2014 Annual Report - Frontier Community Bank

2011 Annual Report
ANNUAL REPORT 2014
FROM YOUR PRESIDENT
Dear Shareholders:
Frontier’s most significant asset, the loan portfolio, continues to exhibit
impressive performance. The Bank did not report any loans past due
on 12/31/14. The sole non-performing loan Frontier has encountered
since chartering was converted into Bank owned real estate, and we
hope to successfully market it in the near future. Additionally, last year
marked the completion of a long term project to rebalance the loan
portfolio mix. Frontier charted at the onset of the Great Recession, and
consequently developed an intentional concentration of commercial
real estate loans, since these represented the highest quality loans
available during unprecedented economic times. In 2013, as the
economy began to improve, the Board elected to diversify the loan
portfolio by establishing a broader mix of loan types. Completing this
strategy also improved Frontier’s ability to grow, since a diversified
asset base requires a smaller capital allocation.
I am pleased to apprise you of the success Frontier achieved during
2014. Annual net income for your bank was $764,302, representing a
seventy nine percent increase as compared to the previous year. The
continued earnings performance provided the required support for
recognizing a significant tax asset of $574,920, which increased the
Bank’s capitalization level while avoiding shareholder dilution. This
is an important evolution for a growth stage bank such as Frontier,
since the Bank’s ability to expand directly correlates to capital
accumulation. We intend to leverage this opportunity to increase
asset growth early in 2015, since Frontier will now begin to accrue
for income tax expense. Total assets increased by three percent,
supported by a commensurate level of non interest bearing deposit
accretion. Funding the balance sheet increase with checking account
deposits is significant, as they are Frontier’s most cost effective
funding source. Earnings per share increased from $0.37 to $0.65,
while book value increased from $8.16 to $8.86 per share. From my perspective, the acceleration in the pace of the economic
recovery is noteworthy. This is the most important external factor
that affects Frontier, and the positive sentiment regarding the
probability of an interest rate increase during 2015 is promising. This
will be a significant event when it occurs; signaling that the economy
has improved sufficiently to raise the federal funds target rate from its
current historical low for the first time in seven years. This scenario is
beneficial to Frontier since the Bank is asset sensitive. This means that
the composition of the balance sheet has been managed to benefit
the income stream during an upward rate environment.
I am proud to inform you of several exciting projects completed
by the Frontier team during the past year. The Board of Directors
elected to implement an enterprise wide risk monitoring and
capital simulation system at the onset of 2014. Investing in such a
comprehensive process for a bank of Frontier’s size is progressive;
it lays the necessary groundwork for executing a growth oriented
strategic plan in the current banking environment. As you know, the
pressure on banks to elevate their equity capital to buffer for any type
of potential loss has been dramatic. Think about the commonplace
nature of news stories highlighting a larger bank’s ability to pass
or fail the government mandated capital stress tests. Despite
rhetoric to the contrary, community banks are not exempt from
these expectations. Constructing a self governance program, bankwide risk monitoring system, and multi-faceted capital stressing
model is vital for financial institutions that are strategizing to grow.
Community banks must be able to document, quantify, and justify
their risk profile when soliciting regulatory support for expansion
plans. Lagging institutions will be required to hold extra capital
as a risk buffer against the “unknown” until they complete a similar
process. We intend to avoid this scenario, since holding excess capital
limits asset growth, earnings, and future dividend distributions. The
entire Frontier team is extremely proud of this accomplishment, and
we look forward to the future opportunities it will present to the Bank.
2014 ANNUAL REPORT
In closing, this year should be an exciting one in the evolution of
Frontier! The Board of Directors is designing strategic plans to coincide
with the benefits of the gradual recovery, and the management team
looks forward to carrying them out with enthusiasm. As always, every
employee of Frontier remains dedicated to growing your Bank and
providing the very best customer service during the following year.
Please feel free to contact me directly at 540-932-9100 with questions
about your bank.
Sincerely,
Alan J. Sweet
President & CEO
2
FRONTIER COMMUNITY BANK
YOUR FRONTIER TEAM
Christopher S. Chamberlin
Frederick W. Galway
Laurie L. Landes
Seth G. Bokelman
Executive Vice President
Chief Financial Officer
Senior Vice President
Senior Vice President
Elizabeth A. Ralston
C. William Cecil
Ashley B. Helmick
Tatiana E. Stevens
Executive Assistant
Credit Analyst
Loan Operations Supervisor
Marcie L. Mader
Amanda R. Drumheller
Hailey B. Kyger
Personal Banker
Personal Banker
FROM YOUR PRESIDENT
Operations & BSA Officer
IT & HR Officer
Angela J. Humphries
Victoria E. Schullery
Loan Operations
2014 ANNUAL REPORT
Loan Operations
Personal Banking Supervisor
3
Tara L. Cale
Compliance & Loan Review Officer
Rhonda W. Fix
FRONTIER COMMUNITY BANK
FINANCIAL HIGHLIGHTS
DECEMBER 31
2014
2013
Results of Operations:
Interest income$ 3,771,725
$ 3,696,498
Interest expense 1,023,587
1,060,159
Net interest income 2,748,138
2,636,339
Provision for loan losses
323,400
102,000
Noninterest income
176,721
168,693
Noninterest expense 2,410,492
2,276,284
Net income before tax
190,967
426,748
Federal tax benefit (573,335)
0
$ 426,748
Net income$ 764,302
Period-end Balances:
$ 75,396,723
Loans, net of unearned income$ 73,370,926
Deposits82,786,445
80,720,943
Assets94,578,514
91,850,778
Shareholder’s equity 10,346,794 9,533,808
Per Share Information:
Earnings – basic
0.65
0.37
Earnings – diluted
0.64
0.37
Book value
8.86
8.16
Ratios:
0.8 %
Return on average assets
0.5 %
7.7 %
Return on average equity
5.8 %
3.00 %
Net interest margin
3.09 %
2014 ANNUAL REPORT
4
FRONTIER COMMUNITY BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 (unaudited)
2014
Interest and Dividend Income
Loans, including fees
$ 3,670,445
Federal funds sold and deposits in other banks
67,134
Bond interest, accretion and amortization
11,238
Dividends on restricted stock
22,908
Total interest and dividend income
3,771,725 2013
$ 3,644,801
32,268
-19,429
3,696,498
Interest Expense Deposits
987,654
1,042,344
Federal funds purchased andother borrowed funds
35,933
17,815
Total interest expense
1,023,587
1,060,159
Net Interest Income
Provision for loan losses
Net interest income after provision for loan losses
2,748,138
323,400
2,424,738
2,636,339
102,000
2,534,339
Noninterest Income
Service charges on deposit accounts
20,959
13,095
Mortgage origination fee income
73,559
97,148
Other income
82,203
58,450
Total noninterest income
176,721
168,693
Noninterest Expense
Salaries and employee benefits
Occupancy expense
Equipment and supplies expense
Marketing
Professional fees
Data processing fees
FDIC insurance expense
Bank franchise tax
Other operating expenses
Total noninterest expense
Net income before income taxes
Income tax expense
Net income
Earnings per common share, basic
Earnings per common share, diluted
1,288,771
1,190,481
133,137
135,344
70,818
82,550
55,954
74,710
189,759
150,520
160,430
155,698
120,270
112,468
77,473
65,232
313,880
309,281
2,410,492
2,276,284
190,967
426,748
(573,335)
-$ 764,302
$ 426,748
$ 0.65
$ 0.64
$ 0.37
$ 0.37
2014 ANNUAL REPORT
5
FRONTIER COMMUNITY BANK
BALANCE SHEET
FOR THE YEARS ENDED DECEMBER 31 (unaudited)
2014
Assets
Cash and due from banks
$ 1,372,968
Interest bearing deposits with other banks
12,773,821
Total cash and cash equivalents
14,146,789
Restricted stock, at cost
Securities available for sale, at fair value
Securities held to maturity (fair value $501,947)
Loans, net of allowance for loan losses of $959,962 and $988,277, respectively
Premises and equipment, net
Accrued interest receivable
Deferred income tax
Other real estate owned
Other assets
2013
$ 1,434,753
11,423,719
12,858,472
411,950
1,981,015
500,000
73,370,926
428,450
---
75,396,723
2,830,707
180,893
574,920
413,961
167,353
2,864,692
176,467
--
--
125,974
$ 94,578,514
Total assets Liabilities
Deposits:
Noninterest-bearing deposits
$ 7,370,691
75,415,754
Interest-bearing deposits
82,786,445
Total deposits
Subordinated debt
385,000
Long-term borrowings
800,000
Accrued interest payable
46,373
Other accrued expenses and other liabilities
213,902
Total liabilities
84,231,720
$ 91,850,778
$ 5,145,558
75,575,385
80,720,943
385,000
1,000,000
49,610
161,417
82,316,970
Stockholders’ Equity
Preferred stock, $5 par value, 1,000,000
shares authorized, none issued
Common stock, $5 par value, 10,000,000
shares authorized; 1,167,890 and 1,059,765
shares issued and outstanding as of
December 31, 2014 and 2013, respectively
Additional paid-in capital
Retained (deficit)
Gain/(loss) on AFS Securities
--
--
5,839,450
6,105,260
(1,594,839)
(3,077)
5,839,450
6,053,499
(2,359,141)
--
Total stockholders’ equity
10,346,794
9,533,808
Total liabilities and stockholder’s equity
$ 94,578,514
2014 ANNUAL REPORT
6
$ 91,850,778
FRONTIER COMMUNITY BANK
BOARD OF DIRECTORS
James A. Morris
Mr. Morris joined the board on Jan 1, 2013. He is the President
of WM Management Ltd, a real estate investment and
management firm, President of DICAM, Inc., a technology
company and President of ROXIE, LLC, which is a real estate
consulting and acquisition company.
Unless otherwise indicated, all directors have served the Bank
since it commenced business in February of 2008.
Gianfranco “John” Avoli
Mr. Avoli is the Chief Executive Officer of the Frontier Culture
Museum of Virginia. He is the former Mayor of the City of
Staunton, Virginia.
Donna H. Snyder
Ms. Snyder joined the Board of Directors in May of 2014. A
career banker, who served as the Senior Vice President and
Cashier for Virginia Financial Corporation prior to retiring
from Stellar One Corporation in 2008. Her previous banking
experience includes financial and regulatory reporting, interest
rate risk and liquidity management, and other areas associated
with the accounting and reporting functions of the bank.
Roller “Petey” L. Eavers. Jr.
Mr. Eavers is President and Chief Executive Officer of Eavers
Enterprises, Inc. and Roller Eavers Partnership. He operates
several local businesses including Eavers Tire and Eavers BP.
Robert O. Errett
Mr. Errett has served as the Chairman of the Board of Directors
for Frontier Community Bank since May of 2011. He is the
Chief Executive Officer of Parker Compound Bows, Inc., a
manufacturer of hunting bows and crossbows headquartered
in Augusta County and Chairman of Outdoor Colors, LLC, an
outdoor products decoration company in North Carolina.
Alan J. Sweet
Mr. Sweet is the President and Chief Executive Officer. He has
worked for Frontier Community Bank since inception.
M. Terry Westhafer
Mr. Westhafer is the Vice Chairman of the Board of Directors for
Frontier Community Bank. He is the President of Central Tire
Corporation, a tire company based in Verona, Virginia and the
managing member of Westhafer Company, LLC.
Julian Q. Moffett
Mr. Moffett is the Chief Executive Officer of Moffett Paving &
Excavating Corporation and past Assistant City Manager and
Director of Public Works for the City of Staunton.
ANOTHER GREAT FCB EVENT
For the past seven years, Frontier Community Bank has hosted multiple events, which include customer appreciation days and
Frontiers’ “kid’s day”. These events allow your bank the opportunity to connect with you and your loved ones. Thank you to all who
have participated in years’ past and we look forward to seeing you again this year!
2014 ANNUAL REPORT
7
2012 Annual report -
FRONTIER COMMUNITY BANK
FRONTIER COMMUNITY BANK
6
400 Lew Dewitt Boulevard
Waynesboro, Virginia 22980
540.932.9100
frontiercommunitybank.com