Cordia Bancorp Inc - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - Cordia Bancorp Inc	v422732_ex31-1.htm
EX-32 - EXHIBIT 32 - Cordia Bancorp Inc	v422732_ex32.htm
EX-31.2 - EXHIBIT 31.2 - Cordia Bancorp Inc	v422732_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2015

Commission File No. 001-35852

Cordia Bancorp Inc.

(Exact name of registrant as specified in its charter)

	Virginia	26-4700031
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11730 Hull Street Road

Midlothian, Virginia 23112

(Address of principal executive offices) (zip code)

(804) 763-1336

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer o	Smaller reporting company x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 4, 2015, there were 6,562,906 shares of common stock outstanding.

		Page
	PART I
Financial Information

Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets (unaudited)	1
	Consolidated Statements of Operations (unaudited)	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited)	3
	Consolidated Statements of Cash Flows (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	54

	PART II

Other Information

Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

Signatures		57

Item 1.

Consolidated Financial Statements

Cordia Bancorp

Consolidated Balance Sheets

	(Unaudited)
(dollars in thousands, except per share data)	September 30, 2015			December 31, 2014
Assets
Cash and due from banks	$	9,437		$	5,484
Federal funds sold and interest-bearing deposits with banks		15,970			16,363
Total cash and cash equivalents		25,407			21,847
Securities available for sale, at fair value		48,721			53,483
Securities held to maturity, at cost (fair value $26,742 and $21,047 at September 30, 2015 and December 31, 2014, respectively)		26,281			20,716
Restricted securities		2,330			2,092
Loans held for sale		109			-
Loans net of allowance for loan losses of $903 and $1,089, at September 30, 2015 and December 31, 2014, respectively		227,862			211,870
Premises and equipment, net		6,034			4,432
Accrued interest receivable		1,924			2,040
Other real estate owned, net of valuation allowance		1,761			1,641
Other assets		7,555			479
Total assets	$	347,984		$	318,600

Liabilities and stockholders' equity
Deposits
Non-interest bearing	$	28,362		$	30,709
Savings and interest-bearing demand		104,007			83,339
Time deposits		156,939			151,555
Total deposits		289,308			265,603
Accrued expenses and other liabilities		553			861
FHLB borrowings		30,000			25,000
Total liabilities		319,861			291,464

Stockholders' equity
Common stock:
Common stock - 120,000,000 shares authorized, $0.01 par value, 5,162,469 and 5,103,669 shares outstanding (includes 130,240 and 52,580 of nonvested shares) at September 30, 2015 and December 31, 2014, respectively		50			51
Nonvoting common stock - 5,000,000 shares authorized, $0.01 par value, 1,400,437 shares outstanding at September 30, 2015 and December 31, 2014		14			14
Additional paid-in capital		33,044			32,956
Retained deficit		(4,700	)		(5,417	)
Accumulated other comprehensive loss		(285	)		(468	)
Total stockholders' equity		28,123			27,136
Total liabilities and stockholders' equity	$	347,984		$	318,600

See Notes to the Consolidated Financial Statements

Cordia Bancorp Inc.

Consolidated Statements of Operations

(Unaudited)

	Three months ended September 30,						Nine months ended September30,
(dollars in thousands, except per share data)	2015			2014			2015			2014
Interest income
Interest and fees on loans	$	2,294		$	2,275		$	6,804		$	6,676
Investment securities		446			346			1,192			864
Federal funds sold and deposits with banks		9			4			21			19
Total interest income		2,749			2,625			8,017			7,559
Interest expense
Interest on deposits		506			443			1,430			1,310
Interest on FHLB borrowings		95			57			277			154
Total interest expense		601			500			1,707			1,464
Net interest income		2,148			2,125			6,310			6,095
(Recovery of) provision for loan losses		(53	)		(106	)		(330	)		123
Net interest income after (recovery of) provision for loan losses		2,201			2,231			6,640			5,972
Non-interest income
Service charges on deposit accounts		35			44			95			89
Net gain (loss) on sale of available for sale securities		22			(3	)		136			61
Net gain on sale of loans held for sale		6			-			36			-
Other fee income		52			41			158			117
Total non-interest income		115			82			425			267
Non-interest expense
Salaries and employee benefits		1,085			1,244			3,447			3,752
Professional services		108			92			292			323
Occupancy		149			139			461			426
Reversal of occupancy fair value discount		-			-			(225	)		-
Data processing and communications		233			206			637			508
FDIC assessment and bank fees		88			99			270			289
Bank franchise taxes		49			23			147			79
Student loan servicing fees and other loan expenses		174			144			528			480
Other real estate expenses		26			6			77			28
Supplies and equipment		71			82			214			240
Insurance		20			40			59			125
Director's fees		28			46			75			137
Marketing and business development		64			15			113			30
Other operating expenses		91			95			253			294
Total non-interest expense		2,186			2,231			6,348			6,711
Net income (loss) before income taxes		130			82			717			(472	)
Income taxes		-			-			-			-
Net income (loss)	$	130		$	82		$	717		$	(472	)

Basic net income (loss) per common share	$	0.02		$	0.01		$	0.11		$	(0.11	)
Diluted net income (loss) per common share	$	0.02		$	0.01		$	0.11		$	(0.11	)
Weighted average common shares outstanding, basic		6,572,278			6,504,106			6,571,829			4,122,180
Weighted average common shares outstanding, diluted		6,572,278			6,504,106			6,571,829			4,122,180

See Notes to the Consolidated Financial Statements

Cordia Bancorp

Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2015			2014			2015			2014
Net income (loss)	$	130		$	82		$	717		$	(472	)

Other comprehensive income (loss)
Unrealized securities gains (losses) arising during period		334			(75	)		282			(92	)
Less: Reclassification adjustment for net securities gains included in net income (loss)		(22	)		3			(136	)		(61	)
Add: Amortization of unrealized losses for securities transferred from available for sale to held to maturity		12			11			37			36
Total other comprehensive income (loss)		324			(61	)		183			(117	)

Comprehensive income (loss)	$	454		$	21		$	900		$	(589	)

See Notes to the Consolidated Financial Statements

Cordia Bancorp

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(dollars in thousands)	2015			2014
Cash flows from operating activities:
Net income (loss)	$	717		$	(472	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Net amortization of premium on investment securities		364			249
Purchase accounting accretion, net		(346	)		(253	)
Depreciation		228			215
Amortization of deferred loan costs and fees		296			119
(Recovery of) provision for loan losses		(330	)		123
Gain on sale of available for sale securities		(136	)		(61	)
Gain on sale of other real estate owned		(13	)		-
Other real estate owned valuation adjustment		24			2
Stock based compensation		171			204
Loans held for sale
Originations		(2,264	)		-
Proceeds		2,191			-
Gain on sale		(36	)		-
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable		116			(247	)
(Increase) decrease in other assets		(250	)		103
Decrease in accrued expenses and other liabilities		(36	)		(99	)
Net cash provided by (used in) operating activities		696			(117	)
Cash flows from investing activities:
Purchase of securities available for sale		(23,429	)		(42,039	)
Purchase of securities held to maturity		(7,677	)		(7,686	)
(Purchase) redemptions of restricted securities, net		(238	)		(451	)
Proceeds from sales, maturities, and paydowns of securities available for sale		21,345			11,733
Proceeds from payments/maturities of securities held to maturity		2,060			1,163
Proceeds from the sale of other real estate owned		117			-
Net increase in commercial and consumer loans		(25,085	)		(18,732	)
Net decrease (increase) in purchased guaranteed student loans		8,979			(11,881	)
Improvements to other real estate owned		(6	)		-
Purchase of premises and equipment		(1,823	)		(241	)
Net cash (used in) investing activities		(25,757	)		(68,134	)
Cash flows from financing activities:
Proceeds from sale of stock, net of stock issuance costs		-			14,080
Repurchase of common stock		(84	)		-
Net (decrease) increase in demand savings, interest-bearing checking and money market deposits		18,317			19,712
Net increase in time deposits		5,388			22,395
Proceeds from FHLB advances		5,000			10,000
Net cash provided by investing activities		28,621			66,187
Net (decrease) increase in cash and cash equivalents		3,560			(2,064	)
Cash and cash equivalents, beginning of period		21,847			13,984
Cash and cash equivalents, end of period	$	25,407		$	11,920
Supplemental disclosure of cash flow information
Cash payments for interest	$	1,658		$	1,453
Supplemental disclosure of noninvesting activities
Unrealized gains (losses) on securities available for sale	$	146		$	(153	)
Amortization of unrealized losses transferred to held to maturity	$	37		$	36
Loans transferred to other real estate owned	$	242		$	-
Proceeds from the sale of available for sale securities in process of collection	$	6,853		$	-

See Notes to the Consolidated Financial Statements

Cordia Bancorp

Notes to Consolidated Financial Statements

Note 1.

Organization and Summary of Significant Accounting Policies

Organization

Cordia Bancorp Inc. (“Company” or “Cordia”) was incorporated in 2009 by a team of former bank CEOs, directors and advisors seeking to invest in undervalued community banks in the Mid-Atlantic and Southeast. The Company was approved as a bank holding company by the Board of Governors of the Federal Reserve in November 2010 and granted the authority to purchase a majority interest in Bank of Virginia (“Bank” or “BVA”) at that time.

On December 10, 2010, Cordia purchased $10.3 million of BVA’s common stock, resulting in the ownership of 59.8% of the outstanding shares. On August 28, 2012, Cordia purchased an additional $3.0 million of BVA common stock.

On March 29, 2013, the Company completed a share exchange with the Bank resulting in the Bank becoming a wholly owned subsidiary of the Company. Under the terms of the Agreement and Plan of Share Exchange between the Company and the Bank, each outstanding share of the Bank’s common stock owned by persons other than the Company were exchanged for 0.664 of a share of the Company’s common stock. Shares of the Company’s stock are listed on the Nasdaq Stock Market under the symbol “BVA”. The Company has owned 100.0% of the Bank’s shares since the completion of the exchange.

On April 10, 2014, Cordia completed the sale of approximately 363 shares of Mandatorily Convertible, Noncumulative, Nonvoting, Perpetual Preferred Stock, Series A, $0.01 par value per share, to accredited investors at a purchase price of $42,500 per share for total gross proceeds of $15.4 million. The capital raise included investments by 100% of Cordia’s directors. The net proceeds of the offering are being used primarily to support the second phase of its organic growth strategy in BVA.

On June 25, 2014, upon stockholder approval, each share of Series A Preferred Stock mandatorily converted into 10,000 shares of Cordia’s common stock at a conversion price of $4.25 per share, for a total issuance of approximately 3,629,871 new shares of common stock, of which 2,229,434 are voting and 1,400,437 are nonvoting. The holders of the Series A Preferred Stock did not receive any dividends under the provisions of the stock purchase agreements.

On May 20, 2015, Cordia announced that it had authorized a stock repurchase program to acquire up to $500,000 of the Company’s outstanding common stock. Repurchases will be conducted through open market purchases or through privately negotiated transactions and will be made from time to time depending on market conditions and other factors. As of September 30, 2015, the company had repurchased 21,200 shares.

Cordia’s principal business is the ownership of BVA. Because Cordia does not have any business activities separate from the operations of BVA, the information in this document regarding the business of Cordia reflects the activities of Cordia and BVA on a consolidated basis. References to “we” and “our” in this document refer to Cordia and BVA, collectively.

The Bank was organized under the laws of the Commonwealth of Virginia to engage in a general banking business serving the communities in and around the Richmond, Virginia metropolitan area. The Bank commenced regular operations on January 12, 2004, and is a member of the Federal Reserve System, Federal Deposit Insurance Corporation and the Federal Home Loan Bank of Atlanta. The Bank is subject to the regulations of the Federal Reserve System and the State Corporation Commission of Virginia. Consequently, it undergoes periodic examinations by these regulatory authorities.

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices within the financial services industry for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements and prevailing practices within the banking industry. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for any future periods or for the year ending December 31, 2015. In the opinion of management, all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim periods have been included.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

These statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s 2014 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 25, 2015.

Principles of Consolidation

The accompanying consolidated financial statements include all accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

Summary of Significant Accounting Policies

We provide a summary of our significant accounting policies in our 2014 Form 10-K under “Note 1 – Organization and Summary of Significant Accounting Policies”. There have been no significant changes to these policies during 2015.

Recent Accounting Pronouncements

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. The new guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The amendments in the ASU also require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for the first interim or annual period beginning after December 15, 2014; however, the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The new guidance applies to reporting entities that grant employees share-based payments in which the terms of the award allow a performance target to be achieved after the requisite service period. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Existing guidance in “Compensation – Stock Compensation (Topic 718),” should be applied to account for these types of awards. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted and reporting entities may choose to apply the amendments in the ASU either on a prospective or retrospective basis. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

In November 2014, the FASB issued ASU No. 2014-16, “Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The amendments in ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (i.e., the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The Company does not expect the adoption of ASU 2014-16 to have a material impact on its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” The amendments in this ASU eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. The Company does not expect the adoption of ASU 2015-02 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU are intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU 2015-03 to have a material impact on its consolidated financial statements.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The Company is currently assessing the impact that ASU 2015-05 will have on its consolidated financial statements.

In May 2015, the FASB issued ASU No. 2015-08, “Business Combinations (Topic 805): Pushdown Accounting – Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115.” The amendments in ASU 2015-08 amend various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 115, Topic 5: Miscellaneous Accounting, regarding various pushdown accounting issues, and did not have a material impact on the Company’s consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date.” The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09. The Company does not expect the adoption of ASU 2015-14 (or ASU 2014-09) to have a material impact on its consolidated financial statements.

In August 2015, the FASB issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting).” On April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 adds these SEC comments to the "S" section of the Codification. The Company does not expect the adoption of ASU 2015-15 to have a material impact on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not expect the adoption of ASU 2015-16 to have a material impact on its consolidated financial statements.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Note 2.

Business Combination

On December 10, 2010, the Company purchased 1,355,263 newly issued shares of the common stock of BVA, which gave it a 59.8% ownership interest. In accordance with ASC 805-10, this transaction was considered a business combination. Under the acquisition method of accounting, the assets and liabilities of the Bank were marked to fair value and goodwill was recorded for the excess of consideration paid over net fair value received. Based on the consideration paid and the fair value of the assets received and the liabilities assumed, goodwill of $5.9 million was recorded. Goodwill was determined to be impaired in its entirety during the fourth quarter of 2011. In addition to goodwill, other assets and liabilities of the Bank of Virginia were marked to their respective fair value as of December 10, 2010.

Estimated fair values differed substantially in some cases from the carrying amounts of the assets and liabilities reflected in the financial statements of BVA which, in most cases were valued at historical cost. Subsequent to that date, the fair value adjustments were amortized over the expected life of the related asset or liability or otherwise adjusted as required by GAAP.

Interest income is impacted by the accretion of the fair value discount on the loan portfolio as well as the accretion of the accretable discount on loans acquired with deteriorated credit quality.

Non-interest expense is impacted by a rent adjustment related to certain lease commitments being above market as of the day of the investment; and amortization of the core deposit intangible.

On March 29, 2013, the minority shareholders of BVA exchanged their common shares in the Bank for common shares of Cordia. For each share of BVA exchanged, 0.664 shares of Cordia were received. In connection with the exchange, BVA became a wholly-owned subsidiary of Cordia.

In addition, the increased ownership percentage of BVA by Cordia has impacted the accounting of both entities. All of Cordia’s purchase accounting adjustments are now recorded in the BVA financial statements and the Cordia financial statements no longer reflect adjustments for non-controlling interests.

The accretion (amortization) of the acquisition accounting adjustments had the following impact on the financial statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2015			2014			2015			2014
Loans	$	19		$	44		$	94		$	203
Premises and equipment		3			2			7			6
Core deposit intangible		(9	)		(9	)		(27	)		(27	)
Building lease obligations		-			24			272			71
Net impact to net income	$	13		$	61		$	346		$	253

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Note 3.

Earnings Per Share

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

Options to purchase 129 thousand shares of the Company’s common stock (100% of the stock options outstanding) were not included in the computation of earnings per share for the 2015 period because the share award exercise prices exceeded the average market price of the Company’s common stock and, therefore, the effect would have been anti-dilutive. Options to purchase 143 thousand shares of the Company’s common stock (100% of the options outstanding) were not included in the computation of earnings per share for the 2014 period because the share award exercise prices exceeded the average market price of the Company’s common stock during all periods presented and, therefore, the effect would have been anti-dilutive. The nine month loss for 2014 also creates an anti-dilutive effect.

For the periods ended September 30, 2015 and 2014, 578,125 shares of unvested common stock were excluded from the computation of basic and diluted earnings per common share as they are performance based and not deemed “more likely than not” to vest. All other vested and non-vested restricted common shares, which carry all rights and privilege of a stockholder with respect to the stock, including the right to vote, were included in the basic and diluted per common share calculations.

The calculation for basic and diluted earnings per common share for the three months and nine months ended September 30, 2015 and 2014 are as follows:

	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2015		2014		2015		2014

Net income (loss)	$	130	$	82	$	717	$	(472	)

Weighted average common shares outstanding, basic		6,572,278		6,504,106		6,571,829		4,122,180

Dilutive effect of stock options		-		-		-		-

Weighted average common shares outstanding, diluted		6,572,278		6,504,106		6,571,829		4,122,180

Basic net income (loss) per common share	$	0.02	$	0.01	$	0.11	$	(0.11	)

Diluted net income (loss) per common share	$	0.02	$	0.01	$	0.11	$	(0.11	)

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Note 4.

Securities

Our investment portfolio consists of U.S. agency debt and agency guaranteed mortgage-backed securities. Our investment security portfolio includes securities classified as available for sale as well as securities classified as held to maturity. We classify securities as available for sale or held to maturity based on our investment strategy and management’s assessment of our intent and ability to hold the securities until maturity. The total securities portfolio (excluding restricted securities) was $75.0 million at September 30, 2015 as compared to $74.2 million at December 31, 2014. At September 30, 2015, the securities portfolio consisted of $48.7 million of securities available for sale, at fair value and $26.3 million of securities held to maturity, at amortized cost.

The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale at September 30, 2015 and December 31, 2014.

	September 30, 2015

	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government agencies	$	2,196	$	7	$	(9	)	$	2,194
Agency guaranteed mortgage-backed securities		46,561		122		(156	)		46,527
Total	$	48,757	$	129	$	(165	)	$	48,721

	December 31, 2014

	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government agencies	$	3,735	$	1	$	(17	)	$	3,719
Agency guaranteed mortgage-backed securities		49,930		21		(187	)		49,764
Total	$	53,665	$	22	$	(204	)	$	53,483

The table below presents the carrying value, gross unrealized gains and losses, and fair value of securities held to maturity at September 30, 2015 and December 31, 2014.

	September 30, 2015

	Carry		Gross Unrealized
(dollars in thousands)	Value		Gains		Losses		Fair Value
Agency guaranteed mortgage-backed securities	$	26,281	$	461	$	-	$	26,742
Total	$	26,281	$	461	$	-	$	26,742

	December 31, 2014

	Carry		Gross Unrealized
(dollars in thousands)	Value		Gains		Losses			Fair Value
Agency guaranteed mortgage-backed securities	$	20,716	$	333	$	(2	)	$	21,047
Total	$	20,716	$	333	$	(2	)	$	21,047

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The amortized cost and fair value of securities available for sale as of September 30, 2015, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties. They are as follows:

(Dollars in thousands)	Amortized Cost		Fair Value
Over five years within ten years	$	2,309	$	2,308
Over ten years		46,448		46,413
Total	$	48,757	$	48,721

The carrying value and fair value of securities held to maturity as of September 30, 2015, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties. They are as follows:

(Dollars in thousands)	Carry Value		Fair Value
Over five years within ten years	$	3,649	$	3,801
Over ten years		22,632		22,941
Total	$	26,281	$	26,742

As of September 30, 2015, the portfolio is concentrated in average maturities of over ten years, although all recently purchased securities have effective duration much shorter than ten years. The portfolio is available to support liquidity needs of the Company. The Company sold $6.8 million of available for sale securities during the three months ended September 30, 2015 and recognized a gross gain of $22 thousand in noninterest income. During the nine months ended September 30, 2015, the Company sold $19.9 million of available for sale securities, and recognized a gross gain of $136 thousand in noninterest income. The Company did not sell available for sale securities during the three months ended September 30, 2014. During the nine months ended September 30, 2014, the Company sold $8.9 million of available for sale securities, and recognized a gross gain of $61 thousand in noninterest income.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Unrealized losses on investments at September 30, 2015 and December 31, 2014 were as follows:

	September 30, 2015

	Less than 12 Months					12 Months or Longer					Total
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agencies	$	1,572	$	(9	)	$	-	$	-		$	1,572	$	(9	)
Agency guaranteed mortgage-backed securities		3,471		(38	)		14,155		(118	)		17,626		(156	)
Total	$	5,043	$	(47	)	$	14,155	$	(118	)	$	19,198	$	(165	)

	December 31, 2014
(dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government agencies	$	-	$	-		$	2,689	$	(17	)	$	2,689	$	(17	)
Agency guaranteed mortgage-backed securities		43,406		(161	)		1,904		(28	)		45,310		(189	)
Total	$	43,406	$	(161	)	$	4,593	$	(45	)	$	47,999	$	(206	)

As of September 30, 2015, there was a U.S. Government agency security and agency guaranteed mortgage-backed securities with unrealized losses totaling $165 thousand. As of December 31, 2014, there were U.S. Government agency securities and agency guaranteed mortgage-backed securities with unrealized losses totaling $206 thousand. All of the unrealized losses are attributable to increases in interest rates and not to credit deterioration. Currently, the Company believes that it is probable that it will be able to collect all amounts due according to the contractual terms of the investments. Because the decline in market value is attributable to changes in interest rates and not to credit quality and because it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2015.

Investment securities with combined market values of $14.4 million and $7.8 million were pledged to secure public funds with the State of Virginia at September 30, 2015 and December 31, 2014, respectively. We had $17.6 million and $9.6 million in securities pledged to secure FHLB advances at September 30, 2015 and December 31, 2014, respectively.

Note 5.

Loans, Allowance for Loan Losses and Credit Quality

Loans by Loan Class

The Bank categorizes its loan receivables into four main categories, which are commercial real estate loans, commercial and industrial loans, guaranteed student loans, and consumer loans. Each category of loan has a different level of credit risk. Real estate loans are generally safer than loans secured by other assets because the value of the underlying collateral is generally ascertainable and does not fluctuate as much as other assets. Owner occupied commercial real estate loans are generally the least risky type of commercial real estate loan. Non-owner occupied commercial real estate loans and construction and development loans contain more risk. Commercial loans, which can be secured by real estate or other assets, or which can be unsecured, are generally more risky than commercial real estate loans. Guaranteed student loans are guaranteed by the U.S. Department of Education for approximately 98% of the principal and interest. Consumer loans may be secured by residential real estate, automobiles or other assets or may be unsecured. Those secured by residential real estate are the least risky and those that are unsecured are the most risky type of consumer loans. Any type of loan that is unsecured is generally more risky than a secured loan due to the higher risk of loss in the event of a default. These levels of risk are general in nature, and many factors including the creditworthiness of the borrower or the particular nature of the secured asset may cause any type of loan to be more or less risky than another. In the commercial real estate category of the loan portfolio the segments are acquisition-development-construction, non-owner occupied and owner occupied. In the consumer category of the loan portfolio the segments are residential real estate, home equity lines of credit and other. Management has not further divided its eight segments into classes. This provides management and the Board with sufficient information to evaluate the risks within the Bank’s portfolio.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The following table exhibits loans by sub-segment at September 30, 2015 and December 31, 2014.

(dollars in thousands)	September 30, 2015			December 31, 2014
Commercial Real Estate:
Acquisition, development and construction	$	1,870		$	2,159
Non-owner occupied		57,819			51,512
Owner occupied		46,646			49,582
Commercial and industrial		26,751			24,153
Guaranteed student loans		56,072			64,870
Consumer:
Residential mortgage		15,803			8,377
HELOC		10,935			11,074
Other		12,869			1,232
Total loans		228,765			212,959
Allowance for loan losses		(903	)		(1,089	)
Total loans, net of allowance for loan losses	$	227,862		$	211,870

Included in the loan balances above are net deferred loan costs of $1.4 million and $1.2 million at September 30, 2015 and December 31, 2014, respectively. Also included in the loan balances above are premiums related to guaranteed student loans of $853 thousand at September 30, 2015 and $931 thousand at December 31, 2014.

Loans Acquired with Evidence of Deterioration in Credit Quality

Acquired in the acquisition of Bank of Virginia and included in the table above, are purchased performing loans and loans acquired with evidence of deterioration in credit quality. The purchased performing loans are $8.3 million and $9.0 million at September 30, 2015 and December 31, 2014, respectively. As these loans are re-underwritten, they are removed from the “purchase” classification. The loans acquired with evidence of deterioration in credit quality are accounted for under the guidance ASC 310-30 “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Information related to these loans is as follows:

(dollars in thousands)	September 30, 2015			December 31, 2014
Contract principal balance	$	5,113		$	7,178
Accretable yield		(3	)		(42	)
Nonaccretable difference		-			(5	)
Carrying value of loans	$	5,110		$	7,131

A discount is applied to these loans such that the carrying amount approximates the cash flows expected to be received from the borrower or from the liquidation of collateral. Cash flows received on loans with a nonaccretable discount are applied on a cost recovery method, whereby payments are applied first to the loan balance. When the loan balance is fully recovered, payments are then applied to income. Any future reductions in carrying value as a result of deteriorating credit quality require an allowance for loan losses (“ALLL”) related to these loans.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

A summary of changes to the accretable yield and nonaccretable discount during the nine months ended September 30, 2015 and 2014 is as follows:

	2015						2014
(dollars in thousands)	Accretable Yield			Nonaccretable Discount			Accretable Yield			Nonaccretable Discount
Beginning balance	$	42		$	5		$	62		$	61
Charge-offs related to loans covered by ASC 310-30		-			-			-			(56	)
Transfers		5			(5	)		-			-
Accretion		(44	)					(15	)		-
Ending balance	$	3		$	-		$	47		$	5

Credit Quality Indicators

Credit risk ratings reflect the current risk of default and/or loss for a given asset. The risk of loss is driven by factors intrinsic to the borrower and the unique structural characteristics of the loan. The credit risk rating begins with an analysis of the borrower’s credit history, ability to repay the debt as agreed, use of proceeds, and the value and stability of the value of the collateral securing the loan. The attributes ordinarily considered when reviewing a borrower are as follows:

·	industry/industry segment;	·	financial flexibility/debt capacity;
·	position within industry;	·	management and controls; and
·	earnings, liquidity and operating cash flow trends;	·	quality of financial reporting.
·	asset and liability values;

The unique structural characteristics ordinarily considered when reviewing a loan are as follows:

·	credit terms/loan documentation;
·	guaranty/third party support;
·	collateral; and
·	loan maturity.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

On a quarterly basis, the process of estimating the ALLL begins with management’s review of the risk rating assigned to individual credits. Through this process, loans adversely risk rated are evaluated for impairment based on ASC 310-40. The following is a summary of the risk rating definitions the Company uses to assign a risk grade to each loan within the portfolio:

Grade 1 - Highest Quality		Loans to persons and businesses with unquestionable financial strength and character that carry extremely low probabilities of default. Balance sheets and cash flow are extremely strong relative to the magnitude of debt. This rating would be analogous to the highest investment grade ratings.
Grade 2 - Above Average Quality		Loans to persons and business entities with unquestioned character that carry low probabilities of default. Borrowers have strong, stable earnings and financial condition.

Grade 3 - Satisfactory		Loans to persons and businesses with acceptable financial condition that carry average probabilities of default. Borrower’s exhibit adequate cash flow to service debt and have acceptable levels of leverage.

Grade 4 - Pass		Loans to persons and businesses with a lack of stability in the primary source of repayment or temporary weakness in their balance sheet or earnings. These loans carry above average probabilities of default. These borrowers generally have higher leverage and less liquidity than loans rated 3-Satisfactory.
Grade 5- Special Mention		Loans to borrowers that exhibit potential credit weakness or a downward trend that warrant additional supervision. While potentially weak, the loan is currently marginally acceptable and no loss of principal or interest is envisioned.
Grade 6 – Substandard		Borrowers with one or more well defined weaknesses that jeopardize the orderly liquidation of the debt. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. Possibility of loss or protracted workout exists if immediate corrective action is not taken.

Grade 7 – Doubtful		Loans with all the weaknesses inherent in a Substandard classification, with the added provision that the weaknesses make collection of debt in full highly questionable and improbable, based on currently existing facts, conditions, and values. Serious problems exist to the point where a partial loss of principal is likely.
Grade 8 – Loss		Borrower is deemed incapable of repayment of the entire principal. A charge-off is required for the portion of principal management has deemed it will not be repaid.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The following is the distribution of loans by credit quality and segment as of September 30, 2015 and December 31, 2014:

	September 30, 2015 (dollars in thousands)	Commercial Real Estate										Consumer
	Credit quality class	Acq-Dev Construction		Non- owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
1	Highest quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
2	Above average quality		-		5,814		3,369		2,655		56,072		-		1,132		393		69,435
3	Satisfactory		389		28,973		21,043		17,522				11,080		6,232		12,407		97,646
4	Pass		491		20,122		19,776		5,976				4,472		2,700		66		53,603
5	Special mention		-		1,511		117		560				27		268		3		2,486
6	Substandard		188		-		-		13				42		242		-		485
7	Doubtful		-		-		-		-		-		-		-		-		-
			1,068		56,420		44,305		26,726		56,072		15,621		10,574		12,869		223,655
Loans acquired with deteriorated credit quality			802		1,399		2,341		25		-		182		361		-		5,110
	Total loans	$	1,870	$	57,819	$	46,646	$	26,751	$	56,072	$	15,803	$	10,935	$	12,869	$	228,765

	December 31, 2014 (dollars in thousands)	Commercial Real Estate										Consumer
	Credit quality class	Acq-Dev Construction		Non- owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
1	Highest quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
2	Above average quality		-		2,225		2,788		2,498		64,870		24		1,394		719		74,518
3	Satisfactory		458		30,473		26,608		14,883		-		3,325		6,140		425		82,312
4	Pass		476		17,236		16,986		5,593		-		4,768		2,589		88		47,736
5	Special mention		-		123		-		68		-		75		319		-		585
6	Substandard		267		-		-		142		-		-		268		-		677
7	Doubtful		-		-		-		-		-		-		-		-		-
			1,201		50,057		46,382		23,184		64,870		8,192		10,710		1,232		205,828
Loans acquired with deteriorated credit quality			958		1,455		3,200		969		-		185		364		-		7,131
	Total loans	$	2,159	$	51,512	$	49,582	$	24,153	$	64,870	$	8,377	$	11,074	$	1,232	$	212,959

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

A summary of the balances of loans outstanding by days past due, including accruing and non-accruing loans by portfolio class as of September 30, 2015 and December 31, 2014 is as follows:

	Commercial Real Estate										Consumer
At September 30, 2015 (in thousands)	Acq-Dev Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
30 - 59 days	$	-	$	-	$	-	$	-	$	4,037	$	-	$	-	$	-	$	4,037
60 - 89 days		-		-		-		-		2,475		-		-		-		2,475
> 90 days		420		-		1,206		3		8,888		44		-		-		10,561
Total past due		420		-		1,206		3		15,400		44		-		-		17,073
Current		1,450		57,819		45,440		26,748		40,672		15,759		10,935		12,869		211,692
Total loans	$	1,870	$	57,819	$	46,646	$	26,751	$	56,072	$	15,803	$	10,935	$	12,869	$	228,765
> 90 days still accruing	$	-	$	-	$	-	$	-	$	8,888	$	-	$	-	$	-	$	8,888

	Commercial Real Estate										Consumer
At December 31, 2014 (in thousands)	Acq-Dev Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
30 - 59 days	$	-	$	-	$	-	$	-	$	4,029	$	-	$	-	$	-	$	4,029
60 - 89 days		-		-		885		-		1,989		-		75		-		2,949
> 90 days		548		-		314		121		11,378		44		-		-		12,405
Total past due		548		-		1,199		121		17,396		44		75		-		19,383
Current		1,611		51,512		48,383		24,032		47,474		8,333		10,999		1,232		193,576
Total loans	$	2,159	$	51,512	$	49,582	$	24,153	$	64,870	$	8,377	$	11,074	$	1,232	$	212,959
> 90 days still accruing	$	-	$	-	$	-	$	-	$	11,378	$	-	$	-	$	-	$	11,378

Non-accrual Loans

Loans are placed on nonaccrual status when management believes the full collection of the principal and interest is doubtful. A delinquent loan is generally placed in nonaccrual status when:

principal and/or interest is past due for 90 days or more, unless the loan is well-secured and in the process of collection;

the financial strength of the borrower or a guarantor has materially declined;

collateral value has declined; or

other facts would make the repayment in full of principal and interest unlikely.

Loans placed on nonaccrual status are reported to the Board at its next regular meeting. When a loan is placed on nonaccrual, all interest which has been accrued is charged back against current earnings as a reduction in interest income, which adversely affects the yield on loans in the period of reversal. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

Loans placed on non-accrual status may, at the lenders discretion, be returned to accrual status after:

payments are received for a reasonable period in accordance with the loan documents (typically for six (6) months), and any doubt as to the loan's full collectability has been removed; or

the troubled loan is restructured and, evidenced by a credit evaluation of the borrower's financial condition and the prospects for full payment are good.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Student loans with a past due balance greater than 90 days are not placed on non-accrual. A claim is filed with the guarantor when the loan becomes 270 days past due. Interest continues to accrue until the date the claim is paid. The guarantor’s payment covers approximately 98% of principal and accrued interest.

When a loan is returned to accrual status after restructuring, the pre-restructuring risk rating is maintained until a satisfactory payment history is re-established. Returning non-accrual loans to an accrual status requires the prior written approval of the Chief Credit Officer.

A summary of non-accrual loans by portfolio class is as follows:

(dollars in thousands)	September 30, 2015		December 31, 2014
Commercial Real Estate:
Acquisition, development and construction	$	420	$	548
Owner occupied		1,206		1,198
Commercial and industrial		13		121
Consumer:
Residential mortgage		44		44
HELOC		292		310
Total non-accrual loans	$	1,975	$	2,221

Non-accrual troubled debt restructurings included above	$	-	$	-
Non-accrual purchased credit impaired loans included above	$	1,618	$	1,741

Impaired Loans

All loans that are rated Doubtful are assessed as impaired based on the expectation that collection of principal and interest when due is in doubt. All loans that are rated Substandard or are expected to be downgraded to Substandard, require additional analysis to determine if a specific reserve under ASC 310-40 is required. All loans that are rated Special Mention are presumed not to be impaired. However, Special Mention rated loans are typically evaluated for the following adverse characteristics that may indicate further analysis is warranted before completing an assessment of impairment:

a loan is 60 days or more delinquent on scheduled principal or interest;

a loan is presently in an unapproved over-advanced position;

a loan is newly modified; or

a loan is expected to be modified.

The following information is a summary of the Company’s policies pertaining to impaired loans:

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. Factors impairing repayment might include: inadequate repayment capacity, severe erosion of equity, likely reliance on a non-primary source of repayment, guarantors with limited resources, and obvious material deterioration in borrower’s financial condition. The possibility of loss or protracted workout exists if immediate corrective action is not taken.

Once deemed impaired, the loan is then analyzed for the extent of the impairment. Impairment is the difference between the principal balance of the loan and (i) the discounted cash flows of the borrower or (ii) the fair market value of the collateral less the costs involved with liquidation (i.e., real estate commissions, attorney costs, etc.). This difference is then reflected as a component in the ALLL as a specific reserve.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Government guaranteed student loans with a past due balance greater than 90 days generally meet the definition of an impaired loan. However, because of the federal government guarantee of approximately 98% of both principal and interest, the Company does not evaluate these loans for individual impairment and, as such; they are not included in the balance of nonperforming assets.

Certain loans were identified and individually evaluated for impairment at September 30, 2015 and December 31, 2014. At September 30, 2015, no impaired loans were charged with a valuation allowance due to management’s judgment that the cash flows from the underlying collateral or equity available from guarantors was sufficient to recover the Company’s entire investment. At December 31, 2014, two impaired loans were charged with a valuation allowance. The results of those analyses are presented in the following tables.

The following information is a summary of related impaired loans, excluding loans acquired with deteriorating credit quality, presented by portfolio class as of September 30, 2015:

(dollars in thousands)	Recorded Investment⁽¹⁾		Unpaid Principal⁽²⁾		Related Allowance		Average Recorded Investment		Interest Recorded
With no related allowance recorded:
Commercial Real Estate:
Acquisition, development and construction	$	188	$	188	$	-	$	188	$	-
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		13		13		-		23		-
Consumer:								-
Residential mortgage		42		42		-		44		2
HELOC		242		242		-		254		3
Other		-		-		-				-
	$	485	$	485	$	-	$	509	$	5
With an allowance recorded:
Commercial Real Estate:
Acquisition, development and construction	$	-	$	-	$	-	$	-	$	-
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		-		-		-		-		-
Consumer:
Residential mortgage		-		-		-		-		-
HELOC		-		-		-		-		-
Other		-		-		-		-		-
	$	-	$	-	$	-	$	-	$	-
Total:
Commercial Real Estate:
Acquisition, development and construction	$	188	$	188	$	-	$	188	$	-
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		13		13		-		23		-
Consumer:		-		-		-		-		-
Residential mortgage		42		42		-		44		2
HELOC		242		242		-		254		3
Other		-		-		-		-		-
Total	$	485	$	485	$	-	$	509	$	5

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The following information is a summary of related impaired loans, excluding loans acquired with deteriorating credit quality, presented by portfolio class as of December 31, 2014:

(dollars in thousands)	Recorded Investment⁽¹⁾		Unpaid Principal⁽²⁾		Related Allowance		Average Recorded Investment		Interest Recorded
With no related allowance recorded:
Commercial Real Estate:
Acquisition, development and construction	$	267	$	267	$	-	$	269	$	6
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		32		34		-		46		2
Consumer:								-
Residential mortgage		-		-		-		-		-
HELOC		193		193		-		197		3
Other		-		-		-				-
	$	492	$	494	$	-	$	512	$	11
With an allowance recorded:
Commercial Real Estate:
Acquisition, development and construction	$	-	$	-	$	-	$	-	$	-
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		110		540		110		309		7
Consumer:
Residential mortgage		-		-		-		-		-
HELOC		75		75		33		75		-
Other		-		-		-		-		-
	$	185	$	615	$	143	$	384	$	7
Total:
Commercial Real Estate:
Acquisition, development and construction	$	267	$	267	$	-	$	269	$	6
Non-owner occupied		-		-		-		-		-
Owner occupied		-		-		-		-		-
Commercial and industrial		142		574		110		355		9
Consumer:		-		-		-		-		-
Residential mortgage		-		-		-		-		-
HELOC		268		268		33		272		3
Other		-		-		-		-		-
Total	$	677	$	1,109	$	143	$	896	$	18

⁽¹⁾

The amount of the investment in a loan, which is not net of a valuation allowance, but which does reflect any direct write-down of the investment.

⁽²⁾

The contractual amount due, which reflects paydowns applied in accordance with loan documents, but which does not reflect any direct write-downs.

Loans with deteriorated credit quality acquired as part of the Bank of Virginia acquisition are accounted for under the requirements of ASC 310-30. These loans are not considered impaired and not included in the table above.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Activity in the ALLL for the nine months ended September 30, 2015 and 2014 is summarized below:

	Commercial Real Estate														Consumer
(dollars in thousands)	Acquisition, Development, Construction			Non-owner Occupied		Owner Occupied			Commercial and Industrial			Guaranteed Student Loans			Residential Mortgage			HELOC			Other			Total
Allowance for loan losses
Beginning balance, December 31, 2014	$	146		$	97	$	149		$	357		$	144		$	98		$	76		$	22		$	1,089

Charge-offs		(127	)		-		-			(109	)		(163	)		-			(20	)		(2	)		(421	)
Recoveries		-					234			321			-			4			6			-			565
Net (charge-offs) recoveries		(127	)		-		234			212			(163	)		4			(14	)		(2	)		144

Provision (recovery)		40			185		(298	)		(443	)		102			(39	)		(10	)		133			(330	)
Ending balance, Septembere 30, 2015	$	59		$	282	$	85		$	126		$	83		$	63		$	52		$	153		$	903

	Commercial Real Estate															Consumer
(dollars in thousands)	Acquisition, Development, Construction			Non-owner Occupied			Owner Occupied			Commercial and Industrial			Guaranteed Student Loans			Residential Mortgage		HELOC		Other			Total
Allowance for loan losses
Beginning balance, December 31, 2013	$	300		$	39		$	322		$	377		$	268		$	120	$	20	$	43		$	1,489

Charge-offs		(6	)		(114	)		-			(55	)		(316	)		-		-		-			(491	)
Recoveries		3			49			-			27			-			4		2		20			105
Net (charge-offs) recoveries		(3	)		(65	)		-			(28	)		(316	)		4		2		20			(386	)

Provision (recovery)		(89	)		186			(151	)		(38	)		224			6		30		(45	)		123
Ending balance, Septembere 30, 2014	$	208		$	160		$	171		$	311		$	176		$	130	$	52	$	18		$	1,226

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

A summary of the ALLL by portfolio segment and impairment evaluation methodology as of September 30, 2015 and December 31, 2014 is as follows:

	Commercial Real Estate										Consumer
(dollars in thousands)	Acquisition, Development, Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
Allowance for loan losses for loans
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		59		282		85		126		83		63		52		153		903
Loans acquired with deteriorated credit quality		-		-		-		-		-		-		-		-		-
Ending balance, September 30, 2015	$	59	$	282	$	85	$	126	$	83	$	63	$	52	$	153	$	903

Gross loan balances
Individually evaluated for impairment	$	188	$	-	$	-	$	13	$	-	$	42	$	242	$	-	$	485
Collectively evaluated for impairment		880		56,420		44,305		26,713		56,072		15,579		10,332		12,869		223,170
Loans acquired with deteriorated credit quality		802		1,399		2,341		25		-		182		361		-		5,110
Ending balance, September 30, 2015	$	1,870	$	57,819	$	46,646	$	26,751	$	56,072	$	15,803	$	10,935	$	12,869	$	228,765

	Commercial Real Estate										Consumer
(dollars in thousands)	Acquisition, Development, Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
Allowance for loan losses for loans
Individually evaluated for impairment	$	-	$	-	$	-	$	110	$	-	$	-	$	33	$	-	$	143
Collectively evaluated for impairment		56		97		149		247		144		98		43		22		856
Loans acquired with deteriorated credit quality		90		-		-		-		-		-		-		-		90
Ending balance, December 31, 2014	$	146	$	97	$	149	$	357	$	144	$	98	$	76	$	22	$	1,089

Gross loan balances
Individually evaluated for impairment	$	267	$	-	$	-	$	142	$	-	$	-	$	268	$	-	$	677
Collectively evaluated for impairment		934		50,057		46,382		23,042		64,870		8,192		10,442		1,232		205,151
Loans acquired with deteriorated credit quality		958		1,455		3,200		969		-		185		364		-		7,131
Ending balance, December 31, 2014	$	2,159	$	51,512	$	49,582	$	24,153	$	64,870	$	8,377	$	11,074	$	1,232	$	212,959

Troubled Debt Restructurings

A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Company has granted a concession to the borrower, that it otherwise would not give. The Company determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Company is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Company also considers whether the borrower has curtailed principal, provided additional collateral or guarantors and whether such additions adequately compensate the Company for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, increasing amortization periods and/or extensions in term maturity.

During the three and nine months ended September 30, 2015 and 2014, no loans and one loan, respectively, were modified in troubled debt restructurings. At September 30, 2015 and December 31, 2014, no loans and four loans, respectively, were classified as trouble debt restructurings. The principal balance outstanding relating to these loans was zero at September 30, 2015 and $1.3 million at December 31, 2014, all of which were accruing. During the three and nine months ended September 30, 2015 and 2014, no defaults occurred on loans modified as TDR’s in the preceding twelve months.

Note 6. Intangible Assets

In 2010, the Company acquired a majority interest in the Bank of Virginia. The Company recorded a core deposit intangible related to this acquisition of $249 thousand. This asset represents the estimated fair value of the core deposits and was determined based on the present value of future cash flows related to those deposits considering the industry standard “financial instrument” type present value methodology. The core deposit intangible is amortized over the estimated life of the deposits using the straight-line method. A summary of the three and nine months ending September 30, 2015 activity in this account is as follows:

(dollars in thousands)
Balance at June 30, 2015	$	86
Amortization		(9	)
Balance at September 30, 2015	$	77

(dollars in thousands)
Balance at December 31, 2014	$	104
Amortization		(27	)
Balance at September 30, 2015	$	77

Amortization expense is expected to be approximately $35 thousand per year through 2016 and $34 thousand in 2017.

Note 7.

Fair Value Measurements

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price if one exists.

The following presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Financial Instruments with Book Value Equal to Fair Value

The book values of cash and due from banks, federal funds sold and purchased, interest receivable, and interest payable are considered to be equal to fair value as a result of the short-term nature of these items.

Securities

The fair value for securities available for sale and securities held to maturity is based on current market quotations, where available. If quoted market prices are not available, fair value has been based on the quoted price of similar instruments. Restricted securities are valued at cost which is also the stated redemption value of the shares.

Restricted Securities

Restricted securities are valued at cost which is also the stated redemption value of the shares.

Loans Held for Sale

Fair value is based on the price secondary markets are offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale.

Loans Held for Investment

The estimated value of loans held for investment is measured based upon discounted future cash flows using the current rates for similar loans, as well as assumptions related to credit risk.

Deposits

Deposits without a stated maturity, including demand, interest-bearing demand, and savings accounts, are reported at their carrying value in accordance with authoritative accounting guidance. No value has been assigned to the franchise value of these deposits. For other types of deposits with fixed maturities, fair value has been estimated by discounting future cash flows based on interest rates currently being offered on deposits with similar characteristics and maturities.

Borrowings and Other Indebtedness

Fair value has been estimated based on interest rates currently available to the Company for borrowings with similar characteristics and maturities.

Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees

Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. At September 30, 2015 and December 31, 2014, the fair value of loan commitments and standby letters of credit was deemed to be immaterial and therefore is not included.

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosure topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under market conditions depends on the facts and circumstances and requires the use of significant judgment.

Authoritative accounting literature specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1

Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2

Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3

Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The carrying value and fair values of financial assets and liabilities are as follows:

	Carrying		Fair Value Measurements at September 30, 2015
(dollars in thousands)	amount		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash and cash equivalents	$	25,407	$	25,407	$	-	$	-	$	25,407
Securities available for sale		48,721		-		48,721		-		48,721
Securities held to maturity		26,281		-		26,742		-		26,742
Restricted securities		2,330		-		2,330		-		2,330
Loans held for sale		109		-		109		-		109
Net loans held for investment		227,862		-		-		227,657		227,657
Interest receivable		1,924				1,924				1,924
Liabilities:
Demand deposits		28,359		-		28,359		-		28,359
Savings and interest-bearing demand deposits		104,006		-		104,006		-		104,006
Time deposits		156,943		-		157,728		-		157,728
FHLB Borrowings		30,000		-		29,894		-		29,894
Interest payable		210		-		210		-		210

	Carrying		Fair Value Measurements at December 31, 2014
(dollars in thousands)	amount		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash and cash equivalents	$	21,847	$	21,847	$	-	$	-	$	21,847
Securities available for sale		53,483		-		53,483		-		53,483
Securities held to maturity		20,716		-		21,047		-		21,047
Restricted securities		2,092		-		2,092		-		2,092
Net loans held for investment		211,870		-		-		213,861		213,861
Interest receivable		2,040		-		2,040		-		2,040
Liabilities:
Demand deposits		30,709		-		30,709		-		30,709
Savings and interest-bearing demand deposits		83,339		-		83,339		-		83,339
Time deposits		151,555		-		152,179		-		152,179
FHLB Borrowings		25,000		-		24,753		-		24,753
Interest payable		161		-		161		-		161

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The following table presents the balances of financial assets measured at fair value on a recurring basis:

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	Balance		(Level 1)		(Level 2)		(Level 3)
September 30, 2015

U. S. Government Agencies	$	2,194	$	-	$	2,194	$	-
Agency Guaranteed Mortgage-backed securities		46,527		-		46,527		-

December 31, 2014

U. S. Government Agencies	$	3,719	$	-	$	3,719	$	-
Agency Guaranteed Mortgage-backed securities		49,764		-		49,764		-

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the ALLL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Operations.

Other Real Estate Owned (OREO)

Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment prior to foreclosure is charged against the ALLL. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Operations.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

The following tables summarize the Company’s assets that were measured at fair value on a nonrecurring basis:

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	Balance		(Level 1)		(Level 2)		(Level 3)
September 30, 2015
OREO	$	1,761	$	-	$	-	$	1,761

December 31, 2014
Impaired loans	$	42	$	-	$	-	$	42
OREO		1,641		-		-		1,641

There were no outstanding or in-process residential mortgage OREO properties as of September 30, 2015 or December 31, 2014.

The following table presents qualitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2015 and December 31, 2014:

	September 30, 2015
(dollars in thousands)	Quantitative Information About Level 3 Fair Value Measurements
Description	Fair Value		Valuation Technique	Unobservable input	Range (Weighted Average)

Other real estate owned	$	1,761	Appraisals	Discount to reflect current market condition and estimated selling costs	6-29%

	December 31, 2014
(dollars in thousands)	Quantitative Information About Level 3 Fair Value Measurements
Description	Fair Value		Valuation Technique	Unobservable input	Range (Weighted Average)

Impaired loans	$	42	Appraisals	Discount to reflect current market condition and estimated selling costs	0-10%
Other real estate owned	$	1,641	Appraisals	Discount to reflect current market condition and estimated selling costs	6-29%

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Note 8. Stock-Based Compensation

Stock-based compensation arrangements include stock options, restricted stock plans, performance-based awards, stock appreciation rights and employee stock purchase plans. ASC Topic 718 requires all share-based payments to employees to be valued using a fair value method on the date of grant and to be expensed based on that fair value over the applicable vesting period.

At the 2011 Annual Meeting, the Bank’s shareholders approved a share-based compensation plan (Bank of Virginia 2011 Stock Incentive Plan or the “2011 Plan”). Under this plan, employees, officers and directors of the Bank or its affiliates are eligible to receive grants, subject to approval by the board of directors. The plan’s intent was to reward employees, officers and directors of the Bank or its affiliates for their efforts, to assist in the long-term retention of service for those who were awarded, as well as align their interests with the Bank’s shareholders. At the 2014 Annual Meeting, Cordia shareholders approved an amendment to the 2011 Plan to increase the number of shares authorized for issuance by an additional 800,000 shares. As of September 30, 2015, there were 612,251 shares reserved under the 2011 Plan.

There were 10,000 stock options and 12,500 restricted stock issued in September 2013 outside the plan as an inducement grant to a newly hired officer.

A summary of the Company’s option activity as of September 30, 2015 and changes during the period then ended are presented in the following table:

					Wgt. Avg.
			Wgt. Avg.		Remaining		Wgt. Avg.		Aggregate
			Exercise		Contractual		Grant Date		Intrinsic
As of 12/31/2014	Stock Options		Price		Life		Fair Value		Value
Outstanding		145,478	$	6.94		7.88	$	2.29	$	-
Vested		60,692	$	9.24		7.18	$	3.03	$	-
Nonvested		84,786	$	5.29		8.39	$	1.76	$	-

Period Activity
Issued		20,600	$	3.79		-	$	1.36		-
Exercised		-		-		-		-		-
Forfeited		36,998	$	6.40		-		1.92		-
Expired		-		-		-		-		-

As of 9/30/2015
Outstanding		129,080	$	6.59		7.70	$	2.25	$	-
Vested		59,552	$	9.00		6.73	$	3.02	$	-
Nonvested		69,528	$	4.53		8.54	$	1.58	$	-

Aggregate intrinsic value is calculated as the difference between the quoted price and the award exercise price of the stock. To the extent that the quoted price is less than the exercise price, there is no value to the underlying option awards.

The remaining unrecognized compensation expense for the options granted totaled $70 thousand and $123 thousand at September 30, 2015 and 2014, respectively.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

								Wgt. Avg.
Outstanding as of September 30, 2015						Wgt. Avg.		Remaining
				Stock Options		Exercise		Contractual
Range of Exercise Prices				Outstanding		Price		Life
$	3.79	$	60.24		129,080	$	6.59		7.70
Total					129,080	$	6.59		7.70

Exercisable:						Wgt. Avg.
				Stock Options		Exercise
Range of Exercise Prices				Exercisable		Price
$	3.79	$	60.24		59,552	$	9.00
Total					59,552	$	9.00

Assumptions:

The fair value of each option granted is estimated on the date of grant using the "Black-Scholes Option Pricing" method with the follwing assumptions.

	Nine Months Ended			Year Ended
	September 30, 2015			December 31, 2014
Expected dividend rate		0.00	%		0.00	%
Expected volatility		30.00	%		30.00	%
Expected term in years		7			7
Risk free rate		2.01	%		2.15	%

Total intrinsic value of options exercised:							$	-
Total fair value of shares vested:							$	34,937
Weighted-average period over which nonvested awards are expected to be recognized:								0.97	years

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

A summary of the Company’s restricted stock activity as of September 30, 2015 and changes during the period then ended are presented in the following table:

			Wgt. Avg.
			Grant Date
As of 12/31/2014	Restricted Stock		Fair Value
Nonvested		52,580	$	4.23

Period Activity
Issued		80,000	$	3.99
Vested		2,340	$	4.41
Forfeited		-		-

As of 9/30/2015
Nonvested		130,240	$	4.08

Total fair value of shares vested:			$	10,319
Weighted-average period over which nonvested awards are expected to be recognized:				1.43	years

The fair value of restricted stock granted during the nine months ended September 30, 2015 was $319 thousand.

The remaining unrecognized compensation expense for the shares granted totaled $414 thousand and $271 thousand as of September 30, 2015 and 2014, respectively.

578,125 of restricted shares of common stock were granted to founding investors of Cordia predominantly during 2009 and 2010 and are considered at September 30, 2015 more-likely-than-not to not vest due to significant performance based thresholds, which must be achieved by October 2016 for the restricted shares to vest.

Stock-based compensation expense was $62 thousand and $171 thousand for the three and nine months ended September 30, 2015, respectively, and $92 and $204 thousand for the three and nine months ended September 30, 2014, respectively.

Cordia does not have any benefit plans or incentive compensation plans beyond those maintained by the Bank. Cordia provides a life insurance benefit to the President and Chief Executive Officer under the terms of his employment agreement.

Cordia Bancorp

Notes to Consolidated Financial Statements (continued)

Note 9. Accumulated other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014 are summarized as follows:

(dollars in thousands)	Three Months Ended Sepember 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Beginning balance	$	(609	)	$	(440	)	$	(468	)	$	(384	)

Unrealized holding gains (losses) on available for sale securities		312			(72	)		146			(153	)
Amortization of available for sale to held to maturity reclassification adjustment		12			11			37			36
Net current period other comprehensive income (loss)		324			(61	)		183			(117	)
Ending balance	$	(285	)	$	(501	)	$	(285	)	$	(501	)

The following table presents information on amounts reclassified out of accumulated other comprehensive income (loss), by category, during the periods indicated:

(in thousands)	Three Months Ended September 30,					Affected Line Item on
	2015		2014			Consolidated Statement of Operations

Realized gains (losses) on sales of available for sale securities	$	22	$	(3	)	Net gain (loss) on sale of available-for-sale securities
Total reclassifications	$	22	$	(3	)

	Nine Months Ended September 30,				Affected Line Item on
	2015		2014		Consolidated Statement of Operations

Realized gains on sales of available for sale securities	$	136	$	61	Net gain on sale of available-for-sale securities
Total reclassifications	$	136	$	61

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and elsewhere in this report.

Any or all of the forward-looking statements in this report may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our respective financial condition, results of operations, business strategy and financial needs. There are important factors that could cause actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to, statements regarding:

•

changes in general economic and financial market conditions;

•

changes in the regulatory environment;

•

economic conditions generally and in the financial services industry;

•

changes in the economy affecting real estate values;

•

our ability to achieve loan and deposit growth;

•

the completion of future acquisitions or business combinations and our ability to integrate the acquired business into our business model;

•

projected population and income growth in our targeted market areas; and

•

volatility and direction of market interest rates and a weakening of the economy which could materially impact credit quality trends and the ability to generate loans.

Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 under “Item 1A. Risk Factors.”

All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist the reader in understanding and evaluating the financial condition and results of operations of Cordia and its wholly owned subsidiary, Bank of Virginia (“BVA” or the “Bank). This discussion and analysis should be read in conjunction with Cordia’s condensed consolidated financial statements and related notes thereto located elsewhere in this report.

General

Cordia Bancorp Inc. (“Cordia” or the “Company”) was incorporated in Virginia in 2009 by a team of former bank CEOs, directors and advisors seeking to invest in undervalued or troubled community banks in the Mid-Atlantic and Southeast. On December 10, 2010, Cordia purchased $10,300,000 of the common stock of the Bank at a price of $7.60 per share, resulting in the ownership of 59.8% of the outstanding shares. On August 28, 2012, Cordia purchased an additional $3,000,000 of BVA common stock at a price of $3.60 per share. Cordia’s principal business activity is the ownership of the outstanding shares of common stock of BVA. On March 29, 2013, Cordia and BVA completed a share exchange pursuant to which each outstanding share of BVA common stock held by persons other than Cordia was exchanged for 0.664 of a share of Cordia common stock. As a result of the share exchange, BVA became a wholly-owned subsidiary of Cordia. In April 2014, Cordia completed a private placement offering totaling $15.4 million, the proceeds of which have been used primarily to support organic growth in BVA. Aside from the shares of BVA common stock, Cordia’s other assets totaled $1.4 million at September 30, 2015, consisting primarily of $1.3 million of cash and $21 thousand of prepaid expenses.

BVA is a state chartered bank headquartered in Midlothian, Virginia with total assets of approximately $348.0 million at September 30, 2015. BVA provides retail banking services to individuals and commercial customers through five banking locations serving Chesterfield County and the City of Colonial Heights, Virginia and one in Henrico County, Virginia.

Executive Overview

Since the beginning of 2013, the Company has substantially increased its lending and funding activities. During this period, the Bank purchased $85.6 million of rehabilitated student loans that are 98% guaranteed for principal and interest by the U.S. Government and serviced by Xerox Education Services. The Bank also significantly expanded its deposit base while substantially reducing its cost of funds.

In 2014, BVA hired five new officers whose primary responsibilities are to increase asset originations – including a senior vice president of residential mortgage lending, two first vice presidents of commercial lending, a vice president of student lending and a residential mortgage loan officer.

On June 25, 2014, upon stockholder approval, each share of Series A Preferred Stock mandatorily converted into 10,000 shares of Cordia’s common stock at an initial conversion price of $4.25 per share, for a total issuance of approximately 3,629,871 new shares of common stock, of which 2,229,434 are voting and 1,400,437 are nonvoting. The holders of the Series A Preferred Stock did not receive any dividends under the provisions of the stock purchase agreements.

In the fourth quarter of 2014 the Bank launched CordiaGrad, a private student loan refinancing program aimed at high-achieving graduates with student loans. During the first quarter of 2015, CordiaGrad opened a new location in Washington DC. Beginning in April 2014 the Bank ceased purchasing rehabilitated, federally guaranteed student loans.

On August 5, 2015, Cordia announced the hiring of O.R. (Ed) Barham, Jr. as President and Chief Executive Officer of the Bank of Virginia. Mr. Barham manages the Bank’s operations and is based in Richmond, Virginia. He reports to Jack Zoeller, President and CEO of Cordia Bancorp Inc. Mr. Barham was also appointed to the Bank’s board of directors.

Results of Operations – Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Net Income

Consolidated net income was $130 thousand for the quarter ended September 30, 2015 (the “2015 quarter”) compared to consolidated net income of $82 thousand for the quarter ended September 30, 2014 (the “2014 quarter”). Net interest income before provision increased in the 2015 quarter by $23 thousand from the 2014 quarter. The recovery for loan losses was $53 thousand lower in the 2015 quarter compared to $106 thousand in the 2014 quarter. Noninterest income increased in the 2015 quarter by $33 thousand, while noninterest expense decreased $45 thousand compared to the 2014 quarter.

Net Interest Income

Net interest income is the largest component of our income, and is affected by the interest rate environment and the volume and the composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, investment securities, interest-bearing deposits in other banks, and federal funds sold. Our interest-bearing liabilities include deposits and advances from the FHLB.

Net interest income before the recovery of (or provision for) loan losses increased 1.1% or $23 thousand to $2.1 million for the 2015 quarter compared to the 2014 quarter.

Interest income increased $124 thousand to $2.7 million during the 2015 quarter from $2.6 million for the 2014 quarter, due primarily to a 16.8% increase in total average earning assets, offset in part by a 38 basis point decline in average yield on these assets. The increase in average earnings assets was due to a 10.1% increase in loans held for investment and a 21.5% increase in securities. Excluding the accretion of acquisition accounting adjustments, interest income on loans was $2.3 million for the 2015 quarter compared to $2.2 million for the 2014 quarter.

Interest expense for the 2015 quarter was $601 thousand, compared to $500 thousand for the 2014 quarter. This increase of $101 thousand was due to increases in savings and money market accounts, time deposits and FHLB borrowings. The average balance of interest-bearing transaction and savings accounts increased 30.1%, while the average balance of non-interest-bearing accounts increased 16.6%.

Net interest margin was 2.61% for the 2015 quarter and 3.01% for the 2014 quarter. Excluding the accretion of acquisition accounting adjustments, net interest margin was 2.58% for the 2015 quarter and 2.95% for the 2014 quarter. Excluding the accretion of acquisition accounting adjustments, the decline of 37 basis points in net interest margin from the prior year was primarily the result of a 35 basis point decline in the yield on interest earning assets.

Average Balances and Yields

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. These tables include acquisition accounting adjustments and therefore do not directly represent contractual rates paid or received.

	For the three months ended September 30,
(dollars in thousands)	2015								2014
	Average Balance			Interest		Yield/Rate			Average Balance			Interest		Yield/Rate
Earning Assets:
Loans held for investment ⁽¹⁾	$	222,371		$	2,293		4.09	%	$	201,953		$	2,275		4.47	%
Loans held for sale		72			1					-			-		-
Securities		86,089			446		2.06	%		70,848			346		1.94	%
Federal Funds and deposits with Banks		18,372			9		0.19	%		7,075			4		0.22	%
Total earning assets		326,904			2,749		3.34	%		279,876			2,625		3.72	%
Allowance for loan losses		(982	)							(1,392	)
Other assets		20,995								17,350
Total	$	346,917							$	295,834
Interest-bearing liabilities:
Demand deposits	$	13,230		$	9		0.27	%	$	13,558		$	11		0.32	%
Savings and money market deposits		88,233			72		0.32	%		64,443			42		0.26	%
Time deposits		158,813			425		1.06	%		145,946			390		1.06	%
FHLB borrowings		30,000			95		1.26	%		20,000			57		1.13	%
Total interest-bearing liabilities		290,276			601		0.82	%		243,927			500		0.81	%
Non-interest-bearing demand deposits		28,179								24,160
Other liabilities		524								829
Stockholders' equity		27,938								26,918
Total	$	346,917							$	295,834

Net interest income				$	2,148							$	2,125
Net interest rate spread⁽²⁾							2.52	%							2.91	%
Net interest margin ⁽³⁾							2.61	%							3.01	%

⁽¹⁾ Non-accrual loans are included in average balances outstanding, with no related interest income during non-accrual period.

⁽²⁾ Represents the difference between the yield on earnings assets and cost of funds.

⁽³⁾ Represents net interest income divided by average interest-earning assets.

Provision for Loan Losses

A recovery of $53 thousand was recorded for the 2015 quarter compared to a recovery of $106 thousand for the 2014 quarter. A decline in our historical loss percentage offset by loan growth was the cause for the reduction of the allowance for loan losses from $990 thousand at June 30, 2015 to $903 thousand at September 30, 2015.

Non-interest Income

Noninterest income for the 2015 quarter was $115 thousand, compared to $82 thousand for the 2014 quarter.

The following table sets forth the principal components of non-interest income for the three months ended September 30, 2015 and 2014

For the three months ended September 30, (dollars in thousands)	2015		2014
Service charges on deposit accounts	$	35	$	44
Net gain on sale of available for sale securities		22		(3	)
Net gain (loss) on sale of loans held for sale		6		-
Other income		52		41
Total non-interest income	$	115	$	82

Non-interest Expense

Noninterest expense decreased $45 thousand, or 2.0%, to $2.2 million for the 2015 quarter from $2.2 million for the 2014 quarter.

The following table sets forth the primary components of non-interest expense for the three quarters ended September 30, 2015 and 2014:

For the three months ended September 30, (dollars in thousands)	2015		2014
Salaries and employee benefits	$	1,085	$	1,244
Professional services		108		92
Occupancy		149		139
Data processing and communications		233		206
FDIC assessment and bank fees		88		99
Bank franchise raxes		49		23
Student loan servicing fees and other loan expenses		174		144
Other real estate expenses		26		6
Supplies and equipment		71		82
Insurance		20		40
Director's fees		28		46
Marketing and business development		64		15
Other operating expenses		91		95
Total non-interest expense	$	2,186	$	2,231

Income Tax Expense

Under the provisions of the Internal Revenue Code, the Company has approximately $18.4 million of net operating loss carryforwards, which will expire if unused beginning in 2024 through 2034. As of September 30, 2015, deferred tax assets of $5.9 million have been fully reserved with a valuation allowance. It is estimated that all of the valuation allowance is available to be reversed if it is deemed more-likely-than-not that all of the deferred tax asset will be realized. Of the net operating losses that occurred prior to the change in control of BVA in December 2010 and of Cordia in April 2014, the amount of the loss carryforward available to offset taxable income is limited to approximately $254,000 per year for twenty years for BVA and zero for Cordia. Deferred tax assets related to net operating losses in excess of the amount realizable during the 20 year carryforward period have been written off.

Results of Operations – Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Net Income (Loss)

Consolidated net income was $717 thousand for the nine months ended September 30, 2015 (the “2015 period”) compared to consolidated net loss of $472 thousand for the nine months ended September 30, 2014 (the “2014 period”). Net interest income before provision increased in the 2015 period by $215 thousand from the 2014 period. The 2015 period included a recovery of the allowance for loan losses of $330 thousand compared to a provision of $123 thousand in the 2014 period. Noninterest income increased in the 2015 period by $158 thousand, while noninterest expense decreased $363 thousand compared to the 2014 period. Noninterest expense in the 2015 period included the favorable reversal of the fair value discount related to the purchase of a bank property and the termination of the related lease. This fair value discount was established when Cordia purchased BVA as a result of an existing lease being deemed unfavorable when compared to market rates for commercial real estate at that time. This $400 thousand fair value discount was allocated based on relative fair values of the purchased property and the remaining portion of the unfavorable portion of the lease, with $225 thousand recorded as a reduction to noninterest expense and $175 thousand recorded as a reduction to the basis of the bank property purchased.

Net Interest Income

Net interest income before the recovery of/provision for loan losses increased 3.5% or $215 thousand to $6.3 million for the 2015 period from $6.1 million for the 2014 period.

Interest income increased $458 thousand to $8.0 million during the 2015 period from $7.6 million for the 2014 period, due primarily to a 20.3% increase in total average earning assets, offset in part by a 46 basis point decline in average yield on these assets. Excluding the accretion of acquisition accounting adjustments, interest income on loans was $6.7 million for the 2015 quarter vs. $6.5 million for the 2014 period.

Interest expense for the 2015 period was $1.7 million, compared to $1.5 million for the 2014 period. This increase of $243 thousand was due primarily to an increase in time deposits and FHLB borrowings offset by a 3 basis point reduction in the average cost of interest bearing liabilities. The average balance of interest-bearing transaction and savings accounts increased 26.0%, while the average balance of non-interest-bearing accounts increased 25.3%.

Net interest margin was 2.69% for the 2015 period and 3.13% for the 2014 period. Excluding the accretion of acquisition accounting adjustments, net interest margin was 2.65% for the 2015 period and 3.02% for the 2014 period. Excluding the accretion of acquisition accounting adjustments, the decline of 37 basis points in net interest margin from the prior year was primarily the result of a 39 basis point decline in the yield on interest earning assets and a decline of 39 basis points in the yield on securities and by a 3 basis point increase in the cost of deposits.

Average Balances and Yields

	For the nine months ended September 30,
(dollars in thousands)	2015								2014
	Average Balance			Interest		Yield/Rate			Average Balance			Interest		Yield/Rate
Earning Assets:
Loans held for investment ⁽¹⁾	$	219,443		$	6,800		4.14	%	$	194,990		$	6,676		4.58	%
Loans held for sale		129			4					-					-
Securities		76,614			1,192		9.23	%		55,280			864		2.09	%
Federal Funds and deposits with Banks		17,258			21		0.04	%		10,272			19		0.25	%
Total earning assets		313,444			8,017		3.42	%		260,542			7,559		3.88	%
Allowance for loan losses		(1,050	)							(1,406	)
Other assets		19,636								15,735
Total	$	332,030							$	274,871
Interest-bearing liabilities:
Demand deposits	$	13,356		$	28		0.28	%	$	13,056		$	32		0.33	%
Savings and money market deposits		76,876			182		0.32	%		58,530			128		0.29	%
Time deposits		154,649			1,220		1.05	%		139,766			1,150		1.10	%
FHLB borrowings		30,046			277		1.23	%		16,740			154		1.23	%
Total interest-bearing liabilities		274,927			1,707		0.83	%		228,092			1,464		0.86	%
Non-interest-bearing demand deposits		28,619								22,841
Other liabilities		774								1,846
Stockholders' equity		27,710								22,042
Total	$	332,030							$	274,871

Net interest income				$	6,310							$	6,095
Net interest rate spread⁽²⁾							2.59	%							3.02	%
Net interest margin ⁽³⁾							2.69	%							3.13	%

⁽¹⁾ Non-accrual loans are included in average balances outstanding, with no related interest income during non-accrual period.

⁽²⁾ Represents the difference between the yield on earnings assets and cost of funds.

⁽³⁾ Represents net interest income divided by average interest-earning assets.

Recovery of/Provision for Loan Losses

A $330 thousand recovery of loan losses for the 2015 period was recorded compared to a provision of $123 thousand for the 2014 period. The significant change in the recovery/provision for loan losses was primarily driven by $144 thousand of net recoveries and a decline in our historical loss percentage offset by loan growth.

Non-interest Income

Non-interest income for the 2015 period was $425 thousand, compared to $267 thousand for the 2014 period. The increase was primarily the result of an increase in the net gain on the sale of available for sale securities of $75 thousand and a $36 thousand gain on the sale of loans held for sale included in other income in 2015.

The following table sets forth the principal components of non-interest income for the nine months ended September 30, 2015 and 2014

For the nine months ended September 30, (dollars in thousands)	2015		2014
Service charges on deposit accounts	$	95	$	89
Net gain on sale of available for sale securities		136		61
Net gain on sale of loans held for sale		36		-
Other income		158		117
Total non-interest income	$	425	$	267

Non-interest Expense

Noninterest expense decreased $363 thousand, or 5.4%, to $6.3 million for the 2015 period from $6.7 million for the 2014 period. The decrease was due primarily to a favorable reversal in the 2015 period of the fair value discount related to the purchase of a bank property and the termination of the related lease. This fair value discount was established when Cordia purchased BVA as a result of an existing lease being deemed unfavorable when compared to market rates for commercial real estate at that time. This $400 thousand fair value discount was allocated based on relative fair values of the purchased property and the remaining portion of the unfavorable portion of the lease, with $225 thousand recorded as a reduction to noninterest expense and $175 thousand recorded as a reduction to the basis of the bank property purchased. In addition, salaries and benefits decreased $305 thousand, offset in part by an increase of $129 thousand in data processing and communications. The decrease in salaries and benefits was primarily due to a one-time accrual of incentive compensation in the 2014 period, offset by an increase in staff to support two new retail branches, the hiring of a senior officer to manage mortgage lending and the new CordiaGrad student loan refinancing program.

The following table sets forth the primary components of non-interest expense for the nine months ended September 30, 2015 and 2014:

For the nine months ended September 30, (dollars in thousands)	2015			2014
Salaries and employee benefits	$	3,447		$	3,752
Professional services		292			323
Occupancy		461			426
Reversal of occupancy fair value discount		(225	)		-
Data processing and communications		637			508
FDIC assessment and bank fees		270			289
Bank franchise raxes		147			79
Student loan servicing fees and other loan expenses		528			480
Other real estate expenses		77			28
Supplies and equipment		214			240
Insurance		59			125
Director's fees		75			137
Marketing and business development		113			30
Other operating expenses		253			294
Total non-interest expense	$	6,348		$	6,711

Financial Condition

Loans

Loans represent the largest category of earning assets and typically provide higher yields than the other types of earning assets. Loans carry inherent credit and liquidity risks associated with the creditworthiness of our borrowers and general economic conditions. At September 30, 2015, total loans held for investment (net of reserves) were $227.9 million versus $211.9 million at December 31, 2014.

The following table sets forth the composition of the loan portfolio by category at the dates indicated.

	At September 30,						At December 31,
	2015						2014
(dollars in thousands)	Amount			Percent			Amount			Percent
Commercial Real Estate:
Acquisition, development and construction	$	1,870			0.8	%	$	2,159			1.0	%
Non-owner occupied		57,819			25.3	%		51,512			24.2	%
Owner occupied		46,646			20.4	%		49,582			23.3	%
Commercial and industrial		26,751			11.7	%		24,153			11.3	%
Guaranteed Student Loans		56,072			24.5	%		64,870			30.5	%
Consumer:
Residential mortgage		15,803			6.9	%		8,377			3.9	%
HELOC		10,935			4.8	%		11,074			5.2	%
Other		12,869			5.6	%		1,232			0.6	%
Total loans		228,765			100.0	%		212,959			100.0	%
Allowance for loan losses		(903	)					(1,089	)
Total loans, net of allowance for loan losses	$	227,862					$	211,870

The largest component of the loan portfolio is comprised of various types of commercial real estate loans. At September 30, 2015, commercial real estate loans totaled $106.3 million or 46.5% of the total portfolio. Guaranteed student loans totaled $56.1 million, commercial and industrial loans totaled $26.8 million and consumer loans, which were comprised principally of residential mortgage, home equity loans and the CordiaGrad program loans totaled $39.6 million. Residential mortgage loans consisted of first and second mortgages on single family residential dwellings.

Allowance for Loan Losses

At September 30, 2015, our ALLL was $903 thousand, or 0.39% of total loans and 45.7% of non-performing loans. During the nine months ended September 30, 2015, we recorded $144 thousand of net charge-offs and a recovery of $330 thousand of provision for loan losses. Excluding the guaranteed portion of student loan portfolio, ALLL was 0.52% of total loans outstanding less guaranteed student loans. At December 31, 2014, our allowance for loan losses (“ALLL”) was $1.1 million, or 0.51% of total loans outstanding and 49.0% of non-performing loans. Excluding the guaranteed portion of student loan portfolio, ALLL was 0.73% of total loans outstanding less guaranteed student loans.

Management has developed policies and procedures for evaluating the overall quality of the loan portfolio, the timely identification of potential problem credits and impaired loans and the establishment of an appropriate ALLL. The acquired loan portfolio was originally recorded at fair value, which includes a credit mark-to-market, based on the acquisition method of accounting. Loans renewed (performing loans acquired) or originated since the date of our initial investment are evaluated and an appropriate ALLL is established. Any worsening of acquired impaired loans since the date of Cordia’s investment in BVA is evaluated for further impairment. Additional impairment on acquired impaired loans is recorded through the provision for loan losses. Any improvement in cash flows of acquired impaired loans is amortized as a yield adjustment over the remaining life of the loans. A fuller explanation may be found in the table under the caption “Loans With Deteriorated Credit Quality” regarding accretable and nonaccretable discount. Loan losses are charged against the allowance when management believes the uncollectability of a loan is confirmed, which decreases the balance of the allowance. Subsequent recoveries, if any, are credited back to the ALLL.

The ALLL consists of a specific component allocated to impaired loans and a general component allocated to the aggregate of all unimpaired loans. The amount of the ALLL is established through the application of a standardized model, the components of which are: an impairment analysis of identified loans to determine the level of any specific reserves needed on impaired loans, and a broad analysis of historical loss experience, economic factors and portfolio-related environmental factors to determine the level of general reserves needed. The model inputs include an evaluation of historical charge-offs, the current trends in delinquencies, and adverse credit migration and trends in the size and composition of the loan portfolio, including concentrations in higher risk loan types. Results from regulatory exams are also reflected in these assessments.

The ALLL is evaluated quarterly by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the specific borrowers’ ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The use of various estimates and judgments in our ongoing evaluation of the required level of allowance can significantly affect our results of operations and financial condition and may result in either greater provisions to increase the allowance or reduced provisions based upon management’s current view of portfolio and economic conditions and the application of revised estimates and assumptions. The ALLL consists of specific and general components. The specific component relates to loans that are classified as substandard or worse. For such loans that are also classified as impaired, a specific allowance is established. The general component covers loans graded special mention or better and is based on an analysis of historical loss experience, national and local economic factors, and environmental factors specific to the loan portfolio composition.

Changes affecting the ALLL for the nine months ended September 30, 2015 and the year ended December 31, 2014, are summarized in the following table.

(dollars in thousands)	Nine Months Ended September 30, 2015			Year Ended December 31, 2014
Allowance for loan losses at beginning of period	$	1,089		$	1,489

Provision for (recovery of) loan losses		(330	)		305

Charge-offs:
Commercial real estate		(127	)		(120	)
Commercial and industrial		(109	)		(485	)
Guaranteed Student Loans		(163	)		(359	)
Consumer		(22	)		-
Total charge-offs		(421	)		(964	)

Recoveries:
Commercial real estate		234			139
Commercial and industrial		321			91
Guaranteed Student Loans		-			-
Consumer		10			29
Total recoveries		565			259
Net recoveries/(charge-offs)		144			(705	)
Allowance for loan losses at end of period	$	903		$	1,089

Allowance for loan losses to non-performing loans		45.72	%		49.03	%
Allowance for loan losses to total loans outstanding at end of period		0.39	%		0.51	%
Net recoveries/(charge-offs) to average loans during the period		-0.07	%		-0.36	%
Allowance for loan losses to total loans less guaranteed student loans, purchased credit impaired loans and purchased portfolio.		0.55	%		0.81	%

The decrease in the ALLL to non-performing loan ratio at September 30, 2015 from December 31, 2014 is due to the net recovery in the 2015 period offset in part by the reduction of non-accrual loans from $2.2 million at December 31, 2014 to $2.0 million at September 30, 2015.

Included in the table below is the activity related to the portion of the ALLL for loans acquired with deteriorated credit quality. Because of the nature and limited number of these loans, they are individually evaluated for additional impairment on a quarterly basis. Activity related only to that portion of the ALLL is as follows:

(dollars in thousands)	Nine Months Ended September 30, 2015			Year Ended December 31, 2014
Allowance for loan losses at beginning of period	$	90		$	234
Provision for loan losses		37			(7	)

Charge-offs:
Commercial real estate		(127	)		(120	)
Commercial and industrial		-			(17	)
Consumer		-			-
Total charge-offs		-			(137	)

Recoveries:		-			-

Net charge-offs		-			(137	)
Allowance for loan losses at end of period	$	-		$	90

The following table represents the allocation of the ALLL at the dates indicated. Notwithstanding these allocations, the entire allowance is available to absorb loan losses in any loan category.

	At September 30, 2015								At December 31, 2014
(dollars in thousands)	Amount		% of Allowance to total allowance			% of Loans in category to total loans			Amount		% of Allowance to total allowance			% of Loans in category to total loans
Commercial real estate	$	426		47	%		46	%	$	392		36	%		49	%
Commercial and industrial		126		14	%		12	%		357		33	%		11	%
Guaranteed Student Loans		83		9	%		25	%		144		13	%		30	%
Consumer		268		30	%		17	%		196		18	%		10	%
Total allowance for loan losses	$	903		100	%		100	%	$	1,089		100	%		100	%

Asset Quality

Risk Rating Process

On a quarterly basis, the process of estimating the ALLL begins with review of the risk rating assigned to individual loans. Through this process, loans graded substandard or worse are evaluated for impairment in accordance with ASC Topic 310 “Accounting by Creditors for Impairment of a Loan”. Refer to Note 5 of the Notes to the Condensed Consolidated Financial Statements for more detail.

The following is the distribution of loans by credit quality and class as of September 30, 2015 and December 31, 2014:

September 30, 2015 (dollars in thousands)	Commercial Real Estate										Consumer
Credit quality class	Acq-Dev Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
1 Highest quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
2 Above average quality		-		5,814		3,369		2,655		56,072		-		1,132		393		69,435
3 Satisfactory		389		28,973		21,043		17,522				11,080		6,232		12,407		97,646
4 Pass		491		20,122		19,776		5,976				4,472		2,700		66		53,603
5 Special mention		-		1,511		117		560				27		268		3		2,486
6 Substandard		188		-		-		13				42		242		-		485
7 Doubtful		-		-		-		-		-		-		-		-		-
		1,068		56,420		44,305		26,726		56,072		15,621		10,574		12,869		223,655
Loans acquired with deteriorating credit quality		802		1,399		2,341		25		-		182		361		-		5,110
Total loans	$	1,870	$	57,819	$	46,646	$	26,751	$	56,072	$	15,803	$	10,935	$	12,869	$	228,765

December 31, 2014 (dollars in thousands)	Commercial Real Estate										Consumer
Credit quality class	Acq-Dev Construction		Non-owner Occupied		Owner Occupied		Commercial and Industrial		Guaranteed Student Loans		Residential Mortgage		HELOC		Other		Total
1 Highest quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
2 Above average quality		-		2,225		2,788		2,498		64,870		24		1,394		719		74,518
3 Satisfactory		458		30,473		26,608		14,883		-		3,325		6,140		425		82,312
4 Pass		476		17,236		16,986		5,593		-		4,768		2,589		88		47,736
5 Special mention		-		123		-		68		-		75		319		-		585
6 Substandard		267		-		-		142		-		-		268		-		677
7 Doubtful		-		-		-		-		-		-		-		-		-
		1,201		50,057		46,382		23,184		64,870		8,192		10,710		1,232		205,828
Loans acquired with deteriorating credit quality		958		1,455		3,200		969		-		185		364		-		7,131
Total loans	$	2,159	$	51,512	$	49,582	$	24,153	$	64,870	$	8,377	$	11,074	$	1,232	$	212,959

As shown in the tables above, Substandard and Doubtful loans were $485 thousand at September 30, 2015, or 0.2% of the total loan portfolio. This compares to $677 thousand, or 0.3% of the total loan portfolio at December 31, 2014. Special Mention loans increased $1.9 million from $585 thousand at December 31, 2014 to $2.5 million at September 30, 2015 and loans graded “Pass” or better increased $16.1 million from $204.6 million at December 31, 2014 to $220.7 million at September 30, 2015.

The Bank has continued to engage its third party loan review firm for annual reviews and periodic special assignments. The most recent evaluation was completed in May 2015. The scope of the 2015 loan file review totaled approximately 75% of the Bank’s exposure and included the following:

●

All classified loans or total relationship exposure over $250,000;

●

All special mention loans or total relationship exposures over $500,000;

●

A random sample of pass-rated loans determined by the loan review firm under $500,000;

●

All loans past due as of the review date;

●

All OREO properties;

●

All insider loans, including loans to directors, significant shareholders, and executive management granted since the last review;

●

Any loans that management or the board of directors requested be reviewed;

●

Annual review of the ALLL reserve and methodology;

●

Review of CordiaGrad program;

●

Review of purchased residential mortgages.

Nonperforming Assets

The past due status of a loan is based on the contractual due date of the most delinquent payment due. Loans, including impaired loans, are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans greater than 90 days past due may remain on an accrual status if management determines it has adequate collateral and cash flow to cover the principal and interest or the borrower is in the process of refinancing. If a loan or a portion of a loan that is delinquent more than 90 days is adversely classified, or is partially charged off, the loan is generally classified as nonaccrual. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the full collectability of principal and interest of a loan, it is placed on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due.

When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, and the amortization of related deferred loan fees or costs is suspended. While a loan is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan has been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered.

Loans placed on non-accrual status generally may be returned to accrual status after:

payments are received for approximately six (6) consecutive months in accordance with the loan documents, and any doubt as to the loan's full collectability has been removed; or

the loan is restructured and supported by a well-documented credit evaluation of the borrower's financial condition and the prospects for full payment.

When a restructured loan is returned to accrual status after restructuring, the risk rating remains unchanged until a satisfactory payment history is re-established, typically for approximately six months, at which time it is returned to accrual status.

Guaranteed student loans with a past due balance greater than 90 days are not included in the balance of nonperforming assets. Guaranteed student loans accrue interest until the date the guaranty is paid. The guarantor’s payment covers approximately 98% of principal and accrued interest. Upon filing the claim, the unguaranteed portion is charged off to the ALLL.

Nonperforming assets totaled $3.7 million or 1.07% of total assets at September 30, 2015 and are comprised of non-accrual loans of $2.0 million and repossessed collateral of $1.7 million. The balance of nonperforming assets at December 31, 2014 was $3.9 million or 1.21% of total assets. The decrease at September 30, 2015 from December 31, 2014 was partly due to the sale of an OREO property and partly as a result of growth in total assets.

Real estate acquired through, or in lieu of, foreclosure is held for sale and is stated at the estimated fair market value of the property, less estimated disposal costs. Any excess of the principal over the estimated fair market value at the time of acquisition is charged to the allowance for loan losses. The estimated fair market value is reviewed periodically by management and any write-downs are charged against current earnings. Development and improvement costs relating to property are capitalized unless such added costs cause the properties recorded value to exceed the estimated fair market value. Net operating income or expenses of such properties are included in collection, repossession and other real estate owned expenses within other operating expenses on the consolidated statement of operations.

A summary of nonperforming assets, including troubled debt restructurings, as of the dates indicated follows:

(dollars in thousands)	Quarter ended September 30, 2015			Year ended December 31, 2014
Non-accrual troubled debt restructurings	$	-		$	-
Other non-accrual loans		1,975			2,221
Total non-accrual loans		1,975			2,221
Other real estate owned		1,761			1,641
Total non-performing assets	$	3,736		$	3,862

Total non-accrual loans to total loans		0.86	%		1.04	%
Total non-performing loans to total assets		0.57	%		0.70	%
Total non-performing assets to total assets		1.07	%		1.21	%

Accruing troubled debt restructurings	$	-		$	1,260

Total loans	$	228,765		$	212,959
Total assets	$	347,984		$	318,600

Loans With Deteriorated Credit Quality

In the acquisition of BVA certain loans were acquired which showed evidence of deterioration in credit quality. These loans are accounted for under the guidance of ASC 310-30. Information related to these loans as of the dates indicated is provided in the following table.

(dollars in thousands)	September 30, 2015			December 31, 2014
Contract principal balance	$	5,113		$	7,178
Accretable discount		(3	)		(42	)
Nonaccretable discount		-			(5	)
Book value of loans	$	5,110		$	7,131

Investment Securities

Our investment portfolio consists of U.S. agency debt and agency guaranteed mortgage-backed securities. Our investment security portfolio includes securities classified as available for sale as well as securities classified as held to maturity. The total securities portfolio (excluding restricted securities) was $75.0 million at September 30, 2015 as compared to $74.2 million at December 31, 2014. At September 30, 2015, the securities portfolio consisted of $48.7 million of securities available for sale and $26.3 million of securities held to maturity.

The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale at September 30, 2015 and December 31, 2014.

	September 30, 2015
	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government agencies	$	2,196	$	7	$	(9	)	$	2,194
Agency guaranteed mortgage-backed securities		46,561		122		(156	)		46,527
Total	$	48,757	$	129	$	(165	)	$	48,721

	December 31, 2014
	Amortized		Gross Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government agencies	$	3,735	$	1	$	(17	)	$	3,719
Agency guaranteed mortgage-backed securities		49,930		21		(187	)		49,764
Total	$	53,665	$	22	$	(204	)	$	53,483

The table below presents the carry value, gross unrealized gains and losses, and fair value of securities held to maturity at September 30, 2015 and December 31, 2014.

	September 30, 2015
	Carry		Gross Unrealized
(dollars in thousands)	Value		Gains		Losses		Fair Value
Agency guaranteed mortgage-backed securities	$	26,281	$	461	$	-	$	26,742

	December 31, 2014
	Carry		Gross Unrealized
(dollars in thousands)	Value		Gains		Losses			Fair Value
Agency guaranteed mortgage-backed securities	$	20,716	$	333	$	(2	)	$	21,047

Deposits and Other Interest-Bearing Liabilities

At September 30, 2015 and December 31, 2014, total deposits were $289.3 million and $265.6 million, respectively. Core deposits, which by FDIC guidelines exclude certificates of deposit of $250,000 or more and insured brokered deposits, provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $196.9 million at September 30, 2015, or 68.1% of total deposits, compared to $199.0 million at December 31, 2014, or 74.9% of total deposits. Deposits, including core deposits, have been the primary source of funding and have enabled us to successfully meet both our short-term and long-term liquidity needs. At September 30, 2015 and December 31, 2014, our money market deposits included insured brokered deposits of $41.1 million and $21.1 million, respectively. Our loan-to-deposit ratio was 79.0% at September 30, 2015 and 80.2% at December 31, 2014.

The following table sets forth our deposits by category at the dates indicated.

	September 30, 2015					December 31, 2014
(dollars in thousands)	Amount		Percent			Amount		Percent
Non-interest bearing demand accounts	$	28,362		11	%	$	30,709		12	%
NOW accounts		14,019		5	%		13,239		5	%
Savings and money market accounts		89,988		31	%		70,100		26	%
Times deposits - less than $100,000		47,336		15	%		49,557		19	%
Times deposits - $100,000 or more		109,603		38	%		101,998		38	%
Total	$	289,308		100	%	$	265,603		100	%

At September 30, 2015, 57.6% of our time deposits over $100,000 had maturities within twelve months. Large certificate of deposit customers tend to be more sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes in comparison to core deposits.

The maturity distribution of our time deposits of $100,000 or more and other time deposits at September 30, 2015, is set forth in the following table:

	September 30, 2015
(dollars in thousands)	Time deposits of less than $100K		Time deposits of $100K and greater		Total
Months to maturity:
Three months or less	$	7,276	$	9,878	$	17,154
Over three months to twelve months		16,807		53,266		70,073
Over twelve months to three years		17,510		34,892		52,402
Over three years		5,743		11,567		17,310
Total	$	47,336	$	109,603	$	156,939

Management monitors maturity trends in time deposits as part of its overall asset liability management strategy.

Liquidity and Capital Resources

Liquidity

Liquidity management involves monitoring our sources and uses of funds in order to meet our short-term and long-term cash flow requirements while optimizing profits. Liquidity represents an institution’s ability to meet present and future financial obligations, including through the sale of existing assets or the acquisition of additional funds through short-term borrowings. BVA’s primary access to liquidity comes from several sources: operating cash flows from payments received on loans and mortgage-backed securities, increased deposits, and cash reserves. BVA’s secondary sources of liquidity are Federal Funds sold, unpledged securities available for sale, and borrowings from correspondent banks, the FHLB and the Federal Reserve Bank Discount Window. Liquidity strategies are implemented and monitored by the Asset/Liability Committee (“ALCO”) of our BVA Board of Directors.

BVA’s deposit base was $289.3 million and $265.6 million at September 30, 2015 and December 31, 2014, respectively. Time deposits in excess of $100,000 grew 7.5%, from $102.0 million at December 31, 2014 to $109.6 million at September 30, 2015. Savings and money market accounts grew 28.4% from $70.1 million at December 31, 2014 to $90.0 million at September 30, 201, while NOW accounts grew 5.9%. Time deposits less than $100,000 declined from December 31, 2014 through September 30, 2015. As BVA looks to implement other loan growth initiatives, it has developed several funding strategies, including judicious use of brokered institutional and direct certificates of deposits, to augment core deposit growth and further reduce the cost of funds. Development of several sources of incremental funding beyond core deposit growth ensures maximum liquidity access without over-dependence on higher cost retail deposit campaigns.

BVA maintains an investment portfolio of marketable securities that may be used for liquidity purposes by either pledging them through repo transactions against borrowings from the FHLB or a correspondent bank or by selling them on the open market. Those securities consist primarily of U.S. Government agency debt securities. To the extent any securities are pledged against borrowing from one credit facility, the borrowing ability of other secured borrowing facilities would be reduced by a like amount.

Borrowings

As of September 30, 2015, BVA had a total of $12.5 million committed repo lines with correspondent banks through which borrowings could be made against the pledge of marketable securities subject to mark-to-market valuations and standard collateral borrowing ratios. These lines were unused in 2014 and during the nine months ended September 30, 2015 and remain fully available. BVA also maintains $4.5 million of unsecured lines of credit with other correspondent banks that were available for direct borrowings or Federal Funds purchased.

BVA is a member of the Federal Home Loan Bank of Atlanta (FHLB), which provides access to additional lines of credit and other products offered by the FHLB. These borrowings are largely secured by BVA’s loan portfolio. The FHLB maintains a blanket security agreement on qualifying collateral. As of September 30, 2015 and December 31, 2014, BVA had $30.0 million and $25.0 million, respectively, in secured borrowings outstanding with the FHLB Atlanta against pledged eligible mortgage loan collateral and investment securities, at average interest rates of 1.23% and 1.25%, respectively. As of September 30, 2015, BVA had a total credit availability of $38.6 million at the FHLB which could be accessed through pledging a combination of eligible mortgage loan collateral and investment securities. The FHLB offers a variety of floating and fixed rate loans at terms ranging from overnight to 20 years; therefore, BVA can match borrowings to loan programs mitigating interest rate risk.

Liquidity Contingency Plan

BVA strives to follow regulatory guidance in the management of liquidity risk and has established a Board-approved Contingency Funding Plan (CFP) that prescribes liquidity risk limits and guidelines and includes pro forma cash flow analyses of BVA’s sources and uses of funds under various liquidity scenarios. BVA’s CFP includes funding alternatives that can be implemented if access to normal funding sources is reduced.

We are not aware of any trends, events or uncertainties that are reasonably likely to have a material adverse effect on our short term or long term liquidity. Based on the current and expected liquidity needs, including any liquidity needs associated with loan growth or generated by off-balance sheet transactions such as commitments to extend credit, commitments to purchase securities and standby letters of credit, we expect to be able to meet our obligations for the next twelve months.

Capital

BVA is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our financial statements. Under the regulatory capital adequacy guidelines BVA must meet specific capital guidelines that are based on quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators.

Quantitative measures established by regulation to ensure capital adequacy require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). At September 30, 2015 and December 31, 2014, BVA met all capital adequacy requirements to which it was subject. BVA is also required to maintain capital at a minimum level as a proportion of quarterly average assets, which is known as the leverage ratio. The minimum levels to be considered well-capitalized are 5% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8% for tier 1 risk-based capital ratio, and 10% for total risk-based capital ratio.

BVA exceeded all the regulatory capital requirements at the dates indicated and was considered well-capitalized, as set forth in the following table. Cordia completed a capital raise of $15.4 million on April 10, 2014. A substantial portion of the proceeds were invested in BVA, resulting in BVA higher capital ratios.

	Minimum Requirements
(dollars in thousands)	Well Capitalized			Adequately Capitalized			September 30, 2015			December 31, 2014
Tier 1 capital							$	27,319		$	25,985
Tier 2 capital								903			1,089
Total qualifying capital							$	28,222		$	27,074
Total risk-adjusted assets							$	201,261		$	174,476

Tier 1 leverage ratio		5.0	%		4.0	%		7.87	%		8.24	%
Common equity tier 1 capital ratio		6.5	%		4.5	%		13.57	%		N/A
Tier 1 risk-based capital ratio		8.0	%		6.0	%		13.57	%		14.89	%
Total risk-based capital ratio		10.0	%		8.0	%		14.02	%		15.52	%

Cordia is considered a small bank holding company, based on its asset size under $1 billion. Accordingly it is exempt from Federal regulatory guidelines related to leverage ratios and risk-based capital.

Interest Rate Sensitivity

The pricing and maturity of assets and liabilities are monitored and managed in order to diminish the potential adverse impact that changes in rates could have on net interest income. The principal monitoring techniques employed by BVA are the Economic Value of Equity (“EVE”) and Net Interest Income or Earnings at Risk (“NII” or “EaR”). EVE and NII are cash flow and earnings simulation modeling techniques which predict likely economic outcomes given various interest rate scenarios.

Interest rate sensitivity can be managed by closely matching the interest rate repricing periods of assets or liabilities at the time they are acquired and by adjusting that match as the balance sheet grows or the mix of asset and liability characteristics or interest rates change. That adjustment can be accomplished by selling securities available for sale, replacing an asset or liability at maturity with those of different characteristics, or adjusting the interest rate during the life of an asset or liability. Managing the amount of different assets and liabilities that reprice in a given time interval may help to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.

Application of a 200 basis point rate increase would result in a 5.8% increase in net interest income at September 30, 2015, as compared to a 9.9% increase at December 31, 2014. A 200 basis point rate increase would result in the depreciation of the Bank’s equity value by 5.0% at September 30, 2015, compared to 5.9% depreciation at December 31, 2014.

Off-Balance Sheet Risk/Commitments and Contingencies

Through our operations, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At September 30, 2015, we had issued commitments to extend credit of $20.3 million through various types of commercial lending arrangements. The majority of these commitments to extend credit had variable rates.

We evaluate each customer’s credit worthiness for such commitments on a case-by-case basis in the same manner as for the approval of a direct loan. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate.

Critical Accounting Policies

Cordia’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Cordia’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our financial position and/or results of operations.

Estimates, assumptions, and judgments are necessary principally when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded based upon the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are either based on quoted market prices or provided by third party sources, when available. When third party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal or third party modeling techniques and/or appraisal estimates.

Cordia’s accounting policies are fundamental to understanding Management’s Discussion and Analysis. The following is a summary of Cordia’s “critical accounting policies.” In addition, the disclosures presented in the Notes to the Consolidated Financial Statements and in this section provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Business Combinations

Cordia accounts for its business combinations under the acquisition method of accounting, a cost allocation process which requires the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, Cordia relies on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.

Acquired Loans with Specific Credit-Related Deterioration.

Acquired loans with specific credit deterioration are accounted for by Cordia in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 310-30. Certain acquired loans, those for which specific credit-related deterioration, since origination, is identified, are recorded at fair value reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

Allowance for Loan Losses

We monitor and maintain an allowance for loan losses (“ALLL”) to absorb losses inherent in the loan portfolio. We maintain policies and procedures that address the systems of controls over the following areas of maintenance of the ALLL: the systematic methodology used to determine the appropriate level of the ALLL to provide assurance they are maintained in accordance with accounting principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

We evaluate loans graded substandard or worse individually for impairment. These evaluations are based upon expected discounted cash flows or collateral values. If the evaluation shows that the loan’s expected discounted cash flows or underlying collateral is not sufficient to repay the loan as agreed in accordance with the terms of the loan, then a specific reserve is established for the amount of impairment, which represents the difference between the principal amount of the loan less the expected discounted cash flows or value of the underlying collateral, net of selling costs.

For loans without individual measures of impairment which are loans graded Special Mention or better, we make estimates of losses for pools of loans grouped by similar characteristics, including the type of loan as well as the assigned loan classification. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade and the predominant collateral type for the group. The resulting estimate of losses for pools of loans is adjusted for relevant environmental factors and other conditions of the portfolio of loans, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.

The amount of estimated impairment for individually evaluated loans and pools of loans is added together for a total estimate of loan losses. This estimate of losses is compared to our ALLL as of the evaluation date and, if the estimate of losses is greater than the ALLL, an additional provision to the allowance would be made through a charge to the income statement. If the estimate of losses is less than the existing allowance, the degree to which the ALLL exceeds the estimate is evaluated to determine whether the ALLL falls outside a range of estimates. If the estimate of losses is below the range of reasonable estimates, the ALLL is reduced by way of a credit to the provision for loan losses. We recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the ALLL is materially overstated. If different assumptions or conditions were to prevail and it is determined that the ALLL is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made in future periods. These additional provisions may be material to the Financial Statements.

Impact of Inflation

Since the assets and liabilities of financial institutions such as BVA are primarily monetary in nature, interest rates have a more significant effect on BVA’s performance than do the effects of changes in the general rate of inflation and changes in prices of goods and services. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required by this Item 3 is incorporated by reference to information appearing in the MD&A Section of this Quarterly Report on Form 10-Q, more specifically in the sections entitled “Interest Rate Sensitivity” and “Liquidity Contingency Plan”.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal accounting officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that the company files or submits under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15 (f) under the Exchange Act). There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceeding

Periodically, there have been various claims and lawsuits against us incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 25, 2015. As of September 30, 2015, the risk factors of the Company have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes repurchases of the Company’s common stock by Cordia during the third quarter of 2015.

(Dollars in thousands. except per shre information)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Amount (or Approximate Dollar Value) That May Yet Be Purchased Under the Plans or Programs
July 1-31, 2015		5,300	$	4.02		5,300	$	473,591
August 1-31, 2015		14,600		3.88		14,600		416,879
September 1-30, 2015		-		-		-		-

Total		19,900	$	3.92		19,900

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Exhibit
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Acting Chief Financial Officer and Principal Financial Officer
32		Section 1350 Certification
101.1		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL(Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements, tagged as blocks of text.

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.

	CORDIA BANCORP INC.

	/s/ Jack Zoeller
November 9, 2015	Jack Zoeller
	President and Chief Executive Officer

	/s/ Mark Severson
	Mark Severson
November 9, 2015	Chief Financial Officer

Attached files

Cordia Bancorp Inc Reports

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