VILLAGE BANK AND TRUST FINANCIAL CORP. News Release
For Immediate Release
VILLAGE BANK AND TRUST FINANCIAL CORP.
REPORTS EARNINGS FOR THE FIRST QUARTER OF 2023
Midlothian, Virginia, April 28, 2023. Village Bank and Trust Financial Corp. (the "Company") (Nasdaq symbol: VBFC), parent company of Village Bank (the "Bank"), today reported unaudited results for the first quarter of 2023. Net income for the first quarter of 2023 was $1,540,000, or $1.04 per fully diluted share, compared to net income for the first quarter of 2022 of $1,800,000, or $1.24 per fully diluted share.
Jay Hendricks, President and CEO, commented, "First quarter earnings were close to our expectations. We produced a 9.97% consolidated return on average equity, with the Commercial Banking Segment producing a 12.02% return on average equity while maintaining strong asset quality. Deposit costs moved more quickly and forcefully than we had hoped. Our net interest income hit an inflection point as funding costs moved more quickly compared to rising asset yields. The commercial bank's loan growth was modest during the quarter, and our mortgage company continued to be impacted by housing inventory issues and higher rates.
We experienced a modest decrease in deposits during the quarter, although balances held steady in March. Given recent events, I want to reiterate that the banks that recently failed had unique risk factors not representative of the broader banking industry or Village Bank. Village Bank is a community bank; we are core funded by local customers and we extend loans to these same customers. Currently, nearly 70% of the Bank's deposits are insured by the FDIC. Our capital ratios and balance sheet are strong and sound. We have excellent liquidity levels, which includes cash, marketable securities and borrowing capacity. We anticipate the operating environment for deposits to remain competitive with the retention of customer balances a priority in 2023. Our focus remains on core relationship growth, disciplined management of our net interest margin and asset mix, navigating the weak mortgage environment and remaining vigilant on credit quality."
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Operating Results
The following table presents quarterly results for the indicated periods (in thousands):
GAAP Operating Results by Segment
Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | |||||||||
Pre-tax earnings (loss) by segment | |||||||||||||
Commercial banking | $ 2,267 | $ | 3,070 | $ | 2,688 | $ | 2,677 | $ | 2,459 | ||||
Mortgage banking | (402) | (388) | (27) | 68 | (252) | ||||||||
Income before income tax expense (benefit) | 1,865 | 2,682 | 2,661 | 2,745 | 2,207 | ||||||||
Commercial banking income tax expense | 409 | 602 | 514 | 540 | 460 | ||||||||
Mortgage banking income tax expense (benefit) | (84) | (82) | (6) | 15 | (53) | ||||||||
Net income | $ 1,540 | $ | 2,162 | $ | 2,153 | $ | 2,190 | $ | 1,800 |
Three months ended March 31, 2023 vs. three months ended March 31, 2022.
The Commercial Banking Segment posted net income of $1,858,000 for Q1 2023 compared to $1,999,000 for Q1 2022.
The following are variances of note for the three months ended March 31, 2023 compared to the three months ended March 31, 2022:
- Net interest margin ("NIM") expanded by 43 basis points to 3.79% for Q1 2023 compared to 3.36% for Q1 2022. The expansion was driven by the following:
- The yield on our earning assets increased by 92 basis points, 4.51% as of Q1 2023 compared to 3.59% as of Q1 2022. 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 2022.
- Total U.S. Small Business Administration Paycheck Protection Program ("PPP") income recorded by the Commercial Banking Segment was $1,800 for Q1 2023 compared to $540,000 for Q1 2022.
- The cost of interest bearing liabilities increased by 82 basis points to 1.22% for Q1 2023 compared to 0.40% for Q1 2022. The increase in our cost of funds was driven by an increase in the rate paid on variable rate debt, increased borrowings to supplement the deposit outflow experienced at the end of 2022 as well as the slight decrease during Q1 2023, and market pressures on rates on deposit products. Borrowings increased by approximately $35 million, from Q1 2022, with a weighted average cost of 4.87% during Q1 2023. The rate paid on money market deposit accounts increased 79 basis points to 1.01% for Q1 2023 compared to 0.22% for Q1 2022.
- 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 ("ACL") on January 1, 2023. The Commercial Banking Segment did not record a provision for credit losses for Q1 2023. The lack of a provision for credit losses was driven by stable macroeconomic conditions and credit quality remaining strong. While current economic challenges due to higher inflation and the speed at which interest rates have been rising remain a risk to credit quality, we believe our current level of allowance for credit losses is sufficient. During Q1
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2022, the Commercial Banking Segment recorded a recovery of provision for loan loss expense of $400,000. The recovery of provision for loan loss expense, during Q1 2022, was driven by the improving macroeconomic conditions and credit quality remaining strong during the period.
- The Commercial Banking Segment posted noninterest income of $778,000 for Q1 2023 compared to $794,000 for Q1 2022. The decrease in noninterest income was driven by a decrease in other income.
- The Commercial Banking Segment posted noninterest expense of $4,836,000 for Q1 2023 compared to $4,553,000 for Q1 2022. The increase in noninterest expense was driven by increased staffing costs, data processing costs, cost associated with check fraud and the impact of rising inflation on our expense base.
The Mortgage Banking Segment posted a net loss of $318,000 for Q1 2023 compared to a net loss of $199,000 for Q1 2022. Mortgage originations were $24,222,000 for Q1 2023, down 46.22% from $45,039,000 for Q1 2022. The drop in mortgage originations during Q1 2023 continues to be the result of the sharp rise in mortgage rates during 2022 and the historically low inventory of homes for sale. As a result of the sharp drop in origination volume, the Mortgage Banking Segment took steps in 2022 to right size its expense structure to minimize the impact to earnings going forward.
Pre-TaxPre-Provision Earnings by Segment
The following table presents the pre-tax,pre-provision ("PTPP") earnings by segment for the indicated periods (in thousands):
Pre-Tax Earnings by Segment
Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | ||||||||||
Pre-Tax Earnings by Segment | ||||||||||||||
Commercial banking - PTPP (ex. PPP)(1) | $ | 2,265 | $ | 3,065 | $ | 2,762 | $ | 2,189 | $ | 1,519 | ||||
Commercial banking - PPP Income | 2 | 5 | 26 | 488 | 540 | |||||||||
Commercial banking income before provision for (recovery of) credit | ||||||||||||||
losses and income tax expense | 2,267 | 3,070 | 2,788 | 2,677 | 2,059 | |||||||||
Mortgage banking income (loss) before income tax expense (benefit) | (402) | (388) | (27) | 68 | (252) | |||||||||
Income before provision for (recovery of) credit losses and income | ||||||||||||||
tax expense | 1,865 | 2,682 | 2,761 | 2,745 | 1,807 | |||||||||
Provision for (recovery of) credit losses | - | - | 100 | - | (400) | |||||||||
GAAP income before income tax expense | $ | 1,865 | $ | 2,682 | $ | 2,661 | $ | 2,745 | $ | 2,207 |
- Non-GAAPfinancial measure.
The Commercial Banking Segment recorded PTPP earnings of $2,267,000 for Q1 2023 compared to $2,059,000 for Q1 2022. Excluding income from PPP loans, the Commercial Banking Segment's Q1 2023 PTPP earnings grew $746,000, or 49.11%, from Q1 2022. The growth in the Commercial Banking Segment's PTPP earnings was the result of improvement in our earning assets mix as well as growth in the core loan portfolio and securities portfolio.
The Company believes that reporting PTPP earnings, excluding income from PPP loans, provides a useful illustration of the Company's core operating performance over the reported periods. PTPP earnings, excluding
- loans, is determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Non-GAAP measures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
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Financial Highlights
Highlights for the quarters ended March 31, 2023 and March 31, 2022 are as follows:
Three Months Ended | ||
Metric | March 31, 2023 | March 31, 2022 |
Consolidated | ||
Return on average equity(1) | 9.97 % | 11.48 % |
Return on average assets(1) | 0.86 % | 0.97 % |
Commercial Banking Segment | ||
Return on average equity(1) | 12.02 % | 12.75 % |
Return on average assets(1) | 1.04 % | 1.08 % |
Net interest income to average assets | 3.54 % | 3.14 % |
Provision for (recovery of) credit losses to average assets | - % | (0.22)% |
Noninterest income to average assets | 0.44 % | 0.43 % |
Noninterest expense to average assets | 2.71 % | 2.45 % |
Mortgage Banking Segment | ||
Return on average equity(1) | (2.06)% | (1.27)% |
Return on average assets(1) | (0.18)% | (0.11)% |
Net income before tax to average assets | (0.23)% | (0.14)% |
- Annualized.
Loans and Asset Quality
The following table provides the composition of our gross loan portfolio at the end of periods indicated (in thousands):
Loans Outstanding
Loan Type | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | ||||
C&I + Owner occupied commercial real estate | $ 204,605 | $ 209,721 | $ 212,960 | $ 208,546 | $ 187,897 | ||||
PPP Loans | 247 | 270 | 710 | 1,069 | 17,023 | ||||
Nonowner occupied commercial real estate | 164,463 | 164,974 | 167,854 | 169,773 | 146,530 | ||||
Acquisition, development and construction | 49,426 | 45,127 | 40,546 | 37,028 | 42,691 | ||||
Total commercial loans | 418,741 | 420,092 | 422,070 | 416,416 | 394,141 | ||||
Consumer/Residential | 96,615 | 93,680 | 92,525 | 83,969 | 96,411 | ||||
Student | 20,195 | 20,617 | 22,010 | 23,413 | 24,693 | ||||
Other | 4,267 | 4,038 | 4,078 | 3,758 | 3,397 | ||||
Total loans | $ 539,818 | $ 538,427 | $ 540,683 | $ 527,556 | $ 518,642 |
Core loans, which are total loans, excluding PPP loans, increased by $1,414,000, or 0.26%, from Q4 2022, and increased by $37,952,000, or 7.57%, from Q1 2022.
- loans decreased by $23,000, or 9.31%, from Q4 2022 and decreased by $16,776,000, or 98.55%, from Q1 2022.
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Asset quality
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 ACL on January 1, 2023 to $3.52 million. The ACL included an allowance for credit losses of $3.24 million and a reserve for unfunded commitments of $277,000.
As of March 31, 2023, the ACL was $3.53 million and included an allowance for credit losses of $3.27 million and a reserve for unfunded commitments of $254,000.
The Bank's period-end asset quality metrics continue to compare favorably to our peers as follows:
Asset Quality Metrics
Village | Peer Group | ||||||||||
Metric | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2022(1) | |||||
Allowance for Credit Losses/Nonperforming Loans | 555.47% | 515.16% | 342.57% | 280.87% | 260.49% | 269.31% | |||||
Net Charge-offs (recoveries) to Average Loans(2) | (0.00%) | (0.00%) | 0.11% | (0.01%) | (0.29%) | 0.08% | |||||
Nonperforming Loans/Loans (excluding Guaranteed Loans) | 0.12% | 0.13% | 0.20% | 0.26% | 0.29% | 0.54% | |||||
Nonperforming Assets/Bank Total Assets (3) | 0.08% | 0.09% | 0.13% | 0.16% | 0.17% | 0.24% |
- Source - S&P Global data for VA Banks <$1 Billion in assets as of December 31, 2022.
- Annualized.
- Nonperforming assets excluding performing troubled debt restructurings.
Deposits
The following table provides the composition of our deposits at the end of the periods indicated (in thousands):
Deposits Outstanding
Deposit Type | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | ||||
Noninterest-bearing demand | $ 254,039 | $ 255,236 | $ 279,268 | $ 278,260 | $ 279,756 | ||||
Interest checking | 80,265 | 90,252 | 86,894 | 88,630 | 92,534 | ||||
Money market | 186,096 | 179,036 | 193,643 | 198,157 | 196,718 | ||||
Savings | 51,015 | 55,695 | 57,498 | 54,702 | 55,489 | ||||
Time deposits | 46,601 | 44,524 | 50,516 | 54,892 | 59,176 | ||||
Total deposits | $ 618,016 | $ 624,743 | $ 667,819 | $ 674,641 | $ 683,673 |
Total deposits decreased by $6,727,000, or 1.08%, from Q4 2022, and decreased by $65,657,000, or 9.60%, from Q1 2022. Variances of note are as follows:
- Noninterest bearing demand account balances decreased $1,197,000 from Q4 2022 and decreased $25,717,000 from Q1 2022 and represented 41.11% of total deposits compared to 40.85% as of Q4 2022 and 40.92% as of Q1 2022. The decrease in deposits was driven by a combination of consumers and businesses drawing down balances due to increased pressure from high inflation, as well as investing in higher yielding products.
- Low cost relationship deposits (i.e. interest checking, money market, and savings) balances decreased $7,607,000, or 2.34%, from Q4 2022 and decreased $27,365,000, or 7.94%, from Q1 2022. The decrease in deposits was primarily driven by the same combination of factors as the noninterest bearing demand accounts.
- Time deposits increased by $2,077,000, or 4.66%, from Q4 2022 and decreased by $12,575,000, or 21.25%, from Q1 2022. The increase in time deposits during Q1 2023 was driven by an effort to lock
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Disclaimer
Village Bank and Trust Financial Corp. published this content on 28 April 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 April 2023 12:32:13 UTC.
