NOTE A - Basis of Presentation
Effective July 29, 2016, Xenith Bankshares, Inc., a Virginia corporation (previously, Hampton Roads Bankshares, Inc., the “Company”), completed its previously announced merger (the “Merger”) with legacy Xenith Bankshares, Inc., a Virginia corporation (“Legacy Xenith”), pursuant to an Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of February 10, 2016, by and between the Company and Legacy Xenith. At the effective time of the Merger, Legacy Xenith merged with and into the Company, with the Company surviving the Merger. Also at the effective time of the Merger, the Company changed its name from “Hampton Roads Bankshares, Inc.” to “Xenith Bankshares, Inc.” and changed its ticker symbol to “XBKS.”
Pursuant to the Merger Agreement, holders of Legacy Xenith common stock, par value
$1.00
per share (“Legacy Xenith common stock”), received
4.4
shares (the “Exchange Ratio”) of common stock of the Company, par value
$0.01
per share (the “Company common stock”), for each share of Legacy Xenith common stock held immediately prior to the effective time of the Merger, with cash to be paid in lieu of fractional shares. Each outstanding share of the Company common stock remained outstanding and was unaffected by the Merger.
Pursuant to the Merger Agreement and immediately following the completion of the Merger, legacy Xenith Bank, a Virginia banking corporation and wholly owned subsidiary of Legacy Xenith, merged (the “Bank Merger”) with and into the Company’s wholly-owned bank subsidiary, Xenith Bank (previously, The Bank of Hampton Roads, the “Surviving Bank”), with the Surviving Bank surviving the Bank Merger. In connection with the Bank Merger, the Surviving Bank changed its name from “The Bank of Hampton Roads” to “Xenith Bank.”
Through September 30, 2016, the Company had incurred
$15.6 million
of Merger-related expenses, including legal, professional and printing services, systems conversion costs, retention and severance costs, and filing fees. Merger-related costs incurred by Legacy Xenith prior to the completion of the Merger are not included in the Company’s consolidated statements of income. The Company expects the incurrence of these one-time Merger-related costs to be substantially complete by the end of 2016.
Information contained herein as of the period ended September 30, 2016 includes the balances of Legacy Xenith; information contained herein as of periods prior to September 30, 2016 does not include the balances of Legacy Xenith. Information for the three and nine month periods ended September 30, 2016 includes the operations of Legacy Xenith only for the period immediately following the effective date of the Merger (July 29, 2016) through September 30, 2016.
Unless otherwise stated herein or the context otherwise requires, references herein to “the Company” prior to the effective time of the Merger are to Hampton Roads Bankshares, Inc. and its wholly-owned subsidiaries, and references to “the Bank” are to The Bank of Hampton Roads. Unless otherwise stated herein or the context otherwise requires, references herein to “the Company” after the effective time of the Merger are to Xenith Bankshares, Inc. (f/k/a Hampton Roads Bankshares, Inc.) and its wholly-owned subsidiaries, and references to “the Bank” are to Xenith Bank.
On September 16, 2016, the Company announced its decision to cease operations of its mortgage banking business. In connection with this decision, the Bank entered into a definitive asset purchase agreement to sell certain assets of Gateway Bank Mortgage, Inc., a wholly-owned subsidiary of the Bank (“GBMI”), and to transition GBMI’s operations, which include originating, closing, funding and selling first lien residential mortgage loans, to an unrelated party (the “GBMI Sale”). The operations of GBMI have been reported as discontinued operations for all periods presented herein. See Note C - Discontinued Operations for further discussion. The completion of the GBMI Sale occurred on October 17, 2016. See Note P - Subsequent Events for further discussion.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation. The results of operations for the
nine
months ended
September 30, 2016
are not necessarily indicative of the results to be expected for the full year. The Company has
one
banking subsidiary, the Bank, which constitutes substantially all of the Company’s assets and operations.
Certain comparative balances have been reclassified to reflect current presentation. Any reclassification had no effect on total assets, total shareholders’ equity or net income.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
(“2015 Form 10-K”).
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make assumptions, judgments, and estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term are the determination of the allowance for loan losses, the valuation of other real estate owned and repossessed assets, the valuation of net deferred tax assets, the determination of fair value for financial instruments, and the determination of preliminary fair values of loans and other assets acquired and liabilities assumed in the Merger.
Recent Accounting Pronouncements
During the second quarter of 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09,
Revenue from Contracts with Customers,
(“ASU 2014-09”). ASU 2014-09 represents a comprehensive reform of many of the revenue recognition requirements in GAAP. ASU 2014-09 creates a new topic within the Accounting Standards Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers,
("ASC 606"). ASC 606 will supersede the current revenue recognition requirements in ASC 605,
Revenue Recognition
, and supersede or amend much of the industry-specific revenue recognition guidance found throughout the ASC. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASC 606 creates a five-step process for achieving that core principle: (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue when an entity has completed the performance obligations. ASC 606 also requires additional disclosures that allow users of the financial statements to understand the nature, timing, and uncertainty of revenue and cash flows resulting from contracts with customers. The effective date of ASC 606 is for the year beginning January 1, 2018. The new revenue standard permits the use of retrospective or cumulative effect transition methods. A majority of the Company’s contracts with customers (i.e., financial instruments) do not fall within the scope of ASC 606; therefore, the Company does not expect the adoption of this standard to have a material effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, ASC Topic 842 ("ASC 842"), which replaces ASC 840,
Leases
. The core principle of ASC 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee are as follows:
For finance leases, a lessee is required to do the following:
1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position;
2. Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income; and
3. Classify repayments of principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.
For operating leases, a lessee is required to do the following:
1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position;
2. Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and
3. Classify all cash payments within operating activities in the statement of cash flows.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective date for ASC 842 is for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating whether adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"), which is intended to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. ASU 2016-09 changes seven aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; (6) practical expedient - expected term (nonpublic entities only); and (7) intrinsic value (nonpublic entities only). ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted in any interim or annual period provided that the entire ASU 2016-09 is adopted. The Company does not expect the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
("ASU 2016-13"), which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The changes are effective for annual and interim periods in fiscal years beginning after December 15, 2019. An entity may early adopt the standard for annual and interim periods in fiscal years beginning after December 15, 2018. The Company is evaluating whether the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows
("ASU 2016-15"), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance addresses: (1) debt prepayment on debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investments; (7) beneficial interest in securitizations transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating whether the adoption of this guidance will have material effect on its consolidated statement of cash flows.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - Business Combination
The Company has accounted for the Merger under the acquisition method of accounting, in accordance with ASC Topic 805,
Business Combinations
, whereby the acquired assets and assumed liabilities are recorded by the Company at their estimated fair values as of the effective date of the Merger, which was July 29, 2016.
The Merger combined
two
banks with complementary capabilities and geographical focus, thus provided the opportunity for the organization to leverage its existing infrastructure, including people, processes and systems, across a larger asset base.
In accordance with the framework established by ASC Topic 820,
Fair Value Measurements and Disclosure
, the Company used a fair value hierarchy to prioritize the information used to form assumptions and estimates in determining fair values. These fair value hierarchies are further discussed in Note N - Fair Value Measurements. Fair value estimates were based on management’s assessment of the best information available and are preliminary and subject to change.
The following table presents the summary unaudited balance sheet of Legacy Xenith as of the date of the Merger inclusive of the estimated fair value adjustments and the preliminary allocation of consideration paid in the Merger to the acquired assets and assumed liabilities. The final determination of estimated fair values of assets and liabilities will be made when all necessary information becomes available and management has completed its analysis. The preliminary allocation resulted in goodwill of
$26.2 million
, which represents the growth opportunities and franchise value the Bank has in the markets it serves.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Fair value of assets acquired:
|
Cash and cash equivalents
|
|
$
|
69,241
|
|
Securities
|
|
139,025
|
|
Loans
|
|
828,880
|
|
Premises and equipment
|
|
6,180
|
|
Other real estate owned
|
|
738
|
|
Core deposit intangible
|
|
4,006
|
|
Accrued interest receivable
|
|
4,464
|
|
Deferred tax asset
|
|
4,741
|
|
Bank owned life insurance
|
|
19,917
|
|
Other assets
|
|
17,795
|
|
Total assets
|
|
$
|
1,094,987
|
|
Fair value of liabilities assumed:
|
Deposits
|
|
$
|
956,078
|
|
Accrued interest payable
|
|
285
|
|
Supplemental executive retirement plan
|
|
2,162
|
|
Other liabilities
|
|
44,268
|
|
Total liabilities
|
|
$
|
1,002,793
|
|
|
|
|
Net identifiable assets acquired
|
|
$
|
92,194
|
|
|
|
|
Consideration paid:
|
Company's common shares issued
|
|
58,915,439
|
|
Purchase price per share (1)
|
|
$
|
1.97
|
|
Value of common stock issued
|
|
$
|
116,063
|
|
Estimated fair value of stock options
|
|
2,355
|
|
Cash in lieu of fractional shares
|
|
1
|
|
Total consideration paid
|
|
118,419
|
|
|
|
|
Goodwill
|
|
$
|
26,225
|
|
_______________________
|
|
|
(1) The value of the shares of Company common stock exchanged for shares of Legacy Xenith common stock was based upon the closing price of Company common stock at July 28, 2016, the last trading day prior to the date of completion of the Merger.
|
The following table presents the purchased performing and purchased impaired loans receivable at the date of the Merger and the preliminary fair value adjustment recorded immediately following the Merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Purchased Performing
|
|
Purchased Impaired
|
|
Total
|
Principal payments receivable
|
$
|
830,613
|
|
|
$
|
9,851
|
|
|
$
|
840,464
|
|
Fair value adjustment - credit and interest
|
(8,558
|
)
|
|
(3,026
|
)
|
|
(11,584
|
)
|
Fair value of acquired loans
|
$
|
822,055
|
|
|
$
|
6,825
|
|
|
$
|
828,880
|
|
The following table presents the effect of the Merger on the Company, on a pro forma basis, as if the Merger had occurred at the beginning of the three- and nine-month periods ended September 30, 2016 and 2015. Merger-related costs of
$12.9 million
and
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$15.6 million
for the three and nine months ended September 30, 2016, respectively, which are included in the Company’s consolidated statements of operations, are not included in the pro forma information below. Merger-related costs incurred by Legacy Xenith prior to the completion of the Merger are not included in the Company’s consolidated statements of operations and are also not included in the pro forma information below. Net income includes pro forma adjustments for the accretion of estimated fair value adjustments (discounts) on acquired loans and amortization of estimated core deposit intangibles. As accretion of acquired loan discounts is recognized, the carrying value of the acquired loans increases. This change in carrying amount could require that provision for loan losses in a similar amount would be required and recorded. Therefore, the effect of accretion on pro forma revenue has no effect on pro forma net income from continuing operations. An effective income tax rate of
36%
was used in determining pro forma net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in thousands, except per share data)
|
2016
|
2015
|
|
2016
|
2015
|
Revenue (net interest income plus noninterest income)
|
$
|
27,423
|
|
$
|
26,396
|
|
|
$
|
79,197
|
|
$
|
79,452
|
|
Net (loss) income from continuing operations
|
$
|
(3,494
|
)
|
$
|
482
|
|
|
$
|
3,523
|
|
$
|
3,703
|
|
(Loss) income per common share (basic and diluted)
|
$
|
(0.02
|
)
|
$
|
—
|
|
|
$
|
0.02
|
|
$
|
0.02
|
|
NOTE C - Discontinued Operations
In connection with the GBMI Sale, which was completed on October 17, 2016, GBMI ceased taking new mortgage loan applications; however, all applications with prospective borrowers that were in process at the completion of the GBMI Sale will continue to be managed by GBMI through funding and sale to investors in the ordinary course of business. Management expects processing of these applications and investor funding of these loans will be substantially complete by December 31, 2016. Management believes, after the discontinued operations have been transitioned to the purchaser, there will be no material on-going obligations with respect to the mortgage banking business.
The following table presents summarized operating results of the discontinued operations for the periods stated:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
September 30, 2016
|
September 30, 2015
|
|
September 30, 2016
|
September 30, 2015
|
Net interest income
|
$
|
133
|
|
$
|
197
|
|
|
$
|
440
|
|
$
|
544
|
|
Provision (benefit) for loan losses
|
(3
|
)
|
15
|
|
|
(22
|
)
|
(22
|
)
|
Net interest income
|
|
|
|
|
|
|
|
|
after provision for loan losses
|
136
|
|
182
|
|
|
462
|
|
566
|
|
Noninterest income
|
6,760
|
|
5,722
|
|
|
16,987
|
|
15,444
|
|
Noninterest expense:
|
|
|
|
|
|
Salaries and employee benefits
|
3,901
|
|
3,588
|
|
|
10,368
|
|
9,514
|
|
Professional and consultant fees
|
73
|
|
83
|
|
|
204
|
|
226
|
|
Occupancy
|
176
|
|
195
|
|
|
590
|
|
514
|
|
Data processing
|
146
|
|
50
|
|
|
371
|
|
269
|
|
Equipment
|
13
|
|
49
|
|
|
56
|
|
92
|
|
Advertising and marketing
|
137
|
|
271
|
|
|
568
|
|
701
|
|
Other
|
439
|
|
437
|
|
|
1,392
|
|
1,092
|
|
Total noninterest expense
|
4,885
|
|
4,673
|
|
|
13,549
|
|
12,408
|
|
Net income before provision
|
|
|
|
|
|
|
|
|
for income taxes
|
2,011
|
|
1,231
|
|
|
3,900
|
|
3,602
|
|
Provision for income taxes
|
842
|
|
23
|
|
|
877
|
|
82
|
|
Net income
|
1,169
|
|
1,208
|
|
|
3,023
|
|
3,520
|
|
Net income attributable to
|
|
|
|
|
|
|
|
|
|
non-controlling interest
|
806
|
|
501
|
|
|
1,556
|
|
1,563
|
|
Net income attributable to
|
|
|
|
|
|
|
|
|
|
Xenith Bankshares, Inc.
|
$
|
363
|
|
$
|
707
|
|
|
$
|
1,467
|
|
$
|
1,957
|
|
NOTE D - Earnings Per Share
The following table presents basic and diluted income per share calculations for the
three and nine
months ended
September 30, 2016
and
2015
. There were
5,050,288
and
5,571,214
stock options not included in the diluted earnings per share calculations for the
three and nine
months ended
September 30, 2016
, respectively, and
2,425,140
and
2,425,140
for the same periods in
2015
, respectively, because their inclusion would have been antidilutive.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands, except share and per share data)
|
September 30, 2016
|
|
September 30, 2015
|
|
September 30, 2016
|
|
September 30, 2015
|
Net income attributable to Xenith Bankshares, Inc.
|
$
|
47,864
|
|
|
$
|
303
|
|
|
$
|
51,869
|
|
|
$
|
4,364
|
|
Shares:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
209,592,890
|
|
|
170,803,757
|
|
|
184,159,924
|
|
|
170,694,643
|
|
Weighted average vested restricted stock units
|
461,687
|
|
|
725,381
|
|
|
461,687
|
|
|
725,381
|
|
Weighted average number of common shares outstanding
|
210,054,577
|
|
|
171,529,138
|
|
|
184,621,611
|
|
|
171,420,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of TARP-related warrants
|
502,469
|
|
|
496,782
|
|
|
472,632
|
|
|
474,212
|
|
Dilutive effect of restricted stock units
|
282,917
|
|
|
484,243
|
|
|
339,391
|
|
|
416,066
|
|
Dilutive effect of stock options
|
368,539
|
|
|
273,334
|
|
|
172,527
|
|
|
177,799
|
|
Total dilutive effect
|
1,153,925
|
|
|
1,254,359
|
|
|
984,550
|
|
|
1,068,077
|
|
Diluted weighted average number of common shares outstanding
|
211,208,502
|
|
|
172,783,497
|
|
|
185,606,161
|
|
|
172,488,101
|
|
Basic and diluted income per share
|
$
|
0.23
|
|
|
$
|
—
|
|
|
$
|
0.28
|
|
|
$
|
0.03
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - Restrictions of Cash
To comply with regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Bank is required to maintain certain average cash reserve balances. The daily average cash reserve requirement based on the weeks closest to
September 30, 2016
and
December 31, 2015
was
$56.9 million
and
$32.0 million
, respectively. The Bank was in compliance with this requirement at September 30, 2016.
NOTE F - Investment Securities
The following table presents amortized cost, gross unrealized gains and losses, and fair values of investment securities available for sale at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
(in thousands)
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Corporate bonds
|
$
|
986
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
987
|
|
Mortgage-backed securities - Agency
|
220,094
|
|
|
3,762
|
|
|
47
|
|
|
223,809
|
|
Asset-backed securities
|
14,862
|
|
|
—
|
|
|
103
|
|
|
14,759
|
|
Equity securities
|
969
|
|
|
710
|
|
|
—
|
|
|
1,679
|
|
Municipals
|
|
|
|
|
|
|
|
Tax-exempt
|
68,040
|
|
|
578
|
|
|
76
|
|
|
68,542
|
|
Taxable
|
18,154
|
|
|
215
|
|
|
—
|
|
|
18,369
|
|
Total securities available for sale
|
$
|
323,105
|
|
|
$
|
5,266
|
|
|
$
|
226
|
|
|
$
|
328,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
(in thousands)
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
U.S. agency securities
|
$
|
12,565
|
|
|
$
|
507
|
|
|
$
|
—
|
|
|
$
|
13,072
|
|
Corporate bonds
|
11,994
|
|
|
—
|
|
|
804
|
|
|
11,190
|
|
Mortgage-backed securities - Agency
|
147,980
|
|
|
1,498
|
|
|
279
|
|
|
149,199
|
|
Asset-backed securities
|
23,787
|
|
|
—
|
|
|
495
|
|
|
23,292
|
|
Equity securities
|
970
|
|
|
451
|
|
|
—
|
|
|
1,421
|
|
Total securities available for sale
|
$
|
197,296
|
|
|
$
|
2,456
|
|
|
$
|
1,578
|
|
|
$
|
198,174
|
|
Unrealized losses
The following tables present the fair values and gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in thousands)
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
Mortgage-backed securities - Agency
|
$
|
14,831
|
|
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,831
|
|
|
$
|
47
|
|
Asset-backed securities
|
14,758
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
14,758
|
|
|
103
|
|
Municipals
|
17,143
|
|
|
76
|
|
|
—
|
|
|
—
|
|
|
17,143
|
|
|
76
|
|
Total securities
|
$
|
46,732
|
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
46,732
|
|
|
$
|
226
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
Corporate bonds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,190
|
|
|
$
|
804
|
|
|
$
|
11,190
|
|
|
$
|
804
|
|
Mortgage-backed securities - Agency
|
56,787
|
|
|
244
|
|
|
1,517
|
|
|
35
|
|
|
58,304
|
|
|
279
|
|
Asset-backed securities
|
17,554
|
|
|
291
|
|
|
5,738
|
|
|
204
|
|
|
23,292
|
|
|
495
|
|
Total securities
|
$
|
74,341
|
|
|
$
|
535
|
|
|
$
|
18,445
|
|
|
$
|
1,043
|
|
|
$
|
92,786
|
|
|
$
|
1,578
|
|
Debt securities with unrealized losses totaling
$226 thousand
at
September 30, 2016
included
thirteen
municipals,
six
mortgage-backed agency securities, and
six
asset-backed securities, compared with unrealized losses totaling
$1.6 million
at
December 31, 2015
, which included
four
corporate securities,
23
mortgage-backed agency securities, and
nine
asset-backed securities. In instances where an unrealized loss did occur, there was no indication of an adverse change in credit on any of the underlying securities in the tables above, and management believes no individual unrealized loss represented an other-than-temporary impairment ("OTTI") as of those dates. The Company does not intend to sell and it is not more likely than not that it will be required to sell the securities before the recovery of their amortized cost basis, which may be at maturity.
Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In evaluating OTTI, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available at a point in time.
When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss. If an entity intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
Maturities of investment securities
The following table presents the amortized cost and fair value by contractual maturity of investment securities available for sale at
September 30, 2016
and
December 31, 2015
.
Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed and asset-backed securities that are not due at a single maturity date and equity securities, which do not have contractual maturities, are shown separately.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Amortized
|
|
|
|
Amortized
|
|
|
(in thousands)
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Due in one year or less
|
$
|
506
|
|
|
$
|
507
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year
|
|
|
|
|
|
|
|
but less than five years
|
12,319
|
|
|
12,391
|
|
|
2,253
|
|
|
2,304
|
|
Due after five years
|
|
|
|
|
|
|
|
but less than ten years
|
71,725
|
|
|
72,317
|
|
|
12,518
|
|
|
11,785
|
|
Due after ten years
|
2,630
|
|
|
2,683
|
|
|
9,788
|
|
|
10,173
|
|
Mortgage-backed securities - Agency
|
220,094
|
|
|
223,809
|
|
|
147,980
|
|
|
149,199
|
|
Asset-backed securities
|
14,862
|
|
|
14,759
|
|
|
23,787
|
|
|
23,292
|
|
Equity securities
|
969
|
|
|
1,679
|
|
|
970
|
|
|
1,421
|
|
Total securities available for sale
|
$
|
323,105
|
|
|
$
|
328,145
|
|
|
$
|
197,296
|
|
|
$
|
198,174
|
|
Federal Home Loan Bank (“FHLB”)
The Company’s investment in FHLB stock totaled
$11.2 million
at
September 30, 2016
and
$2.9 million
at
December 31, 2015
. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, as it is required to be held in order to access FHLB advances (i.e., borrowings). The Company earns dividends from its investment in FHLB stock, and for the three months ended
September 30, 2016
, the FHLB declared a dividend at an annualized rate of
4.64%
. The investment in FHLB stock is carried at cost as there is no active market or exchange for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at
September 30, 2016
, and
no
impairment has been recognized.
Federal Reserve Bank (“FRB”) and Other Restricted Stock
The Company’s investment in FRB and other restricted stock totaled
$13.3 million
at
September 30, 2016
and
$7.0 million
at
December 31, 2015
. FRB stock comprises
$13.1 million
of this amount and is generally viewed as a long-term investment and as a restricted investment security, as it is required to be held to effect membership in the Federal Reserve. It is carried at cost as there is not an active market or exchange for the stock other than the FRB or member institutions. The Company does not consider these investments to be other-than-temporarily impaired at
September 30, 2016
, and
no
impairment has been recognized.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - Borrowings
The Bank has secured borrowing facilities with the FHLB and the FRB. Total credit availability as of
September 30, 2016
under the FHLB facility was
$524.7 million
and with a pledged, lendable collateral value of
$301.4 million
. Under this facility, as of September 30, 2016, there were short-term, non-amortizing borrowings outstanding of
$197.5 million
Credit availability under the FRB facility as of
September 30, 2016
was
$256.2 million
, which is also based on pledged collateral. As of
September 30, 2016
, the Bank had
no
federal funds purchased or long-term borrowings under the FRB facility.
On June 26, 2015, Legacy Xenith issued and sold
$8.5 million
in aggregate principal amount of its
6.75%
subordinated notes due 2025 pursuant to a Subordinated Note Purchase Agreement (the "Subordinated Notes"). The Subordinated Notes, which the Company assumed in the Merger, bear interest at an annual rate of
6.75%
, which is payable quarterly in arrears on March 31, June 30, September 30 and December 31. The Subordinated Notes qualify as Tier 2 capital for the Company. As of
September 30, 2016
, the outstanding balance of the Subordinated Notes, net of capitalized loan origination costs, was
$8.4 million
. For the period from the Merger through September 30, 2016, the effective interest rate, including the amortization of loan origination costs, on the Subordinated Notes was
7.13%
. As of
September 30, 2016
, the Company and the Bank, as applicable, were in compliance with all covenants of the Subordinated Notes.
Legacy Xenith had an agreement with a national bank that provided an unsecured senior term loan credit facility up to
$15 million
(the “Credit Agreement”). Immediately prior to the completion of the Merger, amounts outstanding under the Credit Agreement of
$10.4 million
, including accrued and unpaid interest, were repaid in full by the Company.
NOTE H - Loans and Allowance for Loan Losses
The following table presents the Company's composition of loans as of
September 30, 2016
and
December 31, 2015
. All lending decisions are based upon a thorough evaluation of the financial strength and credit history of the borrower and the quality and value of the collateral securing the loan. With few exceptions, personal guarantees are required on all loans.
The Company makes owner-occupied real estate (“OORE”) loans, which are secured in part by the real estate that is generally the offices or production facilities of the borrower. In some cases, the real estate is not held by the commercial enterprise, rather it is owned by the principals of the business or an entity controlled by the principals. The Company classifies OORE loans as commercial and industrial, as the primary source of repayment of the loan is generally dependent on the financial performance of the commercial enterprise occupying the property, with the real estate being a secondary source of repayment. All periods presented herein reflect this classification.
The Company holds guaranteed student loans (“GSLs”), which were purchased by Legacy Xenith in 2013 and acquired by the Company in the Merger. These loans were originated under the Federal Family Education Loan Program (“FFELP”), authorized by the Higher Education Act of 1965, as amended. Pursuant to the FFELP, the student loans are substantially guaranteed by a guaranty agency and reinsured by the U.S. Department of Education. The purchased loans were also part of the Federal Rehabilitated Loan Program (“FRLP”), under which borrowers on defaulted loans have the one-time opportunity to bring their loans current. These loans, which are then owned by an agency guarantor, are brought current and sold to approved lenders. The Company has an agreement with a third-party servicer of student loans to provide all day-to-day operational requirements for the servicing of the loans. The GSLs carry a nearly
98%
guarantee of principal and accrued interest. In allocating the consideration paid in the Merger, the Company recorded a preliminary fair value adjustment for GSLs that reduced the carrying amount in the GSLs to approximate the guaranteed portion of the loans.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Commercial & Industrial
|
$
|
923,598
|
|
|
$
|
465,746
|
|
Construction
|
239,345
|
|
|
141,208
|
|
Commercial real estate
|
609,187
|
|
|
423,468
|
|
Residential real estate
|
418,166
|
|
|
347,336
|
|
Consumer
|
233,347
|
|
|
161,918
|
|
Guaranteed student loans
|
46,682
|
|
|
—
|
|
Deferred loan fees and related costs
|
707
|
|
|
(724
|
)
|
Total loans
|
$
|
2,471,032
|
|
|
$
|
1,538,952
|
|
Acquired Loans
Acquired loans are initially recorded at estimated fair value as of the date of acquisition; therefore, any related allowance for loan losses is not carried over or established at acquisition. The difference between contractually required amounts receivable and the acquisition date fair value of loans that are not deemed credit-impaired at acquisition is accreted (recognized) into income over the life of the loan either on a straight-line basis or based on the underlying principal payments on the loan. Any change in credit quality subsequent to acquisition for these loans is reflected in the allowance for loan losses.
Loans acquired with evidence of credit deterioration since origination and for which it is probable at the date of acquisition that contractually required principal and interest payments will not be collected are accounted for under ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
("ASC 310-30"). A portion of the loans acquired in the Merger are deemed to be purchased credit-impaired loans qualifying for accounting under ASC 310-30.
In applying ASC 310-30 to acquired loans, the amount and timing of cash flows expected to be collected is estimated. The estimation of the amount and timing of expected cash flows to be collected requires significant judgment, including estimated default rates and the amount and timing of prepayments, in addition to other factors. The excess of cash flows expected to be collected over the estimated fair value of purchased credit-impaired loans is referred to as the accretable yield. This amount is accreted into interest income over the period of expected cash flows from the loan, using the effective yield method. The difference between contractually required payments due and the cash flows expected to be collected, on an undiscounted basis, is referred to as the nonaccretable difference.
ASC 310-30 requires periodic re-evaluation of expected cash flows for purchased credit-impaired loans subsequent to acquisition date. Decreases in expected cash flows attributable to credit will generally result in an impairment charge to earnings such that the accretable yield remains unchanged. Increases in expected cash flows will result in an increase in the accretable yield, which is a reclassification from the nonaccretable difference. The increased accretable yield is recognized in income over the remaining period of expected cash flows from the loan. Any impairment charge recorded as a result of a re-evaluation is recorded as an increase in the allowance for loan and lease losses. In the period since the Merger through September 30, 2016, no impairment charge has been recorded with respect to loans accounted for under ASC 310-30.
Acquired loans for which the amount or timing of cash flows cannot be predicted are accounted for under the cost recovery method, whereby principal and interest payments received reduce the carrying value of the loan until such amount has been received. Amounts received in excess of the carrying value are reported in interest income.
Allowance for Loan Losses
The following table presents the allowance for loan loss activity, by loan category, for the
three and nine
months ended
September 30, 2016
and
2015
:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
22,903
|
|
|
$
|
27,720
|
|
|
$
|
23,157
|
|
|
$
|
26,997
|
|
Charge-offs:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
84
|
|
|
3,723
|
|
|
1,160
|
|
|
4,259
|
|
Construction
|
—
|
|
|
1,557
|
|
|
635
|
|
|
2,021
|
|
Commercial real estate
|
—
|
|
|
3
|
|
|
663
|
|
|
103
|
|
Residential real estate
|
340
|
|
|
313
|
|
|
2,234
|
|
|
782
|
|
Consumer
|
3
|
|
|
6
|
|
|
45
|
|
|
58
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Overdrafts
|
43
|
|
|
36
|
|
|
106
|
|
|
112
|
|
Total charge-offs
|
470
|
|
|
5,638
|
|
|
4,843
|
|
|
7,335
|
|
Recoveries:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
173
|
|
|
441
|
|
|
2,833
|
|
|
1,131
|
|
Construction
|
167
|
|
|
126
|
|
|
911
|
|
|
617
|
|
Commercial real estate
|
11
|
|
|
78
|
|
|
341
|
|
|
262
|
|
Residential real estate
|
253
|
|
|
125
|
|
|
603
|
|
|
507
|
|
Consumer
|
7
|
|
|
6
|
|
|
23
|
|
|
42
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Overdrafts
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total recoveries
|
612
|
|
|
776
|
|
|
4,712
|
|
|
2,559
|
|
Net (recoveries) charge-offs
|
(142
|
)
|
|
4,862
|
|
|
131
|
|
|
4,776
|
|
Provision (benefit) for loan losses
|
10,685
|
|
|
(15
|
)
|
|
10,704
|
|
|
622
|
|
Balance at end of period
|
$
|
33,730
|
|
|
$
|
22,843
|
|
|
$
|
33,730
|
|
|
$
|
22,843
|
|
The following tables present the allowance for loan lease losses, with the amount independently and collectively evaluated for impairment, and loan balances, by loan type, as of the dates stated:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Individually Evaluated
|
|
Collectively Evaluated
|
(in thousands)
|
Total Amount
|
|
for Impairment
|
|
for Impairment
|
Allowance for loan losses applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
10,979
|
|
|
7,724
|
|
|
3,255
|
|
Construction
|
8,579
|
|
|
7,167
|
|
|
1,412
|
|
Commercial real estate
|
3,416
|
|
|
901
|
|
|
2,515
|
|
Residential real estate
|
6,721
|
|
|
1,120
|
|
|
5,601
|
|
Consumer
|
2,051
|
|
|
1,180
|
|
|
871
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated qualitative
|
1,984
|
|
|
—
|
|
|
1,984
|
|
Total originated and other purchased loans
|
33,730
|
|
|
18,092
|
|
|
15,638
|
|
Total allowance for loan losses
|
$
|
33,730
|
|
|
$
|
18,092
|
|
|
$
|
15,638
|
|
Loan balances applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
875
|
|
|
$
|
875
|
|
|
$
|
—
|
|
Construction
|
1,824
|
|
|
1,824
|
|
|
—
|
|
Commercial real estate
|
1,607
|
|
|
1,607
|
|
|
—
|
|
Residential real estate
|
2,326
|
|
|
2,326
|
|
|
—
|
|
Consumer
|
16
|
|
|
16
|
|
|
—
|
|
Total purchased credit-impaired loans
|
6,648
|
|
|
6,648
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
922,723
|
|
|
28,647
|
|
|
894,076
|
|
Construction
|
237,521
|
|
|
15,649
|
|
|
221,872
|
|
Commercial real estate
|
607,580
|
|
|
9,933
|
|
|
597,647
|
|
Residential real estate
|
415,840
|
|
|
10,928
|
|
|
404,912
|
|
Consumer
|
233,331
|
|
|
1,400
|
|
|
231,931
|
|
Guaranteed student loans
|
46,682
|
|
|
—
|
|
|
46,682
|
|
Deferred loan fees and related costs
|
707
|
|
|
—
|
|
|
707
|
|
Total originated and other purchased loans
|
2,464,384
|
|
|
66,557
|
|
|
2,397,827
|
|
Total loans
|
$
|
2,471,032
|
|
|
$
|
73,205
|
|
|
$
|
2,397,827
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Individually Evaluated
|
|
Collectively Evaluated
|
(in thousands)
|
Total Amount
|
|
for Impairment
|
|
for Impairment
|
Allowance for loan losses applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
5,925
|
|
|
1,593
|
|
|
4,332
|
|
Construction
|
3,339
|
|
|
951
|
|
|
2,388
|
|
Commercial real estate
|
3,952
|
|
|
640
|
|
|
3,312
|
|
Residential real estate
|
7,501
|
|
|
2,175
|
|
|
5,326
|
|
Consumer
|
840
|
|
|
88
|
|
|
752
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated qualitative
|
1,600
|
|
|
—
|
|
|
1,600
|
|
Total originated and other purchased loans
|
23,157
|
|
|
5,447
|
|
|
17,710
|
|
Total allowance for loan losses
|
$
|
23,157
|
|
|
$
|
5,447
|
|
|
$
|
17,710
|
|
Loan balances applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
465,746
|
|
|
23,505
|
|
|
442,241
|
|
Construction
|
141,208
|
|
|
21,092
|
|
|
120,116
|
|
Commercial real estate
|
423,468
|
|
|
8,647
|
|
|
414,821
|
|
Residential real estate
|
347,336
|
|
|
12,532
|
|
|
334,804
|
|
Consumer
|
161,918
|
|
|
98
|
|
|
161,820
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
Deferred loan fees and related costs
|
(724
|
)
|
|
$
|
—
|
|
|
$
|
(724
|
)
|
Total originated and other purchased loans
|
1,538,952
|
|
|
65,874
|
|
|
1,473,078
|
|
Total loans
|
$
|
1,538,952
|
|
|
$
|
65,874
|
|
|
$
|
1,473,078
|
|
The following tables present the loans that were individually evaluated for impairment, by loan type, as of the dates stated. The tables present those loans with and without an allowance and various additional data as of the dates stated:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in thousands)
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
875
|
|
|
$
|
1,270
|
|
|
$
|
—
|
|
Construction
|
1,824
|
|
|
2,823
|
|
|
—
|
|
Commercial real estate
|
1,607
|
|
|
2,209
|
|
|
—
|
|
Residential real estate
|
2,326
|
|
|
3,326
|
|
|
—
|
|
Consumer
|
16
|
|
|
46
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
12,313
|
|
|
13,344
|
|
|
—
|
|
Construction
|
5,359
|
|
|
5,669
|
|
|
—
|
|
Commercial real estate
|
7,716
|
|
|
9,798
|
|
|
—
|
|
Residential real estate
|
5,848
|
|
|
7,100
|
|
|
—
|
|
Consumer
|
8
|
|
|
29
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
16,334
|
|
|
16,627
|
|
|
7,723
|
|
Construction
|
10,290
|
|
|
11,943
|
|
|
7,163
|
|
Commercial real estate
|
2,217
|
|
|
2,217
|
|
|
899
|
|
Residential real estate
|
5,080
|
|
|
5,080
|
|
|
1,111
|
|
Consumer
|
1,392
|
|
|
1,392
|
|
|
1,182
|
|
Total loans individually evaluated for impairment
|
$
|
73,205
|
|
|
$
|
82,873
|
|
|
$
|
18,078
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands)
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
14,044
|
|
|
14,924
|
|
|
—
|
|
Construction
|
14,913
|
|
|
16,485
|
|
|
—
|
|
Commercial real estate
|
2,879
|
|
|
3,048
|
|
|
—
|
|
Residential real estate
|
5,125
|
|
|
5,985
|
|
|
—
|
|
Consumer
|
10
|
|
|
31
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
9,461
|
|
|
9,461
|
|
|
1,593
|
|
Construction
|
6,179
|
|
|
6,179
|
|
|
951
|
|
Commercial real estate
|
5,768
|
|
|
7,268
|
|
|
640
|
|
Residential real estate
|
7,407
|
|
|
7,563
|
|
|
2,175
|
|
Consumer
|
88
|
|
|
88
|
|
|
88
|
|
Total loans individually evaluated for impairment
|
$
|
65,874
|
|
|
$
|
71,032
|
|
|
$
|
5,447
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2016
|
|
2015
|
(in thousands)
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
878
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
1,826
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
1,608
|
|
|
12
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
2,368
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Consumer
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
12,664
|
|
|
74
|
|
|
16,415
|
|
|
92
|
|
Construction
|
5,395
|
|
|
48
|
|
|
15,528
|
|
|
—
|
|
Commercial real estate
|
8,007
|
|
|
68
|
|
|
5,637
|
|
|
8
|
|
Residential real estate
|
6,396
|
|
|
1
|
|
|
5,543
|
|
|
6
|
|
Consumer
|
14
|
|
|
—
|
|
|
70
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
16,391
|
|
|
51
|
|
|
5,868
|
|
|
49
|
|
Construction
|
10,297
|
|
|
3
|
|
|
5,577
|
|
|
50
|
|
Commercial real estate
|
2,229
|
|
|
3
|
|
|
3,613
|
|
|
48
|
|
Residential real estate
|
5,148
|
|
|
43
|
|
|
7,707
|
|
|
49
|
|
Consumer
|
1,393
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
$
|
74,631
|
|
|
$
|
316
|
|
|
$
|
65,959
|
|
|
$
|
302
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
(in thousands)
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
878
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
1,826
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
1,608
|
|
|
12
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
2,368
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Consumer
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
12,839
|
|
|
224
|
|
|
16,520
|
|
|
276
|
|
Construction
|
5,478
|
|
|
144
|
|
|
15,611
|
|
|
—
|
|
Commercial real estate
|
8,101
|
|
|
204
|
|
|
5,669
|
|
|
16
|
|
Residential real estate
|
6,466
|
|
|
4
|
|
|
5,616
|
|
|
18
|
|
Consumer
|
14
|
|
|
—
|
|
|
70
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
16,721
|
|
|
153
|
|
|
5,926
|
|
|
145
|
|
Construction
|
14,485
|
|
|
7
|
|
|
5,628
|
|
|
148
|
|
Commercial real estate
|
2,316
|
|
|
9
|
|
|
3,633
|
|
|
141
|
|
Residential real estate
|
5,345
|
|
|
131
|
|
|
7,964
|
|
|
157
|
|
Consumer
|
1,412
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
$
|
79,874
|
|
|
$
|
901
|
|
|
$
|
66,638
|
|
|
$
|
901
|
|
The following table presents accretion of acquired loan discounts for the periods stated. The amount of accretion recognized in the periods is dependent on discounts recorded to reflect acquired loans at their estimated fair values as of the date of the Merger. As of September 30, 2016, the estimated fair value of acquired loans was preliminary and subject to change; therefore, accretion could be adjusted when estimated fair values are finalized in subsequent periods. Additionally, the amount of accretion recognized within a period is based on many factors, including, among other factors, loan prepayments and curtailments; therefore, amounts recognized are subject to volatility.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in thousands)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions
|
11,584
|
|
|
—
|
|
|
11,584
|
|
|
—
|
|
Accretion (1)
|
(1,509
|
)
|
|
—
|
|
|
(1,509
|
)
|
|
—
|
|
Balance at end of period
|
$
|
10,075
|
|
|
$
|
—
|
|
|
$
|
10,075
|
|
|
$
|
—
|
|
_______________________
|
|
|
|
|
|
|
|
(1) Accretion amounts are reported in interest income.
|
|
|
|
|
In evaluating GSLs, the allowance for loan losses is based on historical default rates for similar types of loans applied to the portion of carrying value in these loans that is not subject to federal guarantee. In the period since the Merger through September 30, 2016, no provision expense has been recorded with respect to GSLs, as the carrying amount in these loans approximates the guaranteed portion of the loans.
Management believes the allowance for loan losses as of
September 30, 2016
is adequate to absorb losses inherent in the portfolio. However, the allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations.
Impaired Loans
Total impaired loans were
$73.2 million
and
$65.9 million
at
September 30, 2016
and
December 31, 2015
, respectively. The Company continues to resolve its troubled loans through charge-offs, curtailments, pay offs, and returns of loans to performing status. Collateral dependent impaired loans were
$61.3 million
and
$60.5 million
at
September 30, 2016
and
December 31, 2015
, respectively, and are measured at the fair value of the underlying collateral less costs to sell. Impaired loans for which no allowance is provided totaled
$37.9 million
and
$37.0 million
at
September 30, 2016
and
December 31, 2015
, respectively. Loans written down to their estimated fair value of collateral less costs to sell account for
$6.8 million
and
$18.6 million
of the impaired loans for which no allowance has been provided as of
September 30, 2016
and
December 31, 2015
, respectively. The remaining impaired loans for which no allowance is provided are expected to be fully covered by the fair value of the collateral; therefore,
no
loss is expected on these loans.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans and other real estate owned and repossessed assets. As of
September 30, 2016
, the Company had no loans other than GSLs that were past due greater than
90 days
and accruing interest. These loans are substantially fully guaranteed by the federal government as to principal and accrued interest. Pursuant to the guarantee, the Company may make a claim for payment on the loan after a period of
270 days
during which no payment has been made on the loan. Payments of principal and interest are guaranteed up to the date of payment under the guarantee.
The following table presents nonperforming assets as of
September 30, 2016
and
December 31, 2015
:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Purchased credit-impaired loans:
|
|
|
|
Commercial & Industrial
|
$
|
674
|
|
|
$
|
—
|
|
Construction
|
1,090
|
|
|
—
|
|
Commercial real estate
|
716
|
|
|
—
|
|
Residential real estate
|
1,872
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
4,352
|
|
|
—
|
|
Originated and other purchased loans:
|
|
|
|
Commercial & Industrial
|
16,444
|
|
|
10,118
|
|
Construction
|
10,445
|
|
|
15,729
|
|
Commercial real estate
|
4,396
|
|
|
3,308
|
|
Residential real estate
|
6,413
|
|
|
6,259
|
|
Consumer
|
1,390
|
|
|
98
|
|
Total originated and other purchased loans
|
39,088
|
|
|
35,512
|
|
Total nonaccrual loans
|
43,440
|
|
|
35,512
|
|
Other real estate owned
|
6,293
|
|
|
12,409
|
|
Total nonperforming assets
|
$
|
49,733
|
|
|
$
|
47,921
|
|
A reconciliation of nonaccrual loans to impaired loans as of
September 30, 2016
and
December 31, 2015
is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Nonaccrual loans
|
$
|
43,440
|
|
|
$
|
35,512
|
|
TDRs on accrual
|
27,469
|
|
|
28,939
|
|
Impaired loans on accrual
|
2,296
|
|
|
1,423
|
|
Total impaired loans
|
$
|
73,205
|
|
|
$
|
65,874
|
|
The following table presents a rollforward of nonaccrual loans for the
nine
months ended
September 30, 2016
, which includes
$4.4 million
of loans acquired in the Merger categorized as transfers in.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Commercial & Industrial
|
|
Construction
|
|
Commercial real estate
|
|
Residential real estate
|
|
Consumer
|
|
Total
|
Balance at December 31, 2015
|
$
|
10,118
|
|
|
$
|
15,729
|
|
|
$
|
3,308
|
|
|
$
|
6,259
|
|
|
$
|
98
|
|
|
$
|
35,512
|
|
Transfers in
|
11,776
|
|
|
1,762
|
|
|
3,301
|
|
|
6,337
|
|
|
1,552
|
|
|
24,728
|
|
Transfers to other real estate owned
|
(623
|
)
|
|
(3,330
|
)
|
|
(172
|
)
|
|
(724
|
)
|
|
—
|
|
|
(4,849
|
)
|
Charge-offs
|
(1,160
|
)
|
|
(635
|
)
|
|
(663
|
)
|
|
(2,234
|
)
|
|
(151
|
)
|
|
(4,843
|
)
|
Payments
|
(2,956
|
)
|
|
(1,991
|
)
|
|
(441
|
)
|
|
(825
|
)
|
|
(109
|
)
|
|
(6,322
|
)
|
Return to accrual
|
(48
|
)
|
|
—
|
|
|
(221
|
)
|
|
(517
|
)
|
|
—
|
|
|
(786
|
)
|
Loan type reclassification
|
11
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
Balance at September 30, 2016
|
$
|
17,118
|
|
|
$
|
11,535
|
|
|
$
|
5,112
|
|
|
$
|
8,285
|
|
|
$
|
1,390
|
|
|
$
|
43,440
|
|
Age Analysis of Past Due Loans
The following presents an age analysis of loans as of
September 30, 2016
and
December 31, 2015
:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
30-89 days
|
|
90+ days
|
|
Total
|
|
Total
|
(in thousands)
|
Current
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Loans
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
308
|
|
|
$
|
327
|
|
|
$
|
240
|
|
|
$
|
567
|
|
|
$
|
875
|
|
Construction
|
1,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,824
|
|
Commercial real estate
|
1,258
|
|
|
75
|
|
|
274
|
|
|
349
|
|
|
1,607
|
|
Residential real estate
|
1,452
|
|
|
363
|
|
|
511
|
|
|
874
|
|
|
2,326
|
|
Consumer
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Total purchased credit-impaired loans
|
4,858
|
|
|
765
|
|
|
1,025
|
|
|
1,790
|
|
|
6,648
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
906,048
|
|
|
13,184
|
|
|
3,491
|
|
|
16,675
|
|
|
922,723
|
|
Construction
|
227,233
|
|
|
74
|
|
|
10,214
|
|
|
10,288
|
|
|
237,521
|
|
Commercial real estate
|
605,317
|
|
|
75
|
|
|
2,188
|
|
|
2,263
|
|
|
607,580
|
|
Residential real estate
|
409,531
|
|
|
3,839
|
|
|
2,470
|
|
|
6,309
|
|
|
415,840
|
|
Consumer
|
233,311
|
|
|
11
|
|
|
9
|
|
|
20
|
|
|
233,331
|
|
Guaranteed student loans
|
34,473
|
|
|
4,095
|
|
|
8,114
|
|
|
12,209
|
|
|
46,682
|
|
Deferred loan fees and related costs
|
707
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
707
|
|
Total originated and other purchased loans
|
2,416,620
|
|
|
21,278
|
|
|
26,486
|
|
|
47,764
|
|
|
2,464,384
|
|
Total loans
|
$
|
2,421,478
|
|
|
$
|
22,043
|
|
|
$
|
27,511
|
|
|
$
|
49,554
|
|
|
$
|
2,471,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
30-89 days
|
|
90+ days
|
|
Total
|
|
Total
|
(in thousands)
|
Current
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Loans
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
451,776
|
|
|
2,699
|
|
|
11,271
|
|
|
13,970
|
|
|
465,746
|
|
Construction
|
137,147
|
|
|
3,514
|
|
|
547
|
|
|
4,061
|
|
|
141,208
|
|
Commercial real estate
|
422,691
|
|
|
686
|
|
|
91
|
|
|
777
|
|
|
423,468
|
|
Residential real estate
|
329,338
|
|
|
2,485
|
|
|
15,513
|
|
|
17,998
|
|
|
347,336
|
|
Consumer
|
161,909
|
|
|
6
|
|
|
3
|
|
|
9
|
|
|
161,918
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred loan fees and related costs
|
(724
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(724
|
)
|
Total originated and other purchased loans
|
1,502,137
|
|
|
9,390
|
|
|
27,425
|
|
|
36,815
|
|
|
1,538,952
|
|
Total loans
|
$
|
1,502,137
|
|
|
$
|
9,390
|
|
|
$
|
27,425
|
|
|
$
|
36,815
|
|
|
$
|
1,538,952
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality
The following tables present information about the credit quality of the loan portfolio using the Company’s internal rating system as an indicator as of
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Special
Mention
|
|
|
|
|
(in thousands)
|
Pass
|
|
|
Substandard
|
|
Total
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
201
|
|
|
$
|
674
|
|
|
$
|
875
|
|
Construction
|
—
|
|
|
—
|
|
|
1,824
|
|
|
1,824
|
|
Commercial real estate
|
—
|
|
|
890
|
|
|
717
|
|
|
1,607
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
2,326
|
|
|
2,326
|
|
Consumer
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
Total purchased credit-impaired loans
|
—
|
|
|
1,091
|
|
|
5,557
|
|
|
6,648
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
894,698
|
|
|
9,873
|
|
|
18,152
|
|
|
922,723
|
|
Construction
|
220,234
|
|
|
6,807
|
|
|
10,480
|
|
|
237,521
|
|
Commercial real estate
|
589,596
|
|
|
5,056
|
|
|
12,928
|
|
|
607,580
|
|
Residential real estate
|
382,159
|
|
|
20,006
|
|
|
13,675
|
|
|
415,840
|
|
Consumer
|
230,468
|
|
|
1,456
|
|
|
1,407
|
|
|
233,331
|
|
Guaranteed student loans
|
46,682
|
|
|
—
|
|
|
—
|
|
|
46,682
|
|
Deferred loan fees and related costs
|
707
|
|
|
—
|
|
|
—
|
|
|
707
|
|
Total originated and other purchased loans
|
2,364,544
|
|
|
43,198
|
|
|
56,642
|
|
|
2,464,384
|
|
Total loans
|
$
|
2,364,544
|
|
|
$
|
44,289
|
|
|
$
|
62,199
|
|
|
$
|
2,471,032
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Special
Mention
|
|
|
|
|
(in thousands)
|
Pass
|
|
|
Substandard
|
|
Total
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
441,376
|
|
|
11,199
|
|
|
13,171
|
|
|
465,746
|
|
Construction
|
118,218
|
|
|
7,260
|
|
|
15,730
|
|
|
141,208
|
|
Commercial real estate
|
404,093
|
|
|
7,632
|
|
|
11,743
|
|
|
423,468
|
|
Residential real estate
|
315,200
|
|
|
18,338
|
|
|
13,798
|
|
|
347,336
|
|
Consumer
|
160,708
|
|
|
1,055
|
|
|
155
|
|
|
161,918
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred loan fees and related costs
|
(724
|
)
|
|
—
|
|
|
—
|
|
|
(724
|
)
|
Total originated and other purchased loans
|
1,438,871
|
|
|
45,484
|
|
|
54,597
|
|
|
1,538,952
|
|
Total loans
|
$
|
1,438,871
|
|
|
$
|
45,484
|
|
|
$
|
54,597
|
|
|
$
|
1,538,952
|
|
Modifications
Loans meeting the criteria to be classified as Troubled Debt Restructurings (“TDRs”) are included in impaired loans. As of
September 30, 2016
and
December 31, 2015
, loans classified as TDRs were
$29.0 million
and
$30.8 million
, respectively. The following table presents the number of and recorded investment in loans classified as TDRs by management at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except number of contracts)
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
Recorded
Investment
|
|
|
|
Recorded
Investment
|
Troubled Debt Restructurings
|
Number of Contracts
|
|
|
Number of Contracts
|
|
Commercial & Industrial
|
12
|
|
|
$
|
13,041
|
|
|
14
|
|
|
$
|
14,253
|
|
Construction
|
5
|
|
|
5,281
|
|
|
4
|
|
|
5,440
|
|
Commercial real estate
|
7
|
|
|
5,536
|
|
|
7
|
|
|
5,577
|
|
Residential real estate
|
14
|
|
|
5,123
|
|
|
15
|
|
|
5,483
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
38
|
|
|
$
|
28,981
|
|
|
40
|
|
|
$
|
30,753
|
|
Of TDRs, amounts totaling
$27.5 million
were accruing and
$1.5 million
were nonaccruing at
September 30, 2016
, and
$28.9 million
were accruing and
$1.8 million
were nonaccruing at
December 31, 2015
. Loans classified as TDRs that are on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately
six months
before management considers whether such loans may return to accrual status. Loans classified as TDRs in nonaccrual status may be returned to accrual status after a period of performance under which the borrower demonstrates the ability and willingness to repay the loan in accordance with the modified terms. For the
nine
months ended
September 30, 2016
,
one
nonaccrual TDR was returned to accrual status.
The following table presents a rollforward of accruing and nonaccruing TDRs for the
nine
months ended
September 30, 2016
:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Accruing
|
|
Nonaccruing
|
|
Total
|
Balance at December 31, 2015
|
$
|
28,939
|
|
|
$
|
1,814
|
|
|
$
|
30,753
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
Payments
|
(1,696
|
)
|
|
(685
|
)
|
|
(2,381
|
)
|
New TDR designation
|
—
|
|
|
609
|
|
|
609
|
|
Release TDR designation
|
—
|
|
|
—
|
|
|
—
|
|
Transfer
|
226
|
|
|
(226
|
)
|
|
—
|
|
Balance at September 30, 2016
|
$
|
27,469
|
|
|
$
|
1,512
|
|
|
$
|
28,981
|
|
The following table presents performing and nonperforming loans identified as TDRs, by loan type, at September 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Performing TDRs:
|
|
|
|
Commercial & Industrial
|
$
|
12,203
|
|
|
$
|
13,387
|
|
Construction
|
5,205
|
|
|
5,363
|
|
Commercial real estate
|
5,536
|
|
|
5,339
|
|
Residential real estate
|
4,525
|
|
|
4,850
|
|
Consumer
|
—
|
|
|
—
|
|
Total performing TDRs
|
27,469
|
|
|
28,939
|
|
Nonperforming TDRs:
|
|
|
|
Commercial & Industrial
|
838
|
|
|
866
|
|
Construction
|
76
|
|
|
77
|
|
Commercial real estate
|
—
|
|
|
238
|
|
Residential real estate
|
598
|
|
|
633
|
|
Consumer
|
—
|
|
|
—
|
|
Total nonperforming TDRs
|
1,512
|
|
|
1,814
|
|
Total TDRs
|
$
|
28,981
|
|
|
$
|
30,753
|
|
The allowance for loan losses allocated to TDRs was
$691 thousand
and
$1.6 million
at
September 30, 2016
and
December 31, 2015
, respectively. There were
no
TDRs charged off and there was
no
allocated portion of allowance for loan losses associated with TDRs charged off during the
nine
months ended
September 30, 2016
. The total of TDRs charged off and the allocated portion of allowance for loan losses associated with TDRs charged off was
$158 thousand
and
$135 thousand
, respectively, during the year ended
December 31, 2015
.
The following table presents a summary of the primary reason and pre- and post-modification outstanding recorded investment for loan modifications that were classified as TDRs during the
three and nine
months ended
September 30, 2016
and
September 30, 2015
. This table includes modifications made to existing TDRs as well as new modifications that are considered TDRs for the periods presented. TDRs made with a below market rate that also include a modification of loan structure are included under rate change.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
(in thousands except number of contracts)
|
Rate
|
|
Structure
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
4
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
84
|
|
|
84
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2
|
|
|
$
|
88
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
(in thousands except number of contracts)
|
Rate
|
|
Structure
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
(in thousands except number of contracts)
|
Rate
|
|
Structure
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
620
|
|
|
$
|
521
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
4
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
84
|
|
|
84
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
3
|
|
|
$
|
708
|
|
|
$
|
609
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
(in thousands except number of contracts)
|
Rate
|
|
Structure
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Number of Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
Commercial & Industrial
|
2
|
|
|
$
|
391
|
|
|
$
|
391
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
4,606
|
|
|
4,031
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
2
|
|
|
$
|
391
|
|
|
$
|
391
|
|
|
3
|
|
|
$
|
4,606
|
|
|
$
|
4,031
|
|
For the
three and nine
months ended
September 30, 2016
and
2015
, the Company had no loans for which there was a payment default and subsequent movement to nonaccrual status, that were modified as TDRs within the previous 12 months.
Loans that are considered TDRs are considered impaired and the primary consideration for measurement of impairment is the present value of the expected cash flows. However, given the prevalence of real estate secured loans in the Company’s portfolio of problem assets, the majority of the Company’s TDR loans are ultimately considered collateral-dependent, and impairments are, therefore, calculated based upon the estimated fair value of the underlying collateral. Observable market prices for the sale of the respective notes are not considered as a basis for impairment for any of the Company’s loans as of
September 30, 2016
and
December 31, 2015
.
In determining the estimated fair value
of collateral dependent impaired loans, the Company uses third party appraisals and, if necessary, utilizes a proprietary database of its own historical property appraisals in conjunction with external data and applies a relevant discount derived from analysis of appraisals of similar property type, vintage, and geographic location (for example, in situations where the most recent available appraisal is aged and an updated appraisal has not yet been received).
The Company had
no
commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs at
September 30, 2016
and
December 31, 2015
.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - Other Real Estate Owned and Repossessed Assets
The following table presents a rollforward of other real estate owned and repossessed assets for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
(in thousands)
|
Amount
|
Balance at December 31, 2015
|
$
|
12,409
|
|
Transfers in (via foreclosure)
|
5,737
|
|
Acquired in the Merger
|
737
|
|
Sales
|
(12,478
|
)
|
Gain on sales
|
1,208
|
|
Impairments
|
(1,320
|
)
|
Balance at September 30, 2016
|
$
|
6,293
|
|
As of
September 30, 2016
, there were
$292 thousand
of residential real estate properties included in the balance of other real estate owned and repossessed assets. Also at
September 30, 2016
, the Company held
$1.9 million
of real estate - residential mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
Other real estate owned and repossessed assets are presented net of a valuation allowance. An analysis of the valuation allowance on these assets as of and for the
nine
months ended
September 30, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
September 30, 2015
|
Balance at beginning of year
|
$
|
9,875
|
|
|
$
|
7,553
|
|
Impairments
|
1,320
|
|
|
1,524
|
|
Charge-offs
|
(8,137
|
)
|
|
(1,464
|
)
|
Balance at end of period
|
$
|
3,058
|
|
|
$
|
7,613
|
|
Items applicable to other real estate owned and repossessed assets included in the consolidated statement of operations for the
three and nine
months ended
September 30, 2016
and
2015
include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
September 30, 2016
|
|
September 30, 2015
|
|
September 30, 2016
|
|
September 30, 2015
|
(Gain) on sales
|
$
|
(52
|
)
|
|
$
|
(34
|
)
|
|
$
|
(1,208
|
)
|
|
$
|
(53
|
)
|
Impairments
|
737
|
|
|
259
|
|
|
1,320
|
|
|
1,524
|
|
Operating expenses
|
104
|
|
|
403
|
|
|
276
|
|
|
835
|
|
Total
|
$
|
789
|
|
|
$
|
628
|
|
|
$
|
388
|
|
|
$
|
2,306
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - Goodwill and Other Intangible Assets
Goodwill of
$26.2 million
and core deposit intangible of
$4.0 million
was recorded in the preliminary allocation of the purchase consideration in the Merger. The estimated core deposit intangible is being amortized over
eight years
on a straight-line basis. The following table presents goodwill and other intangible assets, as of the dates stated. Core deposit intangibles existing at December 31, 2015 were fully amortized as of September 30, 2016.
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Amortizable core deposit intangibles:
|
|
|
|
Gross amount
|
$
|
4,006
|
|
|
$
|
4,756
|
|
Accumulated amortization
|
(88
|
)
|
|
(4,508
|
)
|
Net core deposit intangibles
|
3,918
|
|
|
248
|
|
Goodwill
|
26,225
|
|
|
—
|
|
Total goodwill and other intangible assets, net
|
$
|
30,143
|
|
|
$
|
248
|
|
NOTE K - Share-based Compensation
On October 4, 2011, the Company’s shareholders approved the 2011 Omnibus Incentive Plan (the “Plan”), which succeeded the Company’s 2006 Stock Incentive Plan and provided for the grant of up to
2,750,000
shares of Company common stock as awards to employees of the Company and its related entities, members of the board of directors of the Company, and members of the board of directors of any of the Company’s related entities. On June 25, 2012, the Company’s shareholders approved an amendment to the Plan that increased the number of shares reserved for issuance under the Plan to
13,675,000
of which
837,724
remain available for future grant as of
September 30, 2016
.
Pursuant to the Merger Agreement, at the effective time of the Merger, the Company assumed the Legacy Xenith equity incentive plans (the “Legacy Xenith Plans”). At the effective time of the Merger, each stock option granted by Legacy Xenith (a “Legacy Xenith Option”) that was outstanding and unexercised immediately prior to the effective time of the Merger and whether or not vested was converted into an option to acquire, on the same terms and conditions as were applicable under such Legacy Xenith Option immediately prior to the effective time of the Merger, the number of shares of Company common stock equal to the number of shares of Legacy Xenith common stock subject to such Legacy Xenith Option immediately prior to the effective time of the Merger multiplied by the Exchange Ratio (rounding any resultant fractional share down to the nearest whole number of shares), at a price per share of Company common stock equal to the price per share under such Legacy Xenith Option divided by the Exchange Ratio (rounding any resultant fractional cent up to the nearest whole cent). As a result of the Merger,
728,052
Legacy Xenith options were converted into
3,203,429
options to acquire shares of Company common stock. It is not anticipated that the Company will make future awards under the Legacy Xenith Plans. Other than stock options, there were
no
equity awards outstanding under the Legacy Xenith Plans following the completion of the Merger.
Stock Options
Outstanding stock options consist of grants made to the Company’s directors and employees pursuant to the Plan. All outstanding options issued by the Company prior to 2014 have original terms that range from
five
to
ten years
and are either fully vested and exercisable at the date of grant or vest ratably over
three
to
ten years
. During 2014, there were
5,510,035
stock options granted to certain Company executive managers. The options granted during 2014 ratably vest over a
four
year period between 2015 and 2018 and expire in August 2021. In connection with the Merger,
2,074,073
stock options were issued to executive managers. These options vest ratably over a period of
three
years. Stock options that had been granted under the Legacy Xenith Plans and converted into options to acquire shares of Company common stock in the Merger were fully vested prior to the completion of the Merger.
The following table presents a summary of the Company’s stock option activity and related information for the
nine
months ended
September 30, 2016
:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-Average Contractual Term in Years
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2015
|
3,566,894
|
|
|
$
|
2.40
|
|
|
$
|
760
|
|
|
5.68
|
Issued at the Merger
|
3,203,429
|
|
|
1.46
|
|
|
|
|
|
|
Granted
|
2,074,703
|
|
|
2.05
|
|
|
|
|
|
|
Forfeited and canceled
|
(805,607
|
)
|
|
1.61
|
|
|
|
|
|
|
Exercised
|
(26,400
|
)
|
|
0.99
|
|
|
|
|
|
|
Expired
|
(79,304
|
)
|
|
10.36
|
|
|
|
|
|
|
Balance at September 30, 2016
|
7,933,715
|
|
|
$
|
1.95
|
|
|
$
|
4,564
|
|
|
5.14
|
Options exercisable at
|
|
|
|
|
|
|
|
September 30, 2016
|
4,482,418
|
|
|
$
|
2.00
|
|
|
$
|
3,089
|
|
|
4.48
|
As of
September 30, 2016
, there was
$2.4 million
of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of
2.37 years
.
Restricted Stock Units
The Company grants restricted stock units ("RSUs") to non-employee directors and certain employees pursuant to the Plan. RSUs are settled in Company common stock and generally vest over a range of
one
to
four years
. Grants of these awards are valued based on the closing price on the day of grant. RSUs are not eligible to receive dividends or dividend equivalence until the RSUs are settled in Company common stock. At that time, the participant will be entitled to all the same rights as a shareholder of the Company. In connection with the Merger,
674,982
RSUs were settled in cash and
871,370
RSUs were issued to executive managers and members of the board of directors, which vest over various periods up to
three years
.
The following table presents a summary of the Company’s unvested RSU activity and related information for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
Number
of Unvested Awards
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
|
|
Balance at December 31, 2015
|
954,034
|
|
|
$
|
1.66
|
|
Granted
|
871,370
|
|
|
2.05
|
|
Vested
|
(811,050
|
)
|
|
1.74
|
|
Forfeited and canceled
|
(142,984
|
)
|
|
1.61
|
|
Balance at September 30, 2016
|
871,370
|
|
|
$
|
2.05
|
|
Since the establishment of the Plan,
2,773,651
RSUs have fully vested, of which
1,921,660
have settled in Company common stock and
674,982
have settled in cash as of
September 30, 2016
. As of
September 30, 2016
, there was
$1.6 million
of total unrecognized compensation cost related to RSUs.
Compensation cost relating to share-based awards is accounted for in the consolidated financial statements based on the fair value of the share-based award on the date of the award and are expensed over the vesting period. Share-based compensation expense recognized in the consolidated statements of operations for the
nine
months ended
September 30, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
September 30, 2015
|
Expense recognized:
|
|
|
|
Related to stock options
|
$
|
321
|
|
|
$
|
903
|
|
Related to restricted stock units
|
1,345
|
|
|
525
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - Income Taxes
The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. Certain items of income and expense are reported in different periods for financial reporting and tax return purposes resulting in temporary differences. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit on the Company's consolidated statement of operations. As of September 30, 2016, the Company had a net deferred tax asset of
$158.3 million
, which is net of a valuation allowance of
$745 thousand
.
The following table presents the statutory tax rate reconciled to the Company’s effective tax rate from continuing operations for the date stated:
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
September 30, 2016
|
(in thousands)
|
Tax
|
Rate
|
Effective tax rate from continuing operations:
|
|
|
Income tax benefit at statutory rate
|
$
|
(3,798
|
)
|
(35.00
|
)%
|
Transaction-related expenses
|
1,311
|
|
12.08
|
%
|
Tax-exempt income
|
(406
|
)
|
(3.74
|
)%
|
Reversal of valuation allowance
|
(59,950
|
)
|
(552.41
|
)%
|
Other
|
49
|
|
0.45
|
%
|
Income tax benefit from continuing operations
|
$
|
(62,794
|
)
|
(578.62
|
)%
|
Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities. These differences will result in deductible or taxable amounts in a future year(s) when the reported amounts of assets or liabilities are recovered or settled. Deferred assets and liabilities are stated at tax rates expected to be in effect in the year(s) the differences reverse. A valuation allowance is recorded against that portion of the deferred tax assets when it is more likely than not that all or a portion of the asset will not be realized.
A valuation allowance related to all components of net deferred tax assets was established in 2009 and was adjusted, as necessary, each reporting period. The valuation allowance was established based upon a determination at the time that it was not more likely than not that the deferred tax assets would be fully realized primarily as a result of the significant operating losses experienced by the Company during year-end 2009 and thereafter. For the year ended December 31, 2015, management determined that is was more likely than not that a portion of its deferred tax assets would be realized and released a portion of its valuation allowance in the amount of
$92.5 million
. At September 30, 2016, management determined that is was more likely than not that substantially all of its deferred tax asset would be realized and released substantially all of the remaining valuation allowance, which totaled
$60.0 million
.
ASC 740,
Accounting for Income Taxes
, paragraph 740-10-30-18 states that four possible sources of taxable income may be available under the tax law to realize a tax benefit for deductible temporary differences. In determining the need for a valuation allowance and in accordance with ASC 740-10-30-17, management evaluated all available evidence, both positive and negative, assessing the objectivity of the evidence and giving more weight to that evidence which is more objective than evidence which is subjective. Positive and negative evidence refers to factors affecting the predictability of one or more of the four sources of taxable income.
The positive evidence at September 30, 2016 included the fact that the Company has been in a positive cumulative pre-tax income position for the previous
three years
and the Company expects to generate taxable income in future years sufficient to absorb substantially all of its net deferred tax assets. A significant component of the Company's deferred tax asset relates to federal net operating losses ("NOLs") of approximately
$300.0 million
, which under current law can be carried forward 20 years. Legacy Xenith did not have federal NOLs carrying forward.
Management's estimate of future taxable income is based on internal projections, which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which, while inherently subject to judgment, management believes to be reasonable. At December 31, 2015, management concluded that the Company did not have sufficient future income to absorb all NOLs and only a portion of the deferred tax asset related to NOLs would be realized, thus releasing only a portion of
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the valuation allowance. At September 30, 2016, as a result of the Merger, management believes the Company has sufficient future income to absorb substantially all of the deferred tax assets, including assets relating to NOLs, and substantially all of the remaining valuation allowance has been released. The portion of valuation allowance remaining relates to deferred tax assets resulting for NOLs in the Commonwealth of Virginia, where the parent company files a standalone tax return. As such, the parent company is not expected to generate operating income in future periods, management has concluded that it is not more likely than not that the deferred tax assets, which is
$745 thousand
, related to these NOLs will be absorbed.
If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, the valuation allowance may need to be increased for some or all of the Company’s net deferred tax assets. An increase to the deferred tax asset valuation allowance could have a material adverse effect on the Company’s financial condition and results of operations.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - Derivative Instruments
Derivatives are financial instruments whose value is based on one or more underlying assets. The Company originates residential mortgage loans for sale into the secondary market on a best efforts basis. In connection with the underwriting process, the Company enters into commitments to lock-in the interest rate of the loan with the borrower prior to funding (“interest rate-lock commitments”). Generally, such interest rate-lock commitments are for periods less than
60
days. These interest rate-lock commitments are considered derivatives. The Company manages its exposure to changes in fair value associated with these interest rate-lock commitments by entering into simultaneous agreements to sell the residential loans to third party investors shortly after their origination and funding. At
September 30, 2016
and
December 31, 2015
, the Company had loans held for sale of
$71.9 million
and
$56.5 million
, respectively, reported in assets from discontinued operations on its consolidated balance sheets.
Under the contractual relationship in the best efforts method, the Company is obligated to sell the loans only if the loans close. As a result of the terms of these contractual relationships, the Company is not exposed to
changes in fair value
nor will it realize gains or losses related to its rate-lock commitments due to subsequent changes in interest rates. At
September 30, 2016
and
December 31, 2015
, the Company had rate lock commitments to originate residential mortgage loans (unfunded par amount of loans) on a best efforts basis in the amounts of
$89.3 million
and
$50.6 million
, respectively. The Company's interest rate-lock commitments are related to the operations of GBMI, which are reported herein as discontinued operations.
The Company has derivative financial instruments not designated as hedges and result from a service the Company provides to meet the needs of certain commercial customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Derivative contracts are executed between the Company and certain commercial loan customers with offsetting positions to dealers under a back-to-back swap arrangement enabling the commercial loan customers to effectively exchange variable-rate interest payments under their existing obligations for fixed-rate interest payments. These derivatives do not meet hedge accounting requirements; therefore, changes in the fair value of both the customer derivative and the offsetting derivative are recognized in net income. For the
nine
months ended
September 30, 2016
and
2015
, the Company recorded
$35 thousand
and
$175 thousand
, respectively, of income related to its back-to-back interest rate swap program that was included in other noninterest income on the consolidated statements of operations.
The Company has minimum collateral requirements with its financial institution counterparties for non-hedge derivatives that contain provisions, whereby if the Company fails to maintain its status as a well or an adequately capitalized institution, the Company could be required to terminate or fully collateralize the derivative contract. Additionally, if the Company defaults on any of its indebtedness, including default where repayment has not been accelerated by the lender, the Company could also be in default on its derivative obligations. As of September 30, 2016, the Bank had cash and securities in the amount of
$3.4 million
pledged as collateral under the agreements. If the Company is not in compliance with the terms of the derivative agreements, it could be required to settle its obligations under the agreements at termination value.
Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association (ISDA) master agreements which include right of setoff provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes.
Information about financial instruments that are eligible for offset in the consolidated balance sheets as of
September 30, 2016
and
December 31, 2015
is presented in the following tables:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Net Amounts
|
Gross Amounts
|
|
|
|
|
Amounts
|
of Assets
|
Not Offset in the
|
|
|
|
Gross
|
Offset in
|
Presented
|
Consolidated Balance Sheets
|
|
|
|
Amounts
|
the
|
in the
|
|
|
|
|
|
of
|
Consolidated
|
Consolidated
|
|
Cash and Security
|
|
|
|
Recognized
|
Balance
|
Balance
|
Financial
|
Collateral
|
Net
|
(in thousands)
|
|
Assets
|
Sheets
|
Sheets
|
Instruments
|
Received
|
Amount
|
Derivative assets:
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
3,376
|
|
$
|
—
|
|
$
|
3,376
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,376
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
1,219
|
|
—
|
|
1,219
|
|
—
|
|
—
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Net Amounts
|
Gross Amounts
|
|
|
|
|
Amounts
|
of Liabilities
|
Not Offset in the
|
|
|
|
Gross
|
Offset in
|
Presented
|
Consolidated Balance Sheets
|
|
|
|
Amounts
|
the
|
in the
|
|
|
|
|
|
of
|
Consolidated
|
Consolidated
|
|
Cash and Security
|
|
|
|
Recognized
|
Balance
|
Balance
|
Financial
|
Collateral
|
Net
|
(in thousands)
|
|
Liabilities
|
Sheets
|
Sheets
|
Instruments
|
Pledged
|
Amount
|
Derivative liabilities:
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
3,448
|
|
$
|
—
|
|
$
|
3,448
|
|
$
|
—
|
|
$
|
3,409
|
|
$
|
39
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
1,219
|
|
—
|
|
1,219
|
|
—
|
|
1,219
|
|
—
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies financial assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuation methodologies for the fair value hierarchy are as follows:
Level 1
– Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain Treasury securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
Level 3
– Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include values that are determined using pricing models, discounted cash flow methodologies, or similar techniques as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.
The categorization of an asset or liability within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Recurring Basis
The Company measures or monitors certain of its assets on a fair value basis. Fair value is used on a recurring basis for those assets and liabilities for which an election was made, as well as for certain assets and liabilities in which fair value is the primary basis of accounting. The following tables present the fair value of assets measured and recognized at fair value on a recurring basis in the consolidated balance sheets at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
Fair Value Measurements at Reporting Date Using
|
Assets
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Investment securities available for sale
|
|
|
|
|
|
|
|
Corporate bonds
|
$
|
987
|
|
|
$
|
—
|
|
|
$
|
987
|
|
|
$
|
—
|
|
Mortgage-backed securities -
|
|
|
|
|
|
|
|
Agency
|
134,324
|
|
|
—
|
|
|
134,324
|
|
|
—
|
|
Municipals
|
86,911
|
|
|
—
|
|
|
86,911
|
|
|
—
|
|
Commercial mortgage-backed securities
|
67,615
|
|
|
—
|
|
|
67,615
|
|
|
—
|
|
Collateralized mortgage obligations
|
21,870
|
|
|
—
|
|
|
21,870
|
|
|
—
|
|
Asset-backed securities
|
14,759
|
|
|
—
|
|
|
14,759
|
|
|
—
|
|
Equity securities
|
1,679
|
|
|
1,580
|
|
|
—
|
|
|
99
|
|
Total investment securities
|
|
|
|
|
|
|
|
available for sale
|
328,145
|
|
|
1,580
|
|
|
326,466
|
|
|
99
|
|
Derivative loan commitments
|
1,490
|
|
|
—
|
|
|
—
|
|
|
1,490
|
|
Interest rate swaps
|
3,376
|
|
|
—
|
|
|
3,376
|
|
|
—
|
|
Other assets
|
$
|
1,807
|
|
|
$
|
1,807
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets
|
$
|
334,818
|
|
|
$
|
3,387
|
|
|
$
|
329,842
|
|
|
$
|
1,589
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
3,448
|
|
|
$
|
—
|
|
|
$
|
3,448
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
3,448
|
|
|
$
|
—
|
|
|
$
|
3,448
|
|
|
$
|
—
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2015
|
|
Fair Value Measurements at Reporting Date Using
|
Assets
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Investment securities available for sale
|
|
|
|
|
|
|
|
U.S. agency securities
|
$
|
13,072
|
|
|
$
|
—
|
|
|
$
|
13,072
|
|
|
$
|
—
|
|
Corporate bonds
|
11,190
|
|
|
—
|
|
|
11,190
|
|
|
—
|
|
Mortgage-backed securities -
|
|
|
|
|
|
|
|
Agency
|
149,199
|
|
|
—
|
|
|
149,199
|
|
|
—
|
|
Asset-backed securities
|
23,292
|
|
|
—
|
|
|
23,292
|
|
|
—
|
|
Equity securities
|
1,421
|
|
|
1,322
|
|
|
—
|
|
|
99
|
|
Total investment securities
|
|
|
|
|
|
|
|
available for sale
|
198,174
|
|
|
1,322
|
|
|
196,753
|
|
|
99
|
|
Derivative loan commitments
|
1,020
|
|
|
—
|
|
|
—
|
|
|
1,020
|
|
Interest rate swaps
|
1,219
|
|
|
—
|
|
|
1,219
|
|
|
—
|
|
Total assets
|
$
|
200,413
|
|
|
$
|
1,322
|
|
|
$
|
197,972
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
1,219
|
|
|
$
|
—
|
|
|
$
|
1,219
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
1,219
|
|
|
$
|
—
|
|
|
$
|
1,219
|
|
|
$
|
—
|
|
The following table presents a rollforward of recurring fair value measurements categorized within Level 3 of the fair value hierarchy for the
nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in Level 3
|
|
Activity in Level 3
|
|
Fair Value Measurements
|
|
Fair Value Measurements
|
(in thousands)
|
Nine Months Ended September 30, 2016
|
|
Twelve Months Ended December 31, 2015
|
|
Investment
Securities
Available for Sale
|
|
Derivative
Loan
Commitments
|
|
Investment
Securities
Available for Sale
|
|
Derivative
Loan
Commitments
|
|
|
|
|
Description
|
|
|
|
Beginning of period balance
|
$
|
99
|
|
|
$
|
1,020
|
|
|
$
|
280
|
|
|
$
|
472
|
|
Unrealized gains included in:
|
|
|
|
|
|
|
|
Earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification from level 3 to level 1
|
—
|
|
|
—
|
|
|
(181
|
)
|
|
—
|
|
Issuances
|
—
|
|
|
470
|
|
|
—
|
|
|
799
|
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
(251
|
)
|
End of period balance
|
$
|
99
|
|
|
$
|
1,490
|
|
|
$
|
99
|
|
|
$
|
1,020
|
|
The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
The following describes the valuation techniques used to estimate fair value for assets and liabilities that are measured on a recurring basis.
Investment Securities Available for Sale:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products, and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities would include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed, and other securities valued using third party
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
quoted prices in markets that are not active. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative Loan Commitments:
The Company originates mortgage loans for sale into the secondary market on a best efforts basis. Under the best efforts basis, the Company enters into commitments to originate mortgage loans whereby the interest rate is fixed prior to funding. These commitments, in which the Company intends to sell in the secondary market, are considered freestanding derivatives. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted prices adjusted for commitments that the Company does not expect to fund.
Interest Rate Swaps:
The Company uses observable inputs to determine fair value of its interest rate swaps. The valuation of these instruments is determined using widely accepted valuation techniques that are based on discounted cash flow analysis using the expected cash flows of each derivative over the contractual terms of the derivatives, including the period to maturity and market-based interest rate curves. The fair value of the interest rate swaps is determined using a market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments were based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Accordingly, the Company categorizes these financial instruments within Level 2 of the fair value hierarchy.
Nonrecurring Basis
Certain assets, specifically collateral dependent impaired loans and other real estate owned and repossessed assets, are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment and an allowance is established to adjust the asset to its estimated fair value). The adjustments are based on appraisals of underlying collateral or other observable market prices when current appraisals or observable market prices are available. If an appraisal that is less than
12 months
old is not available, an existing appraisal or other valuation would be utilized after adjusting it to reflect current market conditions, and, as such, may include significant management assumptions and input with respect to the determination of fair value.
To assist in the adjustment process, a valuation matrix was developed to provide valuation guidance for collateral dependent loans and other real estate owned where it was deemed that an existing appraisal was outdated as to current market conditions. The matrix applies adjustments to external appraisals depending on the type of real estate and age of the appraisal. The adjustments are generally specific point estimates; however, in some cases, the matrix allows for a small range of values. The adjustments were based in part upon externally derived statistical data. The adjustments were also based upon management’s knowledge of market conditions and prices of sales of other real estate owned. In addition, matrix value adjustments may be made by the Company's independent appraisal group to reflect property value trends within specific markets as well as actual sales data from market transactions and/or foreclosed real estate sales. It is the Company’s policy to classify these as Level 3 assets within the fair value hierarchy. Management periodically reviews the adjustments in the matrix as compared to valuations from updated appraisals and modifies the adjustments accordingly should updated appraisals reflect valuations significantly different than those derived utilizing the matrix. To date, management believes the appraisal adjustment matrix has resulted in appropriate adjustments to existing appraisals thereby providing management with reasonable valuations for the collateral underlying the loan portfolio; however, while appraisals are indicators of fair value, the amount realized upon sale of these assets could be significantly different.
The following tables present the fair value of assets measured and recognized at fair value on a nonrecurring basis in the consolidated balance sheets at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Measured at
Fair Value
|
|
Fair Value Measurements at
|
|
|
September 30, 2016 Using
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Impaired loans
|
$
|
50,002
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50,002
|
|
Other real estate owned
|
|
|
|
|
|
|
|
and repossessed assets
|
6,293
|
|
|
—
|
|
|
—
|
|
|
6,293
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Measured at
Fair Value
|
|
Fair Value Measurements at
|
|
|
December 31, 2015 Using
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Impaired loans
|
$
|
55,279
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55,279
|
|
Other real estate owned
|
|
|
|
|
|
|
|
and repossessed assets
|
12,409
|
|
|
—
|
|
|
—
|
|
|
12,409
|
|
The following describes the valuation techniques used to estimate fair value for our assets that are required to be measured on a nonrecurring basis.
Impaired Loans:
The majority of the Company’s impaired loans are considered collateral dependent.
For collateral dependent impaired loans, impairment is measured based upon the estimated fair value
of the underlying collateral.
Other Real Estate Owned and Repossessed Assets:
The fair value of other real estate owned and repossessed assets is based primarily on appraisals of the real estate or other observable market prices. The Company's policy is to have current appraisals of these assets; however, if a current appraisal is not available, an existing appraisal would be utilized after adjusting it to reflect changes in market conditions from the date of the existing appraisal, and, as such, may include significant management assumptions and input with respect to the determination of fair value.
Significant Unobservable Inputs
The following table presents the significant unobservable inputs used to value the Company’s material Level 3 assets. These factors represent the significant unobservable inputs that were used in measurement of fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except for percentages)
|
|
|
Significant Unobservable
|
|
Significant Unobservable
|
|
Fair Value at
|
|
Inputs by
|
|
Inputs as of
|
|
September 30, 2016
|
|
Valuation Technique
|
|
September 30, 2016
|
Derivative loan commitments
|
$
|
1,490
|
|
|
Pull through rate
|
|
89%
|
|
|
|
Percentage of loans that will
|
|
|
|
|
|
ultimately close
|
|
|
Impaired loans
|
50,002
|
|
|
Appraised value
|
|
10%
|
|
|
|
Average discounts to reflect current
|
|
|
|
|
|
market conditions, ultimate collectability,
|
|
|
|
|
|
and estimated costs to sell
|
|
|
Other real estate owned
|
6,293
|
|
|
Appraised value
|
|
10%
|
|
|
|
Weighted average discounts to reflect
|
|
|
|
|
|
current market conditions, abbreviated
|
|
|
|
|
|
holding period and estimated costs to sell
|
|
|
Other Fair Value Measurements
Accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. For the financial instruments that the Company does not record at fair value, estimates of fair value are made at a point in time based on relevant market data and information about the financial instrument. No readily available market exists for a significant portion of the Company’s financial instruments. Fair value estimates for these instruments are based on current economic conditions, interest rate risk characteristics, and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision; therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by the Company in estimating fair value of these financial instruments.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and overnight funds sold and due from FRB. The carrying amount approximates fair value.
(b) Investment Securities Available for Sale
Fair values are based on published market prices where available. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Investment securities available for sale are carried at their aggregate fair value.
(c) Restricted Equity Securities
These investments are carried at cost. The carrying amount approximates fair value.
(d) Loans Held For Sale
The carrying value of loans held for sale is a reasonable estimate of fair value since loans held for sale are expected to be sold within a short period that is typically between 30 and 90 days after a loan closing transaction. These loans are reported within discontinued operations.
(e) Loans
To determine the fair values of loans other than those deemed impaired, the Company uses discounted cash flow analyses using discount rates that are similar to the interest rates and terms currently being offered to borrowers of similar terms and credit quality. In valuing acquired loans, the Company also uses valuation techniques that include default rates for similar risk rated loans and estimates of expected cash flows as well as other factors.
(f) Interest Receivable and Interest Payable
The carrying amount approximates fair value.
(g) Bank-Owned Life Insurance
The carrying amount approximates fair value.
(h) Deposits
The fair values disclosed for non-maturity deposits such as demand (including money market) and savings accounts are equal to the amount payable on demand at the reporting date (i.e., carrying values). Fair values for certificates of deposit are estimated using a discounted cash flow model that applies market interest rates on comparable instruments.
(i) Borrowings
The fair value of borrowings is estimated using discounted cash flow analyses based on the rates currently offered for borrowings of similar remaining maturities and collateral requirements. These include FHLB borrowings and other borrowings.
(j) Commitments to Extend Credit and Standby Letters of Credit
The only amounts recorded for commitments to extend credit and standby letters of credit are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at
September 30, 2016
and
December 31, 2015
, and as such, the related fair values have not been estimated.
The carrying amounts and fair values of those financial instruments that are not recorded at fair value or have carrying amounts that approximate fair value at
September 30, 2016
and
December 31, 2015
were as follows:
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Fair Value Measurements at Reporting Date Using
|
(in thousands)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Loans, net(1)
|
$
|
2,437,302
|
|
|
$
|
2,470,049
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,470,049
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
2,586,608
|
|
|
2,588,924
|
|
|
—
|
|
|
2,588,924
|
|
|
—
|
|
FHLB borrowings
|
197,500
|
|
|
197,500
|
|
|
—
|
|
|
197,500
|
|
|
—
|
|
Other borrowings
|
38,468
|
|
|
83,100
|
|
|
—
|
|
|
83,100
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Fair Value Measurements at Reporting Date Using
|
(in thousands)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Loans, net(1)
|
$
|
1,518,318
|
|
|
$
|
1,525,606
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,525,606
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,705,145
|
|
|
1,678,886
|
|
|
—
|
|
|
1,678,886
|
|
|
—
|
|
FHLB borrowings
|
25,000
|
|
|
25,000
|
|
|
—
|
|
|
25,000
|
|
|
—
|
|
Other borrowings
|
29,689
|
|
|
56,703
|
|
|
—
|
|
|
56,703
|
|
|
—
|
|
(1) Carrying amount and fair value include impaired loans and carrying amount is net of the allowance for loan losses.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - Commitments and Contingencies
In the ordinary course of operations, the Company has become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows.
In the normal course of business, the Company has commitments under credit agreements to lend to customers as long as there is no material violation of any condition established in the contracts. These commitments generally have fixed expiration dates or other termination clauses and may require payments of fees. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Additionally, the Company's issue letters of credit, which are conditional commitments to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is the same as that involved in extending loans to customers.
These commitments represent outstanding off-balance sheet commitments. The following table presents unfunded loan commitments outstanding as of the dates stated:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Commercial lines of credit
|
$
|
320,880
|
|
|
$
|
124,834
|
|
Construction
|
112,737
|
|
|
27,758
|
|
Commercial real estate
|
43,544
|
|
|
13,004
|
|
Residential real estate
|
96,616
|
|
|
82,189
|
|
Consumer
|
12,472
|
|
|
7,164
|
|
Letters of credit
|
20,821
|
|
|
15,555
|
|
Total commitments
|
$
|
607,070
|
|
|
$
|
270,504
|
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - Subsequent Events
On October 17, 2016, the Bank completed the GBMI Sale and received proceeds of approximately
$87 thousand
from the purchaser.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward-Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When or if used in this Form 10-Q or any filings with the Securities and Exchange Commission (the "SEC"), other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “is estimated,” “is projected,” or similar expressions are intended to identify “forward-looking statements.”
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on any of these forward-looking statements.
For a discussion of the risks, uncertainties, and assumptions that could affect our future events, developments, or results, you should carefully review the risk factors summarized below and the more detailed discussion in "Risk Factors" of the joint proxy statement/prospectus (Registration No. 333-210643) that we filed with the SEC on June 30, 2016 (the "Proxy Statement/Prospectus"). Our risks include the following:
|
|
•
|
Our success is largely dependent on attracting and retaining key management team members;
|
|
|
•
|
We are not currently paying dividends on our common stock and absent regulatory approval are prevented from doing so. The inability to pay dividends on our common stock may adversely affect the market price of our common stock;
|
|
|
•
|
We incurred significant losses from 2009 to 2012. While we were profitable in 2013, 2014, and 2015 and in the first nine months of 2016 due to the reversal of our valuation allowance on our net deferred tax asset, we can make no assurances that will continue. An inability to improve our profitability could adversely affect our operations and our capital levels, and thus our ability to grow;
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•
|
Our ability to cease operations and transition our mortgage banking operations to a third-party purchaser could take longer and be more costly than anticipated and could adversely impact our results of operations;
|
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|
•
|
Economic, market, or operational developments may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition;
|
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•
|
Our ability to maintain adequate sources of funding and liquidity may be negatively impacted by the economic environment, which may, among other things, impact our ability to grow, satisfy our obligations, and pay dividends, if approved;
|
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•
|
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry;
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•
|
Sales, or the perception that sales could occur, of large amounts of our common stock by our institutional investors may depress our stock price. Sales of a significant portion of our stock by our institutional investors could limit our ability to utilize our deferred tax asset, which also could depress our stock price;
|
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•
|
The significant portion of our loan portfolio is in real estate – commercial mortgage, equity line lending, and construction, which may expose us to greater risk of loss;
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•
|
General economic conditions in the markets in which we do business may decline and may have a material adverse effect on our results of operations and financial condition;
|
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•
|
We have had large numbers of problem loans. Although problem loans have declined significantly, there is no assurance that they will continue to do so;
|
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•
|
The determination of the appropriate balance of our allowance for loan losses is merely an estimate of the inherent risk of loss in our existing loan portfolio and may prove to be incorrect. If such estimate is proven to be materially incorrect and we are required to increase our allowance for loan losses, our results of operations, financial condition, and the market price of our common stock could be materially adversely affected;
|
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|
•
|
Our profitability will be jeopardized if we are unable to successfully manage interest rate risk;
|
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|
•
|
We may face increasing deposit-pricing pressures, which may, among other things, reduce our ability to grow and our profitability;
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|
•
|
We may experience failures or breaches to our systems and network security, including "hacking," "cyber fraud" or "identity theft" resulting in operating losses and/or litigation;
|
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
•
|
Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area;
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|
•
|
Our business, financial condition, and results of operations are highly regulated and could be adversely affected by new or changed regulations and by the manner in which such regulations are applied by regulatory authorities;
|
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•
|
Banking regulators have broad enforcement power, and regulations are meant to protect depositors and not investors;
|
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•
|
The fiscal, monetary, and regulatory policies of the federal government and its agencies could have a material adverse effect on our results of operations;
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•
|
Government legislation and regulation may adversely affect our business, financial condition, and results of operations;
|
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•
|
The soundness of other financial institutions could adversely affect us;
|
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•
|
The merger of legacy Hampton Roads Bankshares, Inc. and legacy Xenith Bankshares, Inc. may be more difficult, costly and/or time consuming than expected and the anticipated benefits and cost savings of the combination may not be realized;
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|
•
|
The combined company may not be able to realize our deferred income tax assets.
|
Our forward-looking statements could be incorrect in light of these risks, uncertainties, and assumptions. The future events, developments, or results described in this Form 10-Q could turn out to be materially different. Except as required by applicable law or regulations, we do not undertake, and specifically disclaim any obligation, to update or revise any forward-looking statement.
Critical Accounting Policies
U.S. generally accepted accounting principles (“GAAP”) are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex assumptions, judgments, and estimates. Our assumptions, judgments, and estimates may be incorrect, and changes in such assumptions, judgments, and estimates may have a material impact on the consolidated financial statements. Actual results, in fact, could differ materially from those estimates. We consider our policies on allowance for loan losses, the valuation of deferred taxes, and the valuation of other real estate owned to be critical accounting policies. Refer to our Annual Report on Form 10-K for the year ended December 31, 2015 ("2015 Form 10-K") for further discussion of these policies.
Merger with Legacy Xenith Bankshares, Inc.
Effective July 29, 2016, Xenith Bankshares, Inc., a Virginia corporation (previously, Hampton Roads Bankshares, Inc., the “Company”), completed its previously announced merger (the “Merger”) with legacy Xenith Bankshares, Inc., a Virginia corporation (“Legacy Xenith”), pursuant to an Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of February 10, 2016, by and between the Company and Legacy Xenith. At the effective time of the Merger, Legacy Xenith merged with and into the Company, with the Company surviving the Merger. Also at the effective time of the Merger, the Company changed its name from “Hampton Roads Bankshares, Inc.” to “Xenith Bankshares, Inc.” and changed its ticker symbol to “XBKS.” In connection with the Merger, the Company moved its headquarters to Legacy Xenith’s headquarters in Richmond, Virginia.
Pursuant to the Merger Agreement, holders of Legacy Xenith common stock, par value $1.00 per share (“Legacy Xenith common stock”), received 4.4 shares (the “Exchange Ratio”) of common stock of the Company, par value $0.01 per share (the “Company common stock”), for each share of Legacy Xenith common stock held immediately prior to the effective time of the Merger, with cash to be paid in lieu of fractional shares. Each outstanding share of the Company common stock remained outstanding and was unaffected by the Merger.
Pursuant to the Merger Agreement and immediately following the completion of the Merger, legacy Xenith Bank, a Virginia banking corporation and wholly owned subsidiary of Legacy Xenith, merged (the “Bank Merger”) with and into the Company’s wholly owned bank subsidiary, Xenith Bank (previously, The Bank of Hampton Roads, the “Surviving Bank”), with the Surviving Bank surviving the Bank Merger. In connection with the Bank Merger, the Surviving Bank changed its name from “The Bank of Hampton Roads” to “Xenith Bank.”
In connection with the Merger, the Company changed its ticker symbol to “XBKS” and moved its headquarters to Legacy Xenith’s headquarters in Richmond, Virginia.
Through September 30, 2016, we had incurred $15.6 million of Merger-related expenses, including legal, professional and printing services, systems conversion costs, retention and severance costs, and filing fees. Merger-related costs incurred by Legacy Xenith
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
prior to the completion of the Merger are not included in our consolidated statements of income. We expect the incurrence of these one-time Merger-related costs to be substantially complete by the end of 2016.
Information contained in this Form 10-Q as of the period ended September 30, 2016, including this “Management’s Discussion and Analysis of Results of Operations and Financial Condition," includes the balances of Legacy Xenith; information contained herein as of periods prior to September 30, 2016 does not include the balances of Legacy Xenith. Information for the three and nine month periods ended September 30, 2016 includes the operations of Legacy Xenith only for the period immediately following the effective date of the Merger (July 29, 2016) through September 30, 2016.
Unless otherwise stated in this Form 10-Q or the context otherwise requires, references herein to “the Company,” “we,” “our” or “us” prior to the effective time of the Merger are to Hampton Roads Bankshares, Inc. and its wholly-owned subsidiaries, and references to “the Bank” are to The Bank of Hampton Roads. Unless otherwise stated herein or the context otherwise requires, references herein to “the Company,” “we,” “our” or “us” after the effective time of the Merger are to Xenith Bankshares, Inc. (f/k/a Hampton Roads Bankshares, Inc.) and its wholly-owned subsidiaries, and references to “the Bank” are to Xenith Bank.
Disposition of Mortgage Banking Business
On September 16, 2016, we announced our decision to cease operations of our mortgage banking business. In connection with this decision, the Bank entered into a definitive asset purchase agreement to sell certain assets of Gateway Bank Mortgage, Inc., a wholly-owned subsidiary of the Bank (“GBMI”), and to transition GBMI’s operations, which include originating, closing, funding and selling first lien residential mortgage loans, to an unrelated party (the “GBMI Sale”). The Bank completed the GBMI Sale on October 17, 2016. As of the completion of the GBMI Sale, GBMI ceased taking new mortgage loan applications; however, all applications with prospective borrowers that were in process will continue to be managed by GBMI through funding and sale to investors in the ordinary course of business. Management expects processing of these applications and investor funding of these loans will occur over the remainder of the year and be substantially complete by December 31, 2016, and that any continuing obligation in connection with GBMI's operations will be insignificant after the transition period is complete.
For purposes of this Form 10-Q, including this "Management's Discussion and Analysis of Results of Operations and Financial Condition", the operations of GBMI have been reported as discontinued operations for all periods presented.
Company Overview
The Bank specifically targets the banking needs of middle market and small businesses, local real estate developers and investors, and retail banking clients. The Bank’s geographical area of operations spans from Baltimore, Maryland and Rehoboth Beach, Delaware, to Raleigh and eastern North Carolina, complementing its significant presence in Greater Washington, D.C., Greater Richmond, Virginia, Greater Hampton Roads, Virginia and on the Eastern Shore of Maryland and Virginia. The Bank operates 42 full-service branches and five loan production offices located across these areas with its headquarters centrally-located in Richmond, Virginia.
Our largest investor shareholders include Anchorage Capital Group, L.L.C. (“Anchorage”), CapGen Capital Group VI LP (“CapGen”), and The Carlyle Group, L.P. (“Carlyle”). Anchorage, CapGen, and Carlyle own 18.4%, 22.1%, and 18.4%, respectively, of the outstanding shares of our common stock as of
September 30, 2016
.
Our primary source of revenue is net interest income earned by the Bank. Net interest income represents interest and fees earned from lending and investment activities less the interest paid on deposits and borrowings. Net interest income may be impacted by variations in the volume and mix of interest-earning assets and interest-bearing liabilities, changes in the yields earned and the rates paid, level of non-performing assets, and the level of noninterest-bearing liabilities available to support earning assets. In addition to net interest income, noninterest income is another important source of revenue. Noninterest income is derived primarily from service charges on deposits and other banking services and earnings on our bank-owned life insurance policies. Other significant factors that impact net income attributable to the Company are the provision for loan losses and noninterest expense.
The following table presents selected financial performance measures, for the dates stated. Our efficiency ratio is determined based on continuing operations only.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2016
|
|
2015
|
Net interest margin (1)
|
3.59%
|
|
3.35%
|
Return on average assets ("ROAA") (2)
|
6.67%
|
|
0.06%
|
Return on average common equity ("ROAE") (3)
|
51.42%
|
|
0.59%
|
Average common equity to average assets (4)
|
12.97%
|
|
10.40%
|
Efficiency ratio (5)
|
126%
|
|
102%
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
Net interest margin (1)
|
3.43%
|
|
3.27%
|
Return on average assets (2)
|
2.24%
|
|
0.29%
|
Return on average common equity (3)
|
16.18%
|
|
2.87%
|
Average common equity to average assets (4)
|
13.84%
|
|
10.09%
|
Efficiency ratio (5)
|
103%
|
|
94%
|
_______________________
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|
|
(1) Net interest margin is net interest income divided by average interest-earning assets. Average interest-earning assets are presented within the average balances, income and expenses, yields and rates table below.
|
(2) ROAA is net income divided by average total assets. Average total assets are presented within the average balances, income and expenses, yields, and rates table below.
|
(3) ROAE is net income divided by average shareholders’ equity (excluding non-controlling interest).
|
(4) Average equity to average assets is average shareholders’ equity (excluding non-controlling interest) divided by average total assets. Average total assets are presented within the average balances, income and expenses, yields and rates table below.
|
(5) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income (continuing operations).
|
The direct lending activities in which the Company engages carry the risk that the borrowers will be unable to perform on their obligations. As such, interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve") and general economic conditions, nationally and in our primary market areas, have a significant impact on our results of operations. To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to the Company in full, or in a timely manner, resulting in decreased earnings or losses to the Company. We make fixed rate loans, whereby general increases in interest rates will tend to reduce the Company's spread as the interest rates we must pay for deposits may increase while interest income may be unchanged. Economic conditions may also adversely affect the value of property pledged as security for loans and the ability to liquidate that property to satisfy a loan, if necessary.
The Company's goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures and modifying those policies on occasion to account for changing or emerging risks or changing market conditions, evaluating each borrower's business plan and financial condition during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and maintaining sufficient collateral to mitigate economic loss in the event of liquidation. An allowance for loan losses has been established which consists of general, specific, and unallocated qualitative components.
A risk rating system is employed to estimate loss exposure and provide a measuring system for setting general reserve allocations. The general component relates to groups of homogeneous loans not designated for specific impairment analysis and are collectively evaluated for potential loss. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. The specific allowance for loan losses is based on a loan-by-loan analysis and varies between impaired loans largely due to the value of the loan’s underlying collateral. An unallocated qualitative component is maintained to cover uncertainties that could affect management’s estimate of probable losses and considers internal portfolio management effectiveness and external macroeconomic factors.
As a result of the Merger, management and associates are devoting significant resources during the remainder of 2016 to the integration of systems, policies, and processes with the goal of achieving the anticipated benefits offered by the Merger for its shareholders and
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
customers. In connection with the Merger, we have incurred significant one-time costs, which have a negative impact on our operating results. We anticipate that the significant portion of these costs will be incurred by the end of 2016. Additionally, in connection with the GBMI Sale, we expect the transitioning of the business to the purchaser to occur over the remainder of 2016 and to be substantially complete by year end. In connection with the GBMI Sale, we expect loans held for sale in the amount of $71.9 million at September 30, 2016 to decline over the remainder of the year.
Industry Trends
As reported in November 2016 by the Federal Reserve of Richmond (the "Fifth District"), which is the district covering the markets in which we operate, economic conditions are mixed with labor markets showing some improvement, business conditions and housing starts showing some improvement over the prior year. Also as reported by the Fifth District, all industry sectors, except the information sector, showed year-over-year growth, and the expansion in other industry sectors far out weighed the contraction in information.
According to the U.S. Bureau of Labor Statistics, the unadjusted unemployment rate for September for the Virginia Beach-Norfolk-Newport News, Va.-N.C. Metropolitan Statistical Area (MSA)was 4.6%, while this rate in the Greater Washington D.C. MSA was 3.9% and in the Richmond, Va. MSA was 4.1%. The national unadjusted unemployment rate in September was reported at 4.8%.
The Federal Open Market Committee ("FOMC") stated in a November 2, 2016 release that the labor market has continued to strengthen and economic growth has picked up from the modest pace in the first half of 2016. The FOMC stated household spending has been rising moderately but business fixed investment has remained soft. The FOMC also confirmed, consistent with its statutory mandate, it seeks to foster maximum employment and price stability. The FOMC expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. In its release, the FOMC stated its decision to maintain the target range for the federal funds rate at 1/4 to 1/2 percent, and that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.
Since the beginning of the "Great Recession", many of our loan customers have operated in an economically challenging business environment; however, the markets in which we operate have begun to experience generally more stable business conditions. Generally, the levels of loan delinquencies and defaults have continued to decline over the last several years, although they continue to be higher than historical levels.
Consistently low interest rates and intense competition due to limited business investment, in addition to other factors, have put pressure on net interest margins for banks, including the Bank.
For further discussion of the material trends and uncertainties that may affect our results and financial condition, refer to the risk factors discussed "Risk Factors" in our Proxy Statement/Prospectus.
Overview of Results of Operations and Financial Condition
The following commentary provides information about the major components of our financial condition, results of operations, liquidity, and capital resources. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Form 10-Q.
The following is a summary of our financial condition as of
September 30, 2016
and our financial performance for the
three and nine
months then ended.
|
|
•
|
Total assets increased $1.26 billion, or 60.8%, from December 31, 2015 to September 30, 2016, of which $1.09 billion were acquired in the Merger.
|
|
|
•
|
Gross loans grew $932.1 million, or 60.6%, from
December 31, 2015
to September 30, 2016, of which $828.9 million were acquired in the Merger. Excluding loans acquired in the Merger, gross loan growth over the nine-month period was $103.2 million, primarily due to growth in our marine financing division, which grew $76.2 million over this period.
|
|
|
•
|
Allowance for loan losses increased $10.6 million to $33.7 million at
September 30, 2016
from December 31, 2015, primarily due to specific reserves on several problem loans. Legacy Xenith's allowance for loan losses existing immediately prior to the Merger was not carried over to the combined company as acquired loans are stated at their estimated fair values at the time of the Merger. No additional allowance was recorded for the Legacy Xenith loan portfolio as of September 30, 2016. Charge-offs slightly outpaced recoveries during the first nine months of 2016.
|
|
|
•
|
Deposits increased $881.5 million, or 51.7%, from
December 31, 2015
to September 30, 2016. Deposits assumed in the Merger were $956.1 million, and the overall decrease is primarily due to the maturing of a substantial portion of our brokered deposits, which have been replaced in part with Federal Home Loan Bank borrowings, which have increased $172.5 million.
|
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
•
|
Net interest income was $23.0 million and $52.7 million for the three and nine months ended September 30, 2016, an increase of $7.6 million and $7.3 million from the
three and nine
months ended September 30, 2015, respectively. The increased net interest income from the Merger is reflected only in the three-month period ended September 30, 2016.
|
|
|
•
|
Net interest margin was 3.59% and 3.43% for both the three and nine months ended
September 30, 2016
, respectively, and 3.35% and 3.27% for the three and nine months ended
September 30, 2015
, respectively. Net interest margin in the 2016 periods includes accretion of acquired loan discounts further discussed below.
|
|
|
•
|
Noninterest income for the
three and nine
months ended
September 30, 2016
was $2.9 million and $8.0 million, respectively, compared to $2.7 million and $7.4 million, respectively, for the same periods in 2015. Noninterest income in 2015 included one-time loan monitoring fees related to the marine financing portfolio, while noninterest income in 2016 reflects lower rental income due to a smaller portfolio of other real estate owned and repossessed assets, offset by the increase from the Merger.
|
|
|
•
|
Noninterest expense for the
three and nine
months ended
September 30, 2016
was $32.0 million and $62.4 million, respectively, compared to $18.5 million and $49.9 million, respectively, for the same periods in 2015. Amounts in three and nine-month periods of 2016 included Merger-related costs of $12.9 million and $15.6 million, respectively. Excluding Merger-related costs, noninterest expenses increased $1.1 million for the three months ended September 30, 2016 compared to the same period of 2015, while noninterest expenses excluding Merger-related costs decreased $3.0 million for the nine months ended September 30, 2016 compared to the same period of 2015.
|
|
|
•
|
Provision for income taxes in the three and nine months ended September 30, 2016 reflected the release of $60.0 million, which was substantially all of the remaining valuation allowance on the Company's net deferred tax asset. A portion of the valuation allowance was released at December 31, 2015.
|
|
|
•
|
At September 30, 2016, the ratio of nonperforming assets to total assets was 1.50% compared to 2.32% as of December 31, 2015, the ratio of nonperforming loans to gross loans was 1.76% compared to 2.31% as of December 31, 2015, and the ratio of the Company’s allowance for loan losses (ALL) to nonaccrual loans was 77.7%. Other real estate owned and repossessed assets was reduced by $6.1 million from December 31, 2015; $738 thousand of other real estate owned was acquired in the Merger.
|
|
|
•
|
ROAA was 6.67%, and 2.24% for the three and
nine
months ended
September 30, 2016
, respectively, and 0.06% and 0.29% for the three and nine months ended September 30,
2015
, respectively. ROAE was 51.42% and 16.18% for the three and
nine
months ended
September 30, 2016
, respectively, and 0.59% and 2.87% for the three and nine months ended September 30,
2015
, respectively.
|
|
|
•
|
Regulatory capital ratios of the Company and the Bank were considered “well capitalized” under the risk-based capital standards, as of September 30, 2016.
|
ANALYSIS OF RESULTS OF OPERATIONS
Net income attributable to the Company, which includes net income attributable to the Company from discontinued operations, for the
three and nine
months ended
September 30, 2016
was $47.9 million and $51.9 million, respectively, as compared with net income for the
three and nine
months ended
September 30, 2015
of $303 thousand and $4.4 million, respectively.
The following table presents our net income and earnings per common share information for the periods stated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
(in thousands, except per share data)
|
2016
|
|
2015
|
Net income available to Xenith Bankshares, Inc.
|
$
|
47,864
|
|
|
$
|
303
|
|
Earnings per common share, basic and diluted
|
$
|
0.23
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in thousands, except per share data)
|
2016
|
|
2015
|
Net income available to Xenith Bankshares, Inc.
|
$
|
51,869
|
|
|
$
|
4,364
|
|
Earnings per common share, basic and diluted
|
$
|
0.28
|
|
|
$
|
0.03
|
|
Net Interest Income and Net Interest Margin
Net interest income, a major component of our earnings, is the difference between the income generated by interest-earning assets and the cost of interest-bearing liabilities. Net interest margin, which is calculated by expressing net interest income as a percentage of average interest-earning assets, is an indicator of effectiveness in generating income from earning assets. Interest-earning assets consist of loans, investment securities, overnight funds sold and due from the Federal Reserve Bank ("FRB"), and interest-bearing
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
deposits in other banks. Interest-bearing liabilities consist of deposit accounts and borrowings. Net interest income and net interest margin may be significantly impacted by the market interest rates (rate); the mix, duration, and volume of interest-earning assets and interest-bearing liabilities (volume); changes in the yields earned and rates paid; and the level of noninterest-bearing liabilities available to support interest-earning assets. Our management team strives to maximize net interest income through prudent balance sheet administration and by maintaining appropriate risk levels as determined by our Asset / Liability Management strategy, governed by our Asset Liability Committee (“ALCO”) of our Board of Directors.
Our loans acquired in the Merger were discounted to estimated fair value (for credit and interest rates) as of the date of the Merger. A portion of the discounts to record the acquired loans at estimated fair value is being recognized (accreted) into interest income over the estimated remaining life of the loans or the period of expected cash flows from the loans. Amounts received in excess of the carrying value of loans accounted for on cost recovery are also accreted into interest income at the time of recovery. Accretion of loan discounts was $1.5 million for the three and nine months ended September 30, 2016. The amount of accretion recognized was dependent on discounts recorded to reflect acquired loans at their estimated fair values. As of September 30, 2016, the valuation of acquired loans is preliminary and subject to change; therefore, accretion could be adjusted when estimated fair values are finalized in subsequent periods. Additionally, the amount of accretion recognized within a period is based on many factors, including, among other factors, loan prepayments and curtailments; therefore, amounts recognized are subject to volatility.
The following table presents the effect of purchase accounting adjustments (accretion) on our net interest margin for the periods stated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net interest margin
|
3.59%
|
|
3.35%
|
|
3.43%
|
|
3.27%
|
Purchase accounting adjustments impact (1)
|
0.23%
|
|
—%
|
|
0.10%
|
|
—%
|
Net interest margin excluding the impact of purchase accounting adjustments
|
3.36%
|
|
3.35%
|
|
3.33%
|
|
3.27%
|
_______________________
|
|
|
|
|
|
|
|
(1) Purchase accounting adjustments for the three and nine months ended September 30, 2016 include accretion of discounts on acquired loans of $1.5 million.
|
The following tables present average interest-earning assets and liabilities, average yields earned on such assets and rates paid on such liabilities, net interest margin, and income and expense variances caused by changes in average balances and rates as of and for the periods stated.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances, Income and Expenses, Yields and Rates
As of and for the Three Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016 Compared to 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Income/
|
|
Variance
|
(in thousands, except
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Expense
|
|
Attributable to (2)
|
average yield/rate data)
|
Balances (1)
|
|
Expense (7) (8) (9)
|
|
Rate
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Variance
|
|
Rate
|
|
Volume
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (3)
|
$
|
2,201,627
|
|
|
$
|
25,639
|
|
|
4.63
|
%
|
|
$
|
1,572,146
|
|
|
$
|
17,296
|
|
|
4.36
|
%
|
|
$
|
8,343
|
|
|
$
|
1,110
|
|
|
$
|
7,233
|
|
Investment securities
|
287,998
|
|
|
1,845
|
|
|
2.55
|
%
|
|
218,561
|
|
|
1,436
|
|
|
2.61
|
%
|
|
409
|
|
|
(32
|
)
|
|
441
|
|
Overnight funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and due from FRB
|
79,706
|
|
|
94
|
|
|
0.47
|
%
|
|
56,413
|
|
|
28
|
|
|
0.20
|
%
|
|
66
|
|
|
51
|
|
|
15
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other banks
|
3,850
|
|
|
2
|
|
|
0.21
|
%
|
|
1,146
|
|
|
—
|
|
|
—%
|
|
|
2
|
|
|
2
|
|
|
—
|
|
Total interest-earning assets
|
2,573,181
|
|
|
27,580
|
|
|
4.26
|
%
|
|
1,848,266
|
|
|
18,760
|
|
|
4.03
|
%
|
|
8,820
|
|
|
1,131
|
|
|
7,689
|
|
Noninterest-earning assets
|
281,739
|
|
|
|
|
|
|
127,915
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
2,854,920
|
|
|
|
|
|
|
$
|
1,976,181
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
$
|
980,423
|
|
|
$
|
1,384
|
|
|
0.56
|
%
|
|
$
|
628,307
|
|
|
$
|
661
|
|
|
0.42
|
%
|
|
$
|
723
|
|
|
$
|
275
|
|
|
$
|
448
|
|
Savings deposits
|
78,461
|
|
|
40
|
|
|
0.20
|
%
|
|
60,831
|
|
|
15
|
|
|
0.10
|
%
|
|
25
|
|
|
20
|
|
|
5
|
|
Time deposits
|
808,132
|
|
|
2,169
|
|
|
1.07
|
%
|
|
672,285
|
|
|
1,959
|
|
|
1.16
|
%
|
|
210
|
|
|
(157
|
)
|
|
367
|
|
Total interest-bearing deposits
|
1,867,016
|
|
|
3,593
|
|
|
0.77
|
%
|
|
1,361,423
|
|
|
2,635
|
|
|
0.77
|
%
|
|
958
|
|
|
138
|
|
|
820
|
|
Borrowings
|
164,089
|
|
|
760
|
|
|
1.84
|
%
|
|
72,871
|
|
|
534
|
|
|
2.91
|
%
|
|
226
|
|
|
(249
|
)
|
|
475
|
|
Total interest-bearing liabilities
|
2,031,105
|
|
|
4,353
|
|
|
0.85
|
%
|
|
1,434,294
|
|
|
3,169
|
|
|
0.88
|
%
|
|
1,184
|
|
|
(111
|
)
|
|
1,295
|
|
Noninterest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
431,583
|
|
|
|
|
|
|
|
319,904
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
21,225
|
|
|
|
|
|
|
|
15,777
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
452,808
|
|
|
|
|
|
|
|
335,681
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
2,483,913
|
|
|
|
|
|
|
|
1,769,975
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
371,007
|
|
|
|
|
|
|
|
206,206
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
$
|
2,854,920
|
|
|
|
|
|
|
|
$
|
1,976,181
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (5)
|
|
|
$
|
23,227
|
|
|
|
|
|
|
|
$
|
15,591
|
|
|
|
|
|
$
|
7,636
|
|
|
$
|
1,242
|
|
|
$
|
6,394
|
|
Net interest spread (4)
|
|
|
|
|
3.41
|
%
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
Net interest margin (6)
|
|
|
|
|
3.59
|
%
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
|
|
_________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average balances are computed on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Change in interest due to both volume and rates has been allocated in proportion to the absolute dollar amounts of the change in each.
|
(3) Nonaccrual loans have been included in the average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
|
|
|
|
|
(5) Net interest income is interest income less interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Net interest margin is net interest income divided by average interest-earning assets.
|
|
|
|
|
|
|
|
|
|
(7) Tax-exempt interest income is stated on a taxable-equivalent basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
(8) Interest income from loans in 2016 includes approximately $1.5 million in accretion related to acquired loans.
|
|
|
|
|
|
|
(9) Interest income from loans includes fees of $174 thousand and $273 thousand for the three months ended September 30, 2016 and 2015, respectively.
|
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances, Income and Expenses, Yields and Rates
As of and for the Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016 Compared to 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Income/
|
|
Variance
|
(in thousands, except
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Expense
|
|
Attributable to (2)
|
average yield/rate data)
|
Balances (1)
|
|
Expense (7) (8) (9)
|
|
Rate
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Variance
|
|
Rate
|
|
Volume
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (3)
|
$
|
1,787,481
|
|
|
$
|
59,216
|
|
|
4.43
|
%
|
|
$
|
1,561,655
|
|
|
$
|
50,908
|
|
|
4.36
|
%
|
|
$
|
8,308
|
|
|
$
|
792
|
|
|
$
|
7,516
|
|
Investment securities
|
228,734
|
|
|
4,558
|
|
|
2.66
|
%
|
|
241,435
|
|
|
4,733
|
|
|
2.62
|
%
|
|
(175
|
)
|
|
73
|
|
|
(248
|
)
|
Overnight funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and due from FRB
|
56,836
|
|
|
176
|
|
|
0.41
|
%
|
|
78,684
|
|
|
126
|
|
|
0.21
|
%
|
|
50
|
|
|
93
|
|
|
(43
|
)
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other banks
|
1,752
|
|
|
3
|
|
|
0.23
|
%
|
|
1,327
|
|
|
—
|
|
|
—%
|
|
|
3
|
|
|
3
|
|
|
—
|
|
Total interest-earning assets
|
2,074,803
|
|
|
63,953
|
|
|
4.12
|
%
|
|
1,883,101
|
|
|
55,767
|
|
|
3.96
|
%
|
|
8,186
|
|
|
961
|
|
|
7,225
|
|
Noninterest-earning assets
|
241,520
|
|
|
|
|
|
|
132,029
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
2,316,323
|
|
|
|
|
|
|
$
|
2,015,130
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
$
|
785,757
|
|
|
$
|
3,054
|
|
|
0.52
|
%
|
|
$
|
629,406
|
|
|
$
|
2,005
|
|
|
0.43
|
%
|
|
$
|
1,049
|
|
|
$
|
492
|
|
|
$
|
557
|
|
Savings deposits
|
69,071
|
|
|
81
|
|
|
0.16
|
%
|
|
59,060
|
|
|
39
|
|
|
0.09
|
%
|
|
42
|
|
|
34
|
|
|
8
|
|
Time deposits
|
689,925
|
|
|
5,746
|
|
|
1.11
|
%
|
|
679,385
|
|
|
5,753
|
|
|
1.13
|
%
|
|
(7
|
)
|
|
(101
|
)
|
|
94
|
|
Total interest-bearing deposits
|
1,544,753
|
|
|
8,881
|
|
|
0.77
|
%
|
|
1,367,851
|
|
|
7,797
|
|
|
0.76
|
%
|
|
1,084
|
|
|
425
|
|
|
659
|
|
Borrowings
|
92,603
|
|
|
1,815
|
|
|
2.62
|
%
|
|
131,565
|
|
|
1,949
|
|
|
1.98
|
%
|
|
(134
|
)
|
|
532
|
|
|
(666
|
)
|
Total interest-bearing liabilities
|
1,637,356
|
|
|
10,696
|
|
|
0.87
|
%
|
|
1,499,416
|
|
|
9,746
|
|
|
0.87
|
%
|
|
950
|
|
|
957
|
|
|
(7
|
)
|
Noninterest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
340,305
|
|
|
|
|
|
|
|
293,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
17,609
|
|
|
|
|
|
|
|
17,976
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
357,914
|
|
|
|
|
|
|
|
311,767
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
1,995,270
|
|
|
|
|
|
|
|
1,811,183
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
321,053
|
|
|
|
|
|
|
|
203,947
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
$
|
2,316,323
|
|
|
|
|
|
|
|
$
|
2,015,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (5)
|
|
|
$
|
53,257
|
|
|
|
|
|
|
|
$
|
46,021
|
|
|
|
|
|
$
|
7,236
|
|
|
$
|
4
|
|
|
$
|
7,232
|
|
Net interest spread (4)
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
3.09
|
%
|
|
|
|
|
|
|
Net interest margin (6)
|
|
|
|
|
3.43
|
%
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
_________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average balances are computed on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Change in interest due to both volume and rates has been allocated in proportion to the absolute dollar amounts of the change in each.
|
(3) Nonaccrual loans have been included in the average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) Net interest spread is the yield on average interest-earning assets less the rate on average interest-bearing liabilities.
|
|
|
|
|
(5) Net interest income is interest income less interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Net interest margin is net interest income divided by average interest-earning assets.
|
|
|
|
|
|
|
|
|
|
(7) Tax-exempt interest income is stated on a taxable-equivalent basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
(8) Interest income from loans in 2016 includes approximately $1.5 million in accretion related to acquired loans.
|
|
|
|
|
|
|
(9) Interest income from loans includes fees of $632 thousand and $831 thousand for the nine months ended September 30, 2016 and 2015, respectively.
|
Average interest-earning assets increased $724.9 million to $2.6 billion for the three-month period ended September 30, 2016 compared to the same period of 2015. For the nine-month period ended September 30, 2016, average interest-earning assets increased $191.7 million over average interest-earning assets in the 2015 period. Average interest-earning assets were 90.1% and 93.5% of total assets for the three-month periods of 2016 and 2015, respectively. Average interest-earnings assets were were 89.5% and 93.4% of total assets for the nine-month periods of 2016 and 2015, respectively. The decline to the 2016 period from the same periods in
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
2015 is primarily due to the release of the valuation allowance on our deferred tax assets, a noninterest-earning asset, which occurred at December 31, 2015 and September 30, 2016.
Noninterest Income
The following tables present a summary of noninterest income for the
three and nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands, except for percentages)
|
2016
|
|
2015
|
|
$
|
|
%
|
Service charges on deposit accounts
|
$
|
1,191
|
|
|
$
|
1,273
|
|
|
$
|
(82
|
)
|
|
(6.4
|
)
|
Earnings from bank-owned life insurance
|
395
|
|
|
302
|
|
|
93
|
|
|
30.8
|
|
Gain on sale of investment securities available for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Visa check card income
|
709
|
|
|
677
|
|
|
32
|
|
|
4.7
|
|
Other
|
575
|
|
|
441
|
|
|
134
|
|
|
30.4
|
|
Total noninterest income
|
$
|
2,870
|
|
|
$
|
2,693
|
|
|
$
|
177
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands, except for percentages)
|
2016
|
|
2015
|
|
$
|
|
%
|
Service charges on deposit accounts
|
$
|
3,447
|
|
|
$
|
3,713
|
|
|
$
|
(266
|
)
|
|
(7.2
|
)
|
Earnings from bank-owned life insurance
|
1,046
|
|
|
956
|
|
|
90
|
|
|
9.4
|
|
Gain on sale of investment securities available for sale
|
15
|
|
|
238
|
|
|
(223
|
)
|
|
(93.7
|
)
|
Visa check card income
|
2,056
|
|
|
1,994
|
|
|
62
|
|
|
3.1
|
|
Other
|
1,430
|
|
|
547
|
|
|
883
|
|
|
161.4
|
|
Total noninterest income
|
$
|
7,994
|
|
|
$
|
7,448
|
|
|
$
|
546
|
|
|
7.3
|
%
|
The increase in noninterest income for both the three and nine month periods of 2016 compared to the same periods of 2015 is primarily due to the addition of revenue from the Merger, partially offset by the decline in one-time loan monitoring fees related to the marine financing portfolio that benefited the 2015 periods and a decline in rental income related to the sale of other real estate owned and repossessed assets.
Noninterest Expense
Noninterest expense represents our operating and overhead expenses. The following tables present a summary of noninterest expense for the
three and nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands, except for percentages)
|
2016
|
|
2015
|
|
$
|
|
%
|
Salaries and employee benefits
|
$
|
9,880
|
|
|
$
|
10,100
|
|
|
$
|
(220
|
)
|
|
(2.2
|
)%
|
Professional and consultant fees
|
978
|
|
|
1,459
|
|
|
(481
|
)
|
|
(33.0
|
)
|
Occupancy
|
1,594
|
|
|
1,556
|
|
|
38
|
|
|
2.4
|
|
FDIC insurance
|
679
|
|
|
339
|
|
|
340
|
|
|
100.3
|
|
Data processing
|
1,446
|
|
|
1,466
|
|
|
(20
|
)
|
|
(1.4
|
)
|
Problem loan and repossessed asset costs
|
219
|
|
|
538
|
|
|
(319
|
)
|
|
(59.3
|
)
|
Impairments and gains and losses on sales of other real estate owned and repossessed assets, net
|
685
|
|
|
225
|
|
|
460
|
|
|
204.4
|
|
Impairments and gains and losses on sales of premises and equipment, net
|
42
|
|
|
—
|
|
|
42
|
|
|
100.0
|
|
Equipment
|
309
|
|
|
300
|
|
|
9
|
|
|
3.0
|
|
Board fees
|
493
|
|
|
433
|
|
|
60
|
|
|
13.9
|
|
Advertising and marketing
|
398
|
|
|
115
|
|
|
283
|
|
|
246.1
|
|
Merger-related
|
12,910
|
|
|
—
|
|
|
12,910
|
|
|
100.0
|
|
Other
|
2,902
|
|
|
1,948
|
|
|
954
|
|
|
49.0
|
|
Total noninterest expense
|
$
|
32,535
|
|
|
$
|
18,479
|
|
|
$
|
14,056
|
|
|
76.1
|
%
|
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands, except for percentages)
|
2016
|
|
2015
|
|
$
|
|
%
|
Salaries and employee benefits
|
$
|
24,990
|
|
|
$
|
26,091
|
|
|
$
|
(1,101
|
)
|
|
(4.2
|
)%
|
Professional and consultant fees
|
2,101
|
|
|
3,584
|
|
|
(1,483
|
)
|
|
(41.4
|
)
|
Occupancy
|
4,428
|
|
|
4,654
|
|
|
(226
|
)
|
|
(4.9
|
)
|
FDIC insurance
|
1,524
|
|
|
1,361
|
|
|
163
|
|
|
12.0
|
|
Data processing
|
3,985
|
|
|
4,285
|
|
|
(300
|
)
|
|
(7.0
|
)
|
Problem loan and repossessed asset costs
|
420
|
|
|
1,150
|
|
|
(730
|
)
|
|
(63.5
|
)
|
Impairments and gains and losses on sales of other real estate owned and repossessed assets, net
|
112
|
|
|
1,471
|
|
|
(1,359
|
)
|
|
(92.4
|
)
|
Impairments and gains and losses on sales of premises and equipment, net
|
41
|
|
|
14
|
|
|
27
|
|
|
192.9
|
|
Equipment
|
812
|
|
|
942
|
|
|
(130
|
)
|
|
(13.8
|
)
|
Board fees
|
1,133
|
|
|
1,028
|
|
|
105
|
|
|
10.2
|
|
Advertising and marketing
|
503
|
|
|
389
|
|
|
114
|
|
|
29.3
|
|
Merger-related
|
15,555
|
|
|
—
|
|
|
15,555
|
|
|
100.0
|
|
Other
|
6,813
|
|
|
4,883
|
|
|
1,930
|
|
|
39.5
|
|
Total noninterest expense
|
$
|
62,417
|
|
|
$
|
49,852
|
|
|
$
|
12,565
|
|
|
25.2
|
%
|
Noninterest expenses excluding Merger-related expenses in the three and nine months ended September 30, 2016 were $19.6 million and $46.9 million, respectively. Excluding Merger-related expenses, noninterest expense increased $1.1 million in the three months ended September 30, 2016 compared to the same period of 2015 and declined $3.0 million in the nine month period ended September 30, 2016 compared the same period of 2015. The increase in noninterest expenses due to the addition of Legacy Xenith was offset by lower salaries and benefits due to separation payments of $2.2 million recorded in the third quarter of 2015, lower professional and consultant fees, and problem loan and repossessed asset costs in the 2015 period.
ANALYSIS OF FINANCIAL CONDITION
Cash and Cash Equivalents.
Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, and overnight funds sold and due from FRB. Cash and cash equivalents are used for daily cash management purposes, management of short-term interest rate opportunities, and liquidity. Cash and cash equivalents as of
September 30, 2016
were $109.9 million compared to $63.7 million at
December 31, 2015
. Higher cash and cash equivalents at September 30, 2016 was primarily due to the addition of Legacy Xenith, which increased reserve requirements at the FRB.
Investment Securities.
Our available-for-sale securities are reported at fair value and are used primarily for liquidity, pledging, earnings, and asset / liability management purposes and are reviewed quarterly for possible impairment. We perform due diligence of each security on a pre- and post-purchase basis to evaluate the underlying collateral and invests in the investment grade tranches of securitizations. However, should defaults or loss severities exceed the credit enhancement in the structure, payment of principal or interest may be impacted. The Company currently does not own any collateralized loan obligation securities that would require divestiture under the Volcker Rule of the Dodd-Frank Act.
The following tables present information about our securities portfolio as of the dates stated. Weighted average life calculations and weighted average yields are based on the current level of contractual maturities and expected prepayments as of the dates stated. Yields on tax-exempt securities are calculated on a taxable-equivalent yield basis.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in thousands, except for years and percentages)
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Life in Years
|
|
Weighted Average Yield
|
Corporate bonds
|
$
|
986
|
|
|
$
|
987
|
|
|
1.96
|
|
|
2.52
|
%
|
Mortgage-backed securities - Agency
|
220,094
|
|
|
223,809
|
|
|
3.06
|
|
|
2.10
|
%
|
Asset-backed securities
|
14,862
|
|
|
14,759
|
|
|
1.96
|
|
|
3.17
|
%
|
Equity securities
|
969
|
|
|
1,679
|
|
|
—
|
|
|
—
|
%
|
Municipals
|
|
|
|
|
|
|
|
Tax-exempt
|
68,040
|
|
|
68,542
|
|
|
7.99
|
|
|
2.94
|
%
|
Taxable
|
18,154
|
|
|
18,369
|
|
|
5.52
|
|
|
2.00
|
%
|
Total securities available for sale
|
$
|
323,105
|
|
|
$
|
328,145
|
|
|
4.99
|
|
|
2.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
(in thousands, except for years and percentages)
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Life in Years
|
|
Weighted Average Yield
|
U.S. Agency securities
|
$
|
12,565
|
|
|
$
|
13,072
|
|
|
4.34
|
|
3.67
|
%
|
Corporate bonds
|
11,994
|
|
|
11,190
|
|
|
7.95
|
|
2.01
|
%
|
Mortgage-backed securities - Agency
|
147,980
|
|
|
149,199
|
|
|
3.78
|
|
2.46
|
%
|
Asset-backed securities
|
23,787
|
|
|
23,292
|
|
|
9.33
|
|
2.62
|
%
|
Equity securities
|
970
|
|
|
1,421
|
|
|
0.00
|
|
—
|
%
|
Total securities available for sale
|
$
|
197,296
|
|
|
$
|
198,174
|
|
|
4.75
|
|
2.53
|
%
|
The following table presents a maturity analysis of our securities portfolio as of the date stated. Weighted average yield calculations are based on the current level of contractual maturities and expected prepayments as of the date stated. Yields on tax-exempt securities are calculated on a taxable-equivalent yield basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in thousands, except for percentages)
|
Within 1 Year
|
|
Weighted Average Yield
|
|
After 1 Year Through 5 Years
|
|
Weighted Average Yield
|
|
After 5 Years Through 10 Years
|
|
Weighted Average Yield
|
|
After 10 Years
|
|
Weighted Average Yield
|
|
Total
|
|
Weighted Average Yield
|
Corporate bonds
|
$
|
—
|
|
|
—
|
|
|
$
|
987
|
|
|
2.52
|
%
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
987
|
|
|
2.52
|
%
|
Mortgage-backed securities - Agency
|
3,097
|
|
|
1.85
|
%
|
|
165,155
|
|
|
2.07
|
%
|
|
52,589
|
|
|
2.16
|
%
|
|
2,968
|
|
|
3.23
|
%
|
|
223,809
|
|
|
2.41
|
%
|
Asset-backed securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,758
|
|
|
3.17
|
%
|
|
—
|
|
|
—
|
|
|
14,758
|
|
|
3.17
|
%
|
Equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,679
|
|
|
—
|
|
|
1,679
|
|
|
—
|
|
Municipals - fixed rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
507
|
|
|
0.77
|
%
|
|
3,798
|
|
|
1.97
|
%
|
|
61,555
|
|
|
3.05
|
%
|
|
2,684
|
|
|
2.69
|
%
|
|
68,544
|
|
|
2.94
|
%
|
Tax exempt
|
—
|
|
|
—
|
|
|
7,606
|
|
|
1.77
|
%
|
|
10,762
|
|
|
2.17
|
%
|
|
—
|
|
|
—
|
|
|
18,368
|
|
|
2.00
|
%
|
Total securities available for sale
|
$
|
3,604
|
|
|
1.70
|
%
|
|
$
|
177,546
|
|
|
2.05
|
%
|
|
$
|
139,664
|
|
|
2.65
|
%
|
|
$
|
7,331
|
|
|
3.01
|
%
|
|
$
|
328,145
|
|
|
2.31
|
%
|
Loans.
Our loan portfolio is comprised of commercial and industrial, construction, real estate-commercial mortgage, real estate-residential mortgage, guaranteed student loans ("GSLs"), and installment loans. Lending decisions are based upon evaluation of the financial strength and credit history of the borrower and the quality and value of the collateral securing the loan. Personal guarantees are required on most loans; however, prudent exceptions are made on occasion based upon the financial viability of the borrowing entity or the underlying project that is being financed. Gross loans increased by $932.1 million, or 60.6%, to $2.5 billion at September 30, 2016 from $1.5 billion at December 31, 2015. Loans acquired in the Merger were $828.9 million. Loans held for sale, which
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
were held in connection with our mortgage banking business are excluded from these amounts, as these loans are reported as discontinued operations.
We make owner-occupied real estate (“OORE”) loans, which are secured in part by the real estate that is generally the offices or production facilities of the borrower. In some cases, the real estate is not held by the commercial enterprise, rather it is owned by the principals of the business or an entity controlled by the principals. We classify OORE loans as commercial and industrial, as the primary source of repayment of the loan is generally dependent on the financial performance of the commercial enterprise occupying the property, with the real estate being a secondary source of repayment.
Our GSLs were purchased by Legacy Xenith in 2013 and acquired by the Company in the Merger. These loans were originated under the Federal Family Education Loan Program (“FFELP”), authorized by the Higher Education Act of 1965, as amended. Pursuant to the FFELP, the student loans are substantially guaranteed by a guaranty agency and reinsured by the U.S. Department of Education. The purchased loans were also part of the Federal Rehabilitated Loan Program (“FRLP”), under which borrowers on defaulted loans have the one-time opportunity to bring their loans current. These loans, which are then owned by an agency guarantor, are brought current and sold to approved lenders. The Company has an agreement with a third-party servicer of student loans to provide all day-to-day operational requirements for the servicing of the loans. The GSLs carry a nearly
98%
guarantee of principal and accrued interest. In allocating the consideration paid in the Merger, we recorded a preliminary fair value adjustment for GSLs that reduced the carrying amount in the GSLs to approximate the guaranteed portion of the loans.
The following table presents our composition of loans, net of capitalized origination costs and unearned income, in dollar amounts and as a percentage of total loans, as of the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
(in thousands, except for percentages)
|
Amount
|
|
Percent of Total
|
|
Amount
|
|
Percent of Total
|
Commercial & Industrial
|
$
|
923,598
|
|
|
37.4
|
%
|
|
$
|
465,746
|
|
|
30.3
|
%
|
Construction
|
239,345
|
|
|
9.7
|
%
|
|
141,208
|
|
|
9.2
|
%
|
Commercial real estate
|
609,187
|
|
|
24.7
|
%
|
|
423,468
|
|
|
27.5
|
%
|
Residential real estate
|
418,166
|
|
|
16.9
|
%
|
|
347,336
|
|
|
22.5
|
%
|
Consumer
|
233,347
|
|
|
9.4
|
%
|
|
161,918
|
|
|
10.5
|
%
|
Guaranteed student loans
|
46,682
|
|
|
1.9
|
%
|
|
—
|
|
|
—
|
%
|
Overdrafts
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Deferred loan fees and related costs
|
707
|
|
|
—
|
%
|
|
(724
|
)
|
|
—
|
%
|
Total loans
|
2,471,032
|
|
|
100.0
|
%
|
|
1,538,952
|
|
|
100.0
|
%
|
Allowance for loan losses
|
(33,730
|
)
|
|
|
|
(23,157
|
)
|
|
|
Total loans, net of allowance
|
$
|
2,437,302
|
|
|
|
|
$
|
1,515,795
|
|
|
|
A
llowance for Loan Losses and Provision for Loan Losses.
The allowance for loan losses was $33.7 million or 1.37% of total loans as of
September 30, 2016
compared to $23.2 million or 1.50% of gross loans as of
December 31, 2015
. Legacy Xenith's allowance for loan losses existing at the time of the Merger was not carried over in the Merger, rather discounts (for credit and interest) are recorded to reflect the loans at estimated fair value as of the date of the Merger; therefore, our allowance for loan losses does not include preliminary discounts recorded on our acquired loan portfolio to state the acquired loans. Any decline in the credit quality related to the acquired loan portfolio and as acquired loan discounts are reduced through accretion may result in an increase in the allowance for loan losses and provision expense. In the period ended September 30, 2016, there has been no increase in allowance due to the acquired loan portfolio. The ratio of our allowance for loan losses plus our remaining discount (credit mark adjusted allowance for loan losses) over gross loans (adjusted for the discount) was 1.77% at September 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands)
|
2016
|
|
2015
|
|
$
|
|
%
|
Provision for loan losses
|
$
|
10,685
|
|
|
$
|
(15
|
)
|
|
$
|
(10,700
|
)
|
|
n/m
|
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2016 Compared to 2015
|
(in thousands)
|
2016
|
|
2015
|
|
$
|
|
%
|
Provision for loan losses
|
$
|
10,704
|
|
|
$
|
622
|
|
|
$
|
(10,082
|
)
|
|
n/m
|
The increase in the provision for loan losses in the three- and nine-month periods ended September 30, 2016 compared to the same periods of 2015 is due to significant specific reserves recorded for several problem loans. For each of the problem loans the additional reserve is primarily due to impairments against the remaining collateral securing the loans.
Our allowance consists of specific, general, and unallocated qualitative components. The following table presents an allocation of the allowance for loan losses and other related information at
September 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
(in thousands, except for percentages)
|
September 30, 2016
|
|
December 31, 2015
|
Allowance for loan losses:
|
|
|
|
Specific component
|
$
|
18,092
|
|
|
$
|
5,447
|
|
Pooled component
|
13,654
|
|
|
16,110
|
|
Unallocated qualitative component
|
1,984
|
|
|
1,600
|
|
Total
|
$
|
33,730
|
|
|
$
|
23,157
|
|
Impaired loans
|
$
|
73,205
|
|
|
$
|
65,874
|
|
Non-impaired loans
|
2,397,827
|
|
|
1,473,078
|
|
Total loans
|
$
|
2,471,032
|
|
|
$
|
1,538,952
|
|
|
|
|
|
Specific component as % of impaired loans
|
24.71
|
%
|
|
8.27
|
%
|
Pooled component as % of non-impaired loans
|
0.57
|
|
|
1.09
|
|
Allowance as % of loans
|
1.37
|
|
|
1.50
|
|
Allowance as % of nonaccrual loans
|
77.65
|
|
|
65.21
|
|
The specific component of our allowance for loan losses relates to loans that are determined to be impaired and, therefore, are individually evaluated for impairment. Impaired loans decreased to $73.2 million at
September 30, 2016
from $65.9 million at
December 31, 2015
. Of these loans, $43.4 million were on nonaccrual status at
September 30, 2016
as compared with $35.5 million at
December 31, 2015
. The general or pooled component of our allowance relates to groups of homogeneous loans collectively evaluated for the appropriate level of reserve. In the nine months ended September 30, 2016, the Company benefited from a notable reduction in its remaining classified assets and the expansion of the loan portfolio through the origination of high quality loans, particularly in consumer marine lending and the general component of our reserve decreased. An unallocated qualitative component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated qualitative portion of the allowance for loan losses increased in the nine months ended September 30, 2016 mainly due to the inverse relationship between the general reserve portion of the allowance and the unallocated qualitative portion. Under our model, when the general reserves decline, the unallocated qualitative reserve will generally rise.
In evaluating GSLs, our allowance for loan losses is based on historical default rates for similar types of loans applied to the portion of carrying value in these loans that is not subject to federal guarantee. In the period since the Merger through September 30, 2016, no provision expense has been recorded with respect to GSLs, as the carrying amount in these loans approximates the guaranteed portion of the loans.
The following table presents certain asset quality ratios as of
September 30, 2016
and
December 31, 2015
:
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
Non-performing loans with no allowance due to previous charge-offs as a percentage of total loans
|
0.28
|
%
|
|
1.21
|
%
|
Non-performing loans with no allowance due to previous charge-offs as a percentage of non-performing loans
|
15.60
|
|
|
52.52
|
|
Charge-off rate for non-performing loans with no allowance due to previous charge-offs
|
40.94
|
|
|
15.81
|
|
Coverage ratio net of non-performing loans with no allowance due to previous charge-offs
|
108.26
|
|
|
137.49
|
|
Total allowance divided by total loans less non-performing loans with no allowance due to previous charge-offs
|
1.64
|
|
|
1.52
|
|
Allowance for individually impaired loans divided by impaired loans for which an allowance has been provided
|
51.19
|
|
|
18.85
|
|
At
September 30, 2016
, we believed the level of the allowance for loan losses to be commensurate with the risk existing in our portfolio. Our allowance for loan losses is an estimate based upon the data in hand at a particular time and that estimate involves judgment regarding data available at that time. Our allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require us to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations.
Nonperforming Assets.
Management classifies nonperforming assets as nonaccrual loans and other real estate owned and repossessed assets. Total nonperforming assets were $49.7 million and $47.9 million at
September 30, 2016
and
December 31, 2015
, respectively. Our nonperforming assets ratio, defined as the ratio of nonperforming assets to total assets, was 1.50% and 2.32% at
September 30, 2016
and
December 31, 2015
, respectively. At
September 30, 2016
and
December 31, 2015
, there were no loans, other than our GSLs, categorized as 90 days or more past due and still accruing interest. GSLs are substantially fully guaranteed by the federal government as to principal and accrued interest. Pursuant to the guarantee, the Company may make a claim for payment on the loan after a period of 270 days during which no payment has been made on the loan. Payments of principal and interest are guaranteed up to the date of payment under the guarantee.
Loans in nonaccrual status totaled $43.4 million and $35.5 million at
September 30, 2016
and
December 31, 2015
, respectively. Loans are placed in nonaccrual status when the collection of principal or interest becomes uncertain, part of the balance has been charged off and no restructuring has occurred, or the loans reach 90 days past due, whichever occurs first, unless there are extenuating circumstances. We had $6.3 million and $12.4 million of other real estate owned and repossessed assets at
September 30, 2016
and
December 31, 2015
, respectively. This decline was mainly due to sales of real estate owned outpacing foreclosure and repossession activity during the 2016 period.
Deposits.
Deposits increased $881.5 million, or 51.7%, from
December 31, 2015
to September 30, 2016. Deposits assumed in the Merger were $956.1 million and the overall decrease is primarily due to the maturing of a substantial portion of our brokered deposits, which have been replaced in part with Federal Home Loan Bank borrowings, which have increased $172.5 million from December 31, 2015 to September 30, 2016.
Borrowings.
We use short-term and long-term borrowings from various sources, including the FRB discount window, the Federal Home Loan Bank ("FHLB"), subordinated debt and trust preferred securities. We manage the level of our borrowings to minimize our borrowing cost, to maintain sufficient liquidity to meet the daily needs of our customers and to meet our regulatory reserve requirements. Borrowings with the FHLB have increased primarily to meet loan growth demand and to replace maturing brokered deposits, to repay in full amounts outstanding under Legacy Xenith's previously existing unsecured senior term loan credit facility and to pay costs related to the Merger..
On June 26, 2015, Legacy Xenith issued and sold
$8.5 million
in aggregate principal amount of its
6.75%
subordinated notes due 2025 pursuant to a Subordinated Note Purchase Agreement (the "Subordinated Notes"), which the Company assumed in the Merger. The Subordinated Notes bear interest at an annual rate of
6.75%
, which is payable quarterly in arrears on March 31, June 30, September 30 and December 31. The Subordinated Notes qualify as Tier 2 capital for the Company. As of
September 30, 2016
, the outstanding balance of the Subordinated Notes, net of capitalized loan origination costs, was
$8.4 million
. For the period from the Merger through September 30, 2016, the effective interest rate, including the amortization of loan origination costs, on the Subordinated Notes was
7.13%
. As of
September 30, 2016
, the Company and the Bank, as applicable, were in compliance with all covenants of the Subordinated Notes.
The Company has four placements of trust preferred securities. In all four trusts, the trust issuer has invested the total proceeds from the sale of the trust preferred securities in junior subordinated deferrable interest debentures issued by the Company. The trust preferred securities pay cumulative cash distributions quarterly at an annual rate, reset quarterly. The dividends paid to holders of the trust preferred securities, which are recorded as interest expense, are deductible for income tax purposes.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company has fully and unconditionally guaranteed the trust preferred securities through the combined operation of the debentures and other related documents. The Company’s obligation under the guarantee is unsecured and subordinate to our senior and subordinated indebtedness. The trust preferred securities are redeemable only at the Company's discretion, subject to regulatory approval. We are current on all interest payments due to the holders of the trust preferred securities. The aggregate carrying value of these debentures as of September 30, 2016 was $30.1 million. The difference between the par amounts and the carrying amounts of the debentures, due to purchase accounting adjustments from the acquisition of Gateway Financial Holdings, Inc. in 2008, is amortized using the interest method as an adjustment to interest expense each period. Effective interest rates for the nine-month period ended were between 4.66% and 5.40%.
Liquidity.
Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. It is used by management to provide continuous access to sufficient, reasonably priced funds. At
September 30, 2016
, cash and cash equivalents were $109.9 million, and investment securities available for sale, at fair value, were $328.1 million.
We have additional sources of liquidity through a variety of borrowing arrangements. At September 30, 2016, the Bank maintained federal funds lines with nine regional banking institutions totaling totaling approximately $163.0 million. These lines are uncommitted lines to borrow federal funds on an unsecured basis and bear interest at the prevailing federal funds rate. As of September 30, 2016, no amounts were outstanding under these lines.
The Bank has secured borrowing facilities with the FHLB and the FRB. Total credit availability as of
September 30, 2016
under the FHLB facility was
$524.7 million
and with a pledged, lendable collateral value of
$301.4 million
. These facilities bear interest at prevailing rates for primary credit. Under the FHLB facility, as of September 30, 2016, there were short-term, non-amortizing borrowings outstanding of
$197.5 million
, which matured within 30 days. Credit availability under the FRB facility, as of
September 30, 2016
, was
$256.2 million
, which is also based on pledged collateral. As of
September 30, 2016
, the Bank had
no
federal funds purchased or long-term borrowings under the FRB facility.
Capital Resources.
Total shareholders’ equity increased $174.3 million to $465.0 million at
September 30, 2016
from $290.6 million at
December 31, 2015
. The increase was primarily due to common stock issued in connection with the Merger and the reversal of the valuation allowance on our deferred tax assets.
The Company and the Bank are subject to regulatory capital guidelines that measure capital relative to risk-weighted assets and off-balance sheet financial instruments. Failure to meet minimum capital requirements can cause certain mandatory and discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt correction action, the Bank must meet specific capital guidelines that involve quantitative and qualitative measures to ensure capital adequacy. Common Equity Tier 1 capital and Tier 1 capital is comprised of shareholders’ equity, net of unrealized gains or losses on available for sale securities, less intangible assets, less deferred tax assets net of valuation allowance, subject to limits, other adjustments, plus certain debt instruments.
The following table presents capital and risk-weighted assets for the Bank and Xenith Bankshares as of the dates stated, including the new common equity Tier 1 capital ratio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
(in thousands)
|
Xenith Bank
|
Xenith Bankshares
|
|
Xenith Bank
|
Xenith Bankshares
|
Common equity Tier 1 capital
|
$
|
315,529
|
|
$
|
345,673
|
|
|
$
|
254,500
|
|
$
|
262,700
|
|
Tier 1 capital
|
315,529
|
|
345,673
|
|
|
254,500
|
|
262,700
|
|
Total risk-based capital
|
349,264
|
|
387,812
|
|
|
276,942
|
|
285,410
|
|
Risk-weighted assets
|
2,817,905
|
|
2,848,023
|
|
|
1,756,043
|
|
1,780,696
|
|
The following table presents capital ratios and minimum capital ratios required by our regulators for the Bank and for Xenith Bankshares as of the dates stated. Additionally, we have included the regulatory minimum capital with capital buffer ratios for 2016 and ratios once the capital buffer is fully phased in.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well
|
|
|
|
|
|
|
|
|
|
|
Regulatory
|
Capitalized with
|
|
Xenith
|
|
Xenith
|
|
Xenith
|
|
Xenith
|
|
Regulatory
|
Minimum with
|
Capital Buffer
|
|
Bank
|
|
Bankshares
|
|
Bank
|
|
Bankshares
|
|
Minimum
|
Capital Buffer
|
Fully Phased-in
|
Common equity Tier 1 capital ratio
|
11.20%
|
|
12.14%
|
|
14.47%
|
|
14.73%
|
|
4.50%
|
5.125%
|
> 6.50%
|
Tier 1 leverage ratio
|
11.55%
|
|
12.50%
|
|
13.20%
|
|
13.46%
|
|
4.00%
|
N/A
|
> 5.00%
|
Tier 1 risk-based capital ratio
|
11.20%
|
|
12.14%
|
|
14.47%
|
|
14.73%
|
|
6.00%
|
6.625%
|
> 8.00%
|
Total risk-based capital ratio
|
12.39%
|
|
13.62%
|
|
15.75%
|
|
16.01%
|
|
8.00%
|
8.625%
|
> 10.00%
|
Contractual Obligations.
We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Our primary contractual obligations consist of time deposits, borrowings, and operating lease obligations.
Off-Balance Sheet Arrangements.
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet our customers’ financing needs. For more information on our off-balance sheet arrangements, refer to Note 12,
Financial Instruments with Off-Balance Sheet Risk,
of the Notes to Consolidated Financial Statements contained in the
2015
Form 10-K.
Commitments and Contingencies.
In the normal course of business, we have commitments under credit agreements to lend to customers as long as there is no material violation of any condition established in the contracts. These commitments generally have fixed expiration dates or other termination clauses and may require payments of fees. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Additionally, we issue letters of credit, which are conditional commitments to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is the same as that involved in extending loans to customers.
These commitments represent outstanding off-balance sheet commitments.
The following table presents unfunded loan commitments outstanding as of the dates stated:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30, 2016
|
|
December 31, 2015
|
Commercial lines of credit
|
$
|
320,880
|
|
|
$
|
124,834
|
|
Construction
|
112,737
|
|
|
27,758
|
|
Commercial real estate
|
43,544
|
|
|
13,004
|
|
Residential real estate
|
96,616
|
|
|
82,189
|
|
Consumer
|
12,472
|
|
|
7,164
|
|
Letters of credit
|
20,821
|
|
|
15,555
|
|
Total commitments
|
$
|
607,070
|
|
|
$
|
270,504
|
|
Interest Rate Sensitivity
Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Management considers interest rate risk to be a significant market risk for the Company. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of the Company’s interest-earning assets and interest-bearing liabilities.
The primary goal of our asset/liability management strategy is to optimize net interest income while limiting exposure to fluctuations caused by changes in the interest rate environment. Our ability to manage our interest rate risk depends generally on our ability to match the maturities and re-pricing characteristics of our assets and liabilities while taking into account the separate goals of maintaining asset quality and liquidity and achieving the desired level of net interest income.
Our management, guided by ALCO, determines the overall magnitude of interest sensitivity risk and then formulates policies governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the state of the national and regional economy, and other financial and business risk factors.
XENITH BANKSHARES, INC. (f/k/a/ Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The primary method that we use to quantify and manage interest rate risk is simulation analysis, which is used to model net interest income from assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon. Key assumptions in the simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances, and the behavior of loan and deposit customers in different rate environments.
The table below illustrates the expected effect on net interest income for the 12 months following
September 30, 2016
due to an immediate change in interest rates. Estimated changes set forth below are dependent on material assumptions, such as those previously discussed.
Effect on Net Interest Income
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Change in Net Interest Income
|
(in thousands, except for percentages)
|
Amount
|
|
%
|
Change in Interest Rates:
|
|
|
|
+200 basis points
|
$
|
790
|
|
|
0.84
|
%
|
+100 basis points
|
1,070
|
|
|
1.14
|
|
–100 basis points
|
(990
|
)
|
|
(1.06
|
)
|
–200 basis points
|
(1,800
|
)
|
|
(1.91
|
)
|
As of
September 30, 2016
, we project an increase in net interest income in an increasing rate environment and a decrease in net interest income in a decreasing interest rate environment, and the Company is considered "asset-sensitive".
It should be noted, however, that the simulation analysis is based upon equivalent changes in interest rates for all categories of assets and liabilities. In normal operating conditions, interest rate changes rarely occur in such a uniform manner. Many factors affect the timing and magnitude of interest rate changes on financial instruments. In addition, management may deploy strategies that offset some of the impact of changes in interest rates. Dependent upon timing and shifts in the interest rate term structure, certain rising rate scenarios are less favorable due to lower levels of assets with short-term re-pricing characteristics, as well as due to the variable rate structure on the majority of our borrowings and the floors on many loans that will cause a delay in any interest income improvement. Consequently, variations should be expected from the projections resulting from the controlled conditions of the simulation analysis. Management utilizes an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income over varying time horizons. The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest. These simulations incorporate assumptions regarding balance sheet mix, pricing and the re-pricing and maturity characteristics of the existing and projected balance sheet.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART I. FINANCIAL INFORMATION
ITEM
4
- CONTROLS AND PROCEDURES
Evaluation of 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 defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of
September 30, 2016
. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of
September 30, 2016
were effective in providing reasonable assurance that information required to be disclosed in the Company's reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SEC's rules and forms and that such information is accumulated and communicated to management of the Company, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three months ended
September 30, 2016
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year following such acquisition. In the third quarter of 2016, we acquired Xenith Bankshares, Inc. This acquisition represents $1.1 billion of total assets and approximately $5.0 million of net interest income as of and for the three months ended September 30, 2016. Management's evaluation and conclusion as to the effectiveness of the design and operation of the Company's disclosure controls and procedures as of and for the period covered by this report excludes any evaluation of the internal control over financial reporting of this acquisition.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that any such legal proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition, cash flows, or results of operations.
ITEM 1A – RISK FACTORS
For information regarding factors that could affect the Company's results of operations, financial condition, or liquidity, see the risk factors discussed in "Risk Factors" of the Proxy Statement/Prospectus. We do not believe there have been any material changes to the risk factors as previously disclosed in the Proxy Statement/Prospectus.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company announced an open ended program on August 13, 2003, by which management was authorized to repurchase an unlimited number of shares of Company common stock in the open market and through privately negotiated transactions. There were no share repurchase transactions conducted during the
nine
months ended
September 30, 2016
.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
PART II - OTHER INFORMATION
ITEM
3
-
EXHIBITS
See Exhibit Index, which is incorporated in this item by reference.
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
XENITH BANKSHARES, INC.
|
(Registrant)
|
|
|
|
|
|
DATE:
|
November 14, 2016
|
|
/s/ T. Gaylon Layfield, III
|
|
|
|
T. Gaylon Layfield, III
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
/s/ Thomas W. Osgood
|
|
|
|
Thomas W. Osgood
|
|
|
|
Chief Financial Officer
|
XENITH BANKSHARES, INC. (f/k/a Hampton Roads Bankshares, Inc.)
Exhibit Index
Xenith Bankshares, Inc.
|
|
|
|
|
Exhibit Number
|
|
Description
|
2.1
|
|
|
Asset Purchase Agreement, dated as of September 16, 2016, by and among Xenith Bank, Gateway Bank Mortgage, Inc. and Cornerstone Home Lending, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on September 19, 2016 (File No. 001-32968)). (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.)
|
10.1
|
|
|
Employment Agreement, dated as of February 10, 2016, by and among T. Gaylon Layfield, III, Xenith Bankshares, Inc. and Xenith Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 29, 2016 (File No. 001-32968)).
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10.2
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Employment Agreement, dated as of February 10, 2016, by and among Thomas W. Osgood, Xenith Bankshares, Inc. and Xenith Bank (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 29, 2016 (File No. 001-32968)).
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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