Village Bank and Trust Financial (VBFC) - 2021 Q4 - Annual Report

Part I Business Village Bank and Trust Financial Corp. provides commercial and mortgage banking services in Virginia, focusing on local relationships and risk management within a highly regulated and competitive market - The company operates through traditional commercial banking and mortgage banking segments, with the Bank generating $30.0 million and the Mortgage Company $13.0 million in revenue in 2021[15][16] - The business strategy focuses on building full-service banking relationships, growing mortgage profitability, maintaining a strong balance sheet, achieving risk management excellence, and being an employer of choice[17][19] - Headquartered in Chesterfield County, the company serves Central Virginia via nine full-service branches and one mortgage loan production office[22] - As a bank holding company, it is regulated by the Federal Reserve and the Virginia Bureau of Financial Institutions (BFI), with the Bank also regulated by the FDIC[32] Deposit Market Share (as of June 30, 2021) | County/Area | Deposit Market Share | | :--- | :--- | | Chesterfield County | 4.75% | | Hanover County | 4.98% | | Powhatan County | 10.20% | | Richmond MSA | 0.49% | | Henrico County | 1.89% | | James City County | 0.69% | Risk Factors The company faces key risks including COVID-19 impacts, credit concentration in real estate, interest rate fluctuations, operational challenges from competition and technology, regulatory compliance costs, and common stock-related issues - Lending risks are significant, with 75.43% of all loans as of December 31, 2021, secured by real estate, making the business vulnerable to a local real estate market downturn[107] - The company faces substantial competition from national, regional, and community banks, alongside non-bank entities such as fintech companies[121] - Mortgage banking income, representing approximately 77.14% of total noninterest income in 2021, is cyclical and sensitive to interest rates and economic conditions[129] - The largest shareholder, Kenneth R. Lehman, owns approximately 52.15% of outstanding common stock, granting significant influence over shareholder matters[161] - The transition from LIBOR to alternative rates like SOFR may incur considerable costs, additional risk, and potential mismatches in financial instruments[116][120] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[170] Properties The company's executive offices and six owned branches, along with three leased branches, are deemed suitable and adequate for current operations in Virginia - The main executive offices are located at 13319 Midlothian Turnpike, Midlothian, Virginia[170] - The Bank owns six branch buildings and leases three additional branches across various Virginia counties[171] Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are expected to materially affect its business, financial position, or results of operations - There are no pending or threatened legal proceedings expected to have a material effect on the company[173] Mine Safety Disclosures This item is not applicable to the company - Not applicable[174] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "VBFC", with a $0.14 quarterly dividend declared in Q4 2021, 1,474,323 shares outstanding as of March 1, 2022, and no repurchases in 2021 or 2020 - The company's common stock trades on the Nasdaq Capital Market under the symbol "VBFC"[177] - A quarterly cash dividend of $0.14 per common share was declared in the fourth quarter of 2021[178] - As of March 1, 2022, 1,474,323 shares of common stock were outstanding[181] - The company did not repurchase any of its common stock during 2021 or 2020[181] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income significantly increased in 2021 to $12.5 million from $8.6 million, driven by net interest margin expansion and loan loss recovery, alongside strong low-cost deposit growth and a well-capitalized position despite PPP loan forgiveness Response to COVID-19 The company observed economic recovery with all deferred loans returning to contractual payments, funded over 2,300 PPP businesses, and saw PPP loan balances decrease by $104.1 million due to forgiveness by year-end 2021 - All loans on deferral as of December 31, 2020, returned to contractual payment terms by September 30, 2021[191] - By December 31, 2021, approximately $182.4 million in PPP round one loans and $46.5 million in PPP round two loans received SBA forgiveness approval[192] - PPP loan balances decreased by $104.1 million (76.15%) from December 31, 2020[192] Results of Operations Net income increased to $12.5 million in 2021, driven by a 35 basis point net interest margin expansion to 3.76% and a $500,000 recovery of loan loss provision, while noninterest income remained stable and expenses modestly rose Key Performance Indicators (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income | $12,453,000 | $8,554,000 | | Diluted EPS | $8.48 | $5.86 | | Net Interest Income | $25,495,000 | $21,393,000 | | Net Interest Margin | 3.76% | 3.41% | | Provision for (Recovery of) Loan Losses | ($500,000) | $950,000 | - The Net Interest Margin (NIM) expansion was driven by a 51 basis point drop in the cost of interest-bearing liabilities, offsetting a 4 basis point compression in earning asset yield[199] - Recognition of $6.0 million in PPP-related income positively impacted the yield of average earning assets by 39 basis points in 2021[202] - Mortgage banking income, the largest noninterest income component, slightly decreased by 2.2% to $9.5 million due to rising mortgage rates impacting the refinance market[215][216] Balance Sheet Analysis Total assets grew to $748.4 million in 2021, while total loans decreased due to PPP forgiveness, deposits increased significantly, and asset quality improved with nonperforming assets declining to 0.18% of total assets Balance Sheet Highlights (December 31, 2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Assets | $748.4 M | $706.2 M | | Total Loans, net | $522.6 M | $555.0 M | | PPP Loans (included in total) | $32.6 M | $136.7 M | | Total Deposits | $664.0 M | $588.4 M | | Shareholders' Equity | $63.4 M | $52.0 M | - Nonperforming assets decreased to $1.4 million (0.18% of total assets) at year-end 2021, down from $1.9 million (0.27% of total assets) at year-end 2020[233][234] - Low-cost relationship deposits grew by $70.5 million (27.0%), while time deposits decreased by $41.3 million (39.4%)[245] - The allowance for loan losses as a percentage of total loans (excluding guaranteed loans) decreased to 0.69% from 1.02%, reflecting improved economic factors and credit metrics[233] Capital Resources and Liquidity The company maintained strong capital and liquidity in 2021, with shareholders' equity increasing to $63.4 million, the Bank exceeding all regulatory capital requirements, and liquid assets significantly rising to $187.3 million Bank Regulatory Capital Ratios (December 31, 2021) | Ratio | Actual | Well Capitalized Minimum | | :--- | :--- | :--- | | Leverage Ratio | 9.86% | 5.00% | | Common Equity Tier 1 Ratio | 14.01% | 6.50% | | Tier 1 Capital Ratio | 14.01% | 8.00% | | Total Capital Ratio | 14.66% | 10.00% | - Shareholders' equity increased by $11.4 million during 2021, primarily driven by $12.5 million in net income[253] - Liquid assets, including cash and available-for-sale securities, totaled $187.3 million, representing 25.03% of total assets at year-end 2021[256] - The company had unused borrowing capacity of $22.5 million from the FHLB as of December 31, 2021[260] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, including the independent auditor's report, balance sheets, income statements, comprehensive income, equity, and cash flow statements, with explanatory notes - The independent auditor, Yount, Hyde & Barbour, P.C., issued an unqualified opinion on the consolidated financial statements, affirming fair presentation of financial position and results of operations in conformity with U.S. GAAP[285] - The auditor identified the assessment of qualitative factors in the Allowance for Loan Losses as a critical audit matter due to significant and subjective management judgment[291] Consolidated Statement of Income Highlights (in thousands) | Line Item | 2021 | 2020 | | :--- | :--- | :--- | | Net Interest Income | $25,495 | $21,393 | | Provision for (recovery of) loan losses | ($500) | $950 | | Noninterest Income | $12,343 | $12,245 | | Noninterest Expense | $22,465 | $21,649 | | Net Income | $12,453 | $8,554 | Consolidated Balance Sheet Highlights (in thousands) | Line Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $748,401 | $706,236 | | Total Loans, net | $522,601 | $554,985 | | Total Deposits | $664,048 | $588,382 | | Total Shareholders' Equity | $63,401 | $51,996 | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported during the fourth quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[473] - Management assessed internal control over financial reporting using the 2013 COSO framework and concluded it was effective as of December 31, 2021[476] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of 2021[477] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, security ownership, related transactions, and accountant fees, is incorporated by reference from the 2022 Proxy Statement - Information for Item 10 (Directors, Executive Officers, and Corporate Governance) is incorporated by reference from the 2022 Proxy Statement[483] - Information for Item 11 (Executive Compensation) is incorporated by reference from the 2022 Proxy Statement[484] - Information for Items 12, 13, and 14 is also incorporated by reference from the 2022 Proxy Statement[485][486][487] Part IV Exhibit and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, noting consolidated financial statements are in Item 8, schedules are omitted, and exhibits include corporate governance documents, contracts, and certifications - The consolidated financial statements and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8 of the report[489][490] - All financial statement schedules have been omitted as they are not required or applicable[491] - Exhibits filed include Articles of Incorporation, Bylaws, employment agreements, stock incentive plans, and certifications by the CEO and CFO[493][495][496]