Village Bank and Trust Financial : Reports Earnings For The Fourth Quarter and Full Year 2016 and Partial Redemption of Preferred Stock

AND TRUST FINANCIAL CORP. News Release For Immediate Release Contact:

1. Harril Whitehurst, Jr. Executive Vice President and CFO 804-897-3900

   [e-mail]

   VILLAGE BANK AND TRUST FINANCIAL CORP. REPORTS EARNINGS FOR THE FOURTH QUARTER AND FULL YEAR 2016 AND PARTIAL REDEMPTION OF PREFERRED STOCK Midlothian, Virginia, January 27, 2017. Village Bank and Trust Financial Corp. (the "Company") (NASDAQ symbol: VBFC), parent company of Village Bank (the "Bank"), today reported unaudited results for the three months and year ended December 31, 2016. All information for 2016 included in this release is unaudited and subject to change through the date of the filing of the Company's Annual Report on Form 10-K.

   Net income for the fourth quarter of 2016 amounted to $520,000, compared to net income of $11,932,000 for the third quarter of 2016 and net income of $96,000 for the fourth quarter of 2015. Net income available to common shareholders, which deducts from net income the dividends on preferred stock, amounted to net income of $330,000, or $0.23 per fully diluted share, for the fourth quarter of 2016, and a net loss of $78,000, or $0.06 per fully diluted share for the same period in 2015.

   For the year ended December 31, 2016, the Company had net income of $13,513,000 and net income available to common shareholders of $12,776,000, or $8.99 per fully diluted share, compared to net income of $646,000 and net income available to common shareholders of $6,591,000, or $5.49 per fully diluted share, for the same period in 2015. Net income and net income available to common shareholders for the year ended December 31, 2016 were positively impacted by the reversal in the third quarter of 2016 of an $11,997,000 valuation allowance previously recorded against the net deferred tax asset. Netting this reversal against income tax expense for 2016 of $825,000 resulted in an income tax benefit of $11,172,000 for the year ended December 31, 2016. Net income available to common shareholders for the year ended December 31, 2015 was positively

   impacted by the forgiveness of principal and dividends on preferred stock amounting to

   $6,619,000 associated with the rights offering to shareholders and concurrent standby offering completed in March 2015.

   Earnings

   During Q4 2016, the Company continued its positive momentum in all areas and concluded a year in which our teams delivered strong revenue growth and expense improvements to produce 262% pretax earnings improvement. The commercial and retail banking teams grew core loans and low cost relationship deposits at a brisk pace during the quarter and the full year. Mix improvement on both the asset and liability sides of the balance sheet bolstered net interest margins throughout the year. Finally, Village Bank Mortgage Corporation delivered 21% full year pretax earnings growth backed by a strong fourth quarter. Pretax income broken down by Company is presented below (in thousands):

   Operating Results By Company
   Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015
   Bank	$ 421	$ 135	$ 576	$ 431	$ 1,363	$ 407	$ 460
   Mortgage Co	414	572	218	32	1	371	423
   Hold Co	(135)	(127)	(135)	(61)	(1,268)	(307)	(799)
   Total	$ 700	$ 580	$ 659	$ 402	$ 96	$ 471	$ 84

   Q4 2016 quarterly results:

   • Net interest income increased by 0.1% from Q3 2016, and by 7.2% over Q4 2015.

   • Gross loans held for investment increased by $3.6 million, or 1.1%, from Q3 2016, and core loans (excludes purchased student loans which were strategically purchased as a low risk way to increase yield on interest earning assets) increased by 2.7% from Q3 2016.

   • Net interest margin of 3.43% declined by 7 basis points from 3.50% for Q3 2016 and by 3 basis points from 3.46% for Q4 2015.

   • Village Bank Mortgage Corporation earned $414,000 in pretax earnings, a decrease of $158,000 from Q3 2016, but an increase of $413,000 from Q4 2015.

   • During Q4 2016, the Company recorded a gain on a bank owned life insurance policy of $266,000.

   • The Company recorded a loss of $252,000 related to management's decision to consolidate two branches in Chesterfield County. The charge reflects the present value of future lease obligations on this branch and the write down of improvements that were not yet fully amortized. As part of our strategic planning exercises during the last several years, we identified branches that we considered candidates for consolidation with other nearby branches while we executed our growth strategy and built out our mobile, online and other convenience banking capabilities. Since 2013, we have:

     • Expanded and enhanced our mobile, online and electronic banking capabilities for both consumers and businesses;

     • Doubled the staff and extended the operating hours and capabilities of our Customer Care Team;

     • Increased our marketing budget and strengthened our marketing expertise with two outside hires who have extensive retail, financial services and digital marketing experience,

     • Invested in applications that will allow clients to open deposit accounts and apply for loans online (which will be introduced in the first half of 2017).

       We are adapting with the changing needs of the market. This is the last branch that we had been evaluating for closure. At this time, we are not considering any other branch closures, nor do we anticipate additional branch consolidation for the foreseeable future. Our key productivity metrics in retail banking, such as deposits per branch and staffing levels per branch, will be in line with our peers after this last branch consolidation. We believe that our branch network leaves us well positioned to achieve our growth objectives.

       2016 compared to 2015:

   • Net interest income increased by 5.9%.

   • Gross loans held for investment increased by $30.3 million, or 9.9%. Excluding government guaranteed student loans (which were strategically purchased as a low risk way to increase yield on interest earning assets), loan balances grew

     $36.9 million, or 14.6%.

   • Total deposits increased by $18.4 million, or 5.1%, and low cost relationship deposits (noninterest-bearing demand, interest checking, money market and savings accounts) increased by $22.5 million, or 10.9%. This reduced our cost of funds by 5 basis points. Noninterest bearing demand deposits now account for 24% of total deposits compared with 22% at the end of 2015.

   • Net interest margin increased by 13 basis points, from 3.40% during 2015 to 3.53% during 2016.

   • Village Bank Mortgage Corporation earned $1,236,000 in pretax earnings in 2016 compared to $1,017,000 in 2015, an increase of $219,000, or 21.5%.

   • Noninterest expense decreased by 9.0%.

   • The reversal of the valuation allowance on the net deferred tax asset of

     $11,997,000 previously reported in Q3 2016 affected the results in 2016, and the forgiveness of principal and dividends on preferred stock amounting to

     $6,619,000 associated with the rights offering to shareholders and concurrent standby offering completed in March 2015 affected the results in 2015.

     Loan Growth

     2016 was a year of strong loan growth in the asset types we have been strategically targeting - commercial and industrial business loans, owner occupied commercial real

     estate and income producing property loans (non-owner occupied commercial real estate). With this robust core loan growth, we have allowed the purchased government guaranteed student loan portfolio to begin to run off, which is consistent with the strategy we outlined in 2014 and 2015. Total loans increased 9.9% during the year and 1.1% during Q4 2016. Excluding student loans, loans increased 14.6% during the year and 2.7% during Q4 2016. We continue to be very disciplined and selective in our land acquisition, development and for sale construction ("ADC") lending. Our commercial real estate ("CRE") concentrations are well within regulatory tolerances at 70% of total capital for ADC and 206% of total capital for total CRE. The following table provides additional details (in thousands):

     LOANS OUTSTANDING
     Loan Type	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015
     C&I + Owner occupied commercial real estate	$ 105,411	$ 106,078	$ 107,612	$ 95,189	$ 89,342
     Nonowner occupied commercial real estate	67,078	61,607	55,256	50,659	46,962
     Consumer/Residential	81,250	79,950	81,897	84,047	83,594
     Acquisition, development and construction	33,862	32,000	29,982	32,108	31,150
     Student	47,398	51,381	46,781	49,445	53,989
     Other	2,101	2,520	1,691	1,798	1,734
     Total loans	$ 337,100	$ 333,536	$ 323,219	$ 313,246	$ 306,771

     Asset Quality

   • The Company continued to improve asset quality during Q4 2016 as shown in the following table (in thousands):

     Asset Quality Metrics
     Metric	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015
     Classified Assets	$ 10,454	$ 11,671	$ 12,619	$ 13,994	$ 15,375
     Nonperforming Assets (NPAs)	5,328	6,147	6,782	9,352	9,967
     Net Charge-offs (Recoveries)	46	104	88	(49)	(66)
     Expense related to foreclosed assets (OREO)	143	79	70	101	288

   • NPAs (nonaccrual loans and foreclosed real estate) now represent only 1.20% of total assets, and declined by 13.3% during Q4 2016 and by 46.5% since Q4 2015.

   • Classified Assets, a broader measure of problem assets, declined by 10.4% during Q4 2016 and by 32.0% since Q4 2015.