Loans
Year Ended December 31, 2023
Construction and land development
Residential
$
$
$
$
-
$
-
$
$
8,153
-
%
Commercial
-
-
41,328
-
%
-
-
49,481
-
%
Commercial real estate
Owner occupied
(475)
-
-
119,678
-
%
Non-owner occupied
1,289
(14)
-
-
1,467
153,506
-
%
Multifamily
-
-
12,385
-
%
Farmland
-
-
-
-
-
%
2,189
(276)
-
-
1,923
285,752
-
%
Consumer real estate
Home equity lines
-
-
18,459
-
%
Secured by 1-4 family residential
First deed of trust
-
79,584
0.00
%
Second deed of trust
-
9,550
0.17
%
-
107,593
0.02
%
Commercial and industrial loans
(except those secured by real estate)
(110)
-
86,065
0.20
%
Guaranteed student loans
-
(30)
-
19,716
(0.15)
%
Consumer and other
(5)
(3)
-
4,270
(0.07)
%
Unallocated
(9)
(30)
-
-
-
-
%
$
3,370
$
(127)
$
$
(33)
$
$
3,423
$
552,877
0.03
%
For more financial data and other information about loans refer to Note 1 “Summary of Significant Accounting Policies” and Note 4 “Allowance for Credit Losses” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Asset quality
The following table summarizes asset quality information at the dates indicated (dollars in thousands).
December 31,
December 31,
Nonaccrual loans
$
$
Foreclosed properties
-
-
Total nonperforming assets
$
$
Restructured loans (not included in nonaccrual loans above)
$
-
$
-
Loans past due 90 days and still accruing (1)
$
$
2,228
Nonaccrual loans to total loans (2)
0.05
%
0.05
%
Nonperforming assets to loans (2)
0.05
%
0.05
%
Nonperforming assets to total assets
0.04
%
0.04
%
Allowance for credit losses on loans to
Loans, net of deferred fees and costs
0.60
%
0.59
%
Loans, net of deferred fees and costs (excluding guaranteed loans)
0.61
%
0.61
%
Nonaccrual loans
1,113.25
%
1,176.29
%
(1) All loans 90 days past due and still accruing are rehabilitated student loans which have a 98% guarantee by the DOE.
(2) Loans are net of unearned income and deferred cost.
Nonperforming assets totaled $332,000 at December 31, 2024, compared to $291,000 at December 31, 2023. Nonperforming assets at December 31, 2024 consisted entirely of $332,000 in nonaccrual loans, compared to $291,000 at December 31, 2023.
The following table presents an analysis of the changes in nonperforming assets for 2024 (in thousands).
Nonaccrual
Loans
OREO
Total
Balance December 31, 2023
$
$
-
$
Additions
-
Loans placed back on accrual
(10)
-
(10)
Repayments
(112)
-
(112)
Charge-offs
-
-
-
Balance December 31, 2024
$
$
-
$
Nonperforming restructured loans are included in nonaccrual loans. Until a nonperforming restructured loan has performed in accordance with its restructured terms for a minimum of six months, it will remain on nonaccrual status.
Interest is accrued on outstanding loan principal balances, unless the Company considers collection to be doubtful. Commercial and unsecured consumer loans are designated as nonaccrual when the Company considers collection of expected principal and interest doubtful. Mortgage loans and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that concern over our ability to collect principal and interest is
not significant. When loans are placed in nonaccrual status, previously accrued and unpaid interest is reversed against interest income in the current period and interest is subsequently recognized only to the extent cash is received. Interest accruals are resumed on such loans only when in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
There was $79,000 in loans with an individual allowance of $15,000 that were collateral dependent associated with the total nonaccrual loans of $332,000 at December 31, 2024. There were no individual allowances associated with the total nonaccrual loans of $291,000 at December 31, 2023, that were considered individually evaluated.
Cumulative interest income that would have been recorded had nonaccrual loans been performing would have been $96,000 and $86,000 for 2024 and 2023, respectively. Student loans totaling $874,000 and $2,228,000 at December 31, 2024 and 2023, respectively, were past due 90 days or more and interest was still being accrued as principal and interest on such loans have a 98% guarantee by the DOE. The 2% not covered by the DOE guarantee is provided for in the allowance for credit losses.
Deposits
The following table gives the composition of our deposits at the dates indicated (dollars in thousands).
December 31, 2024
December 31, 2023
Amount
%
Amount
%
Demand accounts
$
240,529
38.8
%
$
247,624
40.9
%
Interest checking accounts
72,104
11.6
%
76,289
12.6
%
Money market accounts
223,325
36.1
%
195,249
32.3
%
Savings accounts
32,442
5.3
%
39,633
6.5
%
Time deposits over $250,000
14,365
2.3
%
9,145
1.5
%
Other time deposits
36,657
5.9
%
37,405
6.2
%
Total
$
619,422
100.0
%
$
605,345
100.0
%
Total deposits increased by $14,077,000, or 2.33%, from December 31, 2023. Variances of note are as follows:
●Noninterest bearing demand account balances decreased $7,095,000, or 2.87%, from December 31, 2023 and represented 38.8% of total deposits compared to 40.9% as of December 31, 2023. The decrease in noninterest bearing demand deposits was driven by a combination of consumers and businesses drawing down balances due to higher costs associated with continued pressure from inflation.
●Low cost relationship deposits (i.e. interest checking, money market, and savings) balances increased $16,700,000, or 5.37%, from December 31, 2023. The increase in low-cost relationship deposits from the prior periods was the result of seasonal relationship growth as well as some deposits moving from non-interest bearing to interest bearing.
●Time deposits increased by $4,472,000, or 9.61%, from December 31, 2023. The increase was the result of the Commercial Bank Segment issuing $20.0 million in brokered time deposits, at a weighted average rate of 4.89%, during the year ended December 31, 2024 to replace the noninterest-bearing reduction. As of December 31, 2024, $15.0 million in brokered time deposits have matured and were not replaced as a result of core deposit growth.
The following table presents the average deposits balances and average rate paid for the dates indicated (dollars in thousands).
Average Balance
Average Cost Rate
December 31,
December 31,
December 31,
December 31,
Noninterest bearing deposits
$
240,284
$
249,711
Interest checking
71,479
79,744
0.74
%
0.53
%
Money market
220,552
197,720
3.15
%
1.97
%
Savings
31,128
42,559
0.16
%
0.16
%
Certificates
Less than $250,000
38,014
42,191
3.95
%
1.49
%
$250,000 or more
27,138
9,396
2.77
%
2.94
%
Total interest bearing deposits
388,311
371,610
2.52
%
1.42
%
Total deposits
$
628,595
$
621,321
1.56
%
0.85
%
The following table presents (in thousands) the scheduled maturities of time deposits greater than $250,000 which is the maximum FDIC insurance limit.
December 31,
December 31,
Months to maturity:
Three or less
$
9,245
$
1,268
Over three through six
2,925
3,889
Over six through twelve
1,654
3,449
Over twelve
Total
$
14,365
$
9,145
The variety of deposit accounts that we offer has allowed us to be competitive in obtaining funds and has allowed us to respond with flexibility to, although not to eliminate, the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct investment vehicles such as government and corporate securities). Our ability to attract and retain deposits, and our cost of funds, has been, and is expected to continue to be, significantly affected by money market conditions.
Borrowings
We utilize borrowings to supplement deposits to address funding or liability duration needs. For more financial data and other information about borrowings refer to Note 8 “Borrowings” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Off-balance sheet arrangements
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. For more financial data and other information about loans refer to Note 12 “Commitments and Contingencies” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Capital resources
Shareholders’ equity at December 31, 2024 was $73,739,000 compared to $67,556,000 at December 31, 2023. The $6,183,000 increase in shareholders’ equity during the twelve months ended December 31, 2024, was primarily due to the recognition of net income of $7,017,000, from December 31, 2023 to December 31, 2024, and was offset by the payment of $1,077,000 in cash dividends during the same period.
The following table presents the composition of regulatory capital and the capital ratios of the Bank at the dates indicated (dollars in thousands).
December 31,
December 31,
Tier 1 capital
Total bank equity capital
$
83,405
$
77,151
Net unrealized loss on available-for-sale securities
5,713
5,603
Defined benefit postretirement plan
Total Tier 1 capital
89,128
82,764
Tier 2 capital
Allowance for credit losses
4,024
3,729
Tier 2 capital deduction
-
-
Total Tier 2 capital
4,024
3,729
Total risk-based capital
93,152
86,493
Risk-weighted assets
$
644,746
$
596,946
Average assets
$
771,298
$
742,655
Capital ratios
Leverage ratio (Tier 1 capital to average assets)
11.56
%
11.14
%
Common equity tier 1 capital ratio (CET 1)
13.82
%
13.86
%
Tier 1 capital to risk-weighted assets
13.82
%
13.86
%
Total capital to risk-weighted assets
14.45
%
14.49
%
Equity to total assets
11.06
%
10.50
%
For more financial data and other information about capital resources refer to Note 13 “Shareholders’ Equity and Regulatory Matters” and Note 15 “Trust Preferred Securities” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
Liquidity
Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.
At December 31, 2024 and 2023, our liquid assets, consisting of cash, cash equivalents and investment securities available for sale, totaled $97,797,000 and $123,299,000, or 12.93% and 16.74% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.
At December 31, 2024, the Company had approximately $222.6 million in uninsured deposits, which represents 35.84% of total deposits. Total liquidity sources at December 31, 2024 equal $185.7 million, or 83.4% of uninsured deposits.
The Company’s internal policy limits wholesale deposits (i.e., brokered deposits and internet listing services) to 20 percent of total funding, representing $145.2 million of additional availability as of December 31, 2024. The Company had $5.0 million and zero wholesale deposits as of December 31, 2024 and December 31, 2023, respectively. The use of wholesale
deposits in conjunction with the above liquidity sources would give the bank $330.9 million, or 148.7%, in uninsured deposit coverage.
Our holdings of liquid assets plus the ability to maintain and expand our deposit base and borrowing capabilities serve as our principal sources of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain three federal funds lines of credit with correspondent banks totaling $22.8 million for which there were no borrowings against the lines at December 31, 2023.
We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at December 31, 2024 was $5.4 million, based on the Bank’s qualifying collateral available to secure any future borrowings. However, we are able to pledge additional collateral to the FHLB in order to increase our available borrowing capacity up to 25% of assets, which would result in a total remaining credit availability of $144.3 million as of December 31, 2024.
Liquidity provides us with the ability to meet normal deposit withdrawals, while also providing for the credit needs of customers. We are committed to maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements.
At December 31, 2024, we had commitments to originate $139,661,000 of loans. Fixed commitments to incur capital expenditures were less than $100,000 at December 31, 2024. Certificates of deposit scheduled to mature or reprice in the 12-month period ending December 31, 2024 total $45.1 million. We believe that a significant portion of such deposits will remain with us. We further believe that deposit growth, loan repayments and other sources of funds will be adequate to meet our foreseeable short-term and long-term liquidity needs.
Interest Rate Sensitivity
An important element of asset/liability management is the monitoring of our sensitivity to interest rate movements. In order to measure the effects of interest rates on our net interest income, management takes into consideration the expected cash flows from the securities and loan portfolios and the expected magnitude of the repricing of specific asset and liability categories. We evaluate interest sensitivity risk and then formulate guidelines to manage this risk based on management’s outlook regarding the economy, forecasted interest rate movements and other business factors. Our goal is to maximize and stabilize the net interest margin by limiting exposure to interest rate changes.
Contractual principal repayments of loans do not necessarily reflect the actual term of our loan portfolio. The average lives of mortgage loans are substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which gives us the right to declare a loan immediately due and payable in the event, among other things, the borrower sells the real property subject to the mortgage and the loan is not repaid. In addition, certain borrowers increase their equity in the security property by making payments in excess of those required under the terms of the mortgage.
The sale of fixed rate loans is intended to protect us from precipitous changes in the general level of interest rates. The valuation of adjustable rate mortgage loans is not as directly dependent on the level of interest rates as is the value of fixed rate loans. As with other investments, we regularly monitor the appropriateness of the level of adjustable rate mortgage loans in our portfolio and may decide from time to time to sell such loans and reinvest the proceeds in other adjustable rate investments.
Impact of inflation and changing prices
The Company’s financial statements included herein have been prepared in accordance with GAAP, which require the Company to measure financial position and operating results primarily in terms of historical dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the
financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.
LIBOR and Other Benchmark Rates
The administrator of the London Interbank Offered Rate (“LIBOR”) announced that the most commonly used U.S. dollar LIBOR settings would cease to be published or cease to be representative after June 30, 2023.
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace LIBOR with a benchmark rate based on the Secured Overnight Funding Rate (“SOFR”) for contracts governed by U.S. law that have no or ineffective fallbacks. We have a number of borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. As a result of the announced discontinuation of LIBOR on June 30, 2023, the Company replaced the LIBOR leg of the calculated floating rate for these instruments with the corresponding term SOFR plus the applicable tenor spread adjustment as per the guidelines outlined within the final rulings under the Adjustable Interest Rate (LIBOR) Act published by the Board of Governors of the Federal Reserve System.
This transition did not have a significant impact on the Company’s consolidated financial statements.
Critical Accounting Policies and Estimates
General
The accounting and reporting policies of the Company and the Bank are in accordance with GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.
The more critical accounting and reporting policies include the Company’s accounting for the allowance for credit losses. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.
The following is a summary of the Company’s critical accounting policies that are highly dependent on estimates, assumptions, and judgments.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for credit losses on loans, reserve for unfunded commitments, and the allowance on securities.
The allowance for credit losses on loans is established as losses are estimated to have occurred through a provision for credit losses charged to earnings. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.
The allowance for credit losses on loans, in management’s judgement, represents the current estimate of expected credit losses over the term of loans held for investment, and is recorded at an amount that, in management’s judgement, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the
adequacy of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The Company utilizes a third-party model to tabulate its estimate of current expected credit losses, using a weighted average remaining maturity methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics by call report code. The Company primarily utilizes the short-term natural rate of unemployment forecast based on the Federal Open Market Committee’s projection of unemployment for its reasonable and supportable forecasting of current expected credit losses using a statistical regression analysis. For the periods beyond the reasonable and supportable forecast period, projections of expected credit losses are based on a reversion to the long-run mean for the national unemployment rate. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes in lending policies and procedures including changes in underwriting standards, and collections, charge-offs, and recovery practices, changes in international, national, regional, and local conditions, changes in the nature and volume of the portfolio and terms of loans, changes in experience, depth, and ability of lending management, changes in the volume and severity of past due loans and other similar conditions, changes in the quality of the organization’s loan review system, changes in the value of underlying collateral for collateral dependent loans, the existence and effect of any concentrations of credit and changes in the levels of such concentrations, and the effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.
Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated costs to sell.
The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The reserve for unfunded commitments is measured based on the principles utilized in estimating the allowance for credit losses on loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the reserve for unfunded commitments are recorded through the provision for credit losses.
The fair value of investment securities available for sale is estimated based on quoted prices for similar assets determined by bid quotations received from independent pricing services. For those debt securities whose fair value is less than their amortized cost basis, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company evaluates unrealized losses to determine whether a decline in fair value below amortized cost basis is a result of a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security, or other factors such as changes in market interest rates. If a credit loss exists, an allowance for credit losses is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the security’s amortized cost basis exceeds its fair value. Changes in the allowance for credit losses are recorded in net income in the period of change and are included in provision for credit losses. Changes in the fair value of debt securities available for sale not resulting from credit losses are recorded in other comprehensive income (loss). The Company regularly reviews unrealized losses in its investments in securities and cash flows expected to be collected from impaired securities based on criteria including the extent to which market value is below amortized cost, the financial health of and specific prospects for the issuer, the Company’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.
New accounting standards
For information regarding recent accounting pronouncements and their effect on us, see “New Accounting Pronouncements” in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10-K.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related footnotes of the Company are presented following.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Village Bank and Trust Financial Corp.
Midlothian, Virginia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Village Bank and Trust Financial Corp. and its subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Loans Collectively Evaluated for Losses
As described in Note 1 - Summary of Significant Accounting Policies and Note 4 - Allowance for Credit Losses to the consolidated financial statements, the allowance for credit losses on loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans made up the total recorded ACLL of $3.7 million as of December 31, 2024. The collectively evaluated ACLL consists of quantitative and qualitative components.
The quantitative component consists of loss estimates derived from a weighted average remaining maturity (“WARM”) model using external observations of historical loan losses adjusted for estimated attrition and forecasts of future conditions over a reasonable and supportable period. These estimates consider large amounts of data in tabulating loss and attrition rates and require complex calculations as well as management judgment in the selection of appropriate inputs.
In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures, changes in international, national, regional and local economic conditions, changes in the nature and volume of the portfolio and terms of loans, changes in the experience, depth, and ability of lending management, changes in the volume and severity of past due loans and other similar conditions, changes in the quality of the Company’s loan review system, changes in the value of underlying collateral for collateral dependent loans, the existence and effect of any concentrations of credit and changes in the level of such concentrations and the effect of other external factors (i.e. competition, legal and regulatory requirements, etc.) on the level of credit losses.
Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.
The primary audit procedures we performed to address this critical audit matter included:
●
Substantively testing management’s process for measuring the collectively evaluated ACLL, including:
o Evaluating conceptual soundness, assumptions, and key data inputs of the Company’s WARM methodology, including the identification of loan pools, the calculation of loss rate inputs, and the calculation of attrition rate inputs for each pool.
o Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate.
o Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.
o Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.
o Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the quantitative and qualitative components of the calculation.
/s/ Yount, Hyde & Barbour, P.C.
We have served as the Company's auditor since 2018.
Richmond, Virginia
March 26, 2025
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Balance Sheets
December 31, 2024 and 2023
(in thousands, except share and per share data)
December 31,
December 31,
Assets
Cash and due from banks
$
14,261
$
10,383
Federal funds sold
4,367
7,331
Total cash and cash equivalents
18,628
17,714
Investment securities available for sale, at fair value
79,169
105,585
Restricted stock, at cost
2,993
2,985
Loans held for sale
4,299
4,983
Loans
Outstandings
618,864
575,008
Allowance for credit losses
(3,696)
(3,423)
Deferred costs, net
Total loans, net
615,779
572,388
Premises and equipment, net
11,406
11,760
Bank owned life insurance
13,019
13,120
Accrued interest receivable
3,507
3,827
Other assets
7,365
4,254
Total Assets
$
756,165
$
736,616
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest bearing demand
$
240,529
$
247,624
Interest bearing
378,893
357,721
Total deposits
619,422
605,345
Long-term debt - trust preferred securities
8,764
8,764
Subordinated debt, net
5,700
5,700
Federal Home Loan Bank advances
45,000
45,000
Accrued interest payable
Other liabilities
3,087
4,041
Total liabilities
682,426
669,060
Shareholders’ equity
Common stock, $4 par value, 10,000,000 shares authorized; 1,498,097 shares issued and outstanding at December 31, 2024 and 1,492,879 shares issued and outstanding at December 31, 2023
5,940
5,908
Additional paid-in capital
55,807
55,486
Retained earnings
17,715
11,775
Stock in directors rabbi trust
(439)
(467)
Directors deferred fees obligation
Accumulated other comprehensive loss
(5,723)
(5,613)
Total shareholders’ equity
73,739
67,556
Total liabilities and shareholders' equity
$
756,165
$
736,616
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Income
Years Ended December 31, 2024 and 2023
(in thousands, except per share data)
Year Ended
December 31,
Interest income
Loans
$
35,440
$
29,493
Investment securities
3,621
3,198
Federal funds sold
Total interest income
39,990
33,274
Interest expense
Deposits
9,787
5,295
Borrowed funds
2,804
2,691
Total interest expense
12,591
7,986
Net interest income
27,399
25,288
Provision for credit losses
Net interest income after provision for credit losses
27,249
25,238
Noninterest income (loss)
Service charges and fees
2,643
2,738
Mortgage banking income, net
2,523
1,690
Loss on sale of investment securities, net
(74)
(4,986)
Other
Total noninterest income (loss)
5,886
(36)
Noninterest expense
Salaries and benefits
14,225
13,389
Occupancy
1,217
1,242
Equipment
1,314
1,112
Supplies
Data processing
1,934
1,943
Professional and outside services
2,574
1,598
Advertising and marketing
FDIC insurance premium
Other operating expense
2,310
2,889
Total noninterest expense
24,473
23,037
Income before income tax expense
8,662
2,165
Income tax expense
1,645
Net income
$
7,017
$
1,918
Earnings per share, basic
$
4.69
$
1.29
Earnings per share, diluted
$
4.69
$
1.29
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2024 and 2023
(in thousands)
Year Ended
December 31,
Net income
$
7,017
$
1,918
Other comprehensive income (loss)
Unrealized holding (losses) gains arising during the period
(213)
1,671
Tax effect
(351)
Net change in unrealized holding (losses) gains on securities available for sale, net of tax
(168)
1,320
Reclassification adjustment
Reclassification adjustment for losses realized in income
4,986
Tax effect
(16)
(1,047)
Reclassification for losses included in net income, net of tax
3,939
Minimum pension adjustment
-
Tax effect
-
(5)
Minimum pension adjustment, net of tax
-
Total other comprehensive (loss) income
(110)
5,268
Total comprehensive income
$
6,907
$
7,186
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Shareholders’ Equity
Years Ended December 31, 2024 and 2023
(in thousands)
Directors
Accumulated
Additional
Stock in
Deferred
Other
Common
Paid-in
Retained
Directors
Fees
Comprehensive
Stock
Capital
Earnings
Rabbi Trust
Obligation
Loss
Total
Balance, December 31, 2022
$
5,868
$
55,167
$
10,957
$
(689)
$
$
(10,881)
$
61,111
Vesting of restricted stock
(40)
-
(222)
-
-
Stock based compensation
-
-
-
-
-
Cash dividends declared ($0.66 per share)
-
-
(981)
-
-
-
(981)
Impact of adoption of ASC 326
-
-
(119)
-
-
-
(119)
Net income
-
-
1,918
-
-
-
1,918
Other comprehensive income
-
-
-
-
-
5,268
5,268
Balance, December 31, 2023
$
5,908
$
55,486
$
11,775
$
(467)
$
$
(5,613)
$
67,556
Vesting of restricted stock
(32)
-
(28)
-
-
Stock based compensation
-
-
-
-
-
Cash dividends declared ($0.72 per share)
-
-
(1,077)
-
-
-
(1,077)
Net income
-
-
7,017
-
-
-
7,017
Other comprehensive loss
-
-
-
-
-
(110)
(110)
Balance, December 31, 2024
$
5,940
$
55,807
$
17,715
$
(439)
$
$
(5,723)
$
73,739
See accompanying notes consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2024 and 2023
(in thousands)
Year Ended
December 31,
Cash Flows from Operating Activities
Net income
$
7,017
$
1,918
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs
-
Deferred income taxes
(360)
Provision for credit losses
Loss on sale of investment securities
4,986
Gain on sales of loans held for sale
(3,024)
(2,409)
Stock compensation expense
Proceeds from sale of mortgage loans
117,489
112,720
Origination of mortgage loans held for sale
(113,781)
(113,026)
Amortization of premiums and accretion of discounts on securities, net
(261)
(221)
Income recognized from death benefit on bank owned life insurance
(185)
-
Increase in bank owned life insurance
(362)
(322)
Net change in:
Interest receivable
(176)
Other assets
(2,722)
(649)
Interest payable
Other liabilities
(976)
Net cash provided by operating activities
4,636
4,957
Cash Flows from Investing Activities
Purchases of available for sale securities
(1,582)
(38,747)
Proceeds from the sale of available for sale securities
50,079
Proceeds from maturities, calls and paydowns of available for sale securities
27,620
18,829
Net increase in loans
(43,519)
(36,666)
Purchases of premises and equipment, net
(307)
(616)
Proceeds from bank owned life insurance
-
Purchase of restricted stock, net
(8)
(1,421)
Net cash used in investing activities
(16,722)
(8,542)
Cash Flows from Financing Activities
Cash dividends paid
(1,077)
(981)
Net increase (decrease) in deposits
14,077
(19,398)
Net decrease in other borrowings
-
25,000
Net cash provided by financing activities
13,000
4,621
Net increase in cash and cash equivalents
1,036
Cash and cash equivalents, beginning of period
17,714
16,678
Cash and cash equivalents, end of period
$
18,628
$
17,714
Supplemental Disclosure of Cash Flow Information
Cash payments for interest
$
12,348
$
7,846
Cash payments for taxes
$
1,419
$
Supplemental Schedule of Non-Cash Activities
Unrealized (losses) gains on securities available for sale
$
(139)
$
6,658
Minimum pension adjustment
$
-
$
See accompanying notes to consolidated financial statements.
Village Bank and Trust Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 2024 and 2023
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Village Bank and Trust Financial Corp. and subsidiary (the “Company”) conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practice within the banking industry. The following is a description of the more significant of those policies:
Business
The Company is the holding company of Village Bank (the “Bank”). The Bank opened to the public on December 13, 1999 as a traditional community bank offering deposit and loan services to individuals and businesses in the Richmond, Virginia metropolitan area. In 2017, the Bank entered the Williamsburg, Virginia market by opening a full service branch. Village Bank Mortgage Corporation (the “Mortgage Company”) is a full service mortgage banking company wholly-owned by the Bank.
The Bank is subject to regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Bank’s business is susceptible to being affected by state and federal legislation and regulations.
The majority of the Company’s real estate loans are collateralized by properties in the Richmond, Virginia metropolitan area. Accordingly, the ultimate collectability of those loans collateralized by real estate is particularly susceptible to changes in market conditions in the Richmond area.
Basis of presentation and consolidation
The consolidated financial statements include the accounts of the Company, the Bank and the Mortgage Company. All material intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year financial statements to conform to current year presentation. The results of the reclassifications are not considered material.
New Accounting Standards Adopted
On December 31, 2024, the Company adopted Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. These amendments required that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, required other segment items by reportable segment to be disclosed and a description of their composition, and required disclosure of the title and position of the chief operating decision maker and an explanation of how they use the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments were applied retrospectively to all prior periods presented and did not have a material effect on the Company’s consolidated financial statements. Refer to Note 19 for more information about the Company’s segment disclosure.
Use of estimates
The preparation of the consolidated financial statements in conformity with 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 balance sheets dates and revenues and expenses during the reporting 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 credit losses and its related provision, including individually evaluated loans, and the valuation of deferred tax assets.
Securities
At the time of purchase, debt securities are classified into the following categories: held to maturity, available for sale or trading. Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as held to maturity. Held to maturity securities are stated at amortized cost adjusted for amortization of premiums and accretion of discounts on purchase using a method that approximates the effective interest method. Investments classified as trading or available for sale are stated at fair value. Changes in fair value of trading investments are included in current earnings while changes in fair value of available for sale investments are excluded from current earnings and reported, net of taxes, as a separate component of other comprehensive income (loss). Presently, the Company does not maintain a portfolio of trading or held to maturity securities.
The fair value of investment securities available for sale is estimated based on quoted prices for similar assets determined by bid quotations received from independent pricing services. For those debt securities whose fair value is less than their amortized cost basis, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company evaluates unrealized losses to determine whether a decline in fair value below amortized cost basis is a result of a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security, or other factors such as changes in market interest rates. If a credit loss exists, an allowance for credit losses is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the security’s amortized cost basis exceeds its fair value. Changes in the allowance for credit losses are recorded in net income in the period of change and are included in provision for credit losses. Changes in the fair value of debt securities available for sale not resulting from credit losses are recorded in other comprehensive income (loss). The Company regularly reviews unrealized losses in its investments in securities and cash flows expected to be collected from impaired securities based on criteria including the extent to which market value is below amortized cost, the financial health of and specific prospects for the issuer, the Company’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.
Restricted stock, at cost. The Company is required to maintain an investment in the capital stock of certain correspondent banks. The Company’s investment in these securities is recorded at cost.
Interest income is recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Mortgage Banking and Derivatives
Loans held for sale. The Company, through the Bank’s mortgage banking subsidiary, the Mortgage Company, originates residential mortgage loans for sale in the secondary market. Residential mortgage loans held for sale are sold to the permanent investor with the mortgage servicing rights released. The Company uses fair value accounting for its entire portfolio of loans held for sale (“LHFS”) in accordance with Accounting Standards Codification (“ASC”) 820 - Fair Value Measurement and Disclosures. Fair value of the Company’s LHFS is based on observable market prices for identical instruments traded in the secondary mortgage loan markets in which the Company conducts business and totaled $4.3 million as of December 31, 2024, of which $4.3 million is related to unpaid principal, and totaled $5.0 million as of December 31, 2023, of which $4.8 million is related to unpaid principal. The Company’s portfolio of LHFS is classified as Level 2.
Interest Rate Lock Commitments and Forward Sales Commitments. The Company, through the Mortgage Company, enters into commitments to originate residential mortgage loans in which the interest rate on the loan is determined prior to funding, termed interest rate lock commitments (“IRLCs”). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. Upon entering into a commitment to originate a loan, the Company protects itself from changes in interest rates during the period prior to sale by requiring a firm purchase agreement from a permanent investor before a loan can be closed (forward sales commitment). The Company locks in the loan and rate with an investor and commits to deliver the loan if settlement occurs on a best efforts basis, thus limiting interest rate risk. Certain additional risks exist if the investor fails to meet its purchase obligation; however, based on historical performance and the size and nature of the investors the Company does not expect them to fail to meet their obligation. The Company determines the fair value of IRLCs based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. The fair value of these derivative instruments is reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2024, and totaled $134,000, with a notional amount of $6.9 million and total positions of 21, and at December 31, 2023, totaled $271,000, with a notional amount of $7.5 million and total positions of 27. Changes in fair value are recorded as a component of mortgage banking income, net in the Consolidated Statements of Income for the years ended December 31, 2024, and December 31, 2023. The Company’s IRLCs are classified as Level 2. At December 31, 2024 and December 31, 2023, each IRLC and all LHFS were subject to a forward sales commitment on a best efforts basis.
The Company uses fair value accounting for its forward sales commitments related to IRLCs and LHFS under ASC 825-10-15-4(b). The fair value of forward sales commitments is reported in “Other Assets” in the Consolidated Balance Sheet at December 31, 2024, and totaled $63,000, with a notional amount of $11.1 million and total positions of 31, and at December 31, 2023, totaled $506,000, with a notional amount of $12.3 million and total positions of 47.
Transfers of financial assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank and put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets. Our transfers of financial assets are limited to commercial loan participations sold, which were insignificant for 2024 and 2023 and the sale of residential mortgage loans in the secondary market; the extent of which are disclosed in the Consolidated Statements of Cash Flows.
Loans
Loans are stated at the principal amount outstanding, net of unearned income. Loan origination fees and certain direct loan origination costs are deferred and amortized to interest income over the life of the loan as an adjustment to the loan’s yield over the term of the loan.
A loan’s past due status is based on the contractual due date of the most delinquent payment dates. Interest is accrued on outstanding principal balances, unless the Company considers collection to be doubtful. Commercial and unsecured consumer loans are designated as nonaccrual when payment is delinquent 90 days or at the point which the Company considers collection doubtful, if earlier. Mortgage loans and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that such amounts are collectible. When loans are placed in nonaccrual status, previously accrued and unpaid interest is reversed against interest income in the current period and interest is subsequently recognized only to the extent cash is received as long as the remaining recorded investment in the loan is deemed fully collectible. Loans may be placed back on accrual status when, in the opinion of management, the circumstances warrant such action such as a history of timely payments subsequent to being placed on nonaccrual status, additional collateral is obtained or the borrowers cash flows improve.
Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The total contractual amount of standby letters of credit, whose contract amounts represent credit risk, was approximately $2,449,000 at December 31, 2024 and approximately $1,202,000 at December 31, 2023.
Below is a summary of the current loan segments:
Construction and land development loans consist primarily of loans for the purchase or refinance of unimproved lots or raw land. Additionally, the Company finances the construction of real estate projects typically where the permanent mortgage will remain with the Company. Specific underwriting guidelines are delineated in the Bank’s loan policies. Construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those specific to real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on cash flows, collateral, geography and risk grade criteria. Commercial real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project.
Consumer real estate loans include consumer purpose 1-to-4 family residential properties and home equity loans. Consumer purpose loans have underwriting standards that are heavily influenced by statutory requirements, which include, but are not limited to, documentation requirements, limits on maximum loan-to-value percentages, and collection remedies. Loans to finance 1-4 family investment properties are primarily dependent upon rental income generated from the property and secondarily supported by the borrower’s personal income. The Company typically originates residential mortgages through our mortgage company and these loans are sold to secondary mortgage market correspondents. Consumer real estate loans carry risks associated with the continued credit-worthiness of the borrower and changes in the value of the collateral.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Management examines current and projected cash flows to determine the ability of borrowers to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable, inventory or marketable securities and may incorporate personal guarantees; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the
repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Government guaranteed balances represent Small Business Administration (“SBA”) loans originated by the Bank according to SBA guidelines.
We also purchase the guaranteed portion of United States Department of Agriculture Loans (“USDA”) which are guaranteed by the USDA for 100% of the principal and interest. The originating institution holds the unguaranteed portion of the loan and services the loan. These loans are typically purchased at a premium. In the event of a loan default or early prepayment the Bank may need to write off any unamortized premium. These loans are included in the commercial and industrial loan segment.
Consumer and other loans are generally small loans spread across many borrowers and are underwritten after determining the ability of the consumer borrower to repay their obligations as agreed. The underwriting standards are influenced by credit history, ability to repay, and loan-to-value. Consumer loans may be secured or unsecured and are comprised of revolving lines, installment loans and other consumer loans. Consumer and other loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral, or lack thereof. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.
Guaranteed student loans The Bank purchases Federal Rehabilitated Student Loan portfolios when approved by the Board of Directors. These loans are guaranteed by the U.S. Department of Education (“DOE”) which covers approximately 98% of the principal and interest. These loans are serviced by a third party servicer that specializes in handling these types of loans.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for credit losses on loans, reserve for unfunded commitments, and the allowance on securities.
The allowance for credit losses on loans is established as losses are estimated to have occurred through a provision for credit losses charged to earnings. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.
The allowance for credit losses on loans, in management’s judgement, represents the current estimate of expected credit losses over the term of loans held for investment, and is recorded at an amount that, in management’s judgement, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions which may affect a borrower’s ability to repay, overall portfolio quality, and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The Company utilizes a third-party model to tabulate its estimate of current expected credit losses, using a weighted average remaining maturity methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics by call report code. The Company primarily utilizes the short-term natural rate of unemployment forecast based on the Federal Open Market Committee’s projection of unemployment for its reasonable and supportable forecasting of current expected credit losses using a statistical regression analysis. For the periods beyond the reasonable and supportable forecast period, projections of expected credit losses are based on a reversion to the long-run mean for the national unemployment rate. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes in lending policies and procedures including changes in underwriting standards, and collections, charge-offs, and recovery practices, changes in international, national, regional, and local conditions, changes in the nature and volume of the portfolio and terms of loans, changes in experience, depth, and ability of lending management, changes in the volume and severity of past due loans and other similar conditions, changes in the quality of the organization’s loan review system, changes in the value of underlying collateral for collateral dependent loans, the existence and effect of any concentrations of credit and changes in the levels of such concentrations, and the effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.
Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated costs to sell.
The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The reserve for unfunded commitments is measured based on the principles utilized in estimating the allowance for credit losses on loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the reserve for unfunded commitments are recorded through the provision for credit losses.
Other real estate owned
Real estate acquired through or in lieu of foreclosure is initially recorded at estimated fair value less estimated selling costs establishing a new cost basis. There were no assets held as other real estate owned (“OREO”) as of December 31, 2024 and December 31, 2023. Subsequent to the date of acquisition, it is carried at the lower of cost or fair value, adjusted for net selling costs. If fair value declines subsequent to foreclosure a valuation allowance is recorded through expense. Operating costs after acquisition are expensed as incurred. Costs relating to the development and improvement of such property are capitalized when appropriate, whereas those costs relating to holding the property are expensed.
Assets held for sale
There were no assets held for sale at December 31, 2024 and 2023. The Company periodically evaluates the value of assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs.
Premises and equipment
Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation of buildings and improvements is computed using the straight-line method over the estimated useful lives of the assets of 39 years. Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the assets ranging from three to seven years. Amortization of premises (leasehold improvements) is computed using the straight-line method over the term of the lease or estimated lives of the improvements, whichever is shorter.
Supplemental Executive Retirement Plan
The Company recognizes the unfunded status of its Supplemental Executive Retirement Plan (the “SERP”) as a liability in its Consolidated Balance Sheets, measured at the projected benefit obligation as of December 31, 2024 and 2023. Net periodic pension costs are recorded each period based on actuarially determined amounts in accordance with GAAP and recognized in salaries and employment benefits in the Consolidated Statements of Income. Actuarial determinations of net periodic pension cost are based on assumptions related to discount rates, employee compensation and mortality and interest crediting rates. Other changes in the status of the plan are recorded in the year in which the changes occur through other comprehensive income.
Income taxes
Deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on recorded deferred income taxes of a change in tax laws or rates is recognized in income in the period that includes the enactment date. To the extent that available evidence about the future raises doubt about the realization of a deferred income tax asset, a valuation allowance is established. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
Interest and penalties associated with unrecognized tax benefits are classified as taxes other than income in the consolidated statements of income. The Company has no uncertain tax positions.
Consolidated statements of cash flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, due from banks (including cash items in process of collection), interest-bearing deposits with banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Cash flows from loans originated by the Bank for investment and deposits are reported net.
Comprehensive income
Total comprehensive income consists of net income and other comprehensive income (loss). At December 31, 2024 and 2023, the accumulated other comprehensive (loss) was comprised of unrealized (losses) on securities available for sale of ($5,714,000) and ($5,604,000), and unfunded pension liability of ($9,000) and ($9,000) net of tax, respectively.
Earnings per common share
Basic earnings per common share represent net income available to common shareholders, which represents net income less dividends paid or payable to preferred stock shareholders, divided by the weighted-average number of common shares outstanding during the period, inclusive of unvested restricted shares (Note 10). For diluted earnings per common share, net income available to common shareholders is divided by the weighted average number of common shares issued and outstanding for each period plus amounts representing the dilutive effect of stock options, as well as any adjustment to income that would result from the assumed issuance. The effects of stock options and warrants are excluded from the computation of diluted earnings per common share in periods in which the effect would be antidilutive. Stock options and warrants are antidilutive if the underlying average market price of the stock that can be purchased for the period is less than the exercise price of the option or warrant. Potential dilutive common shares that may be issued by the Company relate solely to outstanding stock options and warrants and are determined using the treasury stock method.
Stock incentive plan
On May 26, 2015, the Company’s shareholders approved the adoption of the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (the “2015 Plan”) authorizing the issuance of up to 60,000 shares of common stock. On May 19, 2020, the Company’s shareholders approved an amendment to the 2015 Plan authorizing the issuance of up to 120,000 shares of common stock. On May 21, 2024, the Company’s shareholders approved the adoption of the Village Bank and Trust Financial Corp. 2024 Stock Incentive Plan (the “2024 Plan”) authorizing the issuance of up to 100,000 shares of common stock. See Note 14 for more information on the 2024 Plan.
Fair values of financial instruments
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability (exit price) shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact. See Note 18 for the methods and assumptions the Company uses in estimating fair values of financial instruments.
Revenue recognition
The Company recognizes revenue as it is earned in accordance with ASU 2014-09. The following discussion is of revenues that are within the scope of this guidance:
● Debit and credit interchange fee income - Card processing fees consist of interchange fees from consumer debit and credit card networks and other card related services. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur.
● Service charges on deposit accounts - Revenue from service charges on deposit accounts is earned through deposit-related services, as well as overdraft, non-sufficient funds, account management and other deposit related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees.
● Service charges on loan accounts - Revenue from loan accounts consists primarily of fees earned on prepayment penalties. Revenue is recognized for the services at a point in time for transactional related services and fees.
● Gains/Losses on sale of OREO - The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.
● Gains/Losses on sale of assets held for sale - The Company records a gain or loss from the sale of assets held for sale when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of assets held for sale to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probably. Once these criteria are met, the asset held for sale is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer.
Segments
The Company has two reportable segments: traditional commercial banking and mortgage banking. Revenues from commercial banking operations consist primarily of interest earned on loans and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage LHFS, gains on sales of loans in the secondary mortgage market, and loan origination fee income, net of commissions paid.
The commercial banking segment provides the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on the commercial banking segment’s cost of funds. Additionally, the mortgage banking segment leases premises from the commercial banking segment. These transactions are eliminated in the consolidation process. See additional information at Note 19, Segment Reporting.
Recent accounting pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments.” ASU 2024-04 clarifies requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company does not expect the adoption of ASU 2024-04 to have a material impact on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation,
depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement-Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements - Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its consolidated financial statements.
In March 2024, the FASB issued ASU 2024-01, “Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (“SEC”) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has
not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.
Note 2. Investment Securities Available for Sale
The amortized cost and fair value of investment securities available for sale as of December 31, 2024 and 2023 are as follows (in thousands):
Gross
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair Value
December 31, 2024
U.S. Government agency obligations
$
$
-
$
(13)
$
Mortgage-backed securities
71,815
(5,785)
66,321
Municipals
2,261
-
(621)
1,640
Subordinated debt
11,712
(1,120)
10,608
$
86,401
$
$
(7,539)
$
79,169
December 31, 2023
U.S. Government agency obligations
$
20,690
$
-
$
(75)
$
20,615
Mortgage-backed securities
77,275
(5,381)
72,537
Municipals
2,264
-
(608)
1,656
Subordinated debt
12,449
(1,702)
10,777
$
112,678
$
$
(7,766)
$
105,585
The Company had investment securities with a fair value of $3,786,000 and $24,926,000 pledged to secure borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”) at December 31, 2024 and 2023, respectively.
The Company sold approximately $500,000 in 2024 of investment securities available for sale at a loss of $74,000.
During the year ended December 31, 2023, the Company executed a securities repositioning and balance sheet deleveraging strategy by selling available for sale securities with a total book value of $55,195,000 and a weighted average yield of 1.48% at a pre-tax loss of $4,986,000. The net proceeds from the sale were used to reduce FHLB borrowings by $15.0 million costing 5.57% and the remaining funds were reinvested back into the securities portfolio with a weighted average yield of 5.48%, with a duration of 3.4 years, and a weighted average life of 5.0 years. The transaction was structured to improve the forward run rate on earnings, add interest rate risk protection to a higher for longer and potential down rate environments, while improving tangible common equity and maintaining our strong liquidity position.
Investment securities available for sale that had an unrealized loss position at December 31, 2024 and December 31, 2023 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
December 31, 2024
U.S. Government agency obligations
$
$
(2)
$
$
(11)
$
$
(13)
Mortgage-backed securities
14,658
(208)
27,426
(5,577)
42,084
(5,785)
Municipals
-
-
1,640
(621)
1,640
(621)
Subordinated debt
(3)
9,418
(1,117)
9,915
(1,120)
$
15,467
$
(213)
$
38,772
$
(7,326)
$
54,239
$
(7,539)
December 31, 2023
U.S. Government agency obligations
$
-
$
-
$
20,289
$
(75)
$
20,289
$
(75)
Mortgage-backed securities
4,631
(24)
30,311
(5,357)
34,942
(5,381)
Municipals
-
-
1,656
(608)
1,656
(608)
Subordinated debt
4,145
(587)
5,937
(1,115)
10,082
(1,702)
$
8,776
$
(611)
$
58,193
$
(7,155)
$
66,969
$
(7,766)
As of December 31, 2024, there were 61 investments available for sale totaling $54.2 million that were in a loss position and had an unrealized loss of $7.5 million.
As of December 31, 2023, there were 56 investments available for sale totaling $67.0 million that were in a loss position and had an unrealized loss of $7.8 million.
All of the unrealized losses are attributable to increases in interest rates and not to credit deterioration. Currently, the Company believes that it is probable that the Company will be able to collect all amounts due according to the contractual terms of the investments. Because the declines in fair value are 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 has not recorded an allowance for credit losses on these investments at December 31, 2024 or December 31, 2023.
The amortized cost and estimated fair value of investment securities available for sale as of December 31, 2024, by contractual maturity, are as follows (in thousands):
Amortized
Cost
Fair Value
Less than one year
$
2,130
$
2,128
One to five years
8,882
8,952
Five to ten years
16,203
15,140
More than ten years
59,186
52,949
Total
$
86,401
$
79,169
Note 3. Loans
Loans classified by type as of December 31, 2024 and 2023 are as follows (dollars in thousands):
December 31, 2024
December 31, 2023
Amount
%
Amount
%
Construction and land development
Residential
$
19,283
3.12
%
$
10,471
1.82
%
Commercial
38,586
6.23
%
37,024
6.44
%
57,869
9.35
%
47,495
8.26
%
Commercial real estate
Owner occupied
130,216
21.04
%
122,666
21.33
%
Non-owner occupied
169,635
27.41
%
154,855
26.93
%
Multifamily
17,656
2.86
%
12,743
2.22
%
Farmland
0.05
%
0.06
%
317,821
51.36
%
290,590
50.54
%
Consumer real estate
Home equity lines
24,497
3.96
%
21,557
3.75
%
Secured by 1-4 family residential
First deed of trust
94,674
15.30
%
95,638
16.63
%
Second deed of trust
13,460
2.17
%
11,337
1.97
%
132,631
21.43
%
128,532
22.35
%
Commercial and industrial loans
(except those secured by real estate)
93,144
15.05
%
86,203
14.99
%
Guaranteed student loans
13,261
2.14
%
17,923
3.12
%
Consumer and other
4,138
0.67
%
4,265
0.74
%
Total loans
618,864
100.0
%
575,008
100.0
%
Deferred and costs, net
Less: allowance for credit losses
(3,696)
(3,423)
$
615,779
$
572,388
The Bank has a purchased portfolio of rehabilitated student loans guaranteed by the 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 arrangements with the Company totaled $60.8 million and $35.5 million as of December 31, 2024 and 2023, 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, 2024 and 2023(in thousands):
Beginning balance
$
4,916
$
4,365
Additions
16,048
6,774
Effect of changes in composition of related parties
-
(160)
Reductions
(12,523)
(6,063)
Ending balance
$
8,441
$
4,916
Executive officers and directors also had unused credit lines totaling $1,235,000 and $774,000 at December 31, 2024 and 2023, respectively. Based on management’s evaluation 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. 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):
December 31,
December 31,
Consumer real estate
Home equity lines
$
$
-
Secured by 1-4 family residential
First deed of trust
$
Second deed of trust
Commercial and industrial loans
(except those secured by real estate)
Consumer and other
-
Total loans
$
$
There was $79,000 in commercial and industrial loans with an individual allowance of $15,000 that were collateral depended associated with the total nonaccrual loans of $332,000 at December 31, 2024. There were no individual allowances associated with the total nonaccrual loans of $291,000 at December 31, 2023 that were considered collateral dependent.
The following tables provide information on the risk rating of loans at the dates indicated (in thousands):
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of December 31, 2024, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows (in thousands):
Revolving-
Total
Prior
Revolving
Term
Loans
December 31, 2024
Construction and land development
Residential
Pass
$
12,684
$
2,141
$
$
$
-
$
-
$
3,757
$
-
$
19,283
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Residential
$
12,684
$
2,141
$
$
$
-
$
-
$
3,757
$
-
$
19,283
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial
Pass
7,325
6,805
10,310
13,188
-
-
38,586
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Commercial
$
7,325
$
6,805
$
10,310
$
13,188
$
$
$
-
$
-
$
38,586
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate
Owner occupied
Pass
15,202
12,537
22,953
18,594
9,345
47,038
1,458
-
127,127
Special Mention
-
-
-
-
2,721
-
-
3,089
Substandard
-
-
-
-
-
-
-
-
-
Total Owner occupied
$
15,570
$
12,537
$
22,953
$
18,594
$
9,345
$
49,759
$
1,458
$
-
$
130,216
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-owner occupied
Pass
18,587
11,387
27,805
27,047
22,640
52,287
5,058
-
164,811
Special Mention
-
-
-
2,117
-
2,707
-
-
4,824
Substandard
-
-
-
-
-
-
-
-
-
Total Non-owner occupied
$
18,587
$
11,387
$
27,805
$
29,164
$
22,640
$
54,994
$
5,058
$
-
$
169,635
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Multifamily
Pass
5,247
1,296
-
2,222
6,570
2,067
-
17,656
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Multifamily
$
5,247
$
1,296
$
-
$
2,222
$
$
6,570
$
2,067
$
-
$
17,656
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Farmland
Pass
-
-
-
-
-
-
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Farmland
$
-
$
-
$
-
$
-
$
-
$
$
$
-
$
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer real estate
Home equity lines
Pass
-
-
-
-
-
-
24,352
-
24,352
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total Home equity lines
$
-
$
-
$
-
$
-
$
-
$
-
$
24,497
$
-
$
24,497
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by 1-4 family residential
First deed of trust
Pass
14,600
27,792
13,756
13,165
6,523
16,185
-
-
92,021
Special Mention
-
2,296
-
-
-
-
-
2,499
Substandard
-
-
-
-
-
-
-
Total First deed of trust
$
14,600
$
30,088
$
13,756
$
13,165
$
6,523
$
16,542
$
-
$
-
$
94,674
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Second deed of trust
Pass
4,098
3,963
2,513
1,149
-
13,185
Special Mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total Second deed of trust
$
4,184
$
3,963
$
2,513
$
$
$
1,338
$
$
$
13,460
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and industrial loans
(except those secured by real estate)
Pass
18,010
15,199
12,123
8,863
4,056
3,366
30,482
-
92,099
Special Mention
-
-
-
-
-
Substandard
-
-
-
-
-
-
Total Commercial and industrial
$
18,010
$
15,199
$
12,200
$
8,942
$
4,056
$
3,456
$
31,281
$
-
$
93,144
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Guaranteed student loans
Pass
-
-
-
-
-
13,261
-
-
13,261
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Guaranteed student loans
$
-
$
-
$
-
$
-
$
-
$
13,261
$
-
$
-
$
13,261
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
$
-
$
-
$
Consumer and other
Pass
3,073
-
4,138
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Consumer and other
$
$
$
$
$
$
$
3,073
$
$
4,138
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Total Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
$
-
$
-
$
Total loans
$
96,684
$
83,703
$
90,135
$
86,522
$
43,319
$
146,705
$
71,796
$
-
$
618,864
Revolving-
Total
Prior
Revolving
Term
Loans
December 31, 2023
Construction and land development
Residential
Pass
$
6,320
$
3,812
$
$
-
$
-
$
-
$
-
$
-
$
10,471
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Residential
$
6,320
$
3,812
$
$
-
$
-
$
-
$
-
$
-
$
10,471
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial
Pass
5,007
14,506
10,339
-
1,183
5,754
-
37,024
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Commercial
$
5,007
$
14,506
$
10,339
$
$
-
$
1,183
$
5,754
$
-
$
37,024
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate
Owner occupied
Pass
11,945
21,846
20,044
9,855
12,145
41,067
-
117,690
Special Mention
-
-
-
4,701
-
-
4,976
Substandard
-
-
-
-
-
-
-
-
-
Total Owner occupied
$
11,945
$
22,048
$
20,117
$
9,855
$
12,145
$
45,768
$
$
-
$
122,666
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Non-owner occupied
Pass
9,468
25,607
28,455
23,567
9,528
47,645
3,312
-
147,582
Special Mention
-
-
2,173
-
-
5,100
-
-
7,273
Substandard
-
-
-
-
-
-
-
-
-
Total Non-owner occupied
$
9,468
$
25,607
$
30,628
$
23,567
$
9,528
$
52,745
$
3,312
$
-
$
154,855
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Multifamily
Pass
1,300
-
2,503
6,113
1,394
-
12,743
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Multifamily
$
1,300
$
-
$
2,503
$
$
$
6,113
$
1,394
$
-
$
12,743
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Farmland
Pass
-
-
-
-
-
-
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Farmland
$
-
$
-
$
-
$
-
$
-
$
$
$
-
$
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Consumer real estate
Home equity lines
Pass
-
-
-
-
-
21,036
-
21,482
Special Mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Home equity lines
$
-
$
$
-
$
-
$
-
$
-
$
21,111
$
-
$
21,557
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Secured by 1-4 family residential
First deed of trust
Pass
34,067
14,288
15,613
8,107
2,957
17,427
2,125
-
94,584
Special Mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total First deed of trust
$
34,067
$
14,288
$
15,613
$
8,277
$
2,957
$
18,311
$
2,125
$
-
$
95,638
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Second deed of trust
Pass
4,530
3,207
1,027
1,067
-
11,120
Special Mention
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total Second deed of trust
$
4,530
$
3,207
$
1,027
$
$
1,112
$
$
$
$
11,337
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial and industrial loans
(except those secured by real estate)
Pass
15,022
15,900
15,321
5,634
2,852
3,698
27,068
-
85,495
Special Mention
-
-
-
-
Substandard
-
-
-
-
-
-
Total Commercial and industrial
$
15,059
$
15,900
$
15,321
$
5,647
$
3,170
$
3,732
$
27,374
$
-
$
86,203
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Guaranteed student loans
Pass
-
-
-
-
-
17,923
-
-
17,923
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Guaranteed student loans
$
-
$
-
$
-
$
-
$
-
$
17,923
$
-
$
-
$
17,923
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
$
-
$
-
$
Consumer and other
Pass
3,126
-
4,265
Special Mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total Consumer and other
$
$
$
$
$
$
$
3,126
$
$
4,265
Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
$
-
$
-
$
Total Current period gross writeoff
$
-
$
-
$
-
$
-
$
-
$
$
-
$
-
$
Total loans
$
88,151
$
100,297
$
96,010
$
48,576
$
29,814
$
146,610
$
65,550
$
-
$
575,008
The following tables present the aging of the recorded investment in past due loans as of the dates indicated (in thousands):
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, 2024
Construction and land development
Residential
$
-
$
-
$
-
$
-
$
19,283
$
19,283
$
-
Commercial
-
-
-
-
38,586
38,586
-
-
-
-
-
57,869
57,869
-
Commercial real estate
Owner occupied
-
-
-
-
130,216
130,216
-
Non-owner occupied
-
-
169,621
169,635
-
Multifamily
-
-
-
-
17,656
17,656
-
Farmland
-
-
-
-
-
-
-
317,807
317,821
-
Consumer real estate
Home equity lines
-
24,344
24,497
-
Secured by 1-4 family residential
First deed of trust
-
-
-
-
94,674
94,674
-
Second deed of trust
-
-
-
-
13,460
13,460
-
-
132,478
132,631
-
Commercial and industrial loans
(except those secured by real estate)
-
-
92,464
93,144
-
Guaranteed student loans
1,914
11,347
13,261
Consumer and other
-
-
4,133
4,138
-
Total loans
$
$
1,201
$
$
2,766
$
616,098
$
618,864
$
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, 2023
Construction and land development
Residential
$
-
$
-
$
-
$
-
$
10,471
$
10,471
$
-
Commercial
-
-
-
-
37,024
37,024
-
-
-
-
-
47,495
47,495
-
Commercial real estate
Owner occupied
-
-
-
-
122,666
122,666
-
Non-owner occupied
-
-
-
-
154,855
154,855
-
Multifamily
-
-
-
-
12,743
12,743
-
Farmland
-
-
-
-
-
-
-
-
-
290,590
290,590
-
Consumer real estate
Home equity lines
-
21,449
21,557
-
Secured by 1-4 family residential
First deed of trust
-
-
-
-
95,638
95,638
-
Second deed of trust
-
-
11,304
11,337
-
-
128,391
128,532
-
Commercial and industrial loans
(except those secured by real estate)
-
-
-
-
86,203
86,203
-
Guaranteed student loans
2,228
3,411
14,512
17,923
2,228
Consumer and other
-
-
3,531
4,265
-
Total loans
$
1,540
$
$
2,228
$
4,286
$
570,722
$
575,008
$
2,228
Loans greater than 90 days past due consist of 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 that are individually evaluated for credit losses are limited to loans that have specific risk characteristics that are not shared by other loans and 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. The repayment of these loans is expected to be substantially through the operations or the sale of the collateral. The allowance for credit losses on loans that are individually evaluated will be measured based on the fair value of the collateral either through operations or the sale of the collateral. When repayment is expected through the sale of the collateral, the allowance will be based on the fair value of the collateral less estimated costs to sell. Collateral dependent loans, or portions thereof, are charged off when deemed uncollectible. Collateral dependent loans are set forth in the following table as of the dates indicated (in thousands):
December 31, 2024
December 31, 2023
Unpaid
Unpaid
Recorded
Principal
Related
Recorded
Principal
Related
Investment
Balance
Allowance
Investment
Balance
Allowance
With no related allowance recorded
Consumer real estate
Home equity lines
$
$
$
-
$
-
$
-
$
-
Secured by 1-4 family residential
First deed of trust
-
-
Second deed of trust
-
-
-
-
Commercial and industrial loans
(except those secured by real estate)
-
-
Consumer and other
-
-
-
-
-
-
With an allowance recorded
Commercial and industrial loans
(except those secured by real estate)
-
-
-
-
-
-
Total
Consumer real estate
Home equity lines
-
-
-
-
Secured by 1-4 family residential,
First deed of trust
-
-
Second deed of trust
-
-
-
-
Commercial and industrial loans
(except those secured by real estate)
-
Consumer and other
-
-
-
-
$
$
$
$
$
$
-
The following is a summary of average recorded investment in individually evaluated loans with and without valuation allowance and interest income recognized on those loans for periods indicated (in thousands):
December 31,
Average
Interest
Average
Interest
Recorded
Income
Recorded
Income
Investment
Recognized
Investment
Recognized
With no related allowance recorded
Consumer real estate
Home equity lines
$
$
$
$
Secured by 1-4 family residential
First deed of trust
Second deed of trust
Commercial and industrial loans
(except those secured by real estate)
Consumer and other
With an allowance recorded
Commercial and industrial loans
(except those secured by real estate)
-
-
Total
Consumer real estate
Home equity lines
Secured by 1-4 family residential,
First deed of trust
Second deed of trust
Commercial and industrial loans
(except those secured by real estate)
Consumer and other
$
$
$
$
Loan Modifications to Borrowers in Financial Difficulty
As part of its credit risk management, the Company may modify a loan agreement with a borrower experiencing financial difficulties through a refinancing or restructuring of the borrower’s loan agreement. There were no modified loans identified during the year ended December 31, 2024 and December 31, 2023.
Note 4. Allowance for Credit Losses
In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics by call report code. The Company’s forecast of estimated expected credit losses is based on a twelve-month forecast of the national rate of unemployment and external observations of historical loan losses. The Company uses the Federal Open Market Committee’s projection of unemployment for its reasonable and supportable forecasting of current expected credit losses. For the periods beyond the reasonable and supportable forecast period, projections of expected credit losses are based on a reversion to the long-run mean for the national unemployment rate. To further adjust the allowance for credit losses for expected credit losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes in lending policies and procedures including changes in underwriting standards, changes in collections, charge-offs, and recovery practices, changes in international, national, regional, and local conditions, changes in the nature and volume of the portfolio and terms of loans, changes in experience, depth, and ability of lending management, changes in the volume and severity of past due loans and other similar conditions, changes in the quality of the organization’s loan review system, changes in the value of underlying collateral for collateral dependent loans, the existence and effect of any concentrations of credit and changes in the levels of such
concentrations, and the effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.
Activity in the allowance for credit losses is as follows for the periods indicated (in thousands):
Provision for
Beginning
(Recovery of)
Ending
Balance
Credit Losses
Charge-offs
Recoveries
Balance
Year Ended December 31, 2024
Construction and land development
Residential
$
$
$
-
$
-
$
Commercial
(3)
-
-
-
-
Commercial real estate
Owner occupied
-
-
Non-owner occupied
1,467
-
-
1,535
Multifamily
-
-
Farmland
(2)
-
-
1,923
-
-
2,081
Consumer real estate
Home equity lines
(14)
-
Secured by 1-4 family residential
First deed of trust
(5)
-
Second deed of trust
(101)
-
(120)
-
Commercial and industrial loans
(except those secured by real estate)
-
Student loans
(25)
-
Consumer and other
(8)
-
Unallocated
-
-
$
3,423
$
$
(25)
$
$
3,696
Impact of
Provision for
Beginning
adopting
(Recovery of)
Ending
Balance
ASC 326
Loan Losses
Charge-offs
Recoveries
Balance
Year Ended December 31, 2023
Construction and land development
Residential
$
$
$
$
-
$
-
$
Commercial
-
-
-
-
Commercial real estate
Owner occupied
(475)
-
-
Non-owner occupied
1,289
(14)
-
-
1,467
Multifamily
-
-
Farmland
-
-
-
-
2,189
(276)
-
-
1,923
Consumer real estate
Home equity lines
-
-
Secured by 1-4 family residential
First deed of trust
-
Second deed of trust
-
-
Commercial and industrial loans
(except those secured by real estate)
(110)
-
Student loans
-
(30)
-
Consumer and other
(5)
(3)
-
Unallocated
(9)
(30)
-
-
$
3,370
$
(127)
$
$
(33)
$
$
3,423
Loans are required to be measured at amortized costs and to be presented at the net amount expected to be collected. Off balance sheet credit exposures, including loan commitments, are not recorded on balance sheet, but expected credit losses arising from off balance sheet credit exposures are recorded as a reserve for unfunded commitments and reported in Other Liabilities. Credit losses on available for sale debt securities are accounted for as an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value and the amount expected to be collected on the financial assets. The allowance for credit losses on loans, available for sale debt securities and the reserve for unfunded commitments are established through a provision for credit losses charged against earnings.
The following table presents a breakdown of the provision for credit losses for the periods indicated (in thousands):
Year Ended December 31,
Provision for credit losses:
Provision for loans
$
$
Provision for unfunded commitments
Total
$
$
On January 1, 2023, the Commercial Banking Segment adopted the current expected credit losses methodology for estimating credit losses, which resulted in an increase of $150,000 in the allowance for credit losses on January 1, 2023. The allowance for credit losses included an allowance for credit losses on loans of $3.24 million and a reserve for unfunded commitments of $277,000.
As of December 31, 2024, the allowance for credit losses was $4.03 million and included an allowance for credit losses on loans of $3.70 million and a reserve for unfunded commitments of $328,200.
The Company recorded a provision for credit losses for loans of $128,000 for the year ended December 31, 2024, which was the result of loan growth supported by stable macroeconomic conditions and credit quality remaining strong. Non-
performing loans as a percentage of loans were consistent, 0.05% at December 31, 2024 compared to 0.05% at December 31, 2023.
The Company recorded a provision for credit losses for unfunded commitments of $21,800 for the year ended December 31, 2024, which was driven by an increase in the total commitments outstanding at December 31, 2024.
As of December 31, 2023, the allowance for credit losses was $3.73 million and included an allowance for credit losses on loans of $3.42 million and a reserve for unfunded commitments of $306,000.
The Company recorded a provision for credit losses for loans of $21,000 for the year ended December 31, 2023, which was the result of loan growth being offset by improved credit metrics as non-performing loans as a percentage of loans decreased from 0.12% at December 31, 2022 to 0.05% at December 31, 2023, and the impact of $159,000 in net-recoveries for the period. The Company recorded a provision for credit losses for unfunded commitments of $29,000 for the year ended December 31, 2023, which was driven by an increase in the total balance outstanding at December 31, 2023.
Loans were evaluated for the need for credit reserve as follows for the periods indicated (in thousands):
Recorded Investment in Loans
Allowance
Loans
Ending
Ending
Balance
Individually
Collectively
Balance
Individually
Collectively
Year Ended December 31, 2024
Construction and land development
Residential
$
$
-
$
$
19,283
$
-
$
19,283
Commercial
-
38,586
-
38,586
-
57,869
-
57,869
Commercial real estate
Owner occupied
-
130,216
-
130,216
Non-owner occupied
1,535
-
1,535
169,635
-
169,635
Multifamily
-
17,656
-
17,656
Farmland
-
-
2,081
-
2,081
317,821
-
317,821
Consumer real estate
Home equity lines
-
24,497
24,352
Secured by 1-4 family residential
First deed of trust
-
94,674
94,520
Second deed of trust
-
13,460
13,414
-
132,631
132,286
Commercial and industrial loans
(except those secured by real estate)
93,144
93,050
Guaranteed student loans
-
13,261
13,248
Consumer and other
-
4,138
-
4,138
$
3,696
$
$
3,681
$
618,864
$
$
618,412
Year Ended December 31, 2023
Construction and land development
Residential
$
$
-
$
$
10,471
$
-
$
10,471
Commercial
-
37,024
-
37,024
-
47,495
-
47,495
Commercial real estate
Owner occupied
-
122,666
-
122,666
Non-owner occupied
1,467
-
1,467
154,855
-
154,855
Multifamily
-
12,743
-
12,743
Farmland
-
-
1,923
-
1,923
290,590
-
290,590
Consumer real estate
Home equity lines
-
21,557
-
21,557
Secured by 1-4 family residential
First deed of trust
-
95,638
95,478
Second deed of trust
-
11,337
11,232
-
128,532
128,267
Commercial and industrial loans
(except those secured by real estate)
-
86,203
86,177
Guaranteed student loans
-
17,923
-
17,923
Consumer and other
-
4,265
-
4,265
$
3,423
$
-
$
3,423
$
575,008
$
$
574,717
Note 5. Premises and Equipment
The following is a summary of premises and equipment as of December 31, 2024 and 2023 (in thousands):
Land
$
4,352
$
4,352
Buildings and improvements
11,580
11,448
Furniture, fixtures and equipment
8,675
8,500
Total premises and equipment
24,607
24,300
Less: Accumulated depreciation and amortization
(13,201)
(12,540)
Premises and equipment, net
$
11,406
$
11,760
Depreciation and amortization of premises and equipment for 2024 and 2023 amounted to $661,000 and $604,000, respectively.
Note 6. Investment in Bank Owned Life Insurance
The Bank is owner and designated beneficiary on life insurance policies in the aggregate face amount of $21,314,000 covering certain of its directors and executive officers. The earnings from these policies are used to offset expenses related to retirement plans. The cash surrender value of these policies at December 31, 2024 and 2023 was approximately $13,019,000 and $13,120,000, respectively.
Note 7. Deposits
Deposits as of December 31, 2024 and 2023 were as follows (dollars in thousands):
December 31, 2024
December 31, 2023
Amount
%
Amount
%
Demand accounts
$
240,529
38.8
%
$
247,624
40.9
%
Interest checking accounts
72,104
11.6
%
76,289
12.6
%
Money market accounts
223,325
36.1
%
195,249
32.3
%
Savings accounts
32,442
5.2
%
39,633
6.5
%
Time deposits over $250,000
14,365
2.3
%
9,145
1.5
%
Other time deposits
36,657
5.9
%
37,405
6.2
%
Total
$
619,422
100.0
%
$
605,345
100.0
%
The following are the scheduled maturities of time deposits as of December 31, 2024 (in thousands):
Less Than
Year Ending
or Equal to
Greater Than
December 31,
$250,000
$250,000
Total
$
31,324
$
13,824
$
45,148
2,139
-
2,139
1,967
2,508
-
-
Total
$
36,657
$
14,365
$
51,022
Deposits held at the Company by related parties, which include officers, directors, greater than 5% shareholders and companies in which directors of the board have a significant ownership interest, approximated $9,426,000 and $10,868,000 at December 31, 2024 and 2023, respectively.
The Company had $5 million in brokered deposits outstanding at December 31, 2024.
Note 8. Borrowings
The Company uses both short-term and long-term borrowings to supplement deposits when they are available at a lower overall cost to the Company or they can be invested at a positive rate of return.
As a member of the Federal Home Loan Bank of Atlanta, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances from the FHLB. The Company held $2.7 million in FHLB stock at December 31, 2024 and $2.6 million at December 31, 2023, which is held at cost. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB may prescribe the acceptable uses to which the advances may be put, as well as on the size of the advances and repayment provisions. FHLB borrowings are secured by the pledge of commercial loans and 1-4 family residential loans. The Company had FHLB advances of $45.0 million at December 31, 2024 and 2023, respectively.
The Company uses federal funds purchased and repurchase agreements for short-term borrowing needs. Securities sold under agreements to repurchase are classified as borrowings and generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. There were no borrowings against the lines at December 31, 2024 or December 31, 2023.
The Company’s unused lines of credit for future borrowings total approximately $28.2 million at December 31, 2024, which consists of $5.4 million available from the FHLB, $20.0 million on revolving bank line of credit, and $2.8 million under secured federal funds agreements with third party financial institutions. Additional loans and securities are available that can be pledged as collateral for future borrowings from the Federal Reserve Bank of Richmond or the FHLB above the current lendable collateral value.
Information related to borrowings as of December 31, 2024 and 2023 is as follows (dollars in thousands):
Year Ended December 31,
Maximum outstanding during the year
Federal Funds Purchased
$
4,279
$
6,498
FHLB advances
60,000
45,000
Balance outstanding at end of year
Federal Funds Purchased
-
-
FHLB advances
45,000
45,000
Average amount outstanding during the year
Federal Funds Purchased
FHLB advances
34,202
33,356
Average interest rate during the year
Federal Funds Purchased
3.75
%
4.25
%
FHLB advances
4.75
%
4.71
%
Average interest rate at end of year
Federal Funds Purchased
-
%
-
%
FHLB advances
4.34
%
4.89
%
Note 9. Income Taxes
The following summarizes the tax effects of temporary differences that comprise deferred tax assets and liabilities at December 31, 2024 and 2023 (in thousands):
Deferred tax assets
Capital loss carryforward
$
-
$
State net operating loss carryforward
-
Allowance for credit losses
Unfunded commitment liability
Unrealized loss on available for sale securities
1,519
1,489
Interest on nonaccrual loans
Stock compensation
Employee benefits
Depreciation
Lease obligation
Other, net
Total deferred tax assets
3,571
3,222
Deferred tax liabilities
Deferred costs, net of fees
Pension expense
Total deferred tax liabilities
Net deferred tax asset
$
3,433
$
3,043
The net deferred tax asset is included in other assets on the consolidated balance sheet. ASC Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Management considers both positive and negative evidence and analyzes changes in near-term market conditions as well as other factors which may impact
future operating results. In making such judgments, significant weight is given to evidence that can be objectively verified. The deferred tax assets are analyzed quarterly for changes affecting realization.
In assessing the Company’s ability to realize its net deferred tax asset, management considers whether it is more likely than not that some portion or all of the net deferred tax asset will or will not be realized. The Company’s ultimate realization of the net deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of net deferred taxes recognized could be impacted by changes to any of these variables.
Each quarter, the Company weighs both the positive and negative information with respect to realization of the net deferred tax asset and analyzes its position as to whether or not a valuation allowance is required.
Given the consistent earnings and stable asset quality, the Company’s analysis concluded that, it is more likely than not that the Company will generate sufficient taxable income within the applicable carry-forward periods to realize its net deferred tax asset.
The income tax expense charged to operations for the years ended December 31, 2024 and 2023 consists of the following (in thousands):
Current tax expense
$
2,005
$
Deferred tax (benefit) expense
(360)
Provision for income taxes
$
1,645
$
A reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes is as follows for the years ended December 31, 2024 and 2023 (in thousands):
Net income before income taxes
$
8,662
$
2,165
Computed "expected" tax expense
$
1,819
$
State taxes, net of federal
(272)
(121)
Cash surrender value of life insurance
(76)
(68)
Other
(19)
Provision for income taxes
$
1,645
$
Commercial banking organizations conducting business in Virginia are not subject to Virginia income taxes. Instead, they are subject to a franchise tax based on bank capital. The Company recorded franchise tax expense, within other operating expense, of approximately $696,000 and $671,000 for the years ended December 31, 2024 and 2023, respectively. With few exceptions, the Company is no longer subject to U.S. Federal, State, or local income tax examinations by tax authorities for years prior to 2021.
Note 10. Earnings per Share
The following table presents the basic and diluted earnings per share computations (dollars in thousands except per share data):
Year Ended December 31,
Numerator
Net income - basic and diluted
$
7,017
$
1,918
Denominator
Weighted average shares outstanding - basic
1,495
1,486
Dilutive effect of common stock options
-
-
Weighted average shares outstanding - diluted
1,495
1,486
Earnings per share - basic
$
4.69
$
1.29
Earnings per share - diluted
$
4.69
$
1.29
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 10,252 and 15,130 restricted stock units outstanding as of December 31, 2024 and 2023, respectively, are dependent upon meeting certain performance criteria. As of December 31, 2024 and December 31, 2023, it was indeterminable whether these non-vested restricted stock units will vest and as such those shares are excluded from common shares issued and outstanding at each date and are not included in the computation of earnings per share for any period presented.
Note 11. Lease Commitments
The right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Statement of Financial Condition.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The incremental borrowing rate was equal to the rate of borrowing from the FHLB that aligned with the term of the lease contract. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
The following tables present information about the Company’s leases (dollars in thousands):
For the year ended December 31,
Lease liabilities
$
$
Right-of-use assets
$
$
Weighted average remaining lease term
3.13
years
3.66
years
Weighted average discount rate
3.12
%
2.80
%
For the year ended December 31,
Lease cost
Operating lease cost
$
$
Total lease cost
$
$
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):
As of
December 31, 2024
Lease payments due
Twelve months ending December 31, 2025
$
Twelve months ending December 31, 2026
Twelve months ending December 31, 2027
Twelve months ending December 31, 2028
Twelve months ending December 31, 2029
Total undiscounted cash flows
$
Discount
Lease liabilities
$
Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2024 and 2023 was $254,000 and $307,000, respectively. The Company recognized lease expense of $254,000 and $309,000 for the year ended December 31, 2024 and 2023, respectively.
Note 12. Commitments and Contingencies
Off-balance-sheet risk - The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the financial statements. The contract amounts of these instruments reflect the extent of involvement that the Company has in particular classes of instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, and to potential credit loss associated with letters of credit issued, is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans and other such on-balance sheet instruments.
At December 31, 2024 and 2023, the Company had outstanding the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk (in thousands):
December 31,
December 31,
Undisbursed credit lines
$
139,661
$
127,918
Commitments to extend or originate credit
6,864
7,463
Standby letters of credit
2,449
1,202
Total commitments to extend credit
$
148,974
$
136,583
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Historically, any commitments expire without being drawn upon; therefore, the total commitment amounts shown in the above table are not necessarily indicative of future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, as deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include personal or income-producing commercial real estate, accounts receivable, inventory and equipment.
Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
Concentrations of credit risk - Generally, the Company’s loans, commitments to extend credit, and standby letters of credit have been granted to customers in the Company’s market area. Although the Company is building a diversified loan portfolio, a substantial portion of its clients’ ability to honor contracts is reliant upon the economic stability of the Richmond, Virginia area, including the real estate markets in the area. The concentrations of credit by type of loan are set forth in Note 3. The distribution of commitments to extend credit approximates the distribution of loans outstanding.
Note 13. Shareholders’ Equity and Regulatory Matters
Accumulated Other Comprehensive Loss
The following table presents the accumulated other comprehensive loss as of December 31, 2024 and 2023, respectively (in thousands):
Unrealized
Defined
Losses on AFS
Benefit
Securities
Plan
Total
Accumulated other comprehensive loss December 31, 2023
$
(5,604)
$
(9)
$
(5,613)
Other comprehensive loss
Other comprehensive loss before reclassification
(110)
-
(110)
Net current period other comprehensive loss
(110)
-
(110)
Accumulated other comprehensive loss December 31, 2024
$
(5,714)
$
(9)
$
(5,723)
Unrealized
Defined
Losses on AFS
Benefit
Securities
Plan
Total
Accumulated other comprehensive loss December 31, 2022
$
(10,863)
$
(18)
$
(10,881)
Other comprehensive income
Other comprehensive income before reclassification
1,320
1,329
Amounts reclassified from AOCI into earnings
3,939
-
3,939
Net current period other comprehensive income
5,259
5,268
Accumulated other comprehensive loss December 31, 2023
$
(5,604)
$
(9)
$
(5,613)
Regulatory Matters
The Company meets the eligibility criteria of a small bank holding company in accordance with the Board of Governors of the Federal Reserve System’s (the “Federal Reserve”) Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”). Under the SBHC Policy Statement, qualifying bank holding companies, with total consolidated assets of less than $3 billion such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III capital framework as outlined by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). The SBHC Policy Statement does not apply to the Bank and the Bank must comply with the Basel III Capital Rules.
The Bank is required to comply with the capital adequacy standards established by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC has adopted rules to implement the Basel III Capital Rules. The Basel III Capital Rules establish minimum capital ratios and risk weightings that are applied to many classes of assets held by community banks, including applying higher risk weightings to certain commercial real estate loans.
The Basel III Capital Rules require banks to comply with the following minimum capital ratios: (1) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (2) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (3) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (4) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the minimum plus conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. As of December 31, 2024, the Bank exceeded the minimum ratios under the Basel III Capital Rules.
The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act of 1950. To be well capitalized under these regulations, a bank must have the following minimum capital ratios: (1) a common equity Tier 1 capital ratio of at least 6.5%; (2) a Tier 1 risk-based capital ratio of at least 8.0%; (3) a total risk-based capital ratio of at least 10.0%; and (4) a leverage ratio of at least 5.0%. As of December 31, 2024, the Bank exceeded the minimum ratios to be classified as well capitalized.
The capital amounts and ratios at December 31, 2024 and 2023 for the Bank are presented in the table below (dollars in thousands):
Minimum Capital
Requirements
Actual
Including Conservation Buffer (1)
To be Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2024
Total capital (to risk- weighted assets) Village Bank
$
93,152
14.45
%
$
67,698
10.50
%
$
64,475
10.00
%
Tier 1 capital (to risk- weighted assets) Village Bank
89,128
13.82
%
54,803
8.50
%
51,580
8.00
%
Leverage ratio (Tier 1 capital to average assets) Village Bank
89,128
11.56
%
30,852
4.00
%
38,565
5.00
%
Common equity tier 1 (to risk- weighted assets) Village Bank
89,128
13.82
%
45,132
7.00
%
41,908
6.50
%
December 31, 2023
Total capital (to risk- weighted assets) Village Bank
$
86,493
14.49
%
$
62,679
10.50
%
$
59,695
10.00
%
Tier 1 capital (to risk- weighted assets) Village Bank
82,764
13.86
%
50,740
8.50
%
47,756
8.00
%
Leverage ratio (Tier 1 capital to average assets) Village Bank
82,764
11.14
%
29,706
4.00
%
37,133
5.00
%
Common equity tier 1 (to risk- weighted assets) Village Bank
82,764
13.86
%
41,786
7.00
%
38,801
6.50
%
(1) Basel III Capital Rules require banking organizations to maintain a minimum CETI ratio of 4.5%, plus a 2.5% capital conservation buffer; a minimum Tier 1 capital ratio of 6.0%, plus a 2.5% capital conservation buffer; a minimum, total risk-based capital ratio of 8.0%, plus a 2.5% capital conservation buffer; and a minimum Tier leverage ratio of 4.0%.
Note 14. Stock Incentive Plans
In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost is recognized over the period during which an employee is required to provide service in exchange for the award rather than disclosed in the financial statements.
The following table summarizes options outstanding under the Company’s stock incentive plans at the indicated dates:
Year Ended December 31,
Weighted
Weighted
Average
Average
Exercise
Fair Value
Intrinsic
Exercise
Fair Value
Intrinsic
Options
Price
Per Share
Value
Options
Price
Per Share
Value
Options outstanding, beginning of period
-
$
-
$
-
$
25.28
$
9.76
Granted
-
-
-
-
-
-
Forfeited
-
-
-
(14)
25.28
9.76
Exercised
-
-
$
-
-
-
-
Options outstanding, end of period
-
$
-
$
-
$
-
-
$
-
$
-
$
-
Options exercisable, end of period
-
-
During 2024, we granted certain officers time-based restricted shares of common stock and performance-based restricted stock units. The time-based restricted shares vest ratably over a three year period provided the officer is employed with the Company on the applicable vesting date. The performance-based units, which have a two-year performance period that began on January 2, 2025, vest based on the Company’s achievement of performance targets related to return on tangible common equity over the performance period, with possible payouts ranging from 0% to 150% of the target awards.
During 2023, we granted certain officers time-based restricted shares of common stock and performance-based restricted stock units. The time-based restricted shares vest ratably over a three year period provided the officer is employed with the Company on the applicable vesting date. The performance-based units, which have a two-year performance period that began on January 2, 2024, vest based on the Company’s achievement of performance targets related to return on tangible common equity over the performance period, with possible payouts ranging from 0% to 150% of the target awards.
The total number of shares underlying non-vested restricted stock was 23,364 and 31,077 at December 31, 2024 and 2023, respectively. The fair value of the stock is based on the grant date of the award and the expense is recognized over the vesting period. Unamortized stock-based compensation expense related to non-vested share-based compensation arrangements granted under the stock incentive plan as of December 31, 2024 and 2023 was $749,000 and $914,000, respectively. The time-based unrecognized compensation expense of $662,000 is expected to be recognized over a weighted average period of 2.21 years. During 2024, there were forfeitures of 416 shares of restricted stock awards. During 2023, there were no forfeitures of shares of restricted stock awards.
A summary of changes in the Company’s non-vested restricted stock awards for the year follows:
Weighted-
Average
Aggregate
Grant-Date
Intrinsic
Shares
Fair-Value
Value
December 31, 2023
31,077
$
45.93
$
2,419,344
Granted
5,163
76.45
401,940
Vested
(11,673)
48.59
(908,743)
Forfeited
(416)
55.28
(32,386)
Other (1)
(787)
58.95
(61,268)
December 31, 2024
23,364
$
50.74
$
1,818,886
(1) Represents the incremental increase in shares that vested based on the restricted stock units vesting at the maximum potential value as opposed to the targeted value of the award.
Stock-based compensation expense was $353,000 and $359,000 for the years ended December 31, 2024 and 2023, respectively.
Note 15. Trust Preferred Securities
During the first quarter of 2005, Southern Community Financial Capital Trust I, a wholly-owned unconsolidated subsidiary of the Company, was formed for the purpose of issuing redeemable securities. On February 24, 2005, $5.2 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The securities have a floating rate of interest indexed to the London InterBank Offered Rate (“LIBOR”) (three-month LIBOR plus 2.15%) which adjusts, and is payable, quarterly. The interest rate was 6.77% and 7.78% at December 31, 2024 and 2023, respectively. As a result of the discontinuation of the 3-month LIBOR on June 30, 2023, the Company replaced the 3-month LIBOR leg of the calculated floating rate with the three-month term Secured Overnight Funding Rate (“SOFR”) plus the applicable tenor spread adjustment for 3-month LIBOR of 0.26161 percent as per the guidelines outlined within the final rulings under the Adjustable Interest Rate (LIBOR) Act published by the Board of Governors of the Federal Reserve System. The securities were redeemable at par beginning on March 15, 2010 and each quarter after such date until the securities mature on March 15, 2035. No amounts have been redeemed at December 31, 2024 and there are no plans to do so. The principal asset of the Trust is $5.2 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
During the third quarter of 2007, Village Financial Statutory Trust II, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable securities. On September 20, 2007, $3.6 million of Trust Preferred Capital Notes were issued through a pooled underwriting. The securities have LIBOR-indexed floating rate of interest (three-month LIBOR plus 1.4%) which adjusts and is also payable quarterly. The interest rate was 6.02% and 7.03% at December
31, 2024 and 2023, respectively. As a result of the discontinuation of the 3-month LIBOR on June 30, 2023, the Company replaced the 3-month LIBOR leg of the calculated floating rate with the three-month term SOFR plus the applicable tenor spread adjustment for 3-month LIBOR of 0.26161 percent as per the guidelines outlined within the final rulings under the Adjustable Interest Rate (LIBOR) Act published by the Board of Governors of the Federal Reserve System. The securities may be redeemed at par at any time commencing in December 2012 until the securities mature in 2037. No amounts have been redeemed at December 31, 2024 and there are no plans to do so. The principal asset of the Trust is $3.6 million of the Company’s junior subordinated securities with like maturities and like interest rates to the Trust Preferred Capital Notes.
The Trust Preferred Capital Notes may be included in Tier 1 capital for regulatory capital adequacy determination purposes up to 25% of Tier 1 capital after its inclusion. The portion of the Trust Preferred Capital Notes not considered as Tier 1 capital may be included in Tier 2 capital.
The obligations of the Company with respect to the issuance of the Trust Preferred Capital Notes constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the Trust Preferred Capital Notes. Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related Trust Preferred Capital Notes and require a deferral of common dividends. The Company is current on these interest payments.
Note 16. Subordinated Debt
On March 21, 2018, the Company issued $5,700,000 of fixed-to-floating rate subordinated notes due March 31, 2028 in a private placement. The Company received $5,539,000 in net proceeds after deducting issuance costs. The subordinated notes accrued interest at a fixed rate of 6.50% for the first five years until March 21, 2023. The subordinated notes have a LIBOR-indexed floating rate of interest (three-month LIBOR plus 3.73%) which adjusts and is also payable quarterly. The interest rate at December 31, 2023 was 9.37%. As a result of the discontinuation of the 3-month LIBOR on June 30, 2023, the Company replaced the 3-month LIBOR leg of the calculated floating rate with the three-month term SOFR plus the applicable tenor spread adjustment for 3-month LIBOR of 0.26161 percent as per the guidelines outlined within the final rulings under the Adjustable Interest Rate (LIBOR) Act published by the Board of Governors of the Federal Reserve System. The Company may redeem the subordinated notes in whole or in part, on or after March 31, 2023. The subordinated notes are unsecured and subordinated in right of payment to all of the Company’s existing and future senior indebtedness, whether secured or unsecured, including claims of depositors and general creditors, and rank equally in right of payment with any unsecured, subordinated indebtedness that the Company may incur in the future. The carrying value of the notes totaled $5,700,000 at December 31, 2024 and December 31, 2023, respectively.
Note 17. Retirement Plans
401K Plan: The Bank provides a qualified 401K plan to all eligible employees which is administered through the Virginia Bankers Association Benefits Corporation. Employees are eligible to participate in the plan after three months of employment. Eligible employees may, subject to statutory limitations, contribute a portion of their salary to the plan through payroll deduction. The Bank provided a matching contribution of 100% of the first 1% the participant contributes, and then 50% of the next 5% of their salary, totaling a maximum 3.5%. Participants are always fully vested in their own contributions, and the Bank’s matching contributions vest 100% after two years of service. Total contributions to the plan for the years ended December 31, 2024 and 2023 were $413,000, and $391,000, respectively.
Supplemental Executive Retirement Plan: The Bank established the Village Bank SERP on January 1, 2005 to provide supplemental retirement income to certain executive officers as designated by the Personnel Committee, later replaced by the Compensation Committee, and approved by the board of directors. The SERP is an unfunded employee pension plan under the provisions of the Employee Retirement Income Security Act of 1974. An eligible employee, once designated by the Committee and approved by the board of directors in writing to participate in the SERP, becomes a participant in the SERP 60 days following such approval (unless an earlier participation date is approved). The retirement benefit to be received by a participant is determined by the Committee and approved by the board of directors and is payable in equal monthly installments over the period specified in the SERP for each respective participant, commencing on the first day of the month following a participant’s retirement or termination of employment, provided the participant has been
employed by the Bank for a minimum of 10 years. The Compensation Committee, in its sole discretion, may choose to treat a participant who has experienced a termination of employment on or after attaining age 65 but prior to completing his service requirement as having completed his service requirement. At December 31, 2024 and 2023, the Bank’s liability under the SERP was $2,402,000 and $2,468,000, respectively, and expense for the years ended December 31, 2024 and 2023 was $139,000 and $154,000, respectively. The increase in other comprehensive income related to the minimum pension adjustment was $9,000 net of tax for the year ended December 31, 2023 and there were no increases for the year ended December 31, 2024. The cash surrender value of the bank owned life insurance related to participants decreased by $101,000 for the year ended December 31, 2024 while cash surrender value of the bank owned life insurance related to the participants increased by $322,000 for the year ended December 31, 2023.
Directors Deferral Plan: The Bank established the Village Bank Outside Directors Deferral Plan (the “Directors Deferral Plan”) on January 1, 2005 under which non-employee directors of the Bank have the opportunity to defer receipt of all or a portion of certain compensation until retirement or departure from the board of directors. Deferral of compensation under the Directors Deferral Plan is voluntary by non-employee directors and to participate in the plan a director must file a deferral election as provided in the plan. A director shall become an active participant with respect to a plan year (as defined in the plan) only if he is expected to have compensation during the plan year and he timely files a deferral election. A separate account is established for each participant in the plan and each account shall, in addition to compensation deferred at the election of the participant, be credited with interest on the balance of the account, the rate of such interest to be established by the board of directors in its sole discretion at the beginning of each plan year. For those directors electing to purchase stock through the plan, the obligation will only be settled by delivery of the fixed number of shares they purchased. At December 31, 2024 and 2023, the Bank’s liability under the Directors Deferral Plan was $852,000 and $704,000, respectively, and expense for the years ended December 31, 2024 and 2023 was $165,000 and $122,000, respectively. A rabbi trust was established to hold the shares. At December 31, 2024 and 2023, the trust held 20,532 and 21,674 shares, respectively, of Company common stock totaling $439,000 and $467,000, respectively.
Note 18. Fair Value
The Company determines the fair value of its financial instruments based on the requirements established in ASC 820: Fair Value Measurements, which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs when measuring fair value. ASC 820 defines fair value as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.
ASC 820 establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:
Level 1 Inputs - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 Inputs - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 Inputs - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods to determine the fair value of each type of financial instrument:
Securities: Fair values for securities available-for-sale are obtained from an independent pricing service. The prices are not adjusted. The independent pricing service uses industry-standard models to price U.S. Government agency obligations and mortgage backed securities that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Securities of obligations of state and political subdivisions are valued using a type of matrix, or grid, pricing in which securities are benchmarked against the treasury rate based on credit
rating. Substantially all assumptions used by the independent pricing service are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace (Levels 1 and 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).
Collateral dependent: The Company does not record loans held for investment at fair value on a recurring basis. However, there are instances when a loan is considered collateral dependent and an allowance for credit losses is established. The Company measures expected credit losses based on the fair value of the collateral either through the operation of the collateral or the sale of the collateral to include estimated cost to sell. The Company maintains a valuation allowance to the extent that this measure of the collateral dependent loan is less than the recorded investment in the loan. The Company records the collateral dependent loan as a nonrecurring fair value measurement classified as Level 2. However, if based on management’s review, additional discounts to appraisals are required or if observable inputs are not available, the Company records the collateral dependent loan as a nonrecurring fair value measurement classified as Level 3.
Loans held for sale: Fair value of the Company's loans held for sale is based on observable market prices for similar instruments traded in the secondary mortgage loan markets in which the Company conducts business. The Company's portfolio of loans held for sale is classified as Level 2. Gains and losses on the sale of loans are recorded within mortgage banking income, net on the Consolidated Statements of Income.
Derivative asset - interest rate lock commitments (“IRLCs”): The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company's IRLCs are classified as Level 2.
Forward sale commitments: Best efforts sale commitments are entered into for loans intended for sale in the secondary market at the time the borrower commitment is made. The Company has elected the fair value option on their firm commitments under ASC 825. The best efforts commitments are valued using the committed price to the counter-party against the current market price of the IRLC or mortgage loan held for sale. All of the Company’s forward sale commitments are classified as Level 2.
Assets and liabilities measured at fair value under Topic 820 on a recurring and non-recurring basis are summarized below for the indicated dates (in thousands):
Fair Value Measurement
at December 31, 2024 Using
Quoted Prices
in Active
Other
Significant
Markets for
Observable
Unobservable
Carrying
Identical Assets
Inputs
Inputs
Value
(Level 1)
(Level 2)
(Level 3)
Financial Assets - Recurring
U.S. Government, agency obligations
$
$
-
$
$
-
Mortgage-backed securities
66,321
-
66,321
-
Municipals
1,640
-
1,640
-
Subordinated debt
10,608
-
10,108
Loans held for sale
4,299
-
4,299
-
IRLC
-
-
Forward sales commitment
-
-
Fair Value Measurement
at December 31, 2023 Using
Quoted Prices
in Active
Other
Significant
Markets for
Observable
Unobservable
Carrying
Identical Assets
Inputs
Inputs
Value
(Level 1)
(Level 2)
(Level 3)
Financial Assets - Recurring
U.S. Government, agency obligations
$
20,615
$
-
$
20,615
$
-
Mortgage-backed securities
72,537
-
72,537
-
Municipals
1,656
-
1,656
-
Subordinated debt
10,777
-
10,277
Loans held for sale
4,983
-
4,983
-
IRLC
-
-
Financial Liabilities - Recurring
Forward sales commitment
-
-
The following table presents qualitative information about Level 3 fair value measurements for financial instruments measured at fair value for the year ended December 31, 2024
December 31, 2024
Range
Fair Value
Valuation
Unobservable
(Weighted
Estimate
Techniques
Input
Average)
Individually evaluated loans - real estate secured
$
Appraisal (1) or Internal Valuation (2)
Selling costs, Discount for lack of marketability and age of appraisal
6%-10% (7%)
(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which generally includes various level 3 inputs which are not identifiable
(2) Internal valuations may be conducted to determine Fair Value for assets with nominal carrying balances
There were no Level 3 fair value measurements for financial instruments measured on a non-recurring basis at fair value at December 31, 2023.
FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. In accordance with ASU 2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instruments not measured at fair value on a recurring basis.
The following tables reflect the carrying amounts and estimated fair values of the Company's financial instruments whether or not recognized on the Consolidated Balance Sheet at fair value (in thousands).
December 31,
December 31,
Level in Fair
Value
Carrying
Estimated
Carrying
Estimated
Hierarchy
Value
Fair Value
Value
Fair Value
Financial assets
Cash
Level 1
$
14,261
$
14,261
$
10,383
$
10,383
Federal funds sold
Level 2
4,367
4,367
7,331
7,331
Investment securities available for sale
Level 2
78,669
78,669
105,085
105,085
Investment securities available for sale
Level 3
Restricted stock
Level 2
2,993
2,993
2,985
2,985
Loans held for sale
Level 2
4,299
4,299
4,983
4,983
Loans
Level 3
618,864
604,808
575,008
547,935
Bank owned life insurance
Level 2
13,019
13,019
13,120
13,120
Accrued interest receivable
Level 2
3,507
3,507
3,827
3,827
Interest rate lock commitments
Level 2
Forward sales commitment
Level 2
-
-
Financial liabilities
Deposits
Level 2
619,422
619,417
605,345
605,226
FHLB borrowings
Level 2
45,000
44,993
45,000
44,999
Trust preferred securities
Level 2
8,764
9,379
8,764
8,848
Other borrowings
Level 2
5,700
5,700
5,700
5,700
Accrued interest payable
Level 2
Forward sales commitment
Level 2
-
-
Note 19. Segment Reporting
The Company has two reportable segments: traditional commercial banking and mortgage banking. Revenues from commercial banking operations consist primarily of interest earned on loans and securities and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage LHFS, gains on sales of loans in the secondary mortgage market, and loan origination fee income.
The Commercial Banking Segment provides the mortgage banking segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on the Commercial Banking Segment’s cost of funds. Additionally, the Mortgage Banking Segment leases premises from the Commercial Banking Segment. These transactions are eliminated in the consolidation process.
The Company’s chief operating decision makers (“CODMs”) are the President/Chief Executive Officer and the Chief Financial Officer. The CODMs use net income to evaluate income generated from segment assets in deciding whether to reinvest profits into the segments or into other parts of the entity, such as for acquisitions or to pay dividends. Net income is used to monitor budget versus actual results. The CODMs also use net income in competitive analysis by benchmarking to the Company’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segments and in establishing management’s compensation.
Interest expense is allocated to the mortgage banking segment through borrowings from the commercial banking segment. The commercial banking segment extends a warehouse line of credit to the mortgage banking segment, providing a portion of the funds needed to originate mortgage loans, that carry interest rates at the commercial banking segment’s cost of funds rate plus 100 basis points. The community banking segment acquires certain residential real estate loans from the mortgage banking segment at prices similar to those paid by third-party investors. These transactions are eliminated to reach consolidated totals. In addition to unallocated expenses recorded by the holding company, certain overhead costs are incurred by the community banking segment and are allocated to the mortgage banking segment.
The following table presents segment information as of and for the years ended December 31, 2024 and 2023 (in thousands):
Commercial
Mortgage
Consolidated
Banking
Banking
Eliminations
Totals
Year Ended December 31, 2024
Revenues
Interest income
$
39,546
$
$
-
$
39,990
Mortgage banking income, net
-
2,746
(223)
2,523
Other revenues
3,603
-
(166)
3,437
Total revenues
43,149
3,190
(389)
45,950
Expenses
Provision for credit losses
-
-
Interest expense
12,591
-
-
12,591
Salaries and benefits
11,477
2,748
-
14,225
Loss on sale of investment securities, net
-
-
Other expenses
9,755
(389)
10,248
Total operating expenses
34,047
3,630
(389)
37,288
Income (loss) before income taxes
9,102
(440)
-
8,662
Income tax expense (benefit)
1,737
(92)
-
1,645
Net income (loss)
$
7,365
$
(348)
$
-
$
7,017
Capital expenditures by segment
$
$
-
$
-
$
Total assets
$
767,846
$
15,223
$
(26,904)
$
756,165
Commercial
Mortgage
Consolidated
Banking
Banking
Eliminations
Totals
Year Ended December 31, 2023
Revenues
Interest income
$
32,900
$
$
-
$
33,274
Mortgage banking income, net
-
2,212
(522)
1,690
Other revenues
3,433
-
(173)
3,260
Total revenues
36,333
2,586
(695)
38,224
Expenses
Provision for credit losses
-
-
Interest expense
7,986
-
-
7,986
Salaries and benefits
10,585
2,804
-
13,389
Loss on sale of investment securities, net
4,986
-
-
4,986
Other expenses
9,251
1,092
(695)
9,648
Total operating expenses
32,858
3,896
(695)
36,059
Income (loss) before income taxes
3,475
(1,310)
-
2,165
Income tax expense (benefit)
(275)
-
Net income (loss)
$
2,953
$
(1,035)
$
-
$
1,918
Capital expenditures by segment
$
$
-
$
-
$
Total assets
$
747,711
$
16,947
$
(28,042)
$
736,616
Note 20.Parent Corporation Only Financial Statements
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Balance Sheet
(in thousands)
December 31,
December 31,
Assets
Cash and due from banks
$
1,307
$
1,666
Investment in subsidiaries
83,405
77,151
Investment in special purpose subsidiary
Prepaid expenses and other assets
3,294
3,008
$
88,270
$
82,089
Liabilities and Shareholders’ Equity
Liabilities
Balance due to nonbank subsidiaries
$
8,764
$
8,764
Other borrowings
5,700
5,700
Accrued interest payable
Total liabilities
14,531
14,533
Shareholders’ equity
Common stock
5,940
5,908
Additional paid-in capital
55,807
55,486
Retained Earnings
17,715
11,775
Stock in directors rabbi trust
(439)
(467)
Directors deferred fees obligation
Accumulated other comprehensive loss
(5,723)
(5,613)
Total stockholders’ equity
73,739
67,556
$
88,270
$
82,089
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Statements of Income and Comprehensive Income
Years Ended December 31, 2024 and 2023
(in thousands)
Income
Interest income
$
$
Dividends received from subsidiaries
2,080
1,975
Total Income
2,083
1,979
Interest expense
Interest on borrowed funds
1,173
1,111
Total interest expense
1,173
1,111
Net interest income
Noninterest expense
Supplies
Professional and outside services
Other
Total noninterest expense
Net income before undistributed income of subsidiary
Undistributed income of subsidiary
6,011
Net income before income tax benefit
6,732
1,660
Income tax benefit
(285)
(258)
Net income
$
7,017
$
1,918
Total comprehensive income
$
6,907
$
7,186
Village Bank and Trust Financial Corp.
(Parent Corporation Only)
Condensed Statements of Cash Flows
Years Ended December 31, 2024 and 2023
(in thousands)
Cash Flows from Operating Activities
Net income
$
7,017
$
1,918
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of debt issuance costs
-
Undistributed income of subsidiary
(6,011)
(911)
Net change in:
Other assets
(286)
(253)
Accrued interest payable
(2)
Other liabilities
-
(6)
Net cash provided by operating activities
Cash Flows from Investing Activities
Net cash provided by investing activities
-
-
Cash Flows from Financing Activities
Cash dividends paid
(1,077)
(981)
Net cash used in financing activities
(1,077)
(981)
Net decrease in cash
(359)
(202)
Cash, beginning of year
1,666
1,868
Cash, end of year
$
1,307
$
1,666

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that as of December 31, 2024, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and regulations and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports.
Management’s Report on Internal Control over Financial Reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on our assessment, we believe that, as of December 31, 2024, the Company’s internal control over financial reporting was effective based on those criteria.
Changes in Internal Control Over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the fourth quarter of the fiscal year ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm, Yount, Hyde & Barbour, P.C., (U.S. PCAOB Auditor Firm I.D.: 613), regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
(a) None.
(b) During the quarter ended December 31, 2024, no director or Section 16 officer of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
The following is biographical information with respect to the members of the Company’s board of directors, including their principal occupations and qualifications to serve as directors. There are no current arrangements between any director and any other person pursuant to which a director was elected. No family relationships exist among any of the directors or between any of the directors and executive officers of the Company.
Class A Directors With Terms Expiring in 2025
Craig D. Bell, 67, is a founder of the Bank and has been a director since 1998. Mr. Bell is Chair of the board of directors of the Company and the Bank. He has been a partner with the law firm of McGuireWoods LLP since March 2000, where he is head of the State and Local Tax and Tax Litigation Groups. McGuire Woods is an international law firm having offices in thirteen states and seven countries. Mr. Bell is an Emeritus Director of the Community Tax Law Project, a non-profit provider of pro bono tax assistance to low income families and its former President; a Fellow of the American College of Tax Council; former Chair of both the Virginia State Bar Section of Taxation and the Virginia Bar Association Tax Section; a Master member of the Edgar J. Murdock Inn of Court for Tax; and an adjunct Professor of Law at the College of William and Mary School of Law. The American Bar Association Section of Taxation awarded Mr. Bell its 2023 National Pro Bono Tax Attorney of the Year award for his longtime dedication to providing pro bono tax legal aid to the working poor in over 300 tax disputes and U.S. Court cases. He is also President of the ASAC Foundation, a nonprofit organization that has charitable and educational purposes in the areas of antique arms and armor. Mr. Bell is also a credentialed Accredited Member appraiser by the International Society of Appraisers where he focuses his appraisal engagements to antique arms and armor of the 15th-19th centuries. Mr. Bell retired from the Army Reserves in 2006 as a Lieutenant Colonel after completing 27 years of service. As a result of the foregoing experience, Mr. Bell brings leadership, sound judgment, effective communication, business acumen, and decision-making skills to the board of directors. Mr. Bell currently serves as Chair of the Executive Committee, Chair of the Nominating and Corporate Governance Committee, and is a member of the Compensation Committee and Board Risk Committee. He also serves as an ex officio member of all committees.
Ronald L. Carey, Jr., 57, has been a director since January 2023. Mr. Carey is Founder and CEO of Tilt Creative + Production, a full-service marketing firm located in Richmond, Virginia that was founded in December 2017. With nearly 30 years of corporate experience across sales, human resources, marketing and entrepreneurship, Mr. Carey brings a unique perspective to the board. His background in working in large, complex organizations in Human Resources, as well as his experience in mergers and acquisitions, is of value in supporting Village Bank as it continues to grow and achieve its strategic goals. Mr. Carey serves as a board member for ChildSaver’s, Virginia CEOs, Minority Business League, and (Board Chair) HCA Chippenham/Johnston Willis Hospitals. He graduated from the University of Virginia with a bachelor’s degree in Sports Management. Mr. Carey serves as a member of the Audit Committee, Board Risk Committee, and Compensation Committee. He is also a member of the board of directors of Village Bank Mortgage Corporation.
Devon M. Henry, 48, has been a director since March 2018. Mr. Henry has served as Chief Executive Officer and President of Team Henry Enterprises, LLC since August 2006. Team Henry is a multi-discipline contracting and logistics firm headquartered in Richmond, Virginia, with offices in Raleigh, North Carolina and Miami, Florida. In 2014, Team Henry Enterprises was recognized in Fortune Magazine, ranking 12th on the 100 List of fastest growing inner-city companies in the country. Mr. Henry brings valuable business experience to the board of directors as a business owner and entrepreneur. His substantial network of business and personal relationships helps the Company grow and achieve its strategic goals.
Mr. Henry is active in the community and speaks at several local universities about entrepreneurship and S.T.E.M. initiatives. He serves on several boards and committees to include the Board of Visitors for Norfolk State University, Eastern Regional Director for Phi Beta Sigma Fraternity, Board of Directors for Venture Richmond, Transportation DBE Advisory Committee, Young Presidents Organization (YPO), and Metropolitan Business League. Mr. Henry serves as a member of the Board Risk Committee, Compensation Committee, and Nominating and Corporate Governance Committee. He is also a member of the board of directors of Village Bank Mortgage Corporation.
Class B Directors With Terms Expiring in 2026
James E. Hendricks, Jr., 61, has served as a director and Chief Executive Officer and President of the Company and the Bank since August 2020. He previously served as Executive Vice President, Chief Operating Officer and Chief Risk Officer of the Bank since December 2016, and as Chief Credit Officer since March 2014. Prior thereto, he served as Director of Special Assets of the Bank. From 1990 to 2013, Mr. Hendricks served in several leadership roles at SunTrust Bank (and its predecessor Crestar Bank), including Senior Vice President and Consumer Banking Chief Operational Risk Officer, Senior Vice President and Consumer Lending Credit and Compliance Risk Officer, and Senior Vice President of Credit Process Review. Prior to 1990, he served as Bank Examiner for the Comptroller of the Currency. Mr. Hendricks received his Bachelor of Science degree in Finance from Virginia Tech and Master of Business Administration degree from University of Richmond. Mr. Hendricks has over 35 years of banking industry experience, which has afforded him broad knowledge and a keen understanding of all aspects of banking. In addition to his banking experience, he currently serves on the board of directors of the Virginia Association of Community Banks, Virginia Bankers Association’s Benefits Board, Virginia Commerce Group, and Better Business Bureau Serving Central Virginia. Mr. Hendricks is a member of the Executive Committee and the Board Risk Committee. Mr. Hendricks is also a member of the board of directors of Village Bank Mortgage Corporation.
Mary Margaret Kastelberg, 61, has been a director since October 2020. Ms. Kastelberg was Director of Investment Research at Alpha Wealth Advisors, LLC, a full service independent financial advisory firm for more than 10 years. Ms. Kastelberg has lived in the Richmond community for her entire life. With more than 35 years of small business and financial experience, Ms. Kastelberg brings a unique perspective to the board. Her background in managing small businesses, mortgage securitizations, and mergers and acquisitions is of value in supporting Village Bank. Ms. Kastelberg serves as a board member and former Chair of Commonwealth Catholic Charities. She was appointed by Governor Youngkin to the Virginia Small Business Financing Authority Board and currently serves as Vice-Chair. She is a past board member of Western Wildcats Youth Football Association and past Secretary and Board Member for Benedictine Education Foundation. Ms. Kastelberg graduated from Princeton University with a B.A. degree in Politics and earned a master’s in business administration from the University of Virginia’s Colgate Darden School. Ms. Kastelberg serves as Chair of the Board Risk Committee and a member of the Compensation Committee.
Selena T. Sanderson, 56, has been a director since January 2023. Ms. Sanderson is Principal at Growth by Design and Managing Director of Fahrenheit Advisors, LLC, a middle market consulting, advisory, and executive search firm since October 2021. Prior thereto, she was Managing Director at Nulogy Corporation, a Saas-based technology company headquartered in Toronto, Canada. Ms. Sanderson’s specific expertise is helping mid-market businesses to accelerate growth. Prior to joining Fahrenheit, she served as Director for Nulogy Corporation, Executive Vice President of Strategy of Weston Foods, was General Manager of Interbake Foods/FFV, and served for more than 20+ years in various leadership roles. Ms. Sanderson served as the prior Board Chair for the Greater Richmond Alzheimer’s Association, taught as an adjunct professor at the University of Richmond, and is a board advisor to several start-up companies. Ms. Sanderson graduated Magna Cum Laude with a Bachelor of Arts in Economics, Sociology, and International Studies from the University of Richmond and earned a Master of Business Administration from Darden Graduate Business School at the University of Virginia. Her experience in strategic planning, growing, and leading businesses, and developing relationships is of immense value to Village Bank as it continues to grow and expand its services. Ms. Sanderson serves on the Audit Committee, ALCO Committee, Board Risk Committee, and Nominating and Corporate Governance Committee. She is also a member of the board of directors of Village Bank Mortgage Corporation
Class C Directors With Terms Expiring in 2027
Frank E. Jenkins, Jr., 59, has been a director since 2017. He has been Managing Partner of Adams, Jenkins and Cheatham since December 1998, one of the largest accounting firms in Virginia. The firm’s core client base and business strategy align well with the mission of the Bank working closely with individuals and businesses to solve problems and help businesses grow and prosper. Mr. Jenkins brings valuable business and accounting experience to the board of directors as a Certified Public Accountant, business owner and entrepreneur. His substantial network of business and personal relationships helps the Company grow and achieve its strategic goals. Mr. Jenkins is a member of the Virginia Young Presidents’ Organization (YPO), the American Institute of Certified Public Accountants (AICPA), the Community Associations Institute, and the Virginia Society of Certified Public Accountants (VSCPA). He is a licensed CPA in Virginia and North Carolina and qualifies as an audit committee financial expert under SEC guidelines. Mr. Jenkins serves as Chair of the Audit Committee and is a member of the Executive Committee, Nominating and Corporate Governance Committee and Board Risk Committee.
Michael A. Katzen, 71, has been a director since 2008 when River City Bank merged with the Bank. He formerly served as a director of River City Bank. Mr. Katzen retired as Partner and President of The Law Firm of Michael A. Katzen, P.C. He is a director of Glebe Hill Associates, Inc., a privately held development company. His experience with real estate law provides the board of directors with expertise in evaluating significant loan relationships as well as working out nonperforming loans collateralized by real estate. Mr. Katzen currently serves as Chair of the Compensation Committee, and is a member of the Executive Committee, Nominating and Corporate Governance Committee and Board Risk Committee.
Michael L. Toalson, 72, has been a director since 2004. Mr. Toalson retired as Chief Executive Officer of the Home Builders Association of Virginia (“HBAV”) in June 2017. He led the HBAV lobbying team before state lawmakers and regulators and was the chief administrative officer of the 3,000-member business organization. His familiarity with various home builders and the Virginia real estate market in general are invaluable to the board of directors in evaluating significant loan relationships and marketing the Bank’s services to the home building community. Mr. Toalson is Vice-Chair of the board of directors of the Company and the Bank. Mr. Toalson currently serves as a member of the Audit Committee, Board Risk Committee and Executive Committee. He also serves as Chair of the board of directors of Village Bank Mortgage Corporation.
Executive Officers Who Are Not Directors
The following is biographical information with respect to the Company’s executive officers.
Roy I. Barzel, 73, has served as Executive Vice President and Chief Credit Officer of the Bank since August 1, 2020. He joined the Bank on July 5, 2017 as Senior Vice President-Director of Strategic Initiatives. He was Executive Vice President and Chief Credit Officer of Bank of Virginia from April 2011 until it was acquired by First Citizens Bank in September 2016, and Senior Vice President and Regional Credit Manager of First Citizens Bank until he joined the Bank. Mr. Barzel started his banking career in 1983 at United Virginia Bank, predecessor to Crestar Bank and SunTrust Bank, and performed a number of credit roles, culminating in a Senior Regional Credit Officer position in Commercial Real Estate banking. Mr. Barzel is a graduate of the University of Florida with a Bachelor of Science in Zoology and a Master of Business Administration.
Jennifer J. Church, 45, has served as Executive Vice President - Retail Banking of the Bank since March 21, 2022. Ms. Church was a Market Leader, Vice President with BB&T from September 2018 to March 2022, and prior thereto, she served in various positions with Union Bank & Trust from 2007 to 2018, including Retail Support Manager, Senior Retail Operations Consultant and Branch Manager. Ms. Church is a graduate of Longwood University with a Bachelor of Science in Business Administration and has over 20 years of banking experience.
Donald M. Kaloski, Jr., 43, has served as Executive Vice President and Chief Financial Officer of the Company and the Bank since May 31, 2018, and as Chief Risk Officer of the Bank since August 15, 2020. He joined the Company in March 2013 and was promoted to Senior Vice President of Accounting in April 2015. Prior thereto, he had over six years of experience in public accounting, supervising audit teams on financial institution engagements throughout the country.
Mr. Kaloski is a 2006 graduate of Troy University with a Bachelor of Science degree in accounting, holds a Master of Business Administration degree from Troy University, and is a Certified Public Accountant and Chartered Global Management Accountant with 16 years of experience in the banking industry. Mr. Kaloski is Chair of the Virginia Bankers Association Chief Financial Officer Committee. He also served as past Lt. Governor for Capital District Division 11 of Kiwanis International.
Max C. Morehead, Jr., 61, has served as Executive Vice President - Commercial Banking since March 2014. Prior thereto, Mr. Morehead held various positions at SunTrust Bank for 25 years, including managing commercial and business banking groups. He is a 1986 graduate of the Virginia Military Institute. He has over 37 years of banking experience.
Christy F. Quesenbery, 66, has served as Executive Vice President of Operations since August 24, 2020. Ms. Quesenbery’s expertise includes loan and deposit operations, compliance, human resources, information technology and information security. Ms. Quesenbery was Executive Vice President and Chief Operating Officer for Touchstone Bankshares, Inc., where she was responsible for deposit and loan operations, compliance, information security and technology, as well as enterprise risk and vendor management. Prior thereto, she held leadership roles at various community banks in Virginia. Ms. Quesenbery holds a Bachelor of Science degree in Psychology and Business Administration from James Madison University and graduated from the Virginia Bankers School of Bank Management. Ms. Quesenbery has over 40 years’ experience in commercial banking.
James C. Winn, 51, has served as President and Chief Executive Officer of Village Bank Mortgage Corporation since December 2017. Prior thereto, he served as Senior Vice President and Risk Manager of Village Bank Mortgage Corporation. From 1998 to 2009, he served in several leadership roles with Benchmark Mortgage, including Vice President of Secondary Market. Mr. Winn is a 1997 graduate of Virginia Commonwealth University and has more than 25 years of mortgage banking experience.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors and executive officers, and any persons who own more than 10% of the outstanding shares of common stock, to file reports of ownership and changes in ownership of common stock. Officers and directors are required by regulations to furnish the Company with copies of all Section 16(a) reports that they file. Based solely on review of the copies of such reports furnished to the Company or written representation that no other reports were required, the Company believes that, during fiscal year 2024, all of the Company’s insiders were in compliance with the reporting requirements of Section 16(a).
Code of Ethics
The Company has a Code of Ethics for directors, officers and all employees of the Company and its subsidiaries, which is applicable to the Company’s Chief Executive Officer, Chief Financial Officer and other principal financial officers. The Code addresses such topics as protection and proper use of Company assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting and conflicts of interest. A copy of the Code will be provided, without charge, to any shareholder upon written request to the Secretary of the Company, whose address is 13319 Midlothian Turnpike, Midlothian, Virginia 23113.
Audit Committee
The Company’s Audit Committee assists the board of directors in fulfilling its oversight responsibility to the shareholders relating to the integrity of the Company’s financial statements, compliance with legal and regulatory requirements and the qualifications, independence, and the performance of the internal audit function. The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the work of the independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attestation services for the Company. The board of directors has adopted a written charter for the Audit Committee. A copy of the charter of the Audit Committee is available on the “Investor Relations” page of the Company’s website at www.villagebank.com under the heading “Corporate Information - Governance Documents.”
The Audit Committee is composed of Frank E. Jenkins, Jr. (Chair), Ronald L. Carey, Jr., Selena T. Sanderson, and Michael L. Toalson. The board of directors, in its business judgment, has determined that such directors are independent as defined by Nasdaq’s listing standards and SEC regulations. The board of directors also has determined that all of the members of the Audit Committee have sufficient knowledge in financial and auditing matters to serve on the Audit Committee and that Mr. Jenkins qualifies as audit committee financial experts as defined by SEC regulations.
The Audit Committee met four times in 2024.
Insider Trading Policy
The Company has adopted an insider trading policy governing the purchase, sale and/or other dispositions of the Company's securities by directors, officers and employees that is reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of such policy is filed as Exhibit 19 to this Form 10-K. In addition, with regard to the Company’s trading in its own securities, it is the Company’s policy to comply with the federal securities laws and the applicable exchange listing requirements.
No Hedging Policy
The Company’s insider trading policy prohibits directors and executive officers from engaging in transactions designed to hedge or offset any decrease in the market value of the Company’s common stock, such as prepaid variable forward contracts, equity swaps, puts, calls, collars, forwards, exchange funds and other derivative instruments. The policy also prohibits directors and executive officers from engaging in short sale transactions in the Company’s common stock.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Introduction
This section provides an overview and explanation of the material information relevant to understanding the objectives, policies, and the philosophy underlying the Company's compensation programs for its executives, focusing on the named executive officers (referred to as “NEOs”). The NEOs for 2024 were as follows:
● James E. Hendricks, Jr., President and Chief Executive Officer of the Company
● Max C. Morehead, Jr., Executive Vice President-Commercial Banking of the Bank
● Donald M. Kaloski, Jr., Executive Vice President-Chief Financial Officer of the Company and Chief Risk Officer of the Bank
This section is intended to inform shareholders about certain incentive compensation plans as well as components of compensation paid to the NEOs. Following this section, the Company provides additional information relating to executive compensation in a series of tables, including important explanatory footnotes and narrative.
At the May 21, 2024 Annual Meeting of the Company’s shareholders, the shareholders voted to approve, on an advisory basis, the compensation of the Company’s NEOs, as described in the “Executive Compensation” section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure, set forth in the Company’s Proxy Statement. The vote was 1,036,761 shares “For” (95.95% of the shares voted), 10,095 shares “Against” (0.94% of the shares voted), and 33,613 shares “Abstained” (3.11% of the shares voted).
The Compensation Committee took into account the result of the shareholder vote in determining executive compensation policies and decisions since the 2024 Annual Meeting. The Compensation Committee viewed the vote as an expression of the shareholders’ overall satisfaction with the Company’s current executive compensation programs. While the Compensation Committee considered this shareholder satisfaction in determining to continue the Company’s executive compensation programs, decisions regarding incremental changes in individual compensation were made in consideration of the factors described below.
Compensation Policy and Objectives
The Compensation Committee’s compensation philosophy with respect to its executive officers is one of pay for performance. Accordingly, an executive officer’s annual compensation consists of a base salary, an annual monetary bonus and stock-based compensation. The annual monetary bonus is utilized to reward our executives for achieving short-term financial and productivity goals, and stock-based compensation is utilized for achieving long-term financial and productivity goals. The Compensation Committee evaluates all compensation plans to ensure that they do not encourage unnecessary or excessive risk.
The Compensation Committee’s primary objective is to provide competitive levels of compensation to attract, retain and reward outstanding executive officers. In a highly competitive community banking marketplace, excellent leadership is essential. Our executive officers are expected to manage the business of the Company in a manner that promotes its growth and profitability for the benefit of our shareholders. To that end, we believe that:
● Our key executives should have compensation opportunities at levels that are competitive with peer institutions;
● Total compensation should include significant “at risk” components that are linked to annual and longer-term performance results; and
● Stock-based compensation should form a key component of total compensation as a means of linking executive management to the long-term performance of the Company and aligning their interests with those of shareholders.
Compensation Consultants
The Compensation Committee engaged Gallagher USA in 2024 as its independent executive compensation advisor. The compensation advisor advises the Compensation Committee on matters relating to compensation benchmarking, staying current with regulatory and legal issues related to executive compensation, and designing appropriate compensation programs. As part of its consultation with the Compensation Committee, the compensation advisor provides the Committee with peer group comparisons. The Compensation Committee has direct access to the consultant and control over its engagement. The Compensation Committee has determined that the work of the compensation advisor and its employees as compensation consultants to the Company has not created any conflict of interest.
Base Salary
The Company believes that a competitive salary for executive management is essential. Furthermore, flexibility to adapt to the particular skills of an individual or the specific needs of the Company is required. Proposed salary adjustments for executive management are presented to the Compensation Committee by the Chief Executive Officer, typically during the fourth quarter. The Compensation Committee reviews the recommendations, makes any further adjustments, and generally approves the recommendations with input from the Compensation Committee’s external compensation advisor. Recommendations regarding adjustments to Mr. Hendricks’ salary are reviewed and, if appropriate, approved by the board of directors. There were modest salary increases for the NEOs during 2024. The base salaries for 2024 and 2023 were as follows:
Name and Principal Position
Year
Base Salary
James E. Hendricks, Jr.
$
379,000
President and Chief Executive Officer
$
364,400
Max C. Morehead, Jr.
$
239,200
Executive Vice President-Commercial Banking
$
230,000
Donald M. Kaloski, Jr.
$
233,000
Executive Vice President-Chief Financial Officer and Chief Risk Officer of the Bank
$
224,000
Short-Term Incentive Compensation
In 2023 and again in 2024, the board of directors approved a short-term incentive plan to reward executives for creating value for the Company by achieving corporate and individual performance goals during 2023 and 2024, respectively. The corporate goals included measures of net income before taxes and incentive accrual, noninterest expense to average assets for the Bank, average relationship deposits, average core loans, and noninterest income to budget for the Bank. The Compensation Committee was given the responsibility to administer and implement the plan. Under the plan, the following incentive amounts were set for each of the NEOs if certain Company performance goals were attained, adjusted for the NEO’s individual performance results against the plan:
Percent of Base Salary
Name
James E. Hendricks, Jr.
%
%
Max C. Morehead, Jr.
%
%
Donald M. Kaloski, Jr.
%
%
In 2023, the Company performance goals of net income before taxes and incentive accrual as well as average relationship deposits were not met, while the goals for average core loans and noninterest income to budget for the Bank were met above threshold, and noninterest expense to average assets for the Bank was met above target, and the following awards were paid to NEOs in March 2024:
Name
Amount
Percent of Base Salary
James E. Hendricks, Jr.
$
69,583
%
Max C. Morehead, Jr.
$
31,442
%
Donald M. Kaloski, Jr.
$
32,140
%
Actual awards would be adjusted upward or downward based on actual performance results versus goal and individual performance relative to goal. The Company performance goals were met above target in 2024 and the following awards were paid to NEOs in December 2024:
Name
Amount
Percent of Base Salary(1)
James E. Hendricks, Jr.
$
210,036
%
Max C. Morehead, Jr.
$
80,206
%
Donald M. Kaloski, Jr.
$
111,741
%
(1) The Compensation Committee recommended and the Board approved an increased award payout to the NEOs in December 2024 to recognize exceptional performance and exceeding personal goals.
Long-Term Incentive Plans
2022 Long-Term Incentive Plan
On October 25, 2022, the board approved a Long-Term Incentive Plan under which directors were awarded time-vested restricted stock. Executives were awarded time-vested restricted stock and performance-based restricted stock units. The time-vested restricted stock awards vest annually with 33.333% vesting on each of November 1, 2023, 2024 and 2025. The performance-based restricted stock units can be earned based on performance versus goals for Consolidated Return on Tangible Common Equity for 2023-2024 with shares issued in 2025.
The Company’s performance goal of Consolidated Return on Tangible Common Equity was based on a two-year performance period that ended on December 31, 2024. The performance goal was met below target level, and the restricted stock units will vest upon the filing of this Annual Report on Form 10-K. The table below details the actual shares to be awarded:
Consolidated Return on Tangible Common Equity(1)
Name
Year
Threshold (#)
Target Shares (#)
Maximum (#)
Actual Shares to be Awarded (#)(1)
James E. Hendricks, Jr.
1,003
1,505
Max C. Morehead, Jr.
Donald M. Kaloski, Jr.
(1) The performance-based restricted stock units’ fair value will be calculated in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The fair value per share will be based on the Company’s common stock closing price on March 26, 2025, the date of vesting.
2023 Long-Term Incentive Plan
On October 24, 2023, the board approved a Long-Term Incentive Plan under which directors were awarded time-vested restricted stock. Executives were awarded time-vested restricted stock and performance-based restricted stock units. The time-vested restricted stock awards vest annually with 33.333% vesting on each of November 1, 2024, 2025 and 2026. The performance-based restricted stock units can be earned based on performance versus goals for Consolidated Return on Tangible Common Equity for 2024-2025 with shares issued in 2026.
As a result of the Merger, the performance-based restricted stock units will vest at target level due to the activation of the change in control provisions as outlined in the award agreements. The table below details the actual shares to be awarded:
Consolidated Return on Tangible Common Equity(2)
Name
Year
Threshold (#)
Target Shares (#)
Maximum (#)
Actual Shares to be Awarded (#)(1)
James E. Hendricks, Jr.
1,124
1,686
1,124
Max C. Morehead, Jr.
Donald M. Kaloski, Jr.
(1) The performance-based restricted stock units’ fair value will be calculated in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The fair value per share will be based on the Company’s common stock closing price upon merger closure.
2024 Long-Term Incentive Plan
On October 22, 2024, the board approved a Long-Term Incentive Plan under which directors were awarded time-vested restricted stock. Executives were awarded time-vested restricted stock and performance-based restricted stock units. The time-vested restricted stock awards vest annually with 33.333% vesting on each of November 1, 2025, 2026 and 2027. The performance-based restricted stock units can be earned based on performance versus goals for Consolidated Return on Tangible Common Equity for 2025-2026 with shares issued in 2027.
As a result of the Merger the performance-based restricted stock units will vest at target level due to the activation of the change in control provisions as outline in the award agreements. The table below details the actual shares to be awarded:
Consolidated Return on Tangible Common Equity(2)
Name
Year
Threshold (#)
Target Shares (#)
Maximum (#)
Actual Shares to be Awarded (#)(1)
James E. Hendricks, Jr.
1,121
Max C. Morehead, Jr.
Donald M. Kaloski, Jr.
(1) The performance-based restricted stock units’ fair value will be calculated in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The fair value per share will be based on the Company’s common stock closing price upon merger closure.
In granting the stock awards, the Compensation Committee asked its external compensation advisor to provide a recommendation regarding incentive stock awards for executive management and directors. The Compensation Committee’s advisor recommended stock awards and/or stock units for executives based on the Company’s executive compensation philosophy statement. As a result of this evaluation, the Compensation Committee and board approved a combination of time-vested restricted stock and performance-based restricted stock units in 2024. The number of shares is reported below under Grants of Plan-Based Awards in 2024. The stock-based compensation for the NEOs shown in the Summary Compensation Table for 2024 includes the target value of the performance-based restricted stock units as of the date of grant.
Supplemental Executive Retirement Plan
We believe that retirement compensation plays an important role in retaining key executives, as well as helping them provide for retirement. The Compensation Committee engaged an independent compensation advisor to analyze the total retirement benefits provided by the Company and/or the Bank and Social Security to employees with various levels of compensation and years of service so that the Compensation Committee could determine the projected replacement ratio of income at retirement compared with active employment. Because of limits under our qualified retirement plan on the amount of deferrals that our executives can make, several of our executives can expect to have a lower retirement replacement ratio than we have targeted for all employees. Consequently, as a matter of “pension equity,” we have adopted a supplemental plan, which should provide a benefit for designated executives that will help approach the targeted retirement replacement ratio.
Under the Bank’s Supplemental Executive Retirement Plan, the Bank has agreed to provide a supplemental retirement benefit of $50,000 annually for 20 years to Mr. Hendricks and a benefit of $25,000 annually for 15 years to Mr. Morehead. Other than Mr. Hendricks, the participants are fully vested in their respective benefits. Mr. Hendricks is vested in a benefit equal to $25,000 annually for 15 years. The remainder of Mr. Hendricks’s benefit, which was awarded in connection with his promotion to President and Chief Executive Officer in 2020, is subject to vesting and requires Mr. Hendricks to remain employed by the Company for a term of 90 months beginning December 31, 2020. Under the plan, each participant’s payments will begin on the later of the date of his termination of employment with the Company or the date he would otherwise have completed his service requirement. In the event of a pre-termination death, the executive’s named beneficiary receives the benefit under the applicable payout schedule. In the event of a post-termination death, the executive’s named beneficiary receives any remaining benefit payments under the applicable payout schedule.
Employment and Change of Control Agreements with Named Executive Officers
Securing the continued service of key executives is essential to the successful future of the Company. Employment agreements and change of control agreements assist the Company by providing security to key executives. The Company has employment agreements with Mr. Hendricks and Mr. Kaloski. The Bank has an employment agreement with Mr. Morehead.
Mr. Hendricks’ employment agreement with the Company was entered into on July 28, 2020. The agreement automatically renewed for an additional 12 months on August 14, 2023 so that the current term will expire on August 14, 2025. The agreement will automatically extend for an additional 12-month period on each August 14th, unless either party gives
notice of nonrenewal at least 90 days prior to the renewal date. Pursuant to the agreement, Mr. Hendricks is entitled to receive an annual base salary of not less than $300,000. His current base salary is $364,400. The Company’s board of directors or compensation committee will review his base salary at least annually and may increase his salary in its discretion. Mr. Hendricks is entitled to an annual performance bonus based on a target of 30% of his annual base salary, provided that he meets the performance goals established by the board of directors or compensation committee. He is also entitled to stock-based awards in such amounts as may be determined by the Company’s board of directors or compensation committee in accordance with the terms and conditions of the applicable incentive plans in effect for senior executives of the Company and the Bank. Mr. Hendricks is also entitled to participate in the Village Bank Supplemental Executive Retirement Plan as described above. Pursuant to his agreement, if Mr. Hendricks is terminated without “Cause” (as defined in his agreement) or resigns for “Good Reason” (as defined in his agreement), he will be paid two times the sum of (i) his annual base salary in effect as of the date of termination, plus (ii) an annual bonus amount equal to 30% of such annual base salary. If, within 24 months following a change of control of the Company, he is terminated by the Company without Cause, he terminates his employment for Good Reason or the Company fails to renew his agreement, he will be paid a lump sum cash payment equal to 2.99 times the sum of his annual base salary as of the date of termination and an annual bonus amount equal to 30% of his annual base salary.
Mr. Morehead’s employment agreement with the Bank was entered into on September 4, 2020, and amended November 2, 2023 and March 26, 2024. The agreement automatically renewed for an additional 12 months on September 4, 2023 so that the current term will expire on September 4, 2025. The agreement will automatically extend for an additional 12-month period on each September 4th, unless either party gives notice of nonrenewal at least 90 days prior to the renewal date. Pursuant to the agreement, Mr. Morehead is entitled to receive an annual base salary of not less than $230,000. His current base salary is $239,200. The Bank’s board of directors or compensation committee will review his base salary at least annually and may increase his salary in its discretion. Mr. Morehead is entitled to an annual performance bonus based on a target of 25% of his annual base salary, provided that he meets the performance goals established by the board of directors or compensation committee. His annual performance bonus for 2024 was based on a target of 25% of his base salary. He is also entitled to stock-based awards in such amounts as may be determined by the Bank’s board of directors or compensation committee in accordance with the terms and conditions of the applicable incentive plans in effect for senior executives of the Bank. Mr. Morehead is also entitled to participate in the Village Bank Supplemental Executive Retirement Plan as described above. Pursuant to his agreement, if Mr. Morehead is terminated without “Cause” (as defined in his agreement) or resigns for “Good Reason” (as defined in his agreement), he will be paid the sum of (i) his annual base salary in effect as of the date of termination, plus (ii) an annual bonus amount equal to 25% of such annual base salary. If, within 24 months following a change of control of the Company, he is terminated by the Company without Cause, he terminates his employment for Good Reason or the Company fails to renew his agreement, he will be paid a lump sum cash payment equal to two times the sum of his annual base salary as of the date of termination and an annual bonus amount equal to 25% of his annual base salary.
Mr. Kaloski’s employment agreement with the Bank was entered into on February 22, 2022, and amended November 2, 2023 and March 26, 2024. The agreement automatically renewed for an additional 12 months on February 22, 2024 so that the current term will expire on February 22, 2026. The agreement will automatically extend for an additional 12-month period on each February 22nd, unless either party gives notice of nonrenewal at least 90 days prior to the renewal date. Pursuant to the agreement, Mr. Kaloski is entitled to receive an annual base salary of not less than $224,000. His current base salary is $233,000. The Bank’s board of directors or compensation committee will review his base salary at least annually and may increase his salary in its discretion. Mr. Kaloski is entitled to an annual performance bonus based on a target of 25% of his annual base salary, provided that he meets the performance goals established by the board of directors or compensation committee. His annual performance bonus for 2024 was based on a target of 25% of his base salary. He is also entitled to stock-based awards in such amounts as may be determined by the Bank’s board of directors or compensation committee in accordance with the terms and conditions of the applicable incentive plans in effect for senior executives of the Bank. Pursuant to his agreement, if Mr. Kaloski is terminated without “Cause” (as defined in his agreement) or resigns for “Good Reason” (as defined in his agreement), he will be paid the sum of (i) his annual base salary in effect as of the date of termination, plus (ii) an annual bonus amount equal to 25% of such annual base salary. If, within 24 months following a change of control of the Company, he is terminated by the Company without Cause, he terminates his employment for Good Reason or the Company fails to renew his agreement, he will be paid a lump sum cash payment equal to two times the sum of his annual base salary as of the date of termination and an annual bonus amount equal to 25% of his annual base salary.
Other Benefits and Agreements
All NEOs are eligible to participate in the health and welfare benefit programs available to all of the Company’s employees. These programs include medical, dental, and vision coverages, short and long-term disability plans, and life insurance.
In addition, the Company has a 401(k) profit sharing plan. The NEOs participate in this plan and are fully vested in their own contributions. The Company’s discretionary matching contributions cliff vest 100% at two years.
The Company and certain members of the board of directors and NEOs are parties to split dollar life insurance agreements or bank owned life insurance (“BOLI”) agreements. Generally, under each split dollar or BOLI agreement, the Company has life insurance on the executive’s life. Upon death, a death benefit will be paid to the executive’s designated beneficiary, or to his estate, as may be applicable, under the provisions of the applicable agreement, and a death benefit will also be paid to the Company. Any death benefit paid to the Company will be in excess of any death benefit paid to the insured executive’s designated beneficiary.
All NEOs have access to a Non-Qualified Deferred Compensation plan, which allows a select group of management and highly compensated employees to save additional pre-tax dollars beyond the current retirement plan limits. Participants may elect to defer dollars from base salary, incentive pay, commissions, and/or 401(k) refunds per the terms of this program. All participants in the plan are fully vested in their own contributions. James E. Hendricks, Jr. elected to defer a portion of his compensation into the plan in 2024. No other NEOs participated in the plan as of December 31, 2024.
Summary Compensation Table
The following table presents information concerning the compensation of the NEOs for services rendered in all capacities to the Company and the Bank.
Nonqualified
Non-Equity
Deferred
Stock
Incentive Plan
Compensation
All Other
Salary
Bonus
Awards
Compensation
Earnings
Compensation
Name and Principal Position
Year
($)
($)
($) (1)
($) (2)
($)
($) (3)
Total ($)
James E. Hendricks, Jr.
367,208
-
114,216
210,036
55,007
18,882
765,349
President and Chief Executive Officer
343,754
-
87,290
69,583
51,410
18,347
570,384
Max C. Morehead, Jr.
231,769
-
60,090
80,206
10,826
16,546
399,437
Executive Vice President/Commercial Banking
221,540
-
47,062
31,442
10,386
15,612
326,042
Donald M. Kaloski, Jr.
225,731
-
58,561
111,741
-
12,738
408,771
Executive Vice President/Chief Financial Officer
208,769
-
56,925
32,140
-
9,903
307,837
(1) The amounts represent the grant date fair value of the awards calculated in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The 2024 and 2023 stock awards consist of time-based and performance-based restricted stock awards. The performance-based awards in the above table assume the probable outcome of performance conditions is equal to the targeted potential value of the awards. The time-based awards vest over a period of three years and the performance-based awards can be earned over a period of two years. The grant date fair value per share was $76.45 and $38.83 and was based on the Company’s common stock closing price on October 24, 2024 and November 1, 2023, respectively. The Assumptions used in the calculation of these amounts are included in Note 14 of the Company’s audited financial statements for the year ended December 31, 2024 included in this Annual Report on Form 10-K.
(2) The amounts in this column reflect the short-term incentive compensation awards for 2024 and 2023 performance, which are discussed in further detail under “Short-Term Incentive Compensation”.
(3) Amounts shown in the “All Other Compensation” column are detailed in the following table:
All Other Compensation
Company
Contributions
Company
to Retirement
Vehicle /
BOLI
and 401(k)
Automobile
Telephone
Name and Principal Position
Year
Income
Plans
Allowance
Allowance
Total
James E. Hendricks, Jr.
$
$
12,075
$
6,000
$
$
18,882
$
$
11,550
$
6,000
$
$
18,347
Max C. Morehead, Jr.
$
$
9,749
$
6,000
$
$
16,546
$
$
8,824
$
6,000
$
$
15,612
Donald M. Kaloski, Jr.
$
$
12,075
$
-
$
$
12,738
$
$
9,244
$
-
$
$
9,903
Plan-Based Awards in 2024
The following table sets forth certain information with respect to the amount and value of plan-based awards granted to the NEOs during 2024.
Grants of Plan-Based Award in 2024
All Other
Estimated Future Payouts Under
Estimated Future Payouts Under
Stock Awards:
Non- Equity Incentive Plan Awards
Equity Incentive Plan Awards
Number of
Grant Date Fair
Actual
Share of
Value of Stock
Cash
Stock or
and Option
Name
Grant Date
Payout
Threshold
Target
Maximum
Threshold
Target
Maximum
Units
Awards(1)
James E. Hendricks, Jr.
N/A
$
210,036
$
85,275
$
113,700
$
170,550
-
-
-
-
N/A
10/24/2024
$
-
$
-
$
-
$
-
1,121
-
$
57,108
10/24/2024
$
-
$
-
$
-
$
-
-
-
-
$
57,108
Max C. Morehead, Jr.
N/A
$
80,206
$
44,850
$
59,800
$
89,700
-
-
-
-
N/A
10/24/2024
$
-
$
-
$
-
$
-
-
$
30,045
10/24/2024
$
-
$
-
$
-
$
-
-
-
-
$
30,045
Donald M. Kaloski, Jr.
N/A
$
111,741
$
43,688
$
58,250
$
87,375
-
-
-
-
N/A
10/24/2024
$
-
$
-
$
-
$
-
-
$
29,280
10/24/2024
$
-
$
-
$
-
$
-
-
-
-
$
29,280
(1) The amounts represent the grant date fair value of the awards calculated in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The performance-based awards in the above table assume the probable outcome of performance conditions is equal to the targeted potential value of the awards. The time-based awards vest over a period of three years and the performance-based awards can be earned over a period of two years. The grant date fair value per share was $76.45 and was based on the Company’s common stock closing price on October 24, 2024. The Assumptions used in the calculation of these amounts are included in Note 14 of the Company’s audited financial statements for the year ended December 31, 2024 included in this Annual Report on Form 10-K.
Outstanding Equity Awards
The following table sets forth certain information with respect to the amount and value of outstanding equity awards on an award-by-award basis held by the NEOs at December 31, 2024.
Outstanding Equity Awards at Fiscal Year-End
Stock Awards
Equity
Incentive Plan
Awards:
Number of
Equity Incentive
Number of
Market Value
Unearned
Plan Awards:
Shares
of Shares
Shares, Units
Market or Payout
or Units
or Units
or Other
Value of Unearned
of Stock That
of Stock That
Rights That
Shares, Units or
Grant
Have Not
Have Not
Have Not
Other Rights That
Name
Date
Vested
Vested(1)
Vested
Have Not Vested(1)
James E. Hendricks, Jr.
11/1/2021
(2)
$
11,440
-
$
-
11/1/2022
(3)
$
26,626
1,003
$
39,980
11/1/2023
(4)
1,124
$
44,803
1,124
$
44,803
2,079
$
82,869
2,127
$
84,782
Max C. Morehead, Jr.
11/1/2021
(2)
$
8,969
-
$
-
11/1/2022
(3)
$
14,190
$
21,325
11/1/2023
(4)
$
24,155
$
24,155
1,187
$
47,314
1,141
$
45,480
Donald M. Kaloski, Jr.
11/1/2021
(2)
$
4,703
-
$
-
11/1/2022
(3)
$
10,643
$
15,984
11/1/2023
(4)
$
35,794
$
22,640
1,283
$
51,140
$
38,624
(1) The market value of the stock awards that have not vested was determined based on the per share closing price of the Company’s common stock on December 31, 2024 ($77.85).
(2) Time based restricted stock awards and performance based restricted stock unit awards under the 2022 Long Term Incentive Plan described above.
(3) Time based restricted stock awards and performance based restricted stock unit awards under the 2023 Long Term Incentive Plan described above.
(4) Time based restricted stock awards and performance based restricted stock unit awards under the 2024 Long Term Incentive Plan described above.
Pay versus Performance
The following table provides information on total compensation and compensation “actually paid,” as determined based on SEC methodology, to the Company’s principal executive officer (“PEO”) and to the remaining NEOs for the fiscal years ended December 31, 2024, December 31, 2023, and December 31, 2022, and the cumulative total shareholder return (“TSR”) on the Company’s common stock and net income over the same time period.
Average
Value of Initial
Summary
Average
Fixed $100
Summary
Compensation
Compensation
Investment Based
Compensation
Compensation
Table Total for
Actually Paid
on Total
Table Total for
Actually Paid
Non-PEO
to Non-PEO
Shareholder
Net Income
Year
PEO(1)
to PEO(1)(2)
NEOs(3)
NEOs(3)(4)
Return(5)
($in thousands)
$
765,349
$
889,716
$
404,104
$
474,779
$
137.96
$
7,017
$
570,384
$
525,956
$
316,939
$
294,794
$
71.05
$
1,918
$
600,930
$
612,877
$
327,690
$
326,839
$
90.89
$
8,305
(1) During 2024, 2023, and 2022, James E. Hendricks, Jr. was our PEO.
(2) The following table sets forth the adjustments made during each year to arrive at compensation “actually paid” to our PEO during each of the years in question:
Adjustments to determine compensation “actually paid” for PEO
Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table
$
(114,216)
$
(87,290)
$
(93,045)
Increase for fair value of awards granted during year that remained unvested at year-end
$
116,308
$
89,605
$
104,312
Change in fair value from prior year-end to year-end of awards granted in a prior year that were outstanding and unvested at year-end
$
83,844
$
(23,770)
$
(14,116)
Change in fair value from prior year-end to vesting date of awards granted in a prior year that vested during year
$
36,979
$
(24,454)
$
13,274
Increase based on dividends or other earnings paid during year prior to vesting
$
1,453
$
1,481
$
1,522
Total Adjustments
$
124,367
$
(44,428)
11,947
(3) During 2024 and 2023 our remaining NEOs consisted of Max C. Morehead, Jr. and Donald M. Kaloski, Jr, and during 2022 our remaining NEOs consisted of Max C. Morehead Jr. and Christy F. Quesenbery.
(4) The following table sets forth the adjustments made during each year represented in the table above to arrive at compensation “actually paid” to our remaining NEOs during each of the years in question:
Adjustments to determine compensation “actually paid” for NEOs
Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table
$
(59,325)
$
(51,993)
$
(48,789)
Increase for fair value of awards granted during year that remained unvested at year-end
$
60,412
$
53,373
$
50,934
Change in fair value from prior year-end to year-end of awards granted in a prior year that were outstanding and unvested at year-end
$
47,241
$
(11,545)
$
(7,277)
Change in fair value from prior year-end to vesting date of awards granted in a prior year that vested during year
$
21,494
$
(12,739)
$
3,456
Increase based on dividends or other earnings paid during year prior to vesting
$
$
$
Total Adjustments
$
70,676
$
(22,145)
(851)
(5) TSR is calculated assuming a fixed investment of $100 in the Company’s common stock based on the closing price on December 31, 2021, the last trading day prior to January 1, 2022, assuming reinvestment of dividends, through and including the end of each fiscal year. The amount for 2022 represents the one-year TSR, the amount for 2023 represents the two-year TSR, and the amount for 2024 represents the three-year TSR.
Relationship between Financial Performance and Executive Compensation
As described in more detail above, the Company’s executive compensation program includes variable components in the form of annual incentive cash compensation and performance-based restricted stock units that are contingent on the Company achieving goals intended to drive shareholder returns. Compensation decisions at the Company are made independent of SEC disclosure requirements. While the Company utilizes several performance measures to align executive compensation with the Company’s performance, all of those measures are not presented in the “Pay versus Performance Table.” Moreover, the Company generally seeks to incentivize long-term performance and, therefore, does not specifically align the Company’s performance measures with compensation that is “actually paid” (as computed in accordance with SEC methodology) for a particular year.
Compensation “Actually Paid” versus Company Performance
The relationship between compensation “actually paid” and the Company’s financial performance over the three-year period shown in the preceding Pay versus Performance Table is described as follows.
CEO
From 2022 to 2024, the compensation “actually paid” to the Company’s PEO increased by 45.17%, from $612,877 to $889,716. Over this same period, the Company’s TSR increased by 51.79%. Net income decreased by 15.51%, from $8,305,000 to $7,017,000, due largely to the impact of increased deposits costs and margin compression because of the historic rise in interest rates during 2022 and 2023. A significant portion of our PEO’s variable pay is delivered as deferred equity-based awards. As a result, PEO compensation “actually paid” increases and decreases when our TSR increases or decreases and correlates with our TSR performance and shareholder value creation over the applicable measurements periods.
Other NEOs
From 2022 to 2024 the average compensation “actually paid” to the other NEOs increased by 45.26%, from 326,839 to $474,779. Over this same period, the Company’s TSR increased by 51.79%. Net income decreased by 15.51%, from $8,305,000 to $7,017,000, due largely to the impact of increased deposits costs and margin compression because of the historic rise in interest rates during 2022 and 2023. A significant portion of our NEOs variable pay is delivered as deferred equity-based awards. As a result, NEO average compensation “actually paid” increases and decreases when our TSR increases or decreases and correlates with our TSR performance and shareholder value creation over the applicable measurements periods.
The relationship between compensation “actually paid” and the Company’s financial performance over the two-year period shown in the preceding Pay versus Performance Table is illustrated in the following charts comparing PEO/NEO compensation “actually paid” versus TSR and net income.
Director Compensation
Members of the board of directors of the Company do not receive cash fees for their service as directors. However, all of the directors of the Company also serve as directors of the Bank, and the non-employee directors are compensated for their service on the Bank board. In 2024, the Chair of the board of directors of the Bank received a $26,000 retainer payable semi-annually in increments of $13,000. The Chair of the Compensation Committee received a $24,000 retainer payable semi-annually in increments of $12,000. The Chairs of the Audit Committee and Board Risk Committee each received a $22,000 retainer payable semi-annually in increments of $11,000. Each of the remaining non-employee members of the board of directors of the Bank received a $20,000 retainer payable semi-annually in increments of $10,000. Directors of the Company also received awards of time-based restricted stock in connection with the Company’s long-term incentive plan as described below. Directors do not receive attendance fees for board or committee meetings.
Board members who are also officers of the Company or the Bank receive compensation only for their executive roles. They do not receive additional compensation for board service or attending committee meetings.
In 2005, the Bank adopted the Outside Directors Deferral Plan under which non-employee directors of the Bank have the opportunity to defer receipt of all or a portion of their compensation until retirement or departure from the board of directors. Any amounts deferred under this plan are maintained in an account for the benefit of the director and are credited annually with interest on the cash portion of the deferred amount at a market rate established at the beginning of each plan year (6.70% for 2024).
The following table provides information concerning the compensation of all non-employee directors for the year ended December 31, 2024:
Fees Earned
or Paid
Stock
BOLI
Name
in Cash
Awards
Income
Total
Craig D. Bell
$
26,000
(1)
$
11,391
(2)
$
$
37,751
Ronald L Carey
$
20,000
(1)
$
10,015
(2)
$
-
$
30,015
Devon M. Henry
$
20,000
$
10,015
(2)
$
-
$
30,015
Frank E. Jenkins, Jr.
$
22,000
(1)
$
10,015
(2)
$
-
$
32,015
Mary Margaret Kastelberg
$
22,000
$
10,015
(2)
$
-
$
32,015
Michael A. Katzen
$
24,000
(1)
$
10,015
(2)
$
-
$
34,015
Selena T. Sanderson
$
20,000
(1)
$
10,015
(2)
$
-
$
30,015
Michael L. Toalson
$
20,000
$
10,015
(2)
$
$
30,656
(1) All fees earned by the director were deferred for the year ended December 31, 2024.
(2) Represents the grant date fair value of the awards computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation - Stock Compensation. These awards are part of the long-term incentive plan described above and consist of time-based restricted stock. The time-based awards vest in equal installments over a period of three years. The grant date fair value per share was $76.45 and was based on the Company’s common stock closing price on October 24, 2024.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Equity Compensation Plans
The following table summarizes information, as of December 31, 2024, relating to the Company's stock-based compensation plans, pursuant to which grants of options to acquire shares of common stock may be granted from time to time.
Number of Shares
To be Issued
Number of Shares
Upon Exercise
Weighted-Average
Remaining Available
of Outstanding
Exercise Price of
for Future Issuance
Options, Warrants
Outstanding Options,
Under Equity
and Rights(1)
Warrants and Rights
Compensation Plan
Equity compensation plans approved by shareholders
13,165
$
-
92,082
Equity compensation plans not approved by shareholders
-
-
-
Total
13,165
$
-
92,082
(1) Shares represent performance-based restricted stock units.
Certain Beneficial Ownership of the Company’s Common Stock
The following table sets forth, as of March 15, 2025, certain information with respect to the beneficial ownership of the Company’s common stock held by the Company’s directors and named executive officers, all of the Company’s executive officers and directors as a group, and each person, or group of affiliated persons, known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company’s common stock.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of the Company’s common stock that may be acquired by an individual or group within 60 days of March 15, 2025 pursuant to the exercise of options, warrants or other rights, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. The table below calculates the percentage of beneficial ownership of the Company’s common stock based on 1,498,097 shares of common stock outstanding as of March 15, 2025.
Except as indicated in footnotes to this table, the Company believes that the shareholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such shareholders. The address for each director and executive officer listed is: c/o Village Bank and Trust Financial Corp., 13319 Midlothian Turnpike, Midlothian, Virginia 23113.
Shares
Percentage of Class
Name
Beneficially Owned
Beneficially Owned
Directors:
Craig D. Bell (1)
21,969
1.46
%
Ronald L. Carey (2)
*
James E. Hendricks, Jr. (3)
27,956
1.87
%
Devon M. Henry (4)
1,622
*
Frank E. Jenkins, Jr. (5)
5,361
*
Mary Margaret Kastelberg (6)
1,910
*
Michael A. Katzen (7)
10,430
*
Selena Trudy Sanderson (8)
*
Michael A. Toalson (9)
10,921
*
Named executive officers who are not directors:
Donald M. Kaloski, Jr. (10)
4,599
*
Max C. Morehead, Jr. (11)
13,756
*
Directors and executive officers as a group (15 persons)
113,530
7.58
%
Greater than 5% shareholders:
Kenneth R. Lehman
768,622
51.31
%
122 North Gordon Road
Fort Lauderdale, Florida 33301
Alliance Bernstein LP
76,523
5.11
%
501 Commerce Street
Nashville, TN 37203
*
Represents less than 1% of the Company’s outstanding common stock.
(1) Amount disclosed consists of 4,669 shares held directly by Mr. Bell; 3,125 shares held in Mr. Bell’s IRA account; 4,506 shares held in a revocable trust; 7 shares held jointly with Mr. Bell’s brother; 9,277 shares held by the Trustee under the Village Bank Outside Directors Deferral Plan Trust FBO Craig D. Bell; and the unvested portion of restricted stock awards (time-based) of 385 shares.
(2) Amount disclosed consists of 398 shares held directly by Mr. Carey and the unvested portion of restricted stock awards (time-based) of 338 shares.
(3) Amount disclosed consists of 18,398 shares held directly by Mr. Hendricks; 807 shares held jointly with Mr. Hendricks’ spouse; 4,957 shares held in Mr. Hendricks’ IRA account; 1,964 shares held by Mr. Hendricks’ spouse; and the unvested portion of restricted stock awards (time-based) of 1,830 shares.
(4) Amount disclosed consists of 1,284 shares held directly by Mr. Henry and the unvested portion of restricted stock awards (time-based) of 338 shares.
(5) Amount disclosed consists of 4,448 shares held directly by Mr. Jenkins; 575 shares held in Mr. Jenkins’ SEP account; and the unvested portion of restricted stock awards (time-based) of 338 shares.
(6) Amount disclosed consists of 671 shares held directly by Ms. Kastelberg; 901 shares held in Ms. Kastelberg’s IRA account; and the unvested portion of a restricted stock award (time-based) of 338 shares.
(7) Amount disclosed consists of 2,837 shares held directly by Mr. Katzen; 114 shares held jointly with Mr. Katzen’s spouse; 300 shares held in Mr. Katzen’s IRA account; 6,841 shares held by the Trustee under the Village Bank Outside Directors Deferral Plan Trust FBO Michael A. Katzen; and the unvested portion of a restricted stock award (time-based) of 338 shares.
(8) Amount disclosed consists of 577 shares held directly by Ms. Sanderson and the unvested portion of restricted stock awards (time-based) of 338 shares.
(9) Amount disclosed consists of 1,614 shares held directly by Mr. Toalson; 2,050 shares held jointly with Mr. Toalson’s spouse; 5,438 shares held in Mr. Toalson’s IRA account; 1,481 shares held by the Trustee under the Village Bank Outside Directors Deferral Plan Trust FBO Michael L. Toalson; and the unvested portion of restricted stock awards (time-based) of 338 shares.
(10) Amount disclosed consists of 3,485 shares held directly by Mr. Kaloski and the unvested portion of restricted stock awards (time-based) of 1,114 shares.
(11) Amount disclosed consists of 9,861 shares held directly by Mr. Morehead; 2,920 shares held in Mr. Morehead’s IRA account; and the unvested portion of restricted stock awards (time-based) of 915 shares.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Some of the directors and officers of the Company are customers of the Company and the Bank, and the Company and the Bank have had banking transactions in the ordinary course of business with directors, officers, and their associates, on substantially the same terms, including interest rates, collateral, and repayment terms on loans, as those prevailing at the same time for comparable transactions with persons not related to the Company. All outstanding loans to such officers and directors and their associates are current as to principal and interest and do not involve more than the normal risk of collectability or present other unfavorable features. None of such outstanding loans is classified as non-accrual, past due, restructured or a potential problem. As of December 31, 2024, all loans to directors, executive officers and their affiliates totaled approximately $8,441,000.
There are no legal proceedings to which any director, officer or associate is a party that would be material and adverse to the Company.
Independence of the Directors
The board of directors has determined that eight of its nine current directors are independent as defined by applicable SEC rules and the listing standards of the Nasdaq Stock Market (“Nasdaq”): Craig D. Bell, Ronald L. Carey, Jr., Devon M. Henry, Frank E. Jenkins, Jr., Mary Margaret Kastelberg, Michael A. Katzen, Selena T. Sanderson, and Michael L. Toalson. In reaching this conclusion, the board of directors considered that the Company and its subsidiary conduct business with companies of which certain members of the board of directors or members of their immediate families are or were directors or officers.
The Compensation Committee is composed of Michael A. Katzen (Chair), Craig D. Bell, Ronald L. Carey, Jr., Devon M. Henry, and Mary Margaret Kastelberg, all of whom the board in its business judgment has determined are independent as defined by Nasdaq’s listing standards and SEC regulations.
The Nominating and Corporate Governance Committee is composed of Craig D. Bell (Chair), Devon M. Henry, Frank E. Jenkins, Jr., Michael A. Katzen, and Selena T. Sanderson, all of whom the board of directors in its business judgment has determined are independent as defined by Nasdaq’s listing standards and SEC regulations.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees of Independent Registered Public Accounting Firm
The Company’s independent registered public accounting firm, Yount, Hyde & Barbour, P.C., billed the following fees for services provided to the Company for the fiscal year ended December 31, 2024, and 2023.
Yount, Hyde & Barbour, P.C.
Audit fees (1)
$
129,000
$
113,000
Audit-related fees (2)
29,000
36,500
Tax fees (3)
19,000
17,800
Total
$
177,000
$
167,300
(1) Audit fees: Audit and review services, review of documents filed with the SEC.
(2) Audit-related fees: Audit of the VBA Defined Contribution Plan; agreed upon procedures related to the U.S. Department of Education Student Loan Program, Public Deposits; and HUD engagement for Village Bank Mortgage Corporation.
(3) Tax fees: Preparation of tax returns and consultation on tax matters.
Audit Committee Pre-Approval Policies
All audit related services, tax services and other services were pre-approved by the Audit Committee, which concluded that the provision of such services by Yount, Hyde & Barbour, P.C. was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s Charter provides for pre-approval of audit, audit-related and tax services. The Charter authorizes the Audit Committee to delegate to one or more of its members pre-approval authority with respect to permitted services.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following consolidated financial statements and reports are included in Part II, Item 8, of this report on Form 10-K.
Report of Independent Registered Public Accounting Firm (Yount, Hyde & Barbour, P.C.)
Consolidated Balance Sheets - December 31, 2024 and 2023
Consolidated Statements of Income - Years Ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income - Years Ended December 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity - Years Ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows - Years Ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules are omitted since they are not required, are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
Exhibit
Number
Description
2.1
Agreement and Plan of Reorganization, dated as of September 23, 2024, by and among TowneBank, Cardinal Sub, Inc., Village Bank and Trust Financial Corp. and Village Bank (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 25, 2024).
3.1
Articles of Incorporation of Village Bank and Trust Financial Corp., as amended (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the period ended September 30, 2014, filed with the Securities and Exchange Commission on October 31, 2014).
3.2
Bylaws of Village Bank and Trust Financial Corp., as amended (incorporated herein by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 23, 2023).
4.1
Specimen of Certificate for Village Bank and Trust Financial Corp. common stock (incorporated by reference to Exhibit 4.1 of the Form S-1 Registration Statement filed with the Securities and Exchange Commission on November 12, 2014 (SEC File No. 333-200147)).
4.2
Form of Subordinated Note (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2018).
4.3
Description of Village Bank and Trust Financial Corp.’s Securities.
10.1
Employment Agreement, dated July 28, 2020, by and between Village Bank and Trust Financial Corp. and James E. Hendricks, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2020).*
10.2
Supplemental Executive Retirement Plan, dated December 30, 2020, by and between Village Bank and Trust Financial Corp. and James E. Hendricks, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2021). *
10.3
Employment Agreement, dated September 4, 2020, by and between Village Bank and Max C. Morehead, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2020).*
Exhibit
Number
Description
10.4
Amendment No.1 to Employment Agreement, dated November 2, 2023, by and between Village Bank and Max C. Morehead, Jr. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2023).*
10.5
Amendment No. 2 to Employment Agreement, dated March 26, 2024, by and between Village Bank and Trust Financial Corp. and Max C. Morehead, Jr. (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2024).*
10.6
Employment Agreement, dated February 22, 2022, by and between Village Bank and Trust Financial Corp. and Donald M. Kaloski, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2022).*
10.7
Amendment No.1 to Employment Agreement, dated November 2, 2023, by and between Village Bank and Trust Financial Corp. and Donald M. Kaloski, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 7, 2023)*.
10.8
Amendment No. 2 to Employment Agreement, dated March 26, 2024, by and between Village Bank and Trust Financial Corp. and Donald M. Kaloski, Jr. (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2024).*
10.9
Amended and Restated Change of Control Agreement, dated August 24, 2022, by and between Village Bank and Christy F. Quesenbery (incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2023).*
10.10
Amended and Restated Change of Control Agreement, dated February 22, 2022, by and between Village Bank and James C. Winn (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 25, 2022).*
10.11
Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-KSB for the year ended December 31, 2004).*
10.12
Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended December 31, 2004).*
10.13
Village Bank and Trust Financial Corp. 2024 Stock Incentive Plan (incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on May 21, 2024, filed with the Securities and Exchange Commission on April 9, 2024).*
10.14
Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan, as amended (incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on May 19, 2020, filed with the Securities and Exchange Commission on April 6, 2020).*
10.15
Form of Performance-Based Restricted Stock Unit Award Agreement under the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2015).*
10.16
Form of Time-Based Restricted Stock Award Agreement under the Village Bank and Trust Financial Corp. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2015).*
10.17
Village Bank and Trust Financial Corp. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2019).*
Exhibit
Number
Description
10.18
Outside Directors Deferral Plan, as amended and restated effective January 1, 2023 (incorporated by reference to Exhibit 10.13 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2023).*
10.19
Supplemental Executive Retirement Plan, as amended and restated effective November 27, 2018 (incorporated by reference to Exhibit 10.16 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2022).*
10.20
Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2018).
Insider Trading Policy
Subsidiaries of Village Bank and Trust Financial Corp.
23.1
Consent of Yount, Hyde & Barbour, P.C. Accounting Firm.
31.1
Section 302 Certification by Chief Executive Officer.
31.2
Section 302 Certification by Chief Financial Officer.
Section 906 Certification.
Village Bank and Trust Financial Corp. Clawback Policy (incorporated by reference to Exhibit 97 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2024).
The following materials from the Village Bank and Trust Financial Corp. Annual Report on Form 10-K for the year ended December 31, 2024 formatted in Inline eXtensible Business Reporting (iXBRL) (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
Cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).
* Management contracts and compensatory plans and arrangements.