FROM YOUR PRESIDENT. Dear Shareholders:

Transcription

1 2016 ANNUAL REPORT

2 FROM YOUR PRESIDENT Dear Shareholders: Frontier gained a substantial amount of forward momentum during Earnings improved, our first branch office opened, and the Board of Directors approved plans to establish a loan production office in Lynchburg, VA. Year-end net income of $521,018 marked notable improvement when compared to The primary driver of the earnings enhancement was the absence of credit losses; however, two additional key performance metrics improved. Net interest margin increased by fourteen basis points, while non-interest income increased by more than twenty-five percent. On a per share basis, book value increased from $9.13 to $9.57. Shareholder equity increased by $976,406, which equates to nine percent. Finally, asset quality remains strong; Frontier did not report any loans past due at year-end. The main objective for the coming year is to build upon last year s momentum. The first priority is to increase earning assets, mainly through funding quality loans, to offset the additional Staunton branch cost. Accomplishing this as quickly as possible is important, since it creates the necessary environment for the Bank to consider additional expansion plans. We initially planned for the Staunton office to break-even within fifteen months. However, loan growth through mid March has been stronger than anticipated, and the loan pipeline is increasing. We hope to achieve breakeven more quickly than budgeted, perhaps within the calendar year, provided loan demand continues. To date, the Staunton branch has exceeded expectations. Our new branch is running smoothly, generating nearly enough in new deposits to fund 2017 loan growth for the entire bank. Establishing a Lynchburg loan production office is a versatile strategic tool. It supports the primary objective outlined in the preceding paragraph by supplying additional loan growth opportunities, and builds the foundation for a future full service branch location. Frontier positioned talented banking professionals with extensive market experience into an optimal location to derive early success in Staunton. We plan to use the same strategy in Lynchburg. Please recall that Frontier retains the ability to support a considerable amount of asset growth with the existing operational infrastructure. This is an important strategic advantage, and we intend to leverage it accordingly to increase future performance. The final noteworthy issue affecting your Bank is the improvement to the community banking environment. Frontier is a highly regulated business, and must consider the economy, along with the influence of the political and subsequent regulatory environment with great care, especially so when expanding. The pro business sentiment emanating from the White House will improve the regulatory environment for Frontier; however, it is Pictured Left to Right: Angela Humphries, Staunton Branch Manager; Laurie Landes, Senior Vice President; Bob Errett; Alan Sweet, President and CEO 2 FRONTIER COMMUNITY BANK

3 too early to gauge how much this will assist us. How substantive can a change in attitude be? A quick look at the influence of the new outlook on the economy is telling. The February Institute of Supply Management s index, which gauges future manufacturing output, reached a three-year high. The February non-manufacturing index, which surveys future services output, reached a fourteen-month high. Together, the preceding indices represent roughly eighty five percent of U.S. gross domestic product. Please think of your Bank whenever a financial need arises. We appreciate every opportunity to learn more about you and earn your business. As always, feel free to contact me directly at if you have further questions about Frontier. Total Assets Total Equity Alan J. Sweet President and Chief Executive Officer Total Loans 3 FRONTIER COMMUNITY BANK

4 FINANCIAL HIGHLIGHTS DECEMBER Results of Operations: Interest income $ 4,146,994 $ 3,964,311 Interest expense 834, ,140 Net interest income 3,312,970 3,037,171 Provision for/(recovery of) loan losses (37,400) 93,276 Noninterest income 216, ,328 Noninterest expense 2,755,429 2,682,568 Net income before tax 811, ,655 Income tax expense 290, ,439 Net income $ 521,018 $ 261,216 Period-end Balances: Loans, net of unearned income & allowance $ 82,814,914 $ 82,652,406 Deposits 87,482,018 88,176,018 Assets 104,253, ,065,164 Stockholder s equity 11,639,115 10,662,709 Per Share Information: Earnings basic Earnings diluted Book value Ratios: Return on average assets 0.5 % 0.3 % Return on average equity 4.7 % 2.5 % Net interest margin 3.30 % 3.16 % 4 FRONTIER COMMUNITY BANK

5 STATEMENTS OF INCOME STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND Interest and Dividend Income Loans, including fees $ 3,893,814 $ 3,780,536 Federal funds sold and deposits with other banks 182, ,173 Securities interest, accretion and amortization 38,803 28,847 Dividends on restricted stock 32,176 26,755 Total interest and dividend income 4,146,994 3,964,311 Interest Expense Deposits 798, ,856 Federal funds purchased and other borrowed funds 35,540 46,284 Total interest expense 834, ,140 Net Interest Income 3,312,970 3,037,171 Provision for/(recovery of) loan losses (37,400) 93,276 Net interest income after provision for/(recovery of) loan losses 3,350,370 2,943,895 Noninterest Income Service charges on deposit accounts 27,416 26,961 Mortgage origination fee income 102,375 67,225 Other income 86,999 78,142 Total noninterest income 216, ,328 Noninterest Expense Salaries and employee benefits 1,513,111 1,373,375 Occupancy expense 165, ,238 Equipment and supplies expense 86,963 84,740 Marketing 73,490 71,685 Professional fees 187, ,062 Data processing fees 172, ,176 FDIC insurance expense 47,267 90,119 Bank franchise tax 87,032 84,507 Other 421, ,666 Total noninterest expense 2,755,429 2,682,568 Net income before income taxes 811, ,655 Income tax expense 290, ,439 Net income $ 521,018 $ 261,216 Unrealized gain (loss) on available for sale securities (net of tax of $1089 and $1,333 respectively) 2,113 2,587 Comprehensive income $ 523,131 $ 263,803 Earnings per common share, basic $ 0.43 $ 0.22 Earnings per common share, diluted $ 0.43 $ FRONTIER COMMUNITY BANK

6 BALANCE SHEETS AT DECEMBER 31, 2016 and Assets Cash and due from banks $ 1,812,033 $ 1,188,621 Interest bearing deposits with other banks 11,437,713 11,395,604 Total cash and cash equivalents 13,249,746 12,584,225 Restricted stock, at cost 652, ,000 Securities available for sale, at fair value 1,998,358 1,990,039 Securities held to maturity (fair value $867,732 and $503,715, 898, ,000 respectively) Loans, net of allowance for loan losses of $1,015,600 82,814,914 82,652,406 and $1,053,000, respectively Premises and equipment, net 3,588,494 2,770,190 Accrued interest receivable 211, ,203 Deferred income tax assets, net 126, ,148 Other real estate owned, net 250, ,444 Other assets 463, ,509 Total assets $ 104,253,777 $ 102,065,164 Liabilities Deposits: Noninterest-bearing $ 8,415,632 $ 7,688,345 Interest-bearing 79,066,386 80,487,673 Total deposits 87,482,018 88,176,018 Subordinated debt ,000 Long-term borrowings 4,866,667 2,600,000 Accrued interest payable 41,482 53,419 Other accrued expenses and other liabilities 224, ,018 Total liabilities 92,614,662 91,402,455 Stockholders Equity Common stock, $5 par value, 10,000,000 shares authorized; 1,216,015 and 1,167,890 shares issued and outstanding as of December 31, 2016 and 2015, respectively 6,080,075 5,839,450 Additional paid-in capital 6,370,022 6,157,372 Retained deficit (812,605) (1,333,623) Accumulated other comprehensive income/(loss) 1,623 (490) Total stockholders equity 11,639,115 10,662,709 Total liabilities and stockholder s equity $ 104,253,777 $ 102,065,164 6 FRONTIER COMMUNITY BANK

7 BOARD OF DIRECTORS Gianfranco John Avoli Mr. Avoli is the Director of External Affairs at the Frontier Culture Museum of Virginia. He is the former Mayor of the City of Staunton, Virginia and Chief Executive Officer of the Frontier Culture Museum. Mr. Avoli is a founding director and serves on the Audit Committee. Roller Petie 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. Mr. Eavers is a founding director and member of the Asset Liability Committee. Rachel Figura Mrs. Figura joined the Board in February of She is the Assistant County Attorney for Rockingham County. Mrs. Figura serves on the Audit Committee. 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. Mr. Moffett is a founding director and Chairman of the Asset Liability Committee. James A. Morris Mr. Morris joined the board on Jan 1, He is the President of WM Management Ltd, a real estate investment and management firm, President of DICAM, Inc., and President of ROXIE, LLC. Mr. Morris is a member of the Executive Committee and Chairman of the Audit Committee. Donna H. Snyder Ms. Snyder joined the Board of Directors in May of A career banker, who served as the Senior Vice President and Cashier for Virginia Financial Corporation prior to retiring from Stellar One Corporation in Ms. Snyder is a member of the Audit and Executive Committees. Stephanie Snell Mrs. Snell joined the board in June She is the owner of Charlottesville Skin and Laser Center. Mrs. Snell also has 21 years of commercial banking experience. She is a member of the Asset Liability Committee and Director s Loan Committee. Alan J. Sweet Mr. Sweet is the President and Chief Executive Officer. He has twenty-six years of community banking experience. Mr. Sweet joined Frontier Community Bank during the organizational stage. M. Terry Westhafer Mr. Westhafer is the President of Central Tire Corporation, and the managing member of Westhafer Company, LLC. Mr. Westhafer, a founding director, is Chairman of the Board. He also serves on the Executive and Director s Loan Committees. 7 FRONTIER COMMUNITY BANK

8 400 Lew Dewitt Boulevard Waynesboro, Virginia Richmond Avenue Staunton, Virginia frontiercommunitybank.com