CONSOLIDATED BALANCE SHEETS
As of March 31, 2017 and December 31, 2016
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except share data)
|
March 31, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Cash and due from banks
|
$
|
16,187
|
|
|
$
|
18,825
|
|
Interest-bearing deposits in other banks
|
7,593
|
|
|
4,797
|
|
Overnight funds sold and due from Federal Reserve Bank
|
156,361
|
|
|
103,372
|
|
Investment securities available for sale, at fair value
|
318,741
|
|
|
317,443
|
|
Restricted equity securities, at cost
|
19,296
|
|
|
24,313
|
|
Loans
|
2,356,808
|
|
|
2,464,056
|
|
Allowance for loan losses
|
(18,275
|
)
|
|
(21,940
|
)
|
Net loans
|
2,338,533
|
|
|
2,442,116
|
|
Premises and equipment, net
|
56,371
|
|
|
56,996
|
|
Interest receivable
|
8,487
|
|
|
8,806
|
|
Other real estate owned and repossessed assets,
|
|
|
|
net of valuation allowance
|
5,185
|
|
|
5,345
|
|
Goodwill
|
26,931
|
|
|
26,931
|
|
Core deposit intangible, net
|
3,656
|
|
|
3,787
|
|
Net deferred tax assets, net of valuation allowance
|
154,899
|
|
|
157,825
|
|
Bank-owned life insurance
|
72,580
|
|
|
72,104
|
|
Other assets
|
13,760
|
|
|
13,969
|
|
Assets of discontinued operations
|
—
|
|
|
10,563
|
|
Totals assets
|
$
|
3,198,580
|
|
|
$
|
3,267,192
|
|
Liabilities and Shareholders' Equity
|
|
|
|
Deposits:
|
|
|
|
Noninterest-bearing demand
|
$
|
535,889
|
|
|
$
|
501,678
|
|
Interest-bearing:
|
|
|
|
Demand and money market
|
1,148,199
|
|
|
1,113,453
|
|
Savings
|
91,605
|
|
|
86,739
|
|
Time deposits less than $250
|
773,158
|
|
|
785,303
|
|
Time deposits $250 or more
|
70,792
|
|
|
84,797
|
|
Total deposits
|
2,619,643
|
|
|
2,571,970
|
|
Federal Home Loan Bank borrowings
|
50,000
|
|
|
172,000
|
|
Other borrowings
|
38,938
|
|
|
38,813
|
|
Interest payable
|
785
|
|
|
829
|
|
Other liabilities
|
18,143
|
|
|
19,093
|
|
Liabilities of discontinued operations
|
579
|
|
|
849
|
|
Total liabilities
|
2,728,088
|
|
|
2,803,554
|
|
Commitments and contingencies
|
|
|
|
Shareholders' equity:
|
|
|
|
Preferred stock, 1,000,000 shares authorized; none issued
|
|
|
|
and outstanding
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 1,000,000,000 shares
|
|
|
|
authorized; 23,159,377 and 23,123,518 shares issued
|
|
|
|
and outstanding on March 31, 2017 and December 31, 2016,
|
|
|
|
respectively
|
232
|
|
|
231
|
|
Capital surplus
|
712,048
|
|
|
710,916
|
|
Accumulated deficit
|
(239,875
|
)
|
|
(245,538
|
)
|
Accumulated other comprehensive loss, net of tax
|
(1,913
|
)
|
|
(2,428
|
)
|
Total shareholders' equity before non-controlling interest
|
470,492
|
|
|
463,181
|
|
Non-controlling interest of discontinued operations
|
—
|
|
|
457
|
|
Total shareholders' equity
|
470,492
|
|
|
463,638
|
|
Total liabilities and shareholders' equity
|
$
|
3,198,580
|
|
|
$
|
3,267,192
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(in thousands)
|
March 31, 2017
|
|
March 31, 2016
|
Interest Income
|
|
|
|
Loans, including fees
|
$
|
27,359
|
|
|
$
|
16,584
|
|
Investment securities
|
2,068
|
|
|
1,350
|
|
Overnight funds sold and deposits in other banks
|
236
|
|
|
44
|
|
Total interest income
|
29,663
|
|
|
17,978
|
|
Interest Expense
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Demand and money market
|
1,584
|
|
|
846
|
|
Savings
|
56
|
|
|
16
|
|
Time deposits
|
2,319
|
|
|
1,864
|
|
Interest expense on deposits
|
3,959
|
|
|
2,726
|
|
Federal Home Loan Bank borrowings
|
173
|
|
|
18
|
|
Other borrowings
|
680
|
|
|
472
|
|
Total interest expense
|
4,812
|
|
|
3,216
|
|
Net interest income
|
24,851
|
|
|
14,762
|
|
Provision for loan losses
|
9
|
|
|
(25
|
)
|
Net interest income after provision for loan losses
|
24,842
|
|
|
14,787
|
|
Noninterest Income
|
|
|
|
|
|
Service charges on deposit accounts
|
1,160
|
|
|
1,139
|
|
Earnings from bank-owned life insurance
|
476
|
|
|
349
|
|
Gain on sale of loans
|
19
|
|
|
—
|
|
Visa check card income
|
753
|
|
|
641
|
|
Other
|
724
|
|
|
384
|
|
Total noninterest income
|
3,132
|
|
|
2,513
|
|
Noninterest Expense
|
|
|
|
|
|
Salaries and employee benefits
|
10,487
|
|
|
7,771
|
|
Professional and consultant fees
|
1,199
|
|
|
585
|
|
Occupancy
|
1,981
|
|
|
1,416
|
|
FDIC insurance
|
729
|
|
|
414
|
|
Data processing and technology
|
1,026
|
|
|
1,204
|
|
Problem loan and repossessed asset costs
|
99
|
|
|
101
|
|
Impairments on and (gains) and losses from sales of other real estate owned and repossessed assets, net
|
70
|
|
|
(177
|
)
|
Equipment
|
334
|
|
|
284
|
|
Board fees
|
131
|
|
|
246
|
|
Advertising and marketing
|
224
|
|
|
50
|
|
Merger-related
|
250
|
|
|
1,568
|
|
Other
|
3,001
|
|
|
2,071
|
|
Total noninterest expense
|
19,531
|
|
|
15,533
|
|
Income from continuing operations before provision for income taxes
|
8,443
|
|
|
1,767
|
|
Provision for income taxes - continuing operations
|
2,704
|
|
|
734
|
|
Net income from continuing operations
|
5,739
|
|
|
1,033
|
|
Net (loss) income from discontinued operations before provision for income taxes
|
(255
|
)
|
|
570
|
|
(Benefit) provision for income taxes - discontinued operations
|
(56
|
)
|
|
15
|
|
Net (loss) income from discontinued operations attributable to non-controlling interest
|
(123
|
)
|
|
206
|
|
Net (loss) income from discontinued operations
|
(76
|
)
|
|
349
|
|
Net income attributable to Xenith Bankshares, Inc.
|
$
|
5,663
|
|
|
$
|
1,382
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(in thousands)
|
March 31, 2017
|
|
March 31, 2016
|
Net income attributable to Xenith Bankshares, Inc.
|
$
|
5,663
|
|
|
$
|
1,382
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
Change in unrealized gain on securities available for sale
|
793
|
|
|
1,893
|
|
Income tax effect
|
(278
|
)
|
|
(685
|
)
|
Other comprehensive income, net of tax
|
515
|
|
|
1,208
|
|
Comprehensive income attributable to Xenith Bankshares, Inc.
|
$
|
6,178
|
|
|
$
|
2,590
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
(unaudited)
|
Common Stock
|
|
Capital
|
|
Accumulated
|
|
Comprehensive Income (Loss),
|
|
Non-controlling
|
|
Total Shareholders'
|
(in thousands, except share data)
|
Shares
|
|
Amount
|
|
Surplus
|
|
Deficit
|
|
Net of Tax
|
|
Interest
|
|
Equity
|
Balance at December 31, 2016
|
23,123,518
|
|
|
$
|
231
|
|
|
$
|
710,916
|
|
|
$
|
(245,538
|
)
|
|
$
|
(2,428
|
)
|
|
$
|
457
|
|
|
$
|
463,638
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
5,663
|
|
|
—
|
|
|
(123
|
)
|
|
5,540
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
515
|
|
|
—
|
|
|
515
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
624
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
624
|
|
Net settlement of restricted stock units
|
2,528
|
|
|
—
|
|
|
236
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
236
|
|
Restricted stock awards granted
|
13,323
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net issuance on exercise of stock options
|
20,008
|
|
|
1
|
|
|
272
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
273
|
|
Reclassification to other liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(334
|
)
|
|
(334
|
)
|
Balance at March 31, 2017
|
23,159,377
|
|
|
$
|
232
|
|
|
$
|
712,048
|
|
|
$
|
(239,875
|
)
|
|
$
|
(1,913
|
)
|
|
$
|
—
|
|
|
$
|
470,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2017 and 2016
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
March 31, 2017
|
|
March 31, 2016
|
Cash flows from operating activities
|
|
|
|
|
|
Net income from continuing operations
|
$
|
5,739
|
|
|
$
|
1,033
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
742
|
|
|
734
|
|
Deferred income tax expense
|
2,704
|
|
|
734
|
|
Accretion and amortization of fair value adjustments
|
(890
|
)
|
|
272
|
|
Amortization of core deposit intangible
|
131
|
|
|
—
|
|
Provision for loan losses
|
9
|
|
|
(25
|
)
|
Share-based compensation expense
|
624
|
|
|
420
|
|
Net amortization of premiums and accretion of discounts on investment securities available for sale
|
868
|
|
|
59
|
|
Earnings from bank-owned life insurance
|
(476
|
)
|
|
(349
|
)
|
Impairments on and gains and losses from sales of other real estate owned and repossessed assets
|
70
|
|
|
(177
|
)
|
Impairments on and gains and losses from sales of premises and equipment
|
(2
|
)
|
|
—
|
|
Changes in:
|
|
|
|
|
|
Interest receivable
|
319
|
|
|
(189
|
)
|
Other assets
|
209
|
|
|
4,584
|
|
Interest payable
|
(44
|
)
|
|
18
|
|
Other liabilities
|
(714
|
)
|
|
6,823
|
|
Net cash provided by operating activities - continuing operations
|
9,289
|
|
|
13,937
|
|
Net cash provided by (used in) operating activities - discontinued operations
|
9,704
|
|
|
(2,614
|
)
|
Cash provided by operating activities
|
18,993
|
|
|
11,323
|
|
Cash flows from investing activities
|
|
|
|
|
|
Proceeds from maturities and calls of investment securities available for sale
|
8,920
|
|
|
8,892
|
|
Purchase of investment securities available for sale
|
(10,293
|
)
|
|
(8,000
|
)
|
Proceeds from sale of restricted equity securities
|
7,310
|
|
|
4,122
|
|
Purchase of restricted equity securities
|
(2,293
|
)
|
|
(6,299
|
)
|
Net decrease in loans
|
104,465
|
|
|
19,575
|
|
Proceeds from sale of other real estate owned and repossessed assets, net
|
214
|
|
|
5,107
|
|
Purchases of premises and equipment
|
(115
|
)
|
|
(108
|
)
|
Net cash provided by investing activities - continuing operations
|
108,208
|
|
|
23,289
|
|
Net cash provided by (used in) investing activities - discontinued operations
|
—
|
|
|
(1,321
|
)
|
Cash provided by investing activities
|
108,208
|
|
|
21,968
|
|
Net increase (decrease) in deposits
|
47,673
|
|
|
(20,887
|
)
|
Net decrease in short-term Federal Home Loan Bank borrowings
|
(122,000
|
)
|
|
(14,000
|
)
|
Issuance of common stock related to exercised options
|
273
|
|
|
—
|
|
Repurchase of common stock in the settlement of restricted stock units
|
—
|
|
|
(45
|
)
|
Distributed non-controlling interest
|
—
|
|
|
(173
|
)
|
Net cash used in financing activities
|
(74,054
|
)
|
|
(35,105
|
)
|
Increase (decrease) in cash and cash equivalents
|
53,147
|
|
|
(1,814
|
)
|
Cash and cash equivalents at beginning of period
|
126,994
|
|
|
63,746
|
|
Cash and cash equivalents at end of period
|
$
|
180,141
|
|
|
$
|
61,932
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
4,850
|
|
|
$
|
3,070
|
|
Cash paid for income taxes
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental non-cash information:
|
|
|
|
|
|
Change in unrealized gain on investment securities available for sale, net of tax
|
$
|
515
|
|
|
$
|
1,208
|
|
Transfer from other real estate owned and repossessed assets to loans
|
$
|
—
|
|
|
$
|
545
|
|
Transfer from other real estate owned and repossessed assets to other assets
|
$
|
—
|
|
|
$
|
993
|
|
Transfer from loans to other real estate owned and repossessed assets
|
$
|
124
|
|
|
$
|
734
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
Xenith Bankshares, Inc. ("Xenith Bankshares" or the "Company") is the bank holding company for Xenith Bank (the "Bank"), a Virginia-based institution headquartered in Richmond, Virginia. As of March 31, 2017, the Company, through the Bank, operates
42
full-service branches and
two
loan production offices. Xenith Bank is a commercial bank specifically targeting the banking needs of middle market and small business, local real estate developers and investors, and retail banking clients. The Bank offers marine finance floorplan and end-user loans through its Shore Premier Finance unit. Xenith Bank's regional area of operations spans from Baltimore, Maryland, to Raleigh and eastern North Carolina, complementing its significant presence in greater Washington, D.C., greater Richmond, Virginia, and greater Hampton Roads, Virginia.
Effective July 29, 2016, the Company (previously, Hampton Roads Bankshares, Inc.) completed its 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, received
4.4
shares of common stock of the Company, par value
$0.01
per share (the "common stock"), for each share of Legacy Xenith common stock held immediately prior to the effective time of the Merger, with cash 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 Bank, with the Bank surviving the Bank Merger. In connection with the Bank Merger, the Bank changed its name from "The Bank of Hampton Roads" to "Xenith Bank."
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 (f/k/a The Bank of Hampton Roads). Information presented herein as of and for the three-month period ended March 31, 2016 does not include the operations of Legacy Xenith.
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 included originating, closing, funding and selling first lien residential mortgage loans, to an unrelated party (the "GBMI Sale"). The completion of the GBMI Sale occurred on October 17, 2016. The operations of GBMI have been reported as discontinued operations for all periods presented herein.
On December 7, 2016, the Company announced a reverse stock split of its outstanding shares of common stock at a ratio of 1-for-10 (the "Reverse Stock Split"), which had been previously approved by the Company's shareholders. The Reverse Stock Split became effective on December 13, 2016. No fractional shares were issued in the Reverse Stock Split, rather shareholders of fractional shares received a cash payment based on the closing price of the Company's common stock as of the date of the Reverse Stock Split. The par value of each share of common stock remained unchained at
$0.01
per share and the number of authorized shares was not affected. References made to outstanding shares or per share amounts in the accompanying consolidated financial statements and disclosures have been retroactively adjusted to reflect the Reverse Stock Split, unless otherwise noted.
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
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
necessary for a fair presentation. The results of operations for the
three
months ended
March 31, 2017
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. All dollar amounts included in the tables in these notes are in thousands, except per share data, unless otherwise stated.
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, 2016
("2016 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 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 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 ASC Topic 842,
Leases
("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.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. The implementation of this standard occurred in the current period and did not have a material effect on the Company's consolidated financial statements.
In accordance with ASU 2016-09 and beginning in 2017, the Company will recognize excess tax benefits and tax deficiencies as income tax benefit or expense, respectively, in the reporting period in which they occur. Prior to the adoption of this standard, the Company recognized excess tax benefits as capital surplus only when the amounts reduced taxes payable. Additionally, under the updated guidance, the Company will classify excess tax benefits as an operating activity as part of cash payments for taxes on its consolidated statement of cash flows. Under the new guidance, companies are permitted to make an election to account for forfeitures as they occur, rather than estimating forfeitures as of the award's grant date. The Company recognizes forfeitures as they occur, so the new guidance had no effect on the Company's accounting for forfeitures. The Company classifies tax payments made on behalf of employees as cash outflows from financing activities on the statement of cash flows, which results in no change under the new guidance.
In June 2016, the FASB issued ASC 326,
Measurement of Credit Losses on Financial Instruments
("ASC 326"), 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 ASC 326 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 ASC 326 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. This standard is 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 the impact the adoption of this standard will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASC 230,
Statement of Cash Flows
("ASC 230"), 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 believes the adoption of this standard will not have a material effect on its consolidated statements of cash flows.
In October 2016, the FASB issued ASC 740,
Income Taxes (Topic 740): Intra-Equity Transfers of Assets Other Than Inventory
("ASC 740"), which requires entities to recognize at the transaction date the income tax consequences of intercompany asset
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transfers other than inventory. This ASC is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Entities may early adopt the standard, but only at the beginning of an annual period for which no financial statements (interim or annual) have already been issued or made available for issuance. The Company believes the adoption of this standard will not have a material effect on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
("ASU 2016-18"), which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. ASU 2016-18 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoptions in an interim period. If an entity early adopts the amendments in an interim period, adjustments should be reflected at the beginning of the fiscal year that includes the interim period. The Company believes the adoption of this standard will not have a material effect on its consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19,
Technical Corrections and Improvements
("ASU 2016-19"), which amends a number of topics in the FASB ASC. The ASU is part of an ongoing FASB project to facilitate ASC updates for non-substantive technical corrections, clarifications and improvements that are not expected to have a significant effect on accounting practice or create a significant administrative cost to most entities. ASU 2016-19 will apply to all reporting entities within the scope of the effected accounting guidance.
Most amendments included in ASU 2016-19 were effective upon issuance (December 2016). Certain amendments that require transition guidance are effective for:
1. Public business entities for annual and interim periods in fiscal years beginning after December 2016 (for cloud computing arrangements); and
2. All entities for annual and interim periods in fiscal years beginning after December 15, 2016 (for certain others, including the change to fair value measurement disclosures).
Early adoption is permitted for the amendments that require transition guidance. The adoption of this guidance did not have a material effect the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
("ASU 2017-01"), which provides a new framework for determining whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. ASU 2017-01 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Entities may early adopt ASU 2017-01 and apply it to transactions that have not been reported in financial statements that have been issued or made available for issuance. The Company believes the adoption of this standard will not have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
("ASU 2017-04"), which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Entities may early adopt the standard for goodwill impairment tests with measurement dates after January 1, 2017. The Company believes the adoption of this standard will not have a material effect on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
("ASU 2017-07"), which requires companies to present the service cost component of net benefit cost in the same line items which they report compensation costs. Companies will be required to present all other components of net benefit cost outside of operating income, if this subtotal is presented. ASU 2017-07 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or make available for issuance. The Company believes the adoption of this standard will not have a material effect on its consolidated financial statements.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - 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 14 - Fair Value Measurements in these consolidated financial statements.
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 allocation of consideration paid in the Merger to the acquired assets and assumed liabilities. The allocation resulted in goodwill of
$26.9 million
, which represents the growth opportunities and franchise value the Bank has in the markets it serves.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Fair value of assets acquired:
|
Cash and cash equivalents
|
|
$
|
69,241
|
|
Securities
|
|
139,025
|
|
Loans
|
|
827,987
|
|
Premises and equipment
|
|
6,180
|
|
Other real estate owned
|
|
738
|
|
Core deposit intangible
|
|
4,006
|
|
Accrued interest receivable
|
|
4,464
|
|
Deferred tax asset
|
|
5,156
|
|
Bank owned life insurance
|
|
19,917
|
|
Other assets
|
|
17,879
|
|
Total assets
|
|
$
|
1,094,593
|
|
Fair value of liabilities assumed:
|
Deposits
|
|
$
|
956,078
|
|
Accrued interest payable
|
|
285
|
|
Supplemental executive retirement plan
|
|
2,162
|
|
Borrowings
|
|
36,533
|
|
Other liabilities
|
|
8,112
|
|
Total liabilities
|
|
$
|
1,003,170
|
|
Net identifiable assets acquired
|
|
$
|
91,423
|
|
|
|
|
Consideration paid:
|
Company's common shares issued (1)
|
|
58,915,439
|
|
Purchase price per share (2)
|
|
$
|
1.97
|
|
Value of common stock issued
|
|
$
|
116,063
|
|
Estimated fair value of stock options
|
|
2,290
|
|
Cash in lieu of fractional shares
|
|
1
|
|
Total consideration paid
|
|
118,354
|
|
Goodwill
|
|
$
|
26,931
|
|
_______________________
|
|
|
(1) The issuance of shares of common stock in the Merger preceded the Reverse Stock Split and the number of shares of common stock is presented on a pre-Reverse Stock Split basis.
|
(2) The value of the shares of common stock exchanged for shares of Legacy Xenith common stock was based upon the closing price of 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 fair value adjustments recorded immediately following the Merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Performing
|
|
Purchased Impaired
|
|
Total
|
Principal payments receivable
|
$
|
830,613
|
|
|
$
|
9,851
|
|
|
$
|
840,464
|
|
Fair value adjustment - credit and interest
|
(9,318
|
)
|
|
(3,159
|
)
|
|
(12,477
|
)
|
Fair value of acquired loans
|
$
|
821,295
|
|
|
$
|
6,692
|
|
|
$
|
827,987
|
|
The following table presents, on a pro forma basis, the effect of the Merger for the three months ended March 31, 2016, as if the Merger had occurred at the beginning of 2016. Merger-related costs of
$1.6 million
incurred in the three months ended March 31,
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2016, which are included in the Company's consolidated statements of income, 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 income 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 core deposit intangibles. An effective income tax rate of
35%
was used in determining pro forma net income.
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2016
|
|
Revenue (net interest income plus noninterest income)
|
$
|
26,869
|
|
|
Net income from continuing operations
|
$
|
4,304
|
|
|
Earnings per common share (basic and diluted)
|
$
|
0.19
|
|
|
NOTE 3 - Discontinued Operations
In connection with the GBMI Sale, which was completed on October 17, 2016, GBMI ceased taking new mortgage loan applications, and all applications with prospective borrowers that were in process at the completion of the GBMI Sale were managed by GBMI through funding and sale to investors in the ordinary course of business. The decision to exit the mortgage business was based on a number of factors, including the costs of regulatory compliance and the scale required to be competitive. Proceeds from the GBMI Sale, which included the sale of certain fixed assets, were
$87 thousand
.
As of December 31, 2016, there were no remaining loans to be funded and
$9.9 million
of loans were held for sale to investors related to GBMI, which are included in assets from discontinued operations in the Company's consolidated balance sheet as of December 31, 2016. As of March 31, 2017, the operations of GBMI had been transitioned to the purchaser and there were
no
remaining loans held for sale and no assets remaining related to GBMI. Management believes, as of March 31, 2017, there are no significant on-going obligations, which include the Company's share of obligations to third-party investors and certain wind-down expenses, with respect to the mortgage banking business. As of March 31, 2017, the Company had a liability of
$579 thousand
recorded as liabilities of discontinued operations on its consolidated balance sheets, which is a reserve for any future obligations.
The following table presents summarized operating results of the discontinued operations for the period stated:
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
March 31, 2016
|
Net interest income
|
$
|
19
|
|
$
|
154
|
|
Provision for loan losses
|
(5
|
)
|
26
|
|
Net interest income after provision for loan losses
|
24
|
|
128
|
|
Noninterest income
|
140
|
|
4,439
|
|
Noninterest expense:
|
|
|
Salaries and employee benefits
|
237
|
|
3,010
|
|
Professional and consultant fees
|
2
|
|
49
|
|
Occupancy
|
5
|
|
206
|
|
Data processing
|
40
|
|
104
|
|
Equipment
|
2
|
|
20
|
|
Advertising and marketing
|
6
|
|
220
|
|
Other
|
127
|
|
388
|
|
Total noninterest expense
|
419
|
|
3,997
|
|
Net (loss) income before provision for income taxes
|
(255
|
)
|
570
|
|
(Benefit) provision for income taxes
|
(56
|
)
|
15
|
|
Net (loss) income
|
(199
|
)
|
555
|
|
Net (loss) income attributable to non-controlling interest
|
(123
|
)
|
206
|
|
Net (loss) income attributable to Xenith Bankshares, Inc.
|
$
|
(76
|
)
|
$
|
349
|
|
NOTE 4 - Cash Reserves
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 requirements for the periods closest to
March 31, 2017
and
December 31, 2016
were
$60.1 million
and
$63.9 million
, respectively. The Bank was in compliance with these requirements at March 31, 2017 and December 31, 2016.
NOTE 5 - Investment Securities
The following table presents amortized cost, gross unrealized gains and losses, and fair values of investment securities available for sale as of the dates stated:
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
Agencies
|
$
|
139,616
|
|
|
$
|
736
|
|
|
$
|
898
|
|
|
$
|
139,454
|
|
Collateralized
|
62,075
|
|
|
61
|
|
|
1,026
|
|
|
61,110
|
|
Collateralized mortgage obligations
|
18,181
|
|
|
259
|
|
|
108
|
|
|
18,332
|
|
Asset-backed securities
|
14,868
|
|
|
—
|
|
|
109
|
|
|
14,759
|
|
Municipals
|
|
|
|
|
|
|
|
Tax-exempt
|
66,938
|
|
|
—
|
|
|
2,577
|
|
|
64,361
|
|
Taxable
|
18,056
|
|
|
—
|
|
|
387
|
|
|
17,669
|
|
Corporate bonds
|
980
|
|
|
1
|
|
|
—
|
|
|
981
|
|
Equity securities
|
969
|
|
|
1,106
|
|
|
—
|
|
|
2,075
|
|
Total securities available for sale
|
$
|
321,683
|
|
|
$
|
2,163
|
|
|
$
|
5,105
|
|
|
$
|
318,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
Agencies
|
$
|
135,054
|
|
|
$
|
793
|
|
|
$
|
957
|
|
|
$
|
134,890
|
|
Collateralized
|
63,837
|
|
|
61
|
|
|
1,145
|
|
|
62,753
|
|
Collateralized mortgage obligations
|
19,626
|
|
|
288
|
|
|
104
|
|
|
19,810
|
|
Asset-backed securities
|
14,866
|
|
|
—
|
|
|
108
|
|
|
14,758
|
|
Municipals
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
67,738
|
|
|
—
|
|
|
2,983
|
|
|
64,755
|
|
Taxable
|
18,105
|
|
|
1
|
|
|
430
|
|
|
17,676
|
|
Corporate bonds
|
983
|
|
|
1
|
|
|
—
|
|
|
984
|
|
Equity securities
|
969
|
|
|
848
|
|
|
—
|
|
|
1,817
|
|
Total securities available for sale
|
$
|
321,178
|
|
|
$
|
1,992
|
|
|
$
|
5,727
|
|
|
$
|
317,443
|
|
As of March 31, 2017 and December 31, 2016, the Company had available-for-sale securities with a fair value of
$80.1 million
and
$83.0 million
, respectively, pledged as collateral for public deposits, borrowings and other depositor requirements.
Unrealized Losses
The following tables present the fair values and gross unrealized losses aggregated by investment category and length of time and the number of individual securities that have been in a continuous unrealized loss position as of the dates stated:
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Number of
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Securities
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agencies
|
36
|
|
|
$
|
87,594
|
|
|
$
|
893
|
|
|
$
|
640
|
|
|
$
|
5
|
|
|
$
|
88,234
|
|
|
$
|
898
|
|
Collateralized
|
20
|
|
|
47,099
|
|
|
1,026
|
|
|
—
|
|
|
—
|
|
|
47,099
|
|
|
1,026
|
|
Collateralized mortgage obligations
|
7
|
|
|
7,218
|
|
|
108
|
|
|
—
|
|
|
—
|
|
|
7,218
|
|
|
108
|
|
Asset-backed securities
|
6
|
|
|
5,443
|
|
|
64
|
|
|
9,315
|
|
|
45
|
|
|
14,758
|
|
|
109
|
|
Municipals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
43
|
|
|
64,361
|
|
|
2,577
|
|
|
—
|
|
|
—
|
|
|
64,361
|
|
|
2,577
|
|
Taxable
|
10
|
|
|
17,669
|
|
|
387
|
|
|
—
|
|
|
—
|
|
|
17,669
|
|
|
387
|
|
Total securities available for sale
|
122
|
|
|
$
|
229,384
|
|
|
$
|
5,055
|
|
|
$
|
9,955
|
|
|
$
|
50
|
|
|
$
|
239,339
|
|
|
$
|
5,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Number of
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Securities
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
|
Fair Value
|
|
Loss
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agencies
|
33
|
|
|
$
|
88,315
|
|
|
$
|
945
|
|
|
$
|
695
|
|
|
$
|
12
|
|
|
$
|
89,010
|
|
|
$
|
957
|
|
Collateralized
|
19
|
|
|
42,272
|
|
|
1,145
|
|
|
—
|
|
|
—
|
|
|
42,272
|
|
|
1,145
|
|
Collateralized mortgage obligations
|
6
|
|
|
7,216
|
|
|
104
|
|
|
—
|
|
|
—
|
|
|
7,216
|
|
|
104
|
|
Asset-backed securities
|
6
|
|
|
5,443
|
|
|
64
|
|
|
9,315
|
|
|
44
|
|
|
14,758
|
|
|
108
|
|
Municipals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
|
44
|
|
|
64,755
|
|
|
2,983
|
|
|
—
|
|
|
—
|
|
|
64,755
|
|
|
2,983
|
|
Taxable
|
9
|
|
|
17,149
|
|
|
430
|
|
|
—
|
|
|
—
|
|
|
17,149
|
|
|
430
|
|
Total securities available for sale
|
117
|
|
|
$
|
225,150
|
|
|
$
|
5,671
|
|
|
$
|
10,010
|
|
|
$
|
56
|
|
|
$
|
235,160
|
|
|
$
|
5,727
|
|
Management evaluates securities for other-than-temporary impairment ("OTTI") at least quarterly and more frequently when economic or market conditions warrant such an evaluation. In determining 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 OTTI decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
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 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.
Maturities of Investment Securities
The following table presents the amortized cost and fair value by contractual maturity of investment securities available for sale as of the dates stated. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities that are not due at a single maturity date and equity securities that do not have contractual maturities are shown separately.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amortized
|
|
|
|
Amortized
|
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Due in one year or less
|
$
|
259
|
|
|
$
|
258
|
|
|
$
|
502
|
|
|
$
|
502
|
|
Due after one year
|
|
|
|
|
|
|
|
but less than five years
|
12,050
|
|
|
11,850
|
|
|
11,300
|
|
|
11,072
|
|
Due after five years
|
|
|
|
|
|
|
|
but less than ten years
|
68,556
|
|
|
65,934
|
|
|
69,900
|
|
|
66,880
|
|
Due after ten years
|
4,128
|
|
|
3,988
|
|
|
4,141
|
|
|
3,977
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
Agencies
|
139,616
|
|
|
139,454
|
|
|
135,054
|
|
|
134,890
|
|
Collateralized
|
62,075
|
|
|
61,110
|
|
|
63,837
|
|
|
62,753
|
|
Collateralized mortgage obligations
|
18,181
|
|
|
18,332
|
|
|
19,626
|
|
|
19,810
|
|
Corporate Bonds
|
981
|
|
|
981
|
|
|
983
|
|
|
984
|
|
Asset-backed securities
|
14,868
|
|
|
14,759
|
|
|
14,866
|
|
|
14,758
|
|
Equity securities
|
969
|
|
|
2,075
|
|
|
969
|
|
|
1,817
|
|
Total securities available for sale
|
$
|
321,683
|
|
|
$
|
318,741
|
|
|
$
|
321,178
|
|
|
$
|
317,443
|
|
Restricted Equity Securities
The Company's holds stock in the Federal Home Loan Bank ("FHLB") in the amount of
$5.1 million
and
$10.1 million
at
March 31, 2017
and
December 31, 2016
, respectively. 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
March 31, 2017
, recorded an annualized dividend rate of
4.77%
. 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.
The Company holds stock in the Federal Reserve Bank ("FRB") in the amount of
$14.0 million
at
March 31, 2017
and at
December 31, 2016
. FRB stock 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 remaining restricted stock held by the Company, in the amount of
$178 thousand
at March 31, 2017 and December 31, 2016, is stock in other banks with which the Bank conducts or has the ability to conduct correspondent activity. These investments are also carried at cost as there is no readily available market for these securities.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Loans and Allowance for Loan Losses
Loans are carried at their unpaid principal amount outstanding net of unamortized fees and origination costs, partial charge-offs, if any, and in the case of acquired loans, unaccreted fair value or purchase accounting adjustments. 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.
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 fair value adjustment for GSLs that reduced the carrying amount in the GSLs to approximate the guaranteed portion of the loans. In the three-month period ended March 31, 2017, the Company sold a portion of the GSLs. The proceeds from the sale were
$9.9 million
, and the gain on the sale was
$19 thousand
, which is recorded in noninterest income on the Company's consolidated statements of income.
The following table presents the Company's composition of loans as of the dates stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Commercial & Industrial
|
$
|
787,443
|
|
|
$
|
895,952
|
|
Construction
|
255,309
|
|
|
257,712
|
|
Commercial real estate
|
591,739
|
|
|
585,727
|
|
Residential real estate
|
391,971
|
|
|
405,291
|
|
Consumer
|
296,781
|
|
|
274,008
|
|
Guaranteed student loans
|
32,533
|
|
|
44,043
|
|
Deferred loan fees and related costs
|
1,032
|
|
|
1,323
|
|
Total loans
|
$
|
2,356,808
|
|
|
$
|
2,464,056
|
|
As of March 31, 2017 and December 31, 2016, the Company had
$577.8 million
and
$625.0 million
, respectively, of loans pledged to the FRB and the FHLB as collateral for borrowings.
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 deterioration in credit quality subsequent to acquisition for these loans is reflected in the allowance for loan losses at such time the remaining purchase accounting adjustment (discount) for the acquired loans is inadequate to cover the allowance needs of these loans.
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
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities Acquired with Deteriorated Credit Quality
("ASC 310-30"). A portion of the loans acquired in the Merger were deemed to be purchased credit-impaired loans qualifying for accounting under ASC 310-30.
In applying ASC 310-30 to acquired loans, the Company must estimate the amount and timing of cash flows expected to be collected. The estimation of the amount and timing of expected cash flows to be collected requires significant judgment, including default rates, the amount and timing of prepayments, and the value and timing of the liquidation of underlying collateral, in addition to other factors.
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 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 March 31, 2017, impairment of
$9 thousand
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 type for the periods stated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
21,940
|
|
|
$
|
23,157
|
|
Charge-offs:
|
|
|
|
Commercial & Industrial
|
2,787
|
|
|
258
|
|
Construction
|
55
|
|
|
312
|
|
Commercial real estate
|
720
|
|
|
540
|
|
Residential real estate
|
240
|
|
|
1,603
|
|
Consumer
|
664
|
|
|
19
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
Overdrafts
|
26
|
|
|
34
|
|
Total charge-offs
|
4,492
|
|
|
2,766
|
|
Recoveries:
|
|
|
|
Commercial & Industrial
|
127
|
|
|
89
|
|
Construction
|
249
|
|
|
268
|
|
Commercial real estate
|
193
|
|
|
222
|
|
Residential real estate
|
221
|
|
|
220
|
|
Consumer
|
28
|
|
|
10
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
Overdrafts
|
—
|
|
|
—
|
|
Total recoveries
|
818
|
|
|
809
|
|
Net charge-offs
|
3,674
|
|
|
1,957
|
|
Provision (benefit) for loan losses
|
9
|
|
|
(25
|
)
|
Balance at end of period
|
$
|
18,275
|
|
|
$
|
21,175
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has
no
allowance for loan losses on its guaranteed student loan portfolio. In allocating the consideration paid in the Merger, the Company recorded a fair value adjustment for GSLs, which reduced the carrying amount in the portfolio to an amount that approximates the portion of the loans subject to federal guarantee.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Individually Evaluated
|
|
Collectively Evaluated
|
|
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
|
9
|
|
|
9
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Total purchased credit-impaired loans
|
9
|
|
|
9
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
4,250
|
|
|
2,324
|
|
|
1,926
|
|
Construction
|
1,130
|
|
|
73
|
|
|
1,057
|
|
Commercial real estate
|
1,747
|
|
|
—
|
|
|
1,747
|
|
Residential real estate
|
4,456
|
|
|
1,445
|
|
|
3,011
|
|
Consumer
|
1,463
|
|
|
40
|
|
|
1,423
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated qualitative
|
5,220
|
|
|
—
|
|
|
5,220
|
|
Total originated and other purchased loans
|
18,266
|
|
|
3,882
|
|
|
14,384
|
|
Total allowance for loan losses
|
$
|
18,275
|
|
|
$
|
3,891
|
|
|
$
|
14,384
|
|
Loan balances applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
865
|
|
|
$
|
865
|
|
|
$
|
—
|
|
Construction
|
978
|
|
|
978
|
|
|
—
|
|
Commercial real estate
|
1,050
|
|
|
1,050
|
|
|
—
|
|
Residential real estate
|
2,101
|
|
|
2,101
|
|
|
—
|
|
Consumer
|
54
|
|
|
54
|
|
|
—
|
|
Total purchased credit-impaired loans
|
5,048
|
|
|
5,048
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
786,578
|
|
|
20,856
|
|
|
765,722
|
|
Construction
|
254,331
|
|
|
7,162
|
|
|
247,169
|
|
Commercial real estate
|
590,689
|
|
|
7,417
|
|
|
583,272
|
|
Residential real estate
|
389,870
|
|
|
12,276
|
|
|
377,594
|
|
Consumer
|
296,727
|
|
|
882
|
|
|
295,845
|
|
Guaranteed student loans
|
32,533
|
|
|
—
|
|
|
32,533
|
|
Deferred loan fees and related costs
|
1,032
|
|
|
—
|
|
|
1,032
|
|
Total originated and other purchased loans
|
2,351,760
|
|
|
48,593
|
|
|
2,303,167
|
|
Total loans
|
$
|
2,356,808
|
|
|
$
|
53,641
|
|
|
$
|
2,303,167
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Individually Evaluated
|
|
Collectively Evaluated
|
|
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
|
5,816
|
|
|
3,327
|
|
|
2,489
|
|
Construction
|
1,551
|
|
|
161
|
|
|
1,390
|
|
Commercial real estate
|
2,410
|
|
|
734
|
|
|
1,676
|
|
Residential real estate
|
5,205
|
|
|
1,275
|
|
|
3,930
|
|
Consumer
|
1,967
|
|
|
606
|
|
|
1,361
|
|
Guaranteed student loans
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated qualitative
|
4,991
|
|
|
—
|
|
|
4,991
|
|
Total originated and other purchased loans
|
21,940
|
|
|
6,103
|
|
|
15,837
|
|
Total allowance for loan losses
|
$
|
21,940
|
|
|
$
|
6,103
|
|
|
$
|
15,837
|
|
Loan balances applicable to:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
897
|
|
|
$
|
897
|
|
|
$
|
—
|
|
Construction
|
992
|
|
|
992
|
|
|
—
|
|
Commercial real estate
|
1,090
|
|
|
1,090
|
|
|
—
|
|
Residential real estate
|
2,122
|
|
|
2,122
|
|
|
—
|
|
Consumer
|
55
|
|
|
55
|
|
|
—
|
|
Total purchased credit-impaired loans
|
5,156
|
|
|
5,156
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
895,055
|
|
|
24,052
|
|
|
871,003
|
|
Construction
|
256,720
|
|
|
7,982
|
|
|
248,738
|
|
Commercial real estate
|
584,637
|
|
|
9,184
|
|
|
575,453
|
|
Residential real estate
|
403,169
|
|
|
12,637
|
|
|
390,532
|
|
Consumer
|
273,953
|
|
|
1,551
|
|
|
272,402
|
|
Guaranteed student loans
|
44,043
|
|
|
—
|
|
|
44,043
|
|
Deferred loan fees and related costs
|
1,323
|
|
|
—
|
|
|
1,323
|
|
Total originated and other purchased loans
|
2,458,900
|
|
|
55,406
|
|
|
2,403,494
|
|
Total loans
|
$
|
2,464,056
|
|
|
$
|
60,562
|
|
|
$
|
2,403,494
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the loans that were individually evaluated for impairment as of the dates and for the periods stated. The tables present those loans with and without an allowance and various additional data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
865
|
|
|
$
|
1,254
|
|
|
$
|
—
|
|
Construction
|
978
|
|
|
1,433
|
|
|
—
|
|
Commercial real estate
|
1,050
|
|
|
1,471
|
|
|
—
|
|
Residential real estate
|
2,047
|
|
|
2,823
|
|
|
—
|
|
Consumer
|
54
|
|
|
90
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
13,362
|
|
|
14,844
|
|
|
—
|
|
Construction
|
6,962
|
|
|
16,370
|
|
|
—
|
|
Commercial real estate
|
7,417
|
|
|
10,176
|
|
|
—
|
|
Residential real estate
|
6,182
|
|
|
6,874
|
|
|
—
|
|
Consumer
|
804
|
|
|
1,342
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
54
|
|
|
73
|
|
|
9
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
7,494
|
|
|
7,494
|
|
|
2,324
|
|
Construction
|
200
|
|
|
200
|
|
|
73
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
6,094
|
|
|
6,094
|
|
|
1,445
|
|
Consumer
|
78
|
|
|
78
|
|
|
40
|
|
Total loans individually evaluated for impairment
|
$
|
53,641
|
|
|
$
|
70,616
|
|
|
$
|
3,891
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
Commercial & Industrial
|
$
|
897
|
|
|
$
|
1,298
|
|
|
$
|
—
|
|
Construction
|
992
|
|
|
1,448
|
|
|
—
|
|
Commercial real estate
|
1,090
|
|
|
1,520
|
|
|
—
|
|
Residential real estate
|
2,122
|
|
|
2,989
|
|
|
—
|
|
Consumer
|
55
|
|
|
92
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
Commercial & Industrial
|
12,809
|
|
|
14,185
|
|
|
—
|
|
Construction
|
7,078
|
|
|
16,327
|
|
|
—
|
|
Commercial real estate
|
7,131
|
|
|
9,214
|
|
|
—
|
|
Residential real estate
|
7,038
|
|
|
7,816
|
|
|
—
|
|
Consumer
|
8
|
|
|
28
|
|
|
—
|
|
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
|
11,243
|
|
|
16,297
|
|
|
3,327
|
|
Construction
|
904
|
|
|
1,054
|
|
|
161
|
|
Commercial real estate
|
2,053
|
|
|
2,053
|
|
|
734
|
|
Residential real estate
|
5,599
|
|
|
5,631
|
|
|
1,275
|
|
Consumer
|
1,543
|
|
|
1,546
|
|
|
606
|
|
Total loans individually evaluated for impairment
|
$
|
60,562
|
|
|
$
|
81,498
|
|
|
$
|
6,103
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
877
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
1,060
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
2,054
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Consumer
|
54
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
13,733
|
|
|
81
|
|
|
11,995
|
|
|
88
|
|
Construction
|
7,385
|
|
|
71
|
|
|
840
|
|
|
1
|
|
Commercial real estate
|
7,659
|
|
|
65
|
|
|
4,852
|
|
|
17
|
|
Residential real estate
|
6,862
|
|
|
3
|
|
|
5,419
|
|
|
1
|
|
Consumer
|
815
|
|
|
—
|
|
|
15
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
Purchased credit-impaired loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Originated and other purchased loans
|
|
|
|
|
|
|
|
Commercial & Industrial
|
7,498
|
|
|
48
|
|
|
11,136
|
|
|
49
|
|
Construction
|
214
|
|
|
—
|
|
|
20,075
|
|
|
49
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
4,887
|
|
|
49
|
|
Residential real estate
|
6,170
|
|
|
43
|
|
|
6,480
|
|
|
43
|
|
Consumer
|
84
|
|
|
—
|
|
|
88
|
|
|
—
|
|
Total loans individually evaluated for impairment
|
$
|
55,503
|
|
|
$
|
322
|
|
|
$
|
65,787
|
|
|
$
|
297
|
|
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. 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.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
9,030
|
|
|
$
|
—
|
|
Additions
|
—
|
|
|
—
|
|
Accretion (1)
|
(1,015
|
)
|
|
—
|
|
Disposals (2)
|
(300
|
)
|
|
|
|
Balance at end of period
|
$
|
7,715
|
|
|
$
|
—
|
|
_______________________
|
|
|
|
(1) Accretion amounts are reported in interest income.
|
(2) Disposals represent the reduction of purchase accounting adjustments (loan discounts) due to the resolution of acquired loans at amounts less than the contractually-owed receivable.
|
Of the
$12.5 million
fair value adjustment recorded as part of the Merger,
$3.2 million
was related to
$9.9 million
of purchased credit-impaired loans. The remaining carrying value and fair value adjustment on the purchased credit-impaired loans as of March 31, 2017 were
$5.0 million
and
$2.1 million
, respectively.
Management believes the Company's allowance for loan losses as of
March 31, 2017
is adequate to absorb losses inherent in the portfolio. Although various data and information sources are used to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary, if conditions, circumstances or events are substantially different from the assumptions used in making the assessments. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates. In addition, 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
$53.6 million
and
$60.6 million
at
March 31, 2017
and
December 31, 2016
, respectively. Collateral dependent impaired loans were
$43.5 million
and
$50.2 million
at
March 31, 2017
and
December 31, 2016
, respectively, and are measured at the estimated fair value of the underlying collateral less costs to sell. Impaired loans for which no allowance is provided totaled
$39.7 million
and
$39.2 million
at
March 31, 2017
and
December 31, 2016
, respectively. Loans written down to their estimated fair value of collateral less costs to sell account for
$9.7 million
and
$8.1 million
of the impaired loans for which no allowance has been provided as of
March 31, 2017
and
December 31, 2016
, respectively.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans and other real estate owned and repossessed assets. As of
March 31, 2017
, the Company had no loans other than GSLs that were past due greater than
90 days
and accruing interest. The carrying value and accrued interest receivable of GSLs are substantially fully guaranteed by the federal government. 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.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents nonperforming assets as of the dates stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Purchased credit-impaired loans:
|
|
|
|
Commercial & Industrial
|
$
|
865
|
|
|
$
|
897
|
|
Construction
|
978
|
|
|
992
|
|
Commercial real estate
|
1,050
|
|
|
1,090
|
|
Residential real estate
|
1,656
|
|
|
1,549
|
|
Consumer
|
37
|
|
|
39
|
|
Total purchased credit-impaired loans
|
4,586
|
|
|
4,567
|
|
Originated and other purchased loans:
|
|
|
|
Commercial & Industrial
|
8,682
|
|
|
11,805
|
|
Construction
|
2,109
|
|
|
2,830
|
|
Commercial real estate
|
2,326
|
|
|
3,686
|
|
Residential real estate
|
7,592
|
|
|
7,931
|
|
Consumer
|
883
|
|
|
1,551
|
|
Total originated and other purchased loans
|
21,592
|
|
|
27,803
|
|
Total nonaccrual loans
|
26,178
|
|
|
32,370
|
|
Other real estate owned
|
5,185
|
|
|
5,345
|
|
Total nonperforming assets
|
$
|
31,363
|
|
|
$
|
37,715
|
|
The following table presents a reconciliation of nonaccrual loans to impaired loans as of the dates stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Nonaccrual loans
|
$
|
26,178
|
|
|
$
|
32,370
|
|
TDRs on accrual
|
27,001
|
|
|
27,603
|
|
Impaired loans on accrual
|
462
|
|
|
589
|
|
Total impaired loans
|
$
|
53,641
|
|
|
$
|
60,562
|
|
The following table presents a rollforward of nonaccrual loans for the period stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
Construction
|
|
Commercial real estate
|
|
Residential real estate
|
|
Consumer
|
|
Total
|
Balance at December 31, 2016
|
$
|
12,702
|
|
|
$
|
3,822
|
|
|
$
|
4,776
|
|
|
$
|
9,480
|
|
|
$
|
1,590
|
|
|
$
|
32,370
|
|
Transfers in
|
3,957
|
|
|
—
|
|
|
—
|
|
|
2,103
|
|
|
126
|
|
|
6,186
|
|
Transfers to other real estate owned
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
(124
|
)
|
Charge-offs
|
(2,787
|
)
|
|
(55
|
)
|
|
(720
|
)
|
|
(240
|
)
|
|
(690
|
)
|
|
(4,492
|
)
|
Payments
|
(3,577
|
)
|
|
(661
|
)
|
|
(183
|
)
|
|
(594
|
)
|
|
(106
|
)
|
|
(5,121
|
)
|
Return to accrual
|
(748
|
)
|
|
—
|
|
|
(497
|
)
|
|
(1,396
|
)
|
|
—
|
|
|
(2,641
|
)
|
Loan type reclassification
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2017
|
$
|
9,547
|
|
|
$
|
3,087
|
|
|
$
|
3,376
|
|
|
$
|
9,248
|
|
|
$
|
920
|
|
|
$
|
26,178
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Age Analysis of Past Due Loans
The following presents an age analysis of loans as of
the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
30-89 days
|
|
90+ days
|
|
Total
|
|
Total
|
|
Current
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Loans
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
723
|
|
|
$
|
723
|
|
|
$
|
865
|
|
Construction
|
764
|
|
|
34
|
|
|
180
|
|
|
214
|
|
|
978
|
|
Commercial real estate
|
1,050
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,050
|
|
Residential real estate
|
1,334
|
|
|
54
|
|
|
713
|
|
|
767
|
|
|
2,101
|
|
Consumer
|
17
|
|
|
—
|
|
|
37
|
|
|
37
|
|
|
54
|
|
Total purchased credit-impaired loans
|
3,307
|
|
|
88
|
|
|
1,653
|
|
|
1,741
|
|
|
5,048
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
780,470
|
|
|
1,598
|
|
|
4,510
|
|
|
6,108
|
|
|
786,578
|
|
Construction
|
251,988
|
|
|
376
|
|
|
1,967
|
|
|
2,343
|
|
|
254,331
|
|
Commercial real estate
|
586,946
|
|
|
1,417
|
|
|
2,326
|
|
|
3,743
|
|
|
590,689
|
|
Residential real estate
|
380,621
|
|
|
5,733
|
|
|
3,516
|
|
|
9,249
|
|
|
389,870
|
|
Consumer
|
295,853
|
|
|
4
|
|
|
870
|
|
|
874
|
|
|
296,727
|
|
Guaranteed student loans
|
23,495
|
|
|
3,957
|
|
|
5,081
|
|
|
9,038
|
|
|
32,533
|
|
Deferred loan fees and related costs
|
1,032
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,032
|
|
Total originated and other purchased loans
|
2,320,405
|
|
|
13,085
|
|
|
18,270
|
|
|
31,355
|
|
|
2,351,760
|
|
Total loans
|
$
|
2,323,712
|
|
|
$
|
13,173
|
|
|
$
|
19,923
|
|
|
$
|
33,096
|
|
|
$
|
2,356,808
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
30-89 days
|
|
90+ days
|
|
Total
|
|
Total
|
|
Current
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Loans
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
145
|
|
|
$
|
11
|
|
|
$
|
741
|
|
|
$
|
752
|
|
|
$
|
897
|
|
Construction
|
774
|
|
|
181
|
|
|
37
|
|
|
218
|
|
|
992
|
|
Commercial real estate
|
1,090
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,090
|
|
Residential real estate
|
1,261
|
|
|
297
|
|
|
564
|
|
|
861
|
|
|
2,122
|
|
Consumer
|
16
|
|
|
—
|
|
|
39
|
|
|
39
|
|
|
55
|
|
Total purchased credit-impaired loans
|
3,286
|
|
|
489
|
|
|
1,381
|
|
|
1,870
|
|
|
5,156
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
883,531
|
|
|
1,714
|
|
|
9,810
|
|
|
11,524
|
|
|
895,055
|
|
Construction
|
254,058
|
|
|
53
|
|
|
2,609
|
|
|
2,662
|
|
|
256,720
|
|
Commercial real estate
|
580,355
|
|
|
2,911
|
|
|
1,371
|
|
|
4,282
|
|
|
584,637
|
|
Residential real estate
|
395,579
|
|
|
5,124
|
|
|
2,466
|
|
|
7,590
|
|
|
403,169
|
|
Consumer
|
272,147
|
|
|
1,630
|
|
|
176
|
|
|
1,806
|
|
|
273,953
|
|
Guaranteed student loans
|
30,909
|
|
|
5,562
|
|
|
7,572
|
|
|
13,134
|
|
|
44,043
|
|
Deferred loan fees and related costs
|
1,323
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,323
|
|
Total originated and other purchased loans
|
2,417,902
|
|
|
16,994
|
|
|
24,004
|
|
|
40,998
|
|
|
2,458,900
|
|
Total loans
|
$
|
2,421,188
|
|
|
$
|
17,483
|
|
|
$
|
25,385
|
|
|
$
|
42,868
|
|
|
$
|
2,464,056
|
|
XENITH 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 the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Special
Mention
|
|
|
|
|
|
Pass
|
|
|
Substandard
|
|
Total
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
865
|
|
|
$
|
865
|
|
Construction
|
—
|
|
|
—
|
|
|
978
|
|
|
978
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
1,050
|
|
|
1,050
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
2,101
|
|
|
2,101
|
|
Consumer
|
—
|
|
|
—
|
|
|
54
|
|
|
54
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
5,048
|
|
|
5,048
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
764,411
|
|
|
12,874
|
|
|
9,293
|
|
|
786,578
|
|
Construction
|
245,087
|
|
|
6,766
|
|
|
2,478
|
|
|
254,331
|
|
Commercial real estate
|
579,273
|
|
|
4,022
|
|
|
7,394
|
|
|
590,689
|
|
Residential real estate
|
353,192
|
|
|
22,297
|
|
|
14,381
|
|
|
389,870
|
|
Consumer
|
293,695
|
|
|
2,135
|
|
|
897
|
|
|
296,727
|
|
Guaranteed student loans
|
32,533
|
|
|
—
|
|
|
—
|
|
|
32,533
|
|
Deferred loan fees and related costs
|
1,032
|
|
|
—
|
|
|
—
|
|
|
1,032
|
|
Total originated and other purchased loans
|
2,269,223
|
|
|
48,094
|
|
|
34,443
|
|
|
2,351,760
|
|
Total loans
|
$
|
2,269,223
|
|
|
$
|
48,094
|
|
|
$
|
39,491
|
|
|
$
|
2,356,808
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Special
Mention
|
|
|
|
|
|
Pass
|
|
|
Substandard
|
|
Total
|
Purchased credit-impaired loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
897
|
|
|
$
|
897
|
|
Construction
|
—
|
|
|
—
|
|
|
992
|
|
|
992
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
1,090
|
|
|
1,090
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
2,122
|
|
|
2,122
|
|
Consumer
|
—
|
|
|
—
|
|
|
55
|
|
|
55
|
|
Total purchased credit-impaired loans
|
—
|
|
|
—
|
|
|
5,156
|
|
|
5,156
|
|
Originated and other purchased loans:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
873,180
|
|
|
9,391
|
|
|
12,484
|
|
|
895,055
|
|
Construction
|
247,335
|
|
|
6,460
|
|
|
2,925
|
|
|
256,720
|
|
Commercial real estate
|
571,781
|
|
|
3,689
|
|
|
9,167
|
|
|
584,637
|
|
Residential real estate
|
366,940
|
|
|
21,646
|
|
|
14,583
|
|
|
403,169
|
|
Consumer
|
270,919
|
|
|
1,467
|
|
|
1,567
|
|
|
273,953
|
|
Guaranteed student loans
|
44,043
|
|
|
—
|
|
|
—
|
|
|
44,043
|
|
Deferred loan fees and related costs
|
1,323
|
|
|
—
|
|
|
—
|
|
|
1,323
|
|
Total originated and other purchased loans
|
2,375,521
|
|
|
42,653
|
|
|
40,726
|
|
|
2,458,900
|
|
Total loans
|
$
|
2,375,521
|
|
|
$
|
42,653
|
|
|
$
|
45,882
|
|
|
$
|
2,464,056
|
|
Troubled Debt Restructuring ("TDRs")
Loans meeting the criteria to be classified as TDRs are included in impaired loans. The following table presents the number of and recorded investment in loans classified as TDRs by management as of the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
Recorded
Investment
|
|
|
|
Recorded
Investment
|
|
Number of Contracts
|
|
|
Number of Contracts
|
|
Commercial & Industrial
|
13
|
|
|
$
|
12,979
|
|
|
13
|
|
|
$
|
13,067
|
|
Construction
|
4
|
|
|
5,120
|
|
|
5
|
|
|
5,225
|
|
Commercial real estate
|
6
|
|
|
5,091
|
|
|
7
|
|
|
5,498
|
|
Residential real estate
|
12
|
|
|
4,969
|
|
|
14
|
|
|
5,082
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
35
|
|
|
$
|
28,159
|
|
|
39
|
|
|
$
|
28,872
|
|
Of TDRs, amounts totaling
$27.0 million
were accruing and
$1.2 million
were nonaccruing at
March 31, 2017
, and
$27.6 million
were accruing and
$1.3 million
were nonaccruing at
December 31, 2016
. 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
three
months ended
March 31, 2017
,
none
of the nonaccrual TDRs were returned to accrual status.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a rollforward of accruing and nonaccruing TDRs for the period stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
Nonaccruing
|
|
Total
|
Balance at December 31, 2016
|
$
|
27,603
|
|
|
$
|
1,269
|
|
|
$
|
28,872
|
|
Charge-offs
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
Payments
|
(602
|
)
|
|
(104
|
)
|
|
(706
|
)
|
New TDR designation
|
—
|
|
|
—
|
|
|
—
|
|
Release TDR designation
|
—
|
|
|
—
|
|
|
—
|
|
Transfer
|
—
|
|
|
—
|
|
|
—
|
|
Balance at March 31, 2017
|
$
|
27,001
|
|
|
$
|
1,158
|
|
|
$
|
28,159
|
|
The following table presents performing and nonperforming loans identified as TDRs, by loan type, as of the dates stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Performing TDRs:
|
|
|
|
Commercial & Industrial
|
$
|
12,174
|
|
|
$
|
12,247
|
|
Construction
|
5,052
|
|
|
5,152
|
|
Commercial real estate
|
5,091
|
|
|
5,498
|
|
Residential real estate
|
4,684
|
|
|
4,706
|
|
Consumer
|
—
|
|
|
—
|
|
Total performing TDRs
|
27,001
|
|
|
27,603
|
|
Nonperforming TDRs:
|
|
|
|
Commercial & Industrial
|
805
|
|
|
820
|
|
Construction
|
68
|
|
|
73
|
|
Commercial real estate
|
—
|
|
|
—
|
|
Residential real estate
|
285
|
|
|
376
|
|
Consumer
|
—
|
|
|
—
|
|
Total nonperforming TDRs
|
1,158
|
|
|
1,269
|
|
Total TDRs
|
$
|
28,159
|
|
|
$
|
28,872
|
|
The allowance for loan losses allocated to TDRs was
$648 thousand
and
$705 thousand
at
March 31, 2017
and
December 31, 2016
, respectively. TDR balances charged off were
$7 thousand
in the three months ended March 31, 2017.
There were
no
loans designated as TDRs by management during the
three
months ended
March 31, 2017
and
2016
. For the
three
months ended
March 31, 2017
and
2016
, 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. The Company had
no
commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs at
March 31, 2017
and
December 31, 2016
.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Goodwill and Other Intangible Assets
Goodwill of
$26.9 million
and core deposit intangible of
$4.0 million
were recorded in the allocation of the purchase consideration in the Merger. The core deposit intangible is being amortized over approximately
eight years
on a straight-line basis.
The following table presents goodwill and other intangible assets as of the dates stated.
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Amortizable core deposit intangible:
|
|
|
|
Gross amount
|
$
|
4,006
|
|
|
$
|
4,006
|
|
Accumulated amortization
|
(350
|
)
|
|
(219
|
)
|
Net core deposit intangible
|
$
|
3,656
|
|
|
$
|
3,787
|
|
Goodwill
|
$
|
26,931
|
|
|
$
|
26,931
|
|
NOTE 8 - Other Real Estate Owned and Repossessed Assets
The following table presents a rollforward of other real estate owned and repossessed assets for the period stated:
|
|
|
|
|
|
Amount
|
Balance at December 31, 2016
|
$
|
5,345
|
|
Transfers in (via foreclosure)
|
124
|
|
Sales
|
(214
|
)
|
Gain on sales
|
6
|
|
Impairments
|
(76
|
)
|
Balance at March 31, 2017
|
$
|
5,185
|
|
As of
March 31, 2017
, there were
$129 thousand
of residential real estate properties included in the balance of other real estate owned and repossessed assets, and the Company held
$407 thousand
of 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. The following table presents an analysis of the valuation allowance on these assets for the periods stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
March 31, 2016
|
Balance at beginning of year
|
$
|
3,031
|
|
|
$
|
9,875
|
|
Impairments
|
76
|
|
|
72
|
|
Charge-offs
|
—
|
|
|
(2,991
|
)
|
Balance at end of period
|
$
|
3,107
|
|
|
$
|
6,956
|
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents amounts applicable to other real estate owned and repossessed assets included in the consolidated statements of income for the periods stated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
(Gain) on sales
|
$
|
(6
|
)
|
|
$
|
(249
|
)
|
Impairments
|
76
|
|
|
72
|
|
Operating expenses
|
51
|
|
|
52
|
|
Total noninterest expense
|
$
|
121
|
|
|
$
|
(125
|
)
|
NOTE 9 - Derivative Instruments
Derivatives are financial instruments whose value is based on one or more underlying assets. The Company, through GBMI, originated residential mortgage loans for sale into the secondary market on a best efforts basis. In connection with the underwriting process, the Company entered 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 were for periods less than
60
days. These interest rate-lock commitments are considered derivatives. The Company managed 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
March 31, 2017
and
December 31, 2016
, the Company had loans held for sale of
$0
and
$9.9 million
, respectively. Loans held for sale at December 31, 2016 were reported in assets from discontinued operations on the Company's consolidated balance sheet.
Under the contractual relationship in the best efforts method, the Company was obligated to sell the loans only if the loans close. As a result of the terms of these contractual relationships, the Company was not exposed to changes in fair value nor would it realize gains or losses related to its interest rate-lock commitments due to subsequent changes in interest rates. At
March 31, 2017
and
December 31, 2016
, the Company had interest rate-lock commitments to originate residential mortgage loans (unfunded par amount of loans) on a best efforts basis in the amounts of
$0
and
$1.4 million
, respectively. The Company's interest rate-lock commitments were reported as discontinued operations at December 31, 2016.
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 to the Company 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
three
months ended
March 31, 2017
and
2016
, the Company recorded
$133 thousand
and
$110 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 income.
The Company has minimum collateral requirements with its financial institution counterparties for these back-to-back interest rate swaps 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 March 31, 2017, the Bank had cash and securities in the amount of
$6.3 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. However, the Company has not offset financial instruments for financial reporting purposes.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present information about derivatives that are eligible for offset in the consolidated balance sheets as of the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Assets
|
Sheets
|
Sheets
|
Instruments
|
Received
|
Amount
|
Derivative assets:
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
1,213
|
|
$
|
—
|
|
$
|
1,213
|
|
$
|
127
|
|
$
|
—
|
|
$
|
1,086
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
1,223
|
|
—
|
|
1,223
|
|
53
|
|
—
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Liabilities
|
Sheets
|
Sheets
|
Instruments
|
Requirement
|
Amount
|
Derivative liabilities:
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
1,138
|
|
$
|
—
|
|
$
|
1,138
|
|
$
|
127
|
|
$
|
455
|
|
$
|
556
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
1,226
|
|
—
|
|
1,226
|
|
53
|
|
341
|
|
832
|
|
NOTE 15 - Subsequent Events
Management has evaluated subsequent events through May 10, 2017, which is the date of the consolidated financial statements were available to be issued. There were no subsequent events that required adjustment to or disclosure in the consolidated financial statements.
XENITH 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" in our Annual Report on Form 10-K for the year ended December 31, 2016 (as amended, the "2016 Form 10-K"). Our risks include the following:
|
|
•
|
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry;
|
|
|
•
|
Economic, market or operational developments may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition;
|
|
|
•
|
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;
|
|
|
•
|
We do not pay 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;
|
|
|
•
|
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;
|
|
|
•
|
The significant portion of our loan portfolio is in commercial real estate, residential real estate and construction loans, which may expose us to greater risk of loss;
|
|
|
•
|
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;
|
|
|
•
|
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, our financial condition and the market price of our common stock could be materially adversely affected;
|
|
|
•
|
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;
|
|
|
•
|
We may face increasing deposit-pricing pressures, which may, among other things, reduce our ability to grow and our profitability;
|
|
|
•
|
Our profitability will be jeopardized if we are unable to successfully manage interest rate risk;
|
|
|
•
|
We incurred significant losses from 2009 to 2012. While we were profitable in 2013, 2014, 2015, 2016, and in the first three months of 2017, 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;
|
|
|
•
|
Our success is largely dependent on attracting and retaining key management team members;
|
|
|
•
|
We may not be able to realize our deferred income tax assets, requiring us to record a valuation allowance against our deferred tax asset. Additionally, a reduction in corporate income tax rates would require us to reduce our deferred tax asset. Both of these events could adversely affect the market price of our common stock;
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
•
|
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;
|
|
|
•
|
Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area;
|
|
|
•
|
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;
|
|
|
•
|
Banking regulators have broad enforcement power, and regulations are meant to protect depositors and not investors;
|
|
|
•
|
The fiscal, monetary and regulatory policies of the federal government and its agencies could have a material adverse effect on our results of operations;
|
|
|
•
|
Government legislation and regulation may adversely affect our business, financial condition and results of operations;
|
|
|
•
|
The soundness of other financial institutions could adversely affect us;
|
|
|
•
|
The integration 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; and
|
|
|
•
|
The transition of and obligations from our mortgage banking operations could be more costly than anticipated and could adversely impact our results of operations.
|
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.
Overview
Xenith Bankshares, Inc. ("Xenith Bankshares," the "Company," "we," "us" or "our") is the bank holding company for Xenith Bank (the "Bank"), a commercial bank specifically targeting the banking needs of middle market and small businesses, local real estate developers and investors, and retail banking clients, who we refer to as our target customers. Xenith Bank's regional area of operations spans from Baltimore, Maryland, to Raleigh and eastern North Carolina, complementing our significant presence in greater Washington, D.C., greater Richmond, Virginia, and greater Hampton Roads, Virginia, which we refer to as our target markets. The Bank conducts its principal banking activities through 42 full-service branches and two loan production offices across these areas with its headquarters centrally located in Richmond, Virginia.
As of March 31, 2017, we had total assets of $3.2 billion, loans, net of our allowance for loan losses, of $2.3 billion, total deposits of $2.6 billion, and shareholders' equity of $470.5 million.
Our service and products consist primarily of taking deposits from, and making loans to, our target customers within our target markets. We provide a broad selection of commercial retail banking products, including commercial and industrial ("C&I"), construction, commercial real estate ("CRE"), residential real estate ("RRE") and consumer loans, including marine finance floorplan and end-user loans for U.S. documented vessels through our Shore Premier Finance unit. We offer a wide range of checking, savings and treasury products, including remote deposit capture, automated clearing house transactions, debit cards, 24-hour ATM access, Internet and mobile banking, and bill pay service. The Bank also has an investment in a Virginia title insurance agency that enables us to offer title insurance policies to real estate loan customers. We do not engage in any activities other than banking activities.
Our largest investor shareholders include Anchorage Capital Group, L.L.C. ("Anchorage"), CapGen Capital Group VI LP ("CapGen"), The Carlyle Group, L.P. ("Carlyle") and BCP Fund I Virginia Holdings, LLC (collectively with BankCap Partners Fund I, L.P., BankCap Partners GP, L.P. and BankCap Equity Fund, LLC, "BankCap Partners"). Anchorage, CapGen, Carlyle and BankCap Partners own 18.3%, 22.1%, 18.3% and 6.9%, respectively, of the outstanding shares of our common stock as of
March 31, 2017
.
Merger with Legacy Xenith
Effective July 29, 2016, we completed a merger (the "Merger") with legacy Xenith Bankshares, Inc. ("Legacy Xenith") pursuant to an Agreement and Plan of Reorganization (the "Merger Agreement"), dated as of February 10, 2016, by and between us and Legacy Xenith. At the effective time of the Merger, Legacy Xenith merged with and into us. Also at the effective time of the
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Merger, we changed our name from "Hampton Roads Bankshares, Inc." to "Xenith Bankshares, Inc." and changed our ticker symbol to "XBKS."
Pursuant to the Merger Agreement, each holder of Legacy Xenith common stock, par value $1.00 per share, received 4.4 shares of our common stock for each share of Legacy Xenith common stock held immediately prior to the effective time of the Merger, with cash paid in lieu of fractional shares. Each outstanding share of our 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 Bank, with the Bank surviving the Bank Merger. In connection with the Bank Merger, the Bank changed its name from "The Bank of Hampton Roads" to "Xenith Bank."
Information contained herein as of periods prior to the effective date of the Merger (July 29, 2016) does not include the balances of Legacy Xenith.
Disposition of Mortgage Banking Business
Through Gateway Bank Mortgage, Inc., a wholly-owned subsidiary of the Bank ("GBMI"), the Bank provided mortgage banking services, including the origination and processing of mortgage loans for sale into the secondary market. 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 GBMI, and to transition GBMI's operations, which included originating, closing, funding and selling first lien residential mortgage loans, to an unrelated party (the "GBMI Sale"). The completion of the GBMI Sale occurred on October 17, 2016. In connection with the GBMI Sale, GBMI ceased taking new mortgage loan applications, and all applications with prospective borrowers that were in process as of the completion of the GBMI Sale were managed by GBMI through funding and sale to investors in the ordinary course of business. As of March 31, 2017, there were no loans held for sale to investors, and we believe there are no material on-going obligations with respect to the mortgage banking business. For purposes of this Form 10-Q, the operations of GBMI have been reported as discontinued operations for all periods presented.
Reverse Stock Split
On December 7, 2016, we announced a reverse stock split of outstanding shares of our common stock at a ratio of 1-for-10, which had been previously approved by our shareholders (the "Reverse Stock Split"). The Reverse Stock Split became effective on December 13, 2016. No fractional shares were issued in the Reverse Stock Split, rather shareholders of fractional shares received a cash payment based on the closing price of our common stock as of the date of the Reverse Stock Split. The par value of each share of our common stock remained unchanged at $0.01 per share and the number of authorized shares was not affected. References made to outstanding shares or per share amounts in this Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split, unless otherwise noted.
Certain Performance Measures
The primary source of our revenue is net interest, which represents the difference between interest and fees earned on interest-bearing assets, primarily from lending and investment activities, and interest expense on interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our interest-bearing liabilities include deposits and borrowings. Noninterest income is derived primarily from service charges on deposit accounts and other banking services, gains or losses on the sale of investment securities, and earnings on bank-owned life insurance. Other significant factors that affect our net income are the provision for loan losses and noninterest expenses. Our largest noninterest expenses are salaries and related employee benefits.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table presents selected financial performance measures for the periods stated:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Net interest margin (1)
|
3.49%
|
|
3.30%
|
Return on average assets ("ROAA") (2)
|
0.71%
|
|
0.27%
|
Return on average common equity ("ROAE") (3)
|
4.90%
|
|
1.89%
|
Average common equity to average assets (4)
|
14.44%
|
|
14.46%
|
Efficiency ratio (5)
|
70%
|
|
90%
|
_______________________
|
|
|
|
|
|
|
|
|
(1) Net interest margin is net interest income divided by average interest-earning assets. For the purposes of the calculation, tax-exempt interest income from tax-exempt municipal securities is computed on a taxable-equivalent yield basis. Average interest-earning assets are presented within the average balances, income and expenses, yields and rates table below.
|
(2) Return on average assets is net income (from continuing and discontinued operations) divided by average total assets. Average total assets are presented within the average balances, income and expenses, yields and rates table below.
|
(3) Return on average equity is net income (from continuing and discontinued operations) divided by average shareholders' equity before non-controlling interest.
|
(4) Average equity to average assets is average shareholders' equity before 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 we engage 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 us in full, or in a timely manner, resulting in decreased earnings or losses to us. We make fixed rate loans, whereby general increases in interest rates will tend to reduce our net interest income 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.
Our 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. Our allowance for loan losses is a reserve for inherent losses in our loan portfolio and 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. 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.
Industry Conditions
The national unemployment rate, seasonally adjusted and as published by the Bureau of Labor Statistics, for March 2017 was reported at 4.5%, a decline from 5.0% in March 2016. In the Fifth District of the Federal Reserve Bank (the "Fifth District"), which includes substantially all of our target markets, the February 2017 unemployment rate was 4.5%, down from 4.9% at February 2016. More specifically, the unemployment rate in Virginia in March 2017 was 3.8%, based on data published by the Fifth District. Additionally, as published by the Fifth District, in the three months ended March 31, 2017, most industry sectors in the Fifth District expanded.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Federal Open Market Committee (the "FOMC") stated in a May 3, 2017 release that the labor market had continued to strengthen, while economic activity has continued to expand at a moderate pace. The FOMC indicated that job gains remained solid and household spending growth has slowed. The FOMC stated that consumer spending rose only modestly and business fixed investment spending had firmed. The FOMC said that inflation measured on a 12-month basis has been running close to the 2% longer-run objective.
The FOMC maintained its view of a 3/4% to 1% target range for the Federal Funds Rate. Further, the FOMC stated that it is closely monitoring inflation and global economic and financial developments. The FOMC also stated it expects that economic conditions will evolve in a manner that will warrant gradual increases in the Federal Funds Rate.
Low interest rates and intense competition have put pressure on net interest margins of banks, including the Bank. Companies with which we compete are offering aggressive terms and may be loosening credit underwriting standards. We have seen a particularly sharp increase in competition in our target markets over the last several years, as new companies have entered our target markets. We expect this competition in our target markets to continue.
Outlook
In spite of industry and market conditions, we believe we are well positioned to effectively compete in our target markets due to (1) our team of skilled bankers; (2) our advantageous market locations in our target markets; (3) our variety of banking services and products; and (4) our experienced management team. We focus on developing long-term relationships with our target customers through a team of bankers with significant experience in our target markets.
Intense competition for quality loans, the prolonged low interest rate environment, and increased cost of regulation has put pressure on banks, including the Bank. We remain firm in applying our established credit underwriting practices, providing exceptional customer service, and offering competitive treasury services products, as well as continually monitoring our expenses. We may seek to merge with or acquire other financial intuitions or branches or assets of those institutions. Although our principal acquisition focus will be to expand our presence in our target markets, we may also expand into new markets or related banking lines of business and related services and products. From time to time, we evaluate strategic combinations to determine what is in our best interest and long-term strategy. Our goal in making these decisions is to maximize shareholder value.
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 2016 Form 10-K.
Critical Accounting Policies
Our accounting policies are fundamental to an understanding of our consolidated financial position and consolidated results of operations. We believe that our accounting and reporting policies are in accordance with generally accepted accounting principles in the United States of America ("GAAP") and conform to general practices within the banking industry. Our financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities, and the amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or results of operations or both our consolidated financial position and results of operations.
We consider a policy critical if (1) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate, and (2) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that our most critical accounting policy relates to the allowance for loan losses, including our measurement of probable cash flows with respect to purchased credit-impaired loans accounted for under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
("ASC 310-30"), which reflects our estimate of losses in the event of borrower default. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, adjustments to our estimates would be made and additional provisions for loan losses could be required, which could have a material adverse impact on our results of operations and financial condition. Further discussion of the estimates used in determining the allowance for loan losses is contained under "--Financial Condition--Allowance for Loan Losses" below and in measuring impairment for purchased credit-impaired loans is contained under "--Financial Condition--Allowance for Loan Losses--Acquired Loans" below.
Our critical accounting policies are discussed in detail in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Critical Accounting Policies" and Part II, Item 8 - Financial Statements and Supplementary Data under the caption "Note 1- Summary of Significant Accounting Policies" in the notes to the consolidated
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
financial statements, each in our 2016 Form 10-K. Since December 31, 2016, there have been no changes in these policies that have had or could reasonably be expected to have a material effect on our results of operations or financial condition.
Overview of Results of Operations and Financial Condition
The following discussion and analysis as of
March 31, 2017
and our financial performance for the
three
months then ended should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Form 10-Q.
|
|
•
|
Total assets decreased $68.6 million, or 2.10%, from December 31, 2016 to March 31, 2017, primarily attributable to a $107.2 million decline in gross loans, partially offset by an increase in cash and cash equivalents of $53.1 million.
|
|
|
•
|
Gross loans declined $107.2 million, or 4.35%, from
December 31, 2016
to March 31, 2017, primarily due to reductions in loans associated with mortgage warehouse participations with two banks, the sale of $9.9 million of our guaranteed student loan portfolio, pay-offs of construction loans, and the normal amortization of RRE loans, partially offset by growth of $24.8 million in our marine loan portfolio.
|
|
|
•
|
Allowance for loan losses decreased $3.7 million to $18.3 million at
March 31, 2017
from December 31, 2016, primarily due to charge-offs of specific reserves on several problem loans.
|
|
|
•
|
Deposits increased $47.7 million, or 1.85%, from
December 31, 2016
to March 31, 2017, primarily due to core deposit growth.
|
|
|
•
|
Net interest income was $24.9 million for the three months ended March 31, 2017, an increase of $10.0 million from the
three
months ended March 31, 2016, primarily attributable to higher average interest-earning assets of $2.90 billion in the 2017 period compared to average interest-earning assets of $1.82 billion in the 2016 period. The increase in net interest income due to the Merger is reflected only in the three-month period ended March 31, 2017.
|
|
|
•
|
Net interest margin was 3.49% for the three months ended
March 31, 2017
, and 3.30% for the three months ended
March 31, 2016
. Net interest margin in the 2017 period includes accretion of acquired loan discounts further discussed below.
|
|
|
•
|
Noninterest income for the
three
months ended
March 31, 2017
was $3.1 million, compared to $2.5 million for the same period in 2016. Noninterest income in 2017 included higher income from our back-to-back interest rate swap program, higher Visa check card income, and higher earnings from bank-owned life insurance.
|
|
|
•
|
Noninterest expense for the
three
months ended
March 31, 2017
was $19.5 million compared to $15.5 million for the same period in 2016. Amounts in three-month period of 2017 included Merger-related costs of $250 thousand, while noninterest expense in the 2016 period included $1.6 million of Merger-related costs.
|
|
|
•
|
Provision for income taxes from continuing operations was $2.7 million for the three months ended March 31, 2017, compared to $734 thousand for the same period in 2016, due to higher income before taxes in the 2017 period.
|
|
|
•
|
At March 31, 2017, the ratio of nonperforming assets to total assets was 0.98% compared to 1.15% as of December 31, 2016; the ratio of nonperforming loans to gross loans was 1.11% compared to 1.31% as of December 31, 2016, and the ratio of the Company's allowance for loan losses to nonaccrual loans was 69.81% compared to 67.78% as of December 31, 2016. Other real estate owned and repossessed assets was reduced by $160 thousand from December 31, 2016.
|
|
|
•
|
Regulatory capital ratios of the Company and the Bank were considered "well capitalized" under the risk-based capital standards as of March 31, 2017.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ANALYSIS OF RESULTS OF OPERATIONS
The following table presents our net income and earnings per common share information for the periods stated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Net income:
|
|
|
|
Net income from continuing operations
|
$
|
5,739
|
|
|
$
|
1,033
|
|
Net (loss) income from discontinued operations
|
(76
|
)
|
|
349
|
|
Net income attributable to Xenith Bankshares
|
$
|
5,663
|
|
|
$
|
1,382
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
Earnings per share from continuing operations
|
$
|
0.25
|
|
|
$
|
0.06
|
|
Earnings per share from discontinued operations
|
$
|
—
|
|
|
$
|
0.02
|
|
Earnings per share attributable to Xenith Bankshares
|
$
|
0.24
|
|
|
$
|
0.08
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
Earnings per share from continuing operations
|
$
|
0.25
|
|
|
$
|
0.06
|
|
Earnings per share from discontinued operations
|
$
|
—
|
|
|
$
|
0.02
|
|
Earnings per share attributable to Xenith Bankshares
|
$
|
0.24
|
|
|
$
|
0.08
|
|
Net Interest Income and Net Interest Margin
For the three months ended March 31, 2017, our net interest income was $24.9 million compared to $14.8 million for the three months ended March 31, 2016. As presented in the table below, net interest margin increased by 19 basis points to 3.49% for the three months ended March 31, 2017 from 3.30% for the three months ended March 31, 2016.
Interest income was $29.7 million for the three months ended March 31, 2017 compared to $18.0 million in the same period of 2016. Interest income in the 2017 period was on average interest-earning assets of $2.90 billion, while interest income in the 2016 period was on average interest-earning assets of $1.8 billion. Asset yields, on a tax-equivalent basis, were 4.17% in the three months ended March 31, 2017 compared to asset yields of 4.00% in the three months ended March 31, 2016. Our asset yields in the 2017 period reflect higher yields and balances of loans, as well as the effect of accretion of loan discounts, which is further discussed below.
Interest expense was $4.8 million for the three months ended March 31, 2017 compared to $3.2 million in the same period of 2016. Average interest-bearing liabilities for the three months ended March 31, 2017 were $2.3 million compared to $1.4 million for the three months ended March 31, 2016. Costs of interest-bearing liabilities were 0.86% for the three months ended March 31, 2017 compared to 0.90% for the same period of 2016. Lower costs of interest-bearing liabilities in the 2017 period is primarily due to greater use of low-cost borrowings from the Federal Home Loan Bank ("FHLB").
Our loans acquired in the Merger were discounted to estimated fair value (for credit and interest rates) as of the effective date of the Merger. A portion of the purchase accounting adjustments (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 $1.0 million for the three months ended March 31, 2017. There was no accretion in the three months ended March 31, 2016. 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.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table presents the effect of purchase accounting adjustments (accretion) on our net interest margin for the periods stated:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Net interest margin
|
3.49%
|
|
3.30%
|
Purchase accounting adjustments impact (1)
|
0.14%
|
|
—%
|
Net interest margin excluding the effect of purchase accounting adjustments
|
3.35%
|
|
3.30%
|
_______________________
|
|
|
|
(1) Accretion of discounts on acquired loans in the three months ended March 31, 2017 was $1.0 million.
|
The following table presents 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.
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 March 31,
|
|
2017
|
|
2016
|
|
2017 Compared to 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Income/
|
|
Variance
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Expense
|
|
Attributable to (2)
|
|
Balances (1)
|
|
Expense (7) (8) (9)
|
|
Rate
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Variance
|
|
Rate
|
|
Volume
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (3)
|
$
|
2,420,243
|
|
|
$
|
27,373
|
|
|
4.59
|
%
|
|
$
|
1,564,868
|
|
|
$
|
16,732
|
|
|
4.30
|
%
|
|
$
|
10,641
|
|
|
$
|
1,017
|
|
|
$
|
9,624
|
|
Investment securities
|
314,864
|
|
|
1,872
|
|
|
2.41
|
%
|
|
199,147
|
|
|
1,201
|
|
|
2.43
|
%
|
|
672
|
|
|
(17
|
)
|
|
689
|
|
Restricted equity securities
|
21,539
|
|
|
319
|
|
|
5.99
|
%
|
|
10,785
|
|
|
149
|
|
|
5.56
|
%
|
|
169
|
|
|
11
|
|
|
158
|
|
Overnight funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and due from FRB
|
137,258
|
|
|
227
|
|
|
0.67
|
%
|
|
45,066
|
|
|
44
|
|
|
0.39
|
%
|
|
183
|
|
|
46
|
|
|
137
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other banks
|
6,640
|
|
|
9
|
|
|
0.55
|
%
|
|
708
|
|
|
—
|
|
|
—%
|
|
|
9
|
|
|
9
|
|
|
—
|
|
Total interest-earning assets
|
2,900,544
|
|
|
29,800
|
|
|
4.17
|
%
|
|
1,820,574
|
|
|
18,126
|
|
|
4.00
|
%
|
|
11,674
|
|
|
1,066
|
|
|
10,608
|
|
Noninterest-earning assets
|
346,585
|
|
|
|
|
|
|
214,374
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
3,247,129
|
|
|
|
|
|
|
$
|
2,034,948
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
$
|
1,159,160
|
|
|
$
|
1,579
|
|
|
0.55
|
%
|
|
$
|
689,306
|
|
|
$
|
839
|
|
|
0.49
|
%
|
|
$
|
740
|
|
|
$
|
110
|
|
|
$
|
630
|
|
Savings deposits
|
89,542
|
|
|
56
|
|
|
0.25
|
%
|
|
62,138
|
|
|
16
|
|
|
0.10
|
%
|
|
40
|
|
|
31
|
|
|
9
|
|
Time deposits
|
868,696
|
|
|
2,319
|
|
|
1.08
|
%
|
|
642,461
|
|
|
1,864
|
|
|
1.17
|
%
|
|
455
|
|
|
(159
|
)
|
|
614
|
|
Total interest-bearing deposits
|
2,117,398
|
|
|
3,954
|
|
|
0.76
|
%
|
|
1,393,905
|
|
|
2,719
|
|
|
0.78
|
%
|
|
1,235
|
|
|
(18
|
)
|
|
1,253
|
|
Borrowings
|
145,237
|
|
|
853
|
|
|
2.38
|
%
|
|
41,473
|
|
|
491
|
|
|
4.76
|
%
|
|
362
|
|
|
(351
|
)
|
|
713
|
|
Total interest-bearing liabilities
|
2,262,635
|
|
|
4,807
|
|
|
0.86
|
%
|
|
1,435,378
|
|
|
3,210
|
|
|
0.90
|
%
|
|
1,597
|
|
|
(369
|
)
|
|
1,966
|
|
Noninterest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
494,129
|
|
|
|
|
|
|
|
287,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
21,021
|
|
|
|
|
|
|
|
17,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
515,150
|
|
|
|
|
|
|
|
304,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
2,777,785
|
|
|
|
|
|
|
|
1,740,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
469,344
|
|
|
|
|
|
|
|
294,706
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
$
|
3,247,129
|
|
|
|
|
|
|
|
$
|
2,034,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (5)
|
|
|
$
|
24,993
|
|
|
|
|
|
|
|
$
|
14,916
|
|
|
|
|
|
$
|
10,077
|
|
|
$
|
1,435
|
|
|
$
|
8,642
|
|
Net interest spread (4)
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
3.10
|
%
|
|
|
|
|
|
|
Net interest margin (6)
|
|
|
|
|
3.49
|
%
|
|
|
|
|
|
3.30
|
%
|
|
|
|
|
|
|
_________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2017 includes approximately $1.0 million in accretion related to acquired loans.
|
|
|
|
|
|
|
(9) Interest income from loans includes fees of $669 thousand and $201 thousand for the three months ended March 31, 2017 and 2016, respectively.
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Provision for Loan Losses
The following table presents our provision for loan losses and the dollar and percentage change for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
Provision for loan losses
|
$
|
9
|
|
|
$
|
(25
|
)
|
|
$
|
34
|
|
|
(136
|
)%
|
Provision for loan losses was not significant for both the three months ended March 31, 2017 and March 31, 2016.
Noninterest Income
The following table presents a summary of noninterest income and the dollar and percentage change for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
Service charges on deposit accounts
|
$
|
1,160
|
|
|
$
|
1,139
|
|
|
$
|
21
|
|
|
1.8
|
%
|
Earnings from bank-owned life insurance
|
476
|
|
|
349
|
|
|
127
|
|
|
36.4
|
%
|
Gain on sale of loans
|
19
|
|
|
—
|
|
|
19
|
|
|
100.0
|
%
|
Visa check card income
|
753
|
|
|
641
|
|
|
112
|
|
|
17.5
|
%
|
Other
|
724
|
|
|
384
|
|
|
340
|
|
|
88.5
|
%
|
Total noninterest income
|
$
|
3,132
|
|
|
$
|
2,513
|
|
|
$
|
619
|
|
|
24.6
|
%
|
The increase in noninterest income in the three-month period of 2017 compared to the same period of 2016 is primarily due to a greater number of swap transactions, higher volumes of Visa check card usage, and higher balances of bank-owned life insurance, which were acquired in the Merger.
Noninterest Expense
The following table presents a summary of noninterest expense and the dollar and percentage change for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
Salaries and employee benefits
|
$
|
10,487
|
|
|
$
|
7,771
|
|
|
$
|
2,716
|
|
|
35.0
|
%
|
Professional and consultant fees
|
1,199
|
|
|
585
|
|
|
614
|
|
|
105.0
|
%
|
Occupancy
|
1,981
|
|
|
1,416
|
|
|
565
|
|
|
39.9
|
%
|
FDIC insurance
|
729
|
|
|
414
|
|
|
315
|
|
|
76.1
|
%
|
Data processing
|
1,026
|
|
|
1,204
|
|
|
(178
|
)
|
|
(14.8
|
)%
|
Problem loan and repossessed asset costs
|
99
|
|
|
101
|
|
|
(2
|
)
|
|
(2.0
|
)%
|
Impairments on and (gains) and losses on sales of other real estate owned and repossessed assets, net
|
70
|
|
|
(177
|
)
|
|
247
|
|
|
(139.5
|
)%
|
Equipment
|
334
|
|
|
284
|
|
|
50
|
|
|
17.6
|
%
|
Board fees
|
131
|
|
|
246
|
|
|
(115
|
)
|
|
(46.7
|
)%
|
Advertising and marketing
|
224
|
|
|
50
|
|
|
174
|
|
|
348.0
|
%
|
Merger-related
|
250
|
|
|
1,568
|
|
|
(1,318
|
)
|
|
(84.1
|
)%
|
Other
|
3,001
|
|
|
2,071
|
|
|
930
|
|
|
44.9
|
%
|
Total noninterest expense
|
$
|
19,531
|
|
|
$
|
15,533
|
|
|
$
|
3,998
|
|
|
25.7
|
%
|
Noninterest expenses excluding Merger-related expenses in the three months ended March 31, 2017 were $19.3 million compared to $14.0 million in the three months ended March 31, 2016. Excluding Merger-related expenses, noninterest expense increased $5.3 million with most of the increase attributable to higher salaries and employee benefits, higher occupancy costs, and higher FDIC insurance cost resulting from the combination of the legacy banks in the Merger. Higher professional and consultant fees are primarily due to audit fees incurred during the three months ended March 31, 2017, and higher other noninterest expense is primarily due to higher unfunded commitment expense, resulting from exposure on a problem loan, and higher bank franchise taxes, due to higher equity balances after the Merger.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Income Taxes
The following table presents income tax provision and the dollar and percentage change for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
2016
|
$ Change
|
% Change
|
Provision for income taxes - continuing operations
|
$
|
2,704
|
|
$
|
734
|
|
$
|
1,970
|
|
268.4
|
%
|
Our effective tax rates were 32.0% and 41.5% for the three months ended March 31, 2017 and March 31, 2016, respectively. Lower rates in the 2017 period were primarily due to higher tax-exempt income and lower earnings from GBMI, the earnings from which were subject to state income taxes.
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
March 31, 2017
were $180.1 million compared to $127.0 million at
December 31, 2016
. Higher cash and cash equivalents at March 31, 2017 compared to December 31, 2016 were primarily attributable to core deposit growth and the reduction in loan balances.
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. We perform due diligence of each security on a pre-purchase basis and review securities periodically for impairment.
The following tables present information about our investment 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Life in Years
|
|
Weighted Average Yield
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
Agencies
|
$
|
139,616
|
|
|
$
|
139,454
|
|
|
4.45
|
|
|
2.28
|
%
|
Collateralized
|
62,075
|
|
|
61,110
|
|
|
4.07
|
|
|
1.85
|
%
|
Collateralized mortgage obligations
|
18,181
|
|
|
18,333
|
|
|
2.96
|
|
|
2.75
|
%
|
Asset-backed securities
|
14,868
|
|
|
14,758
|
|
|
5.58
|
|
|
3.17
|
%
|
Municipals
|
|
|
|
|
|
|
|
Tax-exempt
|
66,938
|
|
|
64,361
|
|
|
7.68
|
|
|
2.87
|
%
|
Taxable
|
18,056
|
|
|
17,669
|
|
|
5.02
|
|
|
2.00
|
%
|
Corporate bonds
|
980
|
|
|
981
|
|
|
1.00
|
|
|
2.78
|
%
|
Equity securities
|
969
|
|
|
2,075
|
|
|
—
|
|
|
—
|
%
|
Total securities available for sale
|
$
|
321,683
|
|
|
$
|
318,741
|
|
|
5.06
|
|
|
2.36
|
%
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Life in Years
|
|
Weighted Average Yield
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
Agencies
|
$
|
135,054
|
|
|
$
|
134,890
|
|
|
4.18
|
|
|
2.04
|
%
|
Collateralized
|
63,837
|
|
|
62,753
|
|
|
4.24
|
|
|
1.84
|
%
|
Collateralized mortgage obligations
|
19,626
|
|
|
19,810
|
|
|
2.65
|
|
|
2.69
|
%
|
Asset-backed securities
|
14,866
|
|
|
14,758
|
|
|
5.58
|
|
|
3.17
|
%
|
Municipals
|
|
|
|
|
|
|
|
Tax-exempt
|
67,738
|
|
|
64,755
|
|
|
7.87
|
|
|
2.85
|
%
|
Taxable
|
18,105
|
|
|
17,676
|
|
|
5.47
|
|
|
2.00
|
%
|
Corporate bonds
|
983
|
|
|
984
|
|
|
1.70
|
|
|
2.62
|
%
|
Equity securities
|
969
|
|
|
1,817
|
|
|
—
|
|
|
—
|
%
|
Total securities available for sale
|
$
|
321,178
|
|
|
$
|
317,443
|
|
|
5.01
|
|
|
2.25
|
%
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
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
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agencies
|
$
|
5,175
|
|
|
1.93
|
%
|
|
$
|
96,920
|
|
|
2.21
|
%
|
|
$
|
33,244
|
|
|
2.43
|
%
|
|
$
|
4,115
|
|
|
3.12
|
%
|
|
$
|
139,454
|
|
|
2.28
|
%
|
Collateralized
|
291
|
|
|
1.45
|
%
|
|
40,843
|
|
|
1.84
|
%
|
|
19,976
|
|
|
1.89
|
%
|
|
—
|
|
|
—
|
%
|
|
61,110
|
|
|
1.85
|
%
|
Collateralized mortgage obligations
|
317
|
|
|
3.43
|
%
|
|
17,616
|
|
|
2.76
|
%
|
|
400
|
|
|
2.07
|
%
|
|
—
|
|
|
—
|
%
|
|
18,333
|
|
|
2.75
|
%
|
Asset-backed securities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
14,758
|
|
|
3.17
|
%
|
|
—
|
|
|
—
|
%
|
|
14,758
|
|
|
3.17
|
%
|
Municipals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
—
|
|
|
—
|
%
|
|
8,415
|
|
|
1.86
|
%
|
|
9,254
|
|
|
2.14
|
%
|
|
—
|
|
|
—
|
%
|
|
17,669
|
|
|
2.00
|
%
|
Tax exempt
|
258
|
|
|
81.00
|
%
|
|
3,435
|
|
|
2.05
|
%
|
|
56,680
|
|
|
3.03
|
%
|
|
3,988
|
|
|
1.54
|
%
|
|
64,361
|
|
|
2.87
|
%
|
Corporate bonds
|
—
|
|
|
—
|
%
|
|
981
|
|
|
2.78
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
981
|
|
|
2.78
|
%
|
Equity securities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
2,075
|
|
|
—
|
%
|
|
2,075
|
|
|
—
|
%
|
Total securities available for sale
|
$
|
6,041
|
|
|
1.94
|
%
|
|
$
|
168,210
|
|
|
2.16
|
%
|
|
$
|
134,312
|
|
|
2.65
|
%
|
|
$
|
10,178
|
|
|
2.38
|
%
|
|
$
|
318,741
|
|
|
2.36
|
%
|
Loans.
Our loan portfolio is comprised of C&I, construction, CRE, RRE, consumer and guaranteed student loans ("GSLs"). 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 decreased by $107.2 million, or 4.35%, to $2.4 billion at March 31, 2017 from $2.5 billion at December 31, 2016. Reductions in loans were primarily associated with mortgage warehouse participations with two banks, the sale of $9.9 million of our GSL portfolio, pay-offs of construction loans, and normal amortization of RRE loans, partially offset by growth in our marine loan portfolio, which grew $24.8 million.
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.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amount
|
|
Percent of Total
|
|
Amount
|
|
Percent of Total
|
Commercial & Industrial
|
$
|
787,443
|
|
|
33.4
|
%
|
|
$
|
895,952
|
|
|
36.4
|
%
|
Construction
|
255,309
|
|
|
10.9
|
%
|
|
257,712
|
|
|
10.5
|
%
|
Commercial real estate
|
591,739
|
|
|
25.1
|
%
|
|
585,727
|
|
|
23.8
|
%
|
Residential real estate
|
391,971
|
|
|
16.6
|
%
|
|
405,291
|
|
|
16.4
|
%
|
Consumer
|
296,781
|
|
|
12.6
|
%
|
|
274,008
|
|
|
11.1
|
%
|
Guaranteed student loans
|
32,533
|
|
|
1.4
|
%
|
|
44,043
|
|
|
1.8
|
%
|
Deferred loan fees and related costs
|
1,032
|
|
|
—
|
%
|
|
1,323
|
|
|
—
|
%
|
Total loans
|
2,356,808
|
|
|
100.0
|
%
|
|
2,464,056
|
|
|
100.0
|
%
|
Allowance for loan losses
|
(18,275
|
)
|
|
|
|
(21,940
|
)
|
|
|
Total loans, net of allowance
|
$
|
2,338,533
|
|
|
|
|
$
|
2,442,116
|
|
|
|
Allowance for Loan Losses.
Our allowance for loan losses was $18.3 million or 0.78% of total loans as of
March 31, 2017
compared to $21.9 million or 0.89% of gross loans as of
December 31, 2016
. The decline in our allowance for loan losses from December 31, 2016 to March 31, 2017 was primarily due to charge-offs of several problem loans for which we had specific reserves.
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 remaining discounts recorded on our acquired loan portfolio. Any decline in the credit quality related to the acquired loan portfolio and the reduction of loan discounts through accretion may result in the need to increase in our allowance for loan losses and record additional provision expense. In the period ended March 31, 2017, we recorded $9 thousand in allowance due to the acquired loan portfolio. The ratio of our allowance for loan losses plus our remaining discount (fair value adjusted allowance for loan losses) to gross loans (adjusted for the discount) was 1.10% at March 31, 2017 compared to 1.25% at December 31, 2016.
The following table presents our allowance for loan losses by loan type and the percent of loans in each category to total loans, as of the dates stated. The unallocated component of our allowance for loan losses is shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amount
|
|
Percent of loans in each category to total loans
|
|
Amount
|
|
Percent of loans in each category to total loans
|
Balance at end of period applicable to:
|
|
|
|
|
|
|
|
Commercial & Industrial
|
$
|
4,250
|
|
|
33.4
|
%
|
|
$
|
5,816
|
|
|
36.4
|
%
|
Construction
|
1,130
|
|
|
10.9
|
%
|
|
1,551
|
|
|
10.5
|
%
|
Commercial real estate
|
1,747
|
|
|
25.1
|
%
|
|
2,410
|
|
|
23.8
|
%
|
Residential real estate
|
4,465
|
|
|
16.6
|
%
|
|
5,205
|
|
|
16.4
|
%
|
Consumer
|
1,463
|
|
|
12.6
|
%
|
|
1,967
|
|
|
11.1
|
%
|
Guaranteed student loans
|
—
|
|
|
1.4
|
%
|
|
—
|
|
|
1.8
|
%
|
Unallocated qualitative
|
5,220
|
|
|
—
|
%
|
|
4,991
|
|
|
—
|
%
|
Total allowance for loan losses
|
$
|
18,275
|
|
|
100.0
|
%
|
|
$
|
21,940
|
|
|
100.0
|
%
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Allowance for loan losses:
|
|
|
|
Specific component
|
$
|
3,891
|
|
|
$
|
6,103
|
|
General component
|
9,164
|
|
|
10,846
|
|
Unallocated qualitative component
|
5,220
|
|
|
4,991
|
|
Total
|
$
|
18,275
|
|
|
$
|
21,940
|
|
Impaired loans
|
$
|
53,641
|
|
|
$
|
60,562
|
|
Non-impaired loans
|
2,303,167
|
|
|
2,403,494
|
|
Total loans
|
$
|
2,356,808
|
|
|
$
|
2,464,056
|
|
|
|
|
|
Specific component as % of impaired loans
|
7.25
|
%
|
|
10.08
|
%
|
General component as % of non-impaired loans
|
0.40
|
%
|
|
0.45
|
%
|
The specific component of our allowance for loan losses relates to loans that are individually evaluated for impairment. Impaired loans decreased to $53.6 million at
March 31, 2017
from $60.6 million at
December 31, 2016
. Of these loans, $26.2 million were on nonaccrual status at
March 31, 2017
compared to $32.4 million at
December 31, 2016
. The general component of our allowance relates to groups of loans collectively evaluated for reserve needs. An unallocated qualitative component is maintained to cover uncertainties that could affect management's estimate of probable losses.
In the period since the Merger through March 31, 2017, 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 the dates stated:
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Nonperforming loans with no allowance due to previous charge-offs as a percentage of total loans
|
0.41
|
%
|
|
0.33
|
%
|
Nonperforming loans with no allowance due to previous charge-offs as a percentage of nonperforming loans
|
37.24
|
%
|
|
24.88
|
%
|
Charge-off rate for nonperforming loans with no allowance due to previous charge-offs
|
60.42
|
%
|
|
62.59
|
%
|
Coverage ratio net of nonperforming loans with no allowance due to previous charge-offs
|
111.18
|
%
|
|
90.23
|
%
|
Total allowance divided by total loans less nonperforming loans with no allowance due to previous charge-offs
|
0.78
|
%
|
|
0.89
|
%
|
Allowance for individually impaired loans divided by impaired loans for which an allowance has been provided
|
27.95
|
%
|
|
28.59
|
%
|
Nonperforming assets as a percentage of total loans
|
1.33
|
%
|
|
1.53
|
%
|
Nonperforming assets as a percentage of total assets
|
0.98
|
%
|
|
1.15
|
%
|
Net charge-offs as a percentage of average loans (year-to-date)
|
0.15
|
%
|
|
0.65
|
%
|
Allowance for loan losses as a percentage of total loans
|
0.78
|
%
|
|
0.89
|
%
|
Allowance for loan losses to nonaccrual loans
|
69.81
|
%
|
|
67.78
|
%
|
At
March 31, 2017
, we believed the level of our allowance for loan losses to be adequate. 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.
We classify nonaccrual loans and other real estate owned and repossessed assets as nonperforming assets. Total nonperforming assets were $31.4 million and $37.7 million at
March 31, 2017
and
December 31, 2016
, respectively. Our nonperforming assets ratio, defined as the ratio of nonperforming assets to total assets, was 0.98% and 1.15% at
March 31, 2017
and
December 31, 2016
, respectively. At
March 31, 2017
and
December 31, 2016
, 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, we may make a claim for payment on the loan after a
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 $26.2 million and $32.4 million at
March 31, 2017
and
December 31, 2016
, respectively. Other real estate owned and repossessed assets decreased to $5.2 million at
March 31, 2017
from $5.3 million of at
December 31, 2016
.
The following table summarized our nonperforming assets as of the dates stated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Loans 90 days past due and still accruing interest (1)
|
$
|
—
|
|
|
$
|
—
|
|
Nonaccrual loans
|
26,178
|
|
|
32,370
|
|
Other real estate owned
|
5,185
|
|
|
5,345
|
|
Total nonperforming assets
|
$
|
31,363
|
|
|
$
|
37,715
|
|
|
|
|
|
(1) Excludes GSLs.
|
|
|
|
Deposits.
The following table presents the average balances and annualized costs paid by deposit category for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
Noninterest-bearing demand deposits
|
$
|
494,129
|
|
|
—
|
%
|
|
$
|
382,613
|
|
|
—
|
%
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
Demand and money market
|
1,159,160
|
|
|
0.55
|
%
|
|
873,046
|
|
|
0.53
|
%
|
Savings accounts
|
89,542
|
|
|
0.25
|
%
|
|
73,033
|
|
|
0.17
|
%
|
Time deposits $250 or greater
|
443,309
|
|
|
1.10
|
%
|
|
340,259
|
|
|
1.17
|
%
|
Time deposits less than $250
|
425,387
|
|
|
1.03
|
%
|
|
396,982
|
|
|
1.04
|
%
|
Total interest-bearing deposits
|
2,117,398
|
|
|
0.76
|
%
|
|
1,683,320
|
|
|
0.76
|
%
|
Total average deposits
|
$
|
2,611,527
|
|
|
0.61
|
%
|
|
$
|
2,065,933
|
|
|
0.62
|
%
|
Maturities of large denomination time deposits (equal or greater than $250 thousand) as of March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
Within 3 Months
|
|
3-6 Months
|
|
6-12 Months
|
|
Over 12 Months
|
|
Total
|
|
Total Deposits
|
Time deposits
|
$
|
85,586
|
|
|
$
|
84,342
|
|
|
$
|
156,168
|
|
|
$
|
104,008
|
|
|
$
|
430,104
|
|
|
16.42
|
%
|
Deposits increased $47.7 million, or 1.85%, from
December 31, 2016
to March 31, 2017, primarily due to core deposit growth, partially offset by a decline in brokered deposit balances (discussed below). As of March 31, 2017, $107.3 million of our deposits were in Certificate of Deposit Account Registry Service ("CDARS"), Insured Cash Sweep ("ICS"), Anova Financial Corporation and Brokered CDs (collectively, "brokered deposits"), which is a decline of $26.4 million from December 31, 2016.
Borrowings.
We use short-term and long-term borrowings from various sources, including the FRB discount window, the FHLB, subordinated debt and junior subordinated debentures. 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. We decreased borrowings with the FHLB by $122.0 million from December 31, 2016 to $50.0 million at March 31, 2017, primarily due to funds resulting from the decline in loan balances in the first quarter of 2017.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table summarizes the period-end balance, highest month-end balance, average balance, and weighted average rate of short-term borrowings, for the periods stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Period-End Balance
|
Highest Month-End Balance
|
Average Balance
|
Weighted Average Rate
|
|
Period-End Balance
|
Highest Month-End Balance
|
Average Balance
|
Weighted Average Rate
|
FHLB borrowings
|
$
|
50,000
|
|
$
|
100,000
|
|
$
|
106,378
|
|
0.66
|
%
|
|
$
|
172,000
|
|
$
|
197,500
|
|
$
|
99,125
|
|
0.43
|
%
|
In June 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 we 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 us. As of
March 31, 2017
, the outstanding balance of the Subordinated Notes, net of capitalized loan origination costs, was
$8.6 million
. For the three months ended March 31, 2017, the effective interest rate, including the amortization of loan origination costs, on the Subordinated Notes was
6.40%
. As of
March 31, 2017
, Xenith Bankshares and the Bank, as applicable, were in compliance with all covenants of the Subordinated Notes.
We have 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 us. 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. We have fully and unconditionally guaranteed the trust preferred securities through the combined operation of the debentures and other related documents. Our obligation under the guarantee is unsecured and subordinate to our senior and subordinated indebtedness. The trust preferred securities are redeemable only at our 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 March 31, 2017 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 debentures, for the three-month period ended March 31, 2017, were between 7.07% and 7.84%.
Liquidity
Liquidity is the ability to generate or acquire sufficient amounts of cash when needed and at a reasonable cost to accommodate deposit withdrawals, payments of debt and operating expenses, to fund loan demand, and to achieve stated objectives. These events may occur daily or in other short-term intervals in the normal operation of our business. Historical trends may help management predict the amount of cash required. In assessing liquidity, we give consideration to various factors, including stability and maturity of deposits, quality, volume and maturity of assets, sources and costs of borrowing, concentrations of loans and deposits with certain businesses and industries, competition for loans and deposits, and our overall financial condition and cash flows. Our primary sources of liquidity are cash, due from banks, federal fund sold and securities in our available-for-sale portfolio.
At March 31, 2017, cash and cash equivalents were $180.1 million compared to $127.0 million at December 31, 2016. Net cash provided by operating activities in 2017 was $19.0 million, primarily from operating earnings and the sale of loans from discontinued operations to third-party investors. Net cash provided by investing activities in 2017 was $108.2 million, primarily due to a net decrease in loans of $104.5 million. Net cash used in financing activities in 2017 was $74.1 million, primarily due to the repayment of short-term FHLB borrowings of $122.0 million, partially offset by an increase in deposits of $47.7 million.
We have secured borrowing facilities with the FHLB and the FRB. As of March 31, 2017, total credit availability under the FHLB facility was $818.1 million and with a pledged, lendable collateral value of $287.8 million. Under this facility, as of March 31, 2017, there were short-term, non-amortizing borrowings outstanding of $50.0 million. Credit availability under the FRB facility as of March 31, 2017 was $141.8 million, which is also based on pledged collateral. At March 31, 2017, the Bank had no borrowings under the FRB facility.
We have uncommitted lines of credit with nine banks to borrow federal funds up to $163.0 million on an unsecured basis. Three of the lines expire within one year; the remaining lines have to stated expiration. However, all of the lines are uncommitted and can be canceled by the lender at any time. As of March 31, 2017, there were no amounts outstanding under these lines of credit. Borrowings under these arrangements bear interest at the prevailing Federal Funds Rate.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Resources
Total shareholders' equity increased $7.3 million to $470.5 million at March 31, 2017 from $463.2 million at December 31, 2016. The increase was primarily due to an increase in net income for the three months ended March 31, 2017 of $5.7 million.
Capital management in a regulated financial services industry must properly balance return on equity to shareholders, while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Our capital management strategies have been developed to maintain our "well-capitalized" position.
We are subject to various regulatory capital requirements administered by federal and other bank regulators. Failure to meet minimum capital requirements can trigger certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on us. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
In July 2013, the Federal Reserve approved a final rule establishing a regulatory capital framework for smaller, less complex financial institutions, implementing in the United States the Basel III regulatory capital reforms for the Basel Committee and certain changes required by the Dodd-Frank Act. Information regarding capital requirements to which we are subject can be found in Part I, Item 1 - Business under the caption "Supervision and Regulation - Capital Adequacy and Guidelines" in our 2016 Form 10-K.
The following table presents capital for the various capital ratios and risk weighted assets for the Bank and Xenith Bankshares as of the dates stated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Xenith Bank
|
Xenith Bankshares
|
|
Xenith Bank
|
Xenith Bankshares
|
Common equity Tier 1 capital
|
$
|
320,672
|
|
$
|
346,402
|
|
|
$
|
314,768
|
|
$
|
343,519
|
|
Tier 1 capital
|
320,672
|
|
348,926
|
|
|
314,768
|
|
343,518
|
|
Total risk-based capital
|
338,947
|
|
375,811
|
|
|
336,712
|
|
374,082
|
|
Risk-weighted assets
|
2,687,902
|
|
2,714,244
|
|
|
2,821,029
|
|
2,849,714
|
|
The following table presents our capital ratios, minimum capital ratios required by our regulators, and capital ratios defined as "well capitalized" by regulators for the Bank and for Xenith Bankshares as of the dates stated. Since March 31, 2017, there are no conditions or events that management believes has changed our status as "well capitalized."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Xenith
|
|
Xenith
|
|
Regulatory
|
|
Well
|
|
Xenith
|
|
Xenith
|
|
Regulatory
|
|
Well
|
|
Bank
|
|
Bankshares
|
|
Minimum
|
|
Capitalized
|
|
Bank
|
|
Bankshares
|
|
Minimum
|
|
Capitalized
|
Common equity Tier 1 capital ratio
|
11.93%
|
|
12.76%
|
|
4.50%
|
|
> 6.50%
|
|
11.16%
|
|
12.05%
|
|
4.50%
|
|
> 6.50%
|
Tier 1 leverage ratio
|
10.35%
|
|
11.17%
|
|
4.00%
|
|
> 5.00%
|
|
9.94%
|
|
10.74%
|
|
4.40%
|
|
> 5.00%
|
Tier 1 risk-based capital ratio
|
11.93%
|
|
12.86%
|
|
6.00%
|
|
> 8.00%
|
|
11.16%
|
|
12.05%
|
|
6.00%
|
|
> 8.00%
|
Total risk-based capital ratio
|
12.61%
|
|
13.85%
|
|
8.00%
|
|
> 10.00%
|
|
11.94%
|
|
13.13%
|
|
8.00%
|
|
> 10.00%
|
Contractual Obligations
In the normal course of business, we have contractual obligations to make future payments on debt and lease agreements. We also 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 for facilities.
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
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 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 and are further discussed in Note 13 - Commitments and Contingencies in Part 1, Item 1 - Notes to Consolidated Financial Statements in this Form 10-Q.
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 us. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of our 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.
Management, guided by the Asset-Liability Committee of our board of directors, 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.
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 following table illustrates the expected effect on net interest income for the 12 months following March 31, 2017 due to an immediate change ("instantaneous rate shock" scenario) and a gradual change ("ramped rate shock" scenario) in interest rates. Estimated changes set forth below are dependent on material assumptions, such as those previously discussed. It should be noted that rates are unlikely to change instantly in the severity of an instantaneous rate shock, and management believes the ramped rate shock simulation more likely demonstrates the effect of changes in interest rates on us. In the ramped rate shock simulation, interest rates change pro rata over the simulation period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Change in Net Interest Income
|
|
Instantaneous Rate Shock Scenario
|
|
Ramped Rate Shock Scenario
|
|
$
|
|
%
|
|
$
|
|
%
|
Change in Interest Rates:
|
|
|
|
|
|
|
|
|
+
200 basis points
|
$
|
5,520
|
|
|
5.84
|
%
|
|
$
|
1,631
|
|
|
1.73
|
%
|
+
100 basis points
|
$
|
3,345
|
|
|
3.54
|
%
|
|
$
|
833
|
|
|
0.88
|
%
|
–100 basis points
|
$
|
(6,235
|
)
|
|
(6.60
|
)%
|
|
$
|
(1,055
|
)
|
|
(1.12
|
)%
|
–200 basis points
|
$
|
(6,964
|
)
|
|
(7.37
|
)%
|
|
$
|
(1,133
|
)
|
|
(1.20
|
)%
|
As of
March 31, 2017
, 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 we are considered "asset-sensitive".
It should be noted that the simulation analyses are based upon equivalent changes in interest rates for all categories of assets and liabilities. In normal operating conditions, interest rates may not change in a uniform matter. Many factors affect the timing and magnitude of interest rate changes on financial instruments. In addition, we may deploy strategies that offset some of the impact of changes in interest rates. Depending upon the timing and shifts in the interest rate yield curve, certain rising rate scenarios could be less favorable due to loan and deposit re-pricing characteristics. Consequently, actual outcomes would be expected to vary from the projections due to the controlled conditions of the simulation analysis.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Economic value of equity ("EVE") is defined as the present value of all future asset cash flows less the present value of all future liability cash flows or an estimate of the enterprise value. Although EVE takes into account all anticipated future cash flow based on the existing balance sheet at a point in time, it does not distinguish either the timing of those cash flows or changes in behavior or balance sheet structure that might occur in different rate environments. It also assumes that a change in interest rates occurs immediately that the same interest rate environment last perpetually into the future. The following table illustrates the expected effect on EVE as of March 31, 2017 due to an immediate change in interest rates. Estimated changes set forth below are dependent on material assumptions such as those previously discussed.
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Change in the Economic Value of Equity
|
|
$
|
|
%
|
Change in Interest Rates:
|
|
|
|
+
200 basis points
|
$
|
75,700
|
|
|
16.9
|
%
|
+
100 basis points
|
$
|
45,000
|
|
|
10.1
|
%
|
–100 basis points
|
$
|
(67,700
|
)
|
|
(15.1
|
)%
|
–200 basis points
|
$
|
(175,300
|
)
|
|
(39.1
|
)%
|
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
XENITH BANKSHARES, INC.
PART I. FINANCIAL INFORMATION
ITEM
4
- CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our 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
March 31, 2017
. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of
March 31, 2017
were effective in providing reasonable assurance that information required to be disclosed in the reports that we file or submit 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, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three months ended
March 31, 2017
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
XENITH BANKSHARES, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the ordinary course of operations, we 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 our results of operations, financial condition, or liquidity, see the risk factors discussed in Part I, Item 1A - Risk Factors in our 2016 Form 10-K. We do not believe there have been any material changes to the risk factors as previously disclosed in our 2016 Form 10-K.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We announced an open ended program on August 13, 2003, by which management was authorized to repurchase an unlimited number of shares of our common stock in the open market and through privately negotiated transactions. There were no share repurchase transactions conducted during the
three
months ended
March 31, 2017
.
XENITH BANKSHARES, INC.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
See Exhibit Index, which is incorporated in this item by reference.
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.
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|
XENITH BANKSHARES, INC.
|
(Registrant)
|
|
|
|
|
|
DATE:
|
May 10, 2017
|
|
/s/ T. Gaylon Layfield, III
|
|
|
|
T. Gaylon Layfield, III
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
/s/ Thomas W. Osgood
|
|
|
|
Thomas W. Osgood
|
|
|
|
Chief Financial Officer
|
Exhibit Index
Xenith Bankshares, Inc.
|
|
|
|
|
Exhibit Number
|
|
Description
|
31.1
|
|
|
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.
|
31.2
|
|
|
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.
|
32.1
|
|
|
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.
|
101.INS
|
|
|
XBRL Instance Document.
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.DEF
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
101.LAB
|
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
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