Securities Registration Statement (s-1/a)

As filed with the Securities and Exchange Commission on January 15, 2015

Registration No. 333-200147

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pre-effective Amendment No. 2

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Village Bank and Trust Financial Corp.

(Exact name of registrant as specified in its charter)

Virginia

6022

16-1694602

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification No.)

13319 Midlothian Turnpike

Midlothian, Virginia 23113

(804) 897-3900

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

William G. Foster, Jr.

President and Chief Executive Officer

Village Bank and Trust Financial Corp

13319 Midlothian Turnpike

Midlothian, Virginia 23113

(804) 897-3900

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of communications to:

George P. Whitley, Esq.

Benjamin A. McCall, Esq.

LeClairRyan, A Professional Corporation

Riverfront Plaza, East Tower

951 East Byrd Street, 8^thFloor

Richmond, Virginia 23219

(804) 783-2003

Philip Ross Bevan, Esq.

Kenneth B. Tabach, Esq.

Silver, Freedman, Taff & Tiernan LLP

3299 K Street, N.W.

Suite 100

Washington, D.C. 20007

(202) 295-4500

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer	¨	Accelerated filer	¨

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

CALCULATION OF REGISTRATION FEE

Title of each Class of Securities to be Registered	Amount to be Registered		Proposed Maximum Offering Price per Share			Proposed Maximum Aggregate Offering Price			Amount of Registration Fee
Common stock, par value $4.00 per share, underlying subscription rights (1)		1,051,866	$	13.00	(2)	$	13,674,258	(3)	$	1,588.95	(4)
Non-transferrable subscription rights to purchase common stock (5)		350,622		—			—			—

(1)

This registration statement relates to the shares of common stock deliverable upon the exercise of non-transferable subscription rights pursuant to the offering described herein. Pursuant to Rule 416(a) under the Securities Act of 1933, as amended, this registration statement also covers such additional shares of common stock as may be issued to prevent dilution of the shares of common stock covered hereby resulting from stock splits, stock dividends or similar transactions.

(2)

Estimated solely for the purpose of determining the registration fee, in accordance with Rule 457(e) under the Securities Act of 1933, based upon the maximum proposed offering price per share.

(3)

Represents the gross proceeds from the assumed exercise of all non-transferable subscription rights to be issued.

(4)

Previously paid.

(5)

Pursuant to Rule 457(g) under the Securities Act of 1933, no separate registration fee is required for the rights.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement that we have filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not a solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 15, 2015

PRELIMINARY PROSPECTUS

Common Stock Underlying Subscription Rights

To Purchase Up To 1,051,866 Shares of Common Stock

We are distributing, at no charge, to holders of our common stock, par value $4.00 per share, non-transferable subscription rights to purchase up to an aggregate of 1,051,866 shares of our common stock, which we refer to as the offering. You will receive one subscription right for each share of common stock you own as of 5:00 p.m., Eastern Time, on January 20, 2015. Each subscription right will entitle you, as a holder of our common stock, to purchase three shares of common stock at the subscription price, which we refer to as the basic subscription privilege. We expect the subscription price to be between $11.00 and $13.00 per share. As of the close of business on November 30, 2014, 350,622 shares of our common stock were issued and outstanding.

If you fully exercise your basic subscription privilege, you will not experience any dilution in the percentage of our outstanding shares of common stock that you own immediately after the completion of the offering. You may also subscribe for additional shares, which we refer to as the oversubscription privilege, for allocation in the event that not all available shares are purchased pursuant to the shareholders’ basic subscription privilege or by the standby investor (described below). However, the oversubscription privilege will only be offered for an aggregate number of shares that, when combined with the number of shares purchased pursuant to the shareholders’ basic subscription privilege and by the standby investor, does not exceed 1,051,866 shares. We reserve the right to accept or reject oversubscriptions for any reason. If we accept your subscription pursuant to your oversubscription privilege, then in all circumstances the percentage of our outstanding shares that you own immediately after the offering will be higher than it was before the offering. Notwithstanding any other information presented in this prospectus, we do not intend to accept any oversubscriptions that we believe may have an unfavorable effect on our ability to preserve our net operating loss deferred tax asset. Purchases of shares pursuant to the offering are also subject to certain other limitations described in this prospectus.

Subscription rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on [•], 2015, which we refer to as the expiration date, unless we extend the offering period for up to 30 days until [•], 2015. You should carefully consider whether to exercise your subscription rights before the expiration of the offering. In general, exercises of subscription rights are irrevocable. Our board of directors makes no recommendation regarding your exercise of the subscription rights.

We reserve the right to amend or cancel the offering at any time. Computershare, Inc., our subscription agent for the offering, will hold all funds it receives in an escrow account until completion of the offering. If we decide to extend, amend or modify the terms of the offering for any reason, subscriptions received prior to such extension, amendment or modification generally will remain irrevocable. However, if we amend this offering in a way which we believe is material, we will extend the offering and offer all subscription rights holders the right to revoke any subscription submitted prior to such amendment upon the terms and conditions we set forth in the amendment. The extension of the expiration date of this offering will not, in and of itself, be considered a material amendment for these purposes. If we cancel the offering, all subscription funds will be returned promptly, without interest or penalty.

We have engaged Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. to assist us in selling the shares on a best efforts basis. The sales agents are not required to purchase any shares that are sold in the offering, but will use their best efforts to sell the shares offered.

To facilitate the offering, we have entered into a Standby Purchase Agreement (the “Standby Purchase Agreement”) with Kenneth R. Lehman, a private investor, whom we refer to as the standby investor in this document. The standby investor has agreed, subject to there being sufficient shares available after purchases by shareholders exercising their basic subscription privilege, to purchase from us, and we have agreed to sell to him, at the subscription price, the lesser of (i) $8.0 million of our common stock (based on the subscription price per share), (ii) all shares of common stock not purchased by shareholders exercising their basic subscription privilege, and (iii) the maximum number of shares that he may purchase without causing an “ownership change” under Section 382(g) of the Internal Revenue Code of 1986, as amended (the “Code”). For a description of the maximum number of shares that may be purchased by the standby investor, which is dependent on the participation of shareholders in the offering, please see the section of this prospectus entitled “The Standby Purchase Agreement.”

We are not requiring an overall minimum subscription amount in order to complete the offering. As a result, if the Standby Purchase Agreement is terminated, any shareholder that elects to purchase shares may be the only investor (or one of a limited number of investors) that participates in the offering. In addition, there can be no assurance that we will raise sufficient capital in this offering to achieve full compliance with our Written Agreement with the Federal Reserve Bank of Richmond or Village Bank’s Consent Order with the Federal Deposit Insurance Corporation and the Virginia Bureau of Financial Institutions. We may elect to close the offering even though we have not raised sufficient capital to achieve such compliance, and shareholders that elect to participate in the offering would not be able to revoke their subscriptions.

Our common stock is listed on the NASDAQ Capital Market under the symbol “VBFC.” On January 14, 2015, the last reported sale price of our common stock was $25.99 per share. See “Risk Factors” and “Market Price of Common Stock and Dividend Policy − Market Price of Common Stock” regarding our noncompliance with NASDAQ Listing Rule 5550(a)(4) and the potential for delisting of our common stock.

	Per Share	Aggregate (1)
Subscription price	$	$
Estimated sales agent commissions and expenses (2)	$	$
Estimated proceeds to us, before expenses	$	$

__________________

(1)

Assumes that 501,441 shares (50% of the shares offered) are purchased in the offering by shareholders exercising their basic subscription privilege and the remaining 501,441 shares are purchased by the standby investor. Assumes that, in lieu of accepting cash, we elect to exchange all of the 9,023 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A preferred stock”) that the standby investor is expected to own as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering. There can be no assurance that all or any of the shares of common stock offered will be sold because the Standby Purchase Agreement may be terminated in certain circumstances and we are not requiring an overall minimum subscription amount in order to complete the offering. See “Use of Proceeds” and “The Standby Purchase Agreement − Termination Provisions.”

(2)

Payable to Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., our sales agents. Assumes that 501,441 shares (50% of the shares offered) are purchased in the offering by shareholders exercising their basic subscription privilege and the remaining 501,441 shares are purchased by the standby investor. The terms of our arrangement with the sales agents are described under “Plan of Distribution.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page [•] of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

These securities are not savings accounts, deposits, or other obligations of a bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Compass Point

Boenning & Scattergood

The date of this prospectus is [•], 2015

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS	1
FORWARD-LOOKING STATEMENTS	2
QUESTIONS AND ANSWERS RELATING TO THE OFFERING	3
SUMMARY	14
RISK FACTORS	20
USE OF PROCEEDS	39
CAPITALIZATION	41
DILUTION	43
THE OFFERING	45
THE STANDBY PURCHASE AGREEMENT	57
OUR NET OPERATING LOSS DEFERRED TAX ASSET	64
U.S. FEDERAL INCOME TAX CONSEQUENCES	65
EXECUTIVE COMPENSATION	68
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY	76
DESCRIPTION OF CAPITAL STOCK	78
PLAN OF DISTRIBUTION	84
LEGAL MATTERS	85
EXPERTS	86
WHERE YOU CAN FIND MORE INFORMATION	86
INCORPORATION OF DOCUMENTS BY REFERENCE	86

ABOUT THIS PROSPECTUS

You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the sales agents have not, authorized anyone to provide you with any other or different information. If anyone provides you with information that is different from, or inconsistent with, the information contained or incorporated by reference in this prospectus, you should not rely on it. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, or that the information incorporated by reference herein is accurate as of any date other than the date of the relevant report or other document in which such information is contained. Our business, financial condition, results of operations and prospects may have changed since such dates.

Neither we, nor any of our officers, directors, agents, or representatives, make any representation to you about the legality of an investment in our common stock. You should not consider any information in this prospectus or in the documents incorporated by reference herein to be investment, legal, or tax advice. You should consult your own counsel, accountant, and other advisors for legal, tax, business, financial, and related advice regarding the purchase of our securities.

The distribution of this prospectus, the offering and sale of shares of our common stock in certain jurisdictions may be restricted by law. This prospectus does not constitute an offer of, or a solicitation of an offer to buy, any shares of common stock in any jurisdiction in which such offer or solicitation is not permitted.

The industry and market data and other statistical information contained in this prospectus and the documents incorporated herein are based on management’s own estimates, independent publications, government publications, reports by market research firms or other published independent sources and, in each case, are believed by management to be reasonable estimates. Although we believe these resources to be reliable, neither we nor the sales agents have independently verified the information.

In this prospectus, all references to the “Company,” “we,” “us” and “our” refer to Village Bank and Trust Financial Corp. and its subsidiaries, unless the context otherwise requires or where otherwise indicated. References to the “Bank” refer to our wholly-owned banking subsidiary, Village Bank.

FORWARD-LOOKING STATEMENTS

In addition to historic information, this prospectus and the documents incorporated by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of our beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and are typically identified with words such as “anticipates,” “believes,” “can,” “continue,” “should,” “could,” “would,” “estimates,” “expects,” “intends,” “may,” “plans,” “seeks,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology.

A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. These factors include, but are not limited to: adverse economic conditions and the impact on us and our customers; changes in interest rates that impact our loans and deposits; the impact of competitive products and pricing; an inability to improve our regulatory capital position; failure to maximize potential capital raising opportunities or effectively deploy capital; legislative and regulatory actions impacting the financial services industry; increased regulatory capital requirements; an insufficient allowance for loan losses as a result of inaccurate assumptions; our ability to manage growth; changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries, declines in real estate values in our markets, or in the repayment ability of individual borrowers or issuers; failure of our internal controls to work as expected; environmental liability associated with our lending activities; inadequate resources to make technological improvements; interruption or breach in security of our information systems; and other factors, many of which are beyond our control.

You should also consider carefully the statements under “Risk Factors” and other sections of this prospectus and the documents we incorporate by reference, which address additional facts that could cause our actual results to differ from those set forth in the forward-looking statements. We caution investors not to place significant reliance on the forward-looking statements contained in this prospectus and the documents we incorporate by reference.

Because of these and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results contemplated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. Our forward-looking statements speak only as of the date they were made. We do not intend to update these forward-looking statements, even though our situation may change in the future, unless we are obligated to do so under the federal securities laws. We qualify all of our forward-looking statements by these cautionary statements.

QUESTIONS AND ANSWERS RELATING TO THE OFFERING

The following are examples of what we anticipate will be common questions about the offering. The answers are based on selected information from this prospectus and the documents incorporated by reference in this prospectus. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about the offering. This prospectus and the documents incorporated by reference contain more detailed descriptions of the terms and conditions of the offering and provide additional information about us and our business, including potential risks related to the offering, our common stock, and our business.

Exercising your subscription rights and investing in our common stock involves a high degree of risk. We urge you to carefully read the section entitled “Risk Factors” beginning on page [•] of this prospectus, and all other information included or incorporated by reference in this prospectus in its entirety before you decide whether to exercise your rights.

What is the offering?

We are distributing to holders of our common stock as of 5:00 p.m., Eastern Time, on January 20, 2015 (the “record date”), subscription rights, on a pro rata basis and at no cost, to purchase an aggregate of 1,051,866 shares of our common stock in the offering. If you are a holder of our common stock as of the record date, you will receive the right to subscribe for three shares of common stock for every one share of our common stock you owned as of the record date, at the subscription price pursuant to your basic subscription privilege. We expect the subscription price to be between $11.00 and $13.00 per share. If you fully exercise your basic subscription privilege, you will also be entitled to request to purchase shares pursuant to your oversubscription privilege, as described below. The subscription rights are evidenced by subscription rights certificates.

Why are we conducting the offering?

We are conducting the offering to raise equity capital to improve our capital position, provide additional capital for the Bank to help achieve and maintain the capital ratios required by the Bank’s Consent Order (the “Consent Order”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the Virginia Bureau of Financial Institutions (the “Virginia BFI”), and for general corporate purposes. If sufficient proceeds are generated in the offering, we intend to infuse the Bank with approximately $5.0 million of additional capital. If contributed to the Bank, such capital will cause the Bank’s regulatory capital ratios to exceed the thresholds required by the Consent Order and exceed the capital levels established under the prompt corrective action regulations for well-capitalized institutions. See “Summary − Village Bank and Trust Financial Corp.” Such capital will also improve the Bank’s ratio of capital to nonperforming assets and provide support for asset growth for the foreseeable future. However, we experienced operating losses in the years ended December 31, 2011, 2012 and 2013 and for the nine months ended September 30, 2014, and the amount of capital necessary to improve the Bank’s capital ratios and support our future operations may increase in the event of future operating losses or other events.

We believe that raising additional capital is prudent in light of current market conditions and the related impact on our financial condition. Our board of directors has chosen to raise capital through a rights offering to give our shareholders the opportunity to prevent ownership dilution by acquiring additional shares of common stock in the offering. Our board of directors also considered several alternative capital-raising methods prior to concluding that the offering was the best option under the current circumstances. We believe that the offering will strengthen our financial condition by raising additional capital; however, our board of directors is making no recommendation regarding your exercise of the subscription rights. We cannot assure you that we will not need to seek additional financing or engage in additional capital raising transactions in the future.

What is the basic subscription right and oversubscription privilege?

The basic subscription privilege of each subscription right entitles the holder to purchase three shares of our common stock at the subscription price. For example, if you owned 100 shares of our common stock on the record date, you would be granted 100 subscription rights and you would have the right to purchase 300 shares of our common stock. You may exercise all or any number of your subscription rights, or you may choose not to exercise any subscription rights. If you exercise less than your full basic subscription privilege, you will not be entitled to purchase shares under your oversubscription privilege.

If you are a record holder, your subscription rights certificate accompanies this prospectus. If you hold your shares in street name through a broker, dealer, custodian bank, or other nominee who uses the services of The Depository Trust & Clearing Corporation (“DTC”), then you will not receive a subscription rights certificate. Instead, DTC will issue one subscription right to your nominee for every share of our common stock you owned as of the record date. Each subscription right entitles you to purchase three shares of our common stock at the subscription price. For more information, see “What should I do if I want to participate in the offering, but my shares are held in the name of my broker, dealer, custodian bank, or other nominee?” in this section.

If you exercise your basic subscription privilege in full by purchasing three shares of common stock for each share that you own, you will not experience any dilution in the percentage of our outstanding shares of common stock that you own immediately after the completion of the offering.

If you purchase all of the shares of our common stock available to you pursuant to your basic subscription privilege, you may also subscribe to purchase additional shares should they be available after purchases by (i) all shareholders exercising their basic subscription privilege and (ii) the standby investor under the Standby Purchase Agreement. However, the oversubscription privilege will only be offered for an aggregate number of shares that, when combined with the number of shares purchased pursuant to the shareholders’ basic subscription privilege and by the standby investor, does not exceed 1,051,866 shares. We reserve the right to accept or reject oversubscriptions for any reason. In addition, purchases pursuant to the oversubscription privilege will be limited as described under “Are there limits on the number of shares of common stock I may purchase in the offering?” in this section. We can provide no assurances that you will actually be able to purchase any shares of common stock upon the exercise of your oversubscription privilege.

In order to properly exercise your oversubscription privilege, you must deliver the subscription payment related to your oversubscription privilege prior to the expiration of the offering. Because we will not know the total number of unsubscribed shares prior to the expiration of the offering, if you wish to maximize the number of shares you purchase pursuant to your oversubscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of shares of our common stock that may be available to you (i.e., assuming you fully exercise your basic subscription privilege and are allotted the full amount of your oversubscription as elected by you).

If oversubscription requests exceed the number of shares of common stock available for sale after purchases by (i) all shareholders exercising their basic subscription privilege and (ii) the standby investor under the Standby Purchase Agreement, then we will have discretion to allocate the available shares of common stock among shareholders who oversubscribed as we deem appropriate. When determining how to allocate such remaining shares, we may give priority to those oversubscription purchasers that we believe will develop future business relationships with us, refer business to us or purchase additional shares of our common stock on the open market after the closing of the offering.

To the extent the aggregate subscription price of the maximum number of unsubscribed shares allocated to you pursuant to exercise of the oversubscription privilege is less than the amount you actually paid in connection with the exercise of the oversubscription privilege, you will be allocated only the number of unsubscribed shares available to you, and any excess subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. To the extent the amount you actually paid in connection with the exercise of the oversubscription privilege is less than the aggregate subscription price of the maximum number of unsubscribed shares allocated to you pursuant to the oversubscription privilege, you will be allocated the number of unsubscribed shares for which you actually paid in connection with the oversubscription privilege.

How will the standby investor participate in the offering?

To facilitate the offering, we have entered into the Standby Purchase Agreement with the standby investor. The standby investor has agreed, subject to there being sufficient shares available after purchases by shareholders exercising their basic subscription privilege, to purchase from us, and we have agreed to sell to him, at the subscription price, the lesser of (i) $8.0 million of our common stock (based on the subscription price per share), (ii) all shares of common stock not purchased by shareholders exercising their basic subscription privilege, and (iii) the maximum number of shares that he may purchase without causing an “ownership change” under Section 382(g) of the Code. If for any reason we do not complete the offering, we have no obligation to sell shares to the standby investor pursuant to the Standby Purchase Agreement.

We also agreed to enter into a registration rights agreement with the standby investor (the “Registration Rights Agreement”) which will provide the standby investor demand registration and piggyback registration rights with respect to the standby investor’s resale of the Company’s equity securities, subject to customary limitations. The Registration Rights Agreement is expected to be executed in connection with closing of the sale of shares to the standby investor. We have agreed to pay the expenses associated with any registration statements filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Registration Rights Agreement. The standby investor’s demand registration rights will be immediately exercisable upon execution of the Registration Rights Agreement for, subject to certain limitations, the number of shares of common stock held by the standby investor and any equity securities issued or issuable directly or indirectly with respect to the shares of common stock held by the standby investor by way of conversion, exercise or exchange thereof or stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization.

Are there limits on the number of shares of common stock I may purchase in the offering?

Yes. Other than the standby investor or any shareholder that owns, as of the date of this prospectus, more than 5% of our common stock, a person or entity, together with related persons or entities, may not exercise subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, would result in such person or entity, together with any related persons or entities, owning 5% or more of our issued and outstanding shares of common stock following the offering, or that would otherwise require regulatory approval. In addition, any person or entity, together with related persons or entities, that exercises subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, results in such person or entity, together with any related persons or entities, owning 3% or more of our issued and outstanding shares of common stock following the offering will be required to enter into an agreement prohibiting such person or entity from purchasing additional shares that would result in such person or entity owning more than 5% of our common stock. For more information, see the section entitled “The Offering − Limitations on Amount You May Purchase.”

In addition, the Standby Purchase Agreement requires that we not accept any subscriptions or oversubscriptions in the offering that we believe may have an unfavorable effect on our ability to preserve our net operating loss deferred tax asset. Notwithstanding any other information presented in this prospectus, we do not intend to accept any oversubscriptions that we believe may have an unfavorable effect on our ability to preserve our net operating loss deferred tax asset. For more information, see the section of this prospectus entitled “Our Net Operating Loss Deferred Tax Asset” on page [•].

How do I exercise my subscription rights?

If you wish to participate in the offering, you must deliver your payment along with your properly completed and signed subscription rights certificate, and any other subscription materials, to the subscription agent. Payments must be made in full in U.S. dollars for the full number of shares for which you are subscribing by:

personal check payable to “Computershare, Inc., as Subscription Agent for Village Bank and Trust Financial Corp.” drawn upon a U.S. bank; or

certified check payable to “Computershare, Inc., as Subscription Agent for Village Bank and Trust Financial Corp.” drawn upon Village Bank.

Please note that funds paid by personal check may take seven or more business days to clear. Accordingly, if you wish to pay by means of a personal check, we urge you to make payment sufficiently in advance of the expiration date to ensure that the subscription agent receives cleared funds before that time. We also urge you to consider payment by means of a certified check drawn upon Village Bank in order to expedite the receipt of your payment.

Please follow the payment and delivery instructions accompanying the subscription rights certificate. DO NOT DELIVER DOCUMENTS TO THE COMPANY OR THE BANK. As described in this prospectus and in the instructions accompanying the subscription rights certificate, in certain cases additional documentation or medallion guarantees may be required. For more information, see the section entitled “The Offering − Method of Exercising Subscription Rights.” You are solely responsible for completing delivery to the subscription agent of your subscription rights certificate, any other subscription materials, and payment. We urge you to allow sufficient time for delivery of your subscription materials to the subscription agent so that the subscription agent receives them by 5:00 p.m., Eastern Time, on [•], 2015. We are not responsible for subscription materials sent directly to our offices.

If you send a payment that is insufficient to purchase the number of shares you requested, or if the number of shares you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to the availability of shares under the oversubscription privilege and purchase limitations. Any excess subscription payments received by the subscription agent will be returned promptly, without interest or penalty, following the expiration of the offering. We reserve the right to reject any attempted subscription that does not include proper documentation or matching payment.

What should I do if I want to participate in the offering, but my shares are held in the name of my broker, dealer, custodian bank, or other nominee?

If you hold your shares of common stock in the name of a broker, dealer, custodian bank, or other nominee, then your broker, dealer, custodian bank, or other nominee is the record holder of the shares you own. You will not receive a subscription rights certificate. The record holder must exercise the subscription rights on your behalf for the shares of common stock you wish to purchase in the offering.

If you wish to purchase shares of our common stock through the offering, please promptly contact your broker, dealer, custodian bank, or other nominee as record holder of your shares. We will ask your record holder to notify you of the offering. However, if your broker, dealer, custodian bank, or other nominee does not contact you, then you should promptly initiate contact with it. Your broker, dealer, custodian bank, or other nominee may establish a deadline prior to 5:00 p.m., Eastern Time, on [•], 2015, which we established as the expiration date of the offering, by which you must provide it with your instructions to exercise your subscription rights and pay for your shares.

Will I be entitled to subscribe for shares in the offering if I failed to return my old stock certificates in connection with the reverse stock split?

Yes. All shareholders will be permitted to participate in the offering. We will calculate the number of rights each holder is entitled to receive on a post-split basis, regardless of whether a holder has failed to return his or her old stock certificates. Old certificates that were not returned to the Company in connection with the reverse split represent the right of the holder to exchange his or her certificates for new certificates representing post-split shares. If you failed to return your old certificates, please do so by following the instructions set forth on the transmittal materials that were sent to you in connection with the reverse stock split.

Am I required to exercise all of the rights I receive in the offering?

No. You may exercise any number of your subscription rights, or you may choose not to exercise any subscription rights. However, if you choose not to exercise your basic subscription privilege in full, the relative percentage of our shares of common stock that you own will decrease as a result of the offering, and your voting and other rights will be diluted. In addition, if you do not exercise your basic subscription privilege in full, you will not be entitled to participate in the oversubscription privilege. For more information, see “How many shares of common stock will be outstanding after the offering?” in this section.

Will our officers and directors be exercising their subscription rights?

Certain of our directors and officers have indicated that they intend to participate in the offering, although they are not required to do so. Collectively, we expect our directors and officers, together with their affiliates, to purchase up to approximately 85,000 shares in the offering. As of the record date, our directors and officers, together with their affiliates, beneficially own approximately 116,710 shares of common stock (excluding shares underlying options) and are entitled to purchase approximately 350,130 shares in the offering by exercising their respective basic subscription privileges on the same terms and conditions applicable to all shareholders. Following the offering, our directors and officers, together with their affiliates, are expected to own an aggregate of approximately 201,710 shares of common stock, or approximately 14.4% of our total outstanding shares of common stock if we sell all 1,051,866 shares offered in the offering.

Has our board of directors made a recommendation to our shareholders regarding the exercise of rights under the offering?

No. Neither our board of directors nor our sales agents are making any recommendation to you about whether you should exercise any subscription rights. Shareholders who exercise their subscription rights risk a loss on their investment. We cannot assure you that the market price of our common stock will be above the subscription price or that anyone purchasing shares at the subscription price will be able to sell those shares in the future at the same price or a higher price. You are urged to make your decision based on your own assessment of our business and the offering. Please review the section entitled “Risk Factors” for a discussion of some of the risks involved in investing in our common stock.

What other agreements do we have in place with the standby investor and will the standby investor receive any compensation for his commitment?

In the Standby Purchase Agreement, the standby investor has granted to the Company an option to redeem for cash, or exchange in connection with the offering at the subscription price, (i) all of the 4,023 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A preferred stock”), that he owned as of the date of the Standby Purchase Agreement based on a valuation of $500.34 per share of Series A preferred stock, and (ii) any additional shares of Series A preferred stock that he subsequently acquires based on a valuation of the Series A preferred stock that equates to a 5% annualized return on the amount that the standby investor pays to purchase such additional shares of Series A preferred stock. The standby investor has entered into an agreement to purchase an additional 5,000 shares of Series A preferred stock from another holder for $500.34 per share; provided, however, that, pursuant to the terms of such agreement, the purchase price per share has been increasing by $0.274 per day since November 20, 2014 and will continue to increase until the closing date of such purchase. The standby investor closed on the purchase of 2,221 of such shares (the maximum amount allowable without receipt of additional regulatory approval) on December 23, 2014 for $509.656 per share. As of January 15, 2015, the purchase price per share for the remaining 2,779 shares was $515.96. The purchase of the additional 2,779 shares is contingent upon, among other things, the standby investor obtaining approval of the Federal Reserve Bank of Richmond (the “Reserve Bank”) to purchase such shares. Any redemption by the Company of Series A preferred stock for cash will also be contingent upon approval from the Reserve Bank.

In addition, if the Company terminates the Standby Purchase Agreement because of a breach of the agreement by the standby investor or because the standby investor is unable to obtain regulatory approval to acquire the shares he has committed to purchase, the Company will have an option expiring June 30, 2015 to redeem all of the shares of Series A preferred stock that he owns based on a valuation of the greater of (i) $500.34 per share, (ii) the average price paid by the standby investor to purchase any additional Series A preferred stock increased by an amount that equates to a 5% annualized return on such purchases, and (iii) the average redemption price paid to other holders of Series A preferred stock whose shares have been redeemed for cash by the Company on or prior to such date. Such option is contingent upon the standby investor purchasing at least 5,000 additional shares of Series A preferred stock from other holders (including the 2,221 shares he has already purchased) or the Company redeeming at least 5,000 additional shares of Series A preferred stock by June 30, 2015.

We have agreed to enter into the Registration Rights Agreement, which will provide the standby investor demand registration and piggyback registration rights with respect to the standby investor’s resale of the Company’s equity securities, subject to customary limitations. The Registration Rights Agreement is expected to be executed in connection with closing of the sale of shares to the standby investor. We have also agreed reimburse the standby investor up to $37,500 of his actual out-of-pocket expenses.

In the event that the Standby Purchase Agreement is terminated because the Company determines that the offering is not in the best interests of the Company or its shareholders, we are required to pay the standby investor liquidated damages of $150,000.

How many shares will the standby investor own after the offering?

Purchasers in the offering will not know the number or percentage of our outstanding shares of common stock that the standby investor will own after the completion of the offering until the expiration of the offering period, but the Standby Purchase Agreement contemplates that the standby investor will be permitted to own up to $8.0 million (based on the subscription price per share) of our outstanding shares following the offering. The actual number of shares and percentage ownership will depend on the number of shares purchased by shareholders exercising their basic subscription privilege. The chart below presents the standby investor’s ownership if the basic subscription privilege is exercised with respect to 0%, 25%, 50% and 100% of the subscription rights held by shareholders.

	0% of Basic Subscriptions Exercised			25% of Basic Subscriptions Exercised			50% of Basic Subscriptions Exercised			100% of Basic Subscriptions Exercised

Shares of Common Stock Sold Pursuant to the Basic Subscription Privilege		0			262,966			525,933			1,051,866
Shares of Common Stock Issued to Standby Investor in Exchange for Preferred Stock (1)		336,872			382,656			382,656			0
Shares of Preferred Stock Owned by the Standby Investor After Offering (1)		1,080			0			0			9,023
Total Shares of Preferred Stock Outstanding After Offering (1)		6,795			5,715			5,715			14,738
Shares of Common Stock Purchased by Standby Investor for Cash (1)		0			206,871			143,277			0
Total Shares of Common Stock Issued in Offering		336,872			852,493			1,051,866			1,051,866
Total Shares of Common Stock Outstanding After Offering		687,494			1,203,115			1,402,488			1,402,488
Percentage Ownership of Common Stock of Standby Investor After Closing of the Offering		49.00	%		49.00	%		37.50	%		0.00	%
Total Cash Investment of Standby Investor	$	0		$	2,482,447		$	1,719,328		$	0

____________

(1)

Assumes that the standby investor will be permitted to own a maximum of 49% of the Company’s outstanding shares of common stock on a fully-diluted basis after the offering without the Company incurring an “ownership change” under Section 382(g) of the Code. The actual percentage that he will be permitted to own may be slightly less than 49% and will depend on a number of factors that will not be known until completion of the offering. Assumes that, in lieu of accepting cash, we elect to exchange as many as possible of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering.

The purchase of shares of common stock by the standby investor is subject to conditions to closing as set forth in the Standby Purchase Agreement, including obtaining the required regulatory approvals and non-objections and a letter from an independent accounting firm related to the Company’s deferred tax asset. If any of such conditions to closing are not satisfied or, where permissible, not waived, the standby investor will not participate in the offering. In addition, the standby investor may choose to terminate the Standby Purchase Agreement under certain circumstances, including if there is a material adverse change in our financial condition or operations. See “The Standby Purchase Agreement − Termination Provisions.”

How will the subscription price be determined?

The board of directors and the standby investor agreed in the Standby Purchase Agreement that the subscription price would be determined by dividing “Modified Tangible Book Value” by the number of shares of common stock outstanding as of the month-end prior to declaration of effectiveness of the registration statement of which this prospectus is a part (the “Determination Date”). The term “Modified Tangible Book Value” is defined in the Standby Purchase Agreement to mean the Company’s total consolidated equity as of the Determination Date (i) less preferred shareholder equity included in total consolidated equity on that date, (ii) less intangible assets recorded on the balance sheet on that date, (iii) plus dividends accrued from October 1, 2014 through the Determination Date on the shares owned by the standby investor, (iv) plus dividends accrued from October 1, 2014 through the Determination Date on any additional shares of Series A preferred stock purchased by the standby investor in addition to the 4,023 shares he owned as of the date of the Standby Purchase Agreement (the “Purchased TARP Shares”), (v) plus dividends accrued from October 1, 2014 through the Determination Date on any shares of Series A preferred stock redeemed by the Company (the “Redeemed TARP Shares”), and (vi) less the “TARP Purchase Premium.” The term “TARP Purchase Premium” is defined in the Standby Purchase Agreement to mean the product determined by multiplying (x) the price per Purchased TARP Share paid by the standby investor, as applicable, less $500.34 and (y) the number of Purchased TARP Shares (if any) plus 4,023. The standby investor has entered into an agreement to purchase an additional 5,000 shares of Series A preferred stock from another holder for $500.34 per share; provided, however, that, pursuant to the terms of such agreement, the purchase price per share has been increasing by $0.274 per day since November 20, 2014 and will continue to increase until the closing date of such purchase. The standby investor closed on the purchase of 2,221 of such shares (the maximum amount allowable without receipt of additional regulatory approval) on December 23, 2014 for $509.656 per share. As of January 15, 2015, the purchase price per share for the remaining 2,779 shares was $515.96. The purchase of the additional 2,779 shares is contingent upon, among other things, the standby investor obtaining approval of the Reserve Bank to purchase such shares. Any increase in the price paid for the additional 2,779 shares of Series A preferred stock will cause the offering subscription price to be reduced pursuant to the terms of the Standby Purchase Agreement. We believe that the subscription price will be between $11.00 and $13.00 per share.

In negotiating the formula for determining the subscription price, our board of directors consulted with our sales agents and considered a number of factors, including the need to offer the shares at a price that would be attractive to investors relative to the then current trading price of our common stock, the tangible book value of a share of our common stock, historical and current trading prices of our common stock, general conditions in the financial services industry, the need for capital and alternatives available to us for raising capital, potential market conditions, and the desire to provide an opportunity to our shareholders to participate in the offering on a pro rata basis. In conjunction with its review of these factors, our board of directors also reviewed our history and prospects, including our past and present earnings, our prospects for future earnings, and the outlook for our industry, our current financial condition and regulatory status, and a range of discounts to market value represented by the subscription prices in various other rights offerings.

You should not consider the subscription price as an indication of value of our company or our common stock. You should not assume or expect that, after the offering, our shares of common stock will trade at or above the subscription price in any given time period. The market price of our common stock may decline during or after the offering, and you may not be able to sell the shares of our common stock purchased during the offering at a price equal to or greater than the subscription price. You should obtain a current quote for our common stock before exercising your subscription rights and make your own assessment of our business and financial condition, our prospects for the future, and the terms of the offering. On January 14, 2015, the last reported sale price of our common stock was $25.99 per share.

How soon must I act to exercise my rights?

If you received a subscription rights certificate and elect to exercise some or all of your subscription rights, the subscription agent must receive your completed and signed subscription rights certificate and complete payment prior to the expiration of the offering, which is [•], 2015, at 5:00 p.m., Eastern Time. If you hold your shares in the name of a broker, dealer, custodian bank, or other nominee, your broker, dealer, custodian bank, or other nominee may establish a deadline prior to 5:00 p.m. Eastern Time, on [•], 2015 by which you must provide it with your instructions to exercise your subscription rights and pay for your shares.

Although we will make reasonable attempts to provide this prospectus to holders of subscription rights, the offering and all subscription rights will expire at 5:00 p.m., Eastern Time, on [•], 2015 (unless extended for up to 30 days until [•], 2015), whether or not we have been able to locate each person entitled to subscription rights.

May I transfer my subscription rights?

No. You may not transfer your subscription rights.

Are we requiring a minimum subscription to complete the offering?

No. There is no minimum subscription requirement in order to complete the offering. However, our board of directors reserves the right to cancel the offering for any reason in its discretion.

Can the board of directors extend, cancel, or amend the offering?

Yes. We have the option to extend the period for exercising your subscription rights for up to 30 days until [•], 2015. Our board of directors may cancel the offering at any time for any reason. If the offering is cancelled, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. Our board of directors reserves the right to amend or modify the terms of the offering at any time, for any reason.

What will happen if I choose not to exercise my subscription rights?

If you do not exercise any subscription rights, the number of shares of our common stock you own will not change. Because shares may be purchased by other shareholders or the standby investor, however, your percentage ownership will be diluted after the completion of the offering unless you exercise your basic subscription privilege in full. For more information, see “How many shares of common stock will be outstanding after the offering?” in this section.

After I send in my payment and subscription rights certificate, may I change or cancel my exercise of rights?

No. All exercises of subscription rights are irrevocable, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights. If we decide to extend, amend or modify the terms of the offering for any reason, subscriptions received prior to such extension, amendment or modification generally will remain irrevocable. However, if we amend this offering in a way which we believe is material, we will extend the offering and offer all subscription rights holders the right to revoke any subscription submitted prior to such amendment upon the terms and conditions we set forth in the amendment. The extension of the expiration date of this offering will not, in and of itself, be considered a material amendment for these purposes. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of our common stock at the subscription price.

When will I receive my new shares?

All shares of our common stock that you purchase in the offering will be issued electronically in book-entry (uncertificated) form. If you are a shareholder of record as of the record date and purchase shares in the offering by submitting a subscription rights certificate and payment, we will issue your new shares as soon as practicable after the completion of the offering, and you will receive confirmation from the subscription agent by mail that your shares were electronically issued. If, as of the record date, your shares were held by a broker, dealer, custodian bank, or other nominee, and you participate in the offering, your broker, dealer, custodian bank, or other nominee will be credited with the shares of common stock you purchase in the offering as soon as practicable after the completion of the offering, and your nominee will credit your account with such shares. Until your shares have been issued in book-entry form or your account is credited with such shares, you may not be able to sell your shares.

How many shares of common stock will be outstanding after the offering?

As of November 30, 2014, 350,622 shares of our common stock were issued and outstanding. Assuming that there are no other transactions by us involving shares of our common stock, no outstanding options for shares of our common stock are exercised prior to the expiration of the offering, and the full 1,051,866 shares of our common stock are subscribed for in the offering or purchased (or issued in exchange for Series A preferred stock) by the standby investor, we expect 1,402,488 shares of common stock to be outstanding immediately after completion of the offering. As a result of the offering, the ownership interests and voting interests of the existing shareholders that do not fully exercise their basic subscription privilege will be diluted.

Are there risks in exercising my subscription rights?

Yes. The exercise of your subscription rights involves risks. Exercising your subscription rights involves the purchase of additional shares of common stock and should be considered as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described in the section entitled “Risk Factors” in this prospectus and the documents incorporated by reference in this prospectus.

If the offering is not completed, will my subscription payment be refunded to me?

Yes. The subscription agent will hold all funds it receives in an escrow account until completion of the offering. If the offering is not completed, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. If you hold shares through a broker, dealer, custodian bank, or other nominee, it may take longer for you to receive payment because the subscription agent will return payments through the record holder of your shares.

What fees or charges apply if I purchase the shares in the offering?

We are not charging any fee or sales commission to issue subscription rights to you or to issue shares to you if you exercise your subscription rights. If you exercise your subscription rights through your broker, dealer, custodian bank, or other nominee, you are responsible for paying any fees your nominee may charge you.

What are the U.S. federal income tax consequences of exercising my subscription rights?

For U.S. federal income tax purposes, you should not recognize income or loss upon receipt or exercise of subscription rights. You should consult your tax advisor as to your particular tax consequences resulting from the offering. For a more detailed discussion, see the section entitled “U.S. Federal Income Tax Consequences.”

Whom should I contact if I have other questions?

For a more complete description of the offering, see “The Offering” beginning on page [•]. If you have any questions regarding completing a subscription rights certificate or submitting payment in the offering, please contact our sales agents, Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., at (216) 378-1297. If you have any general questions regarding the offering, the Company, or the Bank, please contact our Chief Financial Officer, C. Harril Whitehurst, Jr., at (804) 419-1232.

SUMMARY

This summary contains basic information about us and this offering. Because it is a summary, it does not contain all of the information that you should consider before investing. You should read this entire prospectus carefully, including the section entitled “Risk Factors,” our financial statements and the notes thereto incorporated by reference to our annual report and quarterly reports, and the other documents we refer to and incorporate by reference in this prospectus for a more complete understanding of us and this offering before making an investment decision. In particular, we incorporate important business and financial information in this prospectus by reference.

Village Bank and Trust Financial Corp.

Village Bank and Trust Financial Corp. was incorporated in January 2003 under the laws of the Commonwealth of Virginia as a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company has three active wholly owned subsidiaries: Village Bank, Southern Community Financial Capital Trust I, and Village Financial Statutory Trust II. The Bank has one active wholly owned subsidiary: Village Bank Mortgage Corporation (the “mortgage company”), a full service mortgage banking company.

The Bank operates 11 retail branch offices offering a wide range of banking and related financial services, including checking, savings, certificates of deposit and other depository services, and commercial, real estate and consumer loans, primarily in the Richmond, Virginia metropolitan area. The Bank also operates four mortgage banking offices, two in the Richmond, Virginia metropolitan area and one in each of Manassas, Virginia and Newport News, Virginia. The Bank was organized in 1999 as a Virginia chartered bank to engage in a general banking business to serve the communities in and around Richmond, Virginia. The Bank offers a comprehensive range of financial services and products and specializes in providing customized financial services to small and medium sized businesses, professionals, and associated individuals. The Bank provides its customers with personal customized service utilizing the latest technology and delivery channels.

The Bank’s revenues are derived from interest and fees received in connection with loans, deposits, and investments. Administrative and operating expenses are the major expenses, followed by interest paid on deposits and borrowings. Revenues from the mortgage company consist primarily of gains from the sale of loans and loan origination fees, and its major expenses consist of personnel, advertising, and other operating expenses. As of September 30, 2014, we had total consolidated assets of $433.0 million, total loans of $275.1 million, total deposits of $380.7 million and total shareholders’ equity of $18.7 million. For the year ended December 31, 2013, we had a net loss of $(4.0) million and a net loss available to common shareholders of $(4.9) million. For the nine months ended September 30, 2014, we had a net loss totaling $(701,000) and a net loss available to common shareholders of $(1.8) million. For the three months ended September 30, 2014, we had net income of $134,000 and net loss available to common shareholders of $(411,000). The net loss available to common shareholders reflects the impact of the accrued dividends on our preferred stock.

As a bank holding company, we are subject to the supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). We are required to file with the Federal Reserve reports and other information regarding our business operations and the business operations of our subsidiaries. As a state-chartered non-member institution, the Bank is subject to supervision, periodic examination and regulation by the FDIC, its primary federal regulator, and by the Virginia BFI. Deposits with the Bank are insured to the maximum amount provided by the FDIC, and the Bank is also subject to regulation and examination by the FDIC.

In February 2012, the Bank entered into a Consent Order with the FDIC and the Virginia BFI. Among other things, the Consent Order required the Bank to maintain Tier 1 and total risk-based capital in excess of 8% and 11%, respectively, to develop and submit plans to reduce and improve its problem loan portfolio, reduce its commercial real estate concentration, maintain an appropriate allowance for loan losses, review its management performance, and correct certain violations of law. In June 2012, the Company entered into a Written Agreement (the “Written Agreement”) with the Reserve Bank. Under the terms of the Written Agreement, the Company developed and submitted to the Reserve Bank for approval written plans to maintain sufficient capital and correct violations of Section 23A of the Federal Reserve Act and Regulation W. See “Use of Proceeds” on page [•] for more information regarding the Bank’s current regulatory capital ratios and the potential impact of the net proceeds from the offering.

We are currently in partial compliance with the Written Agreement and Consent Order, and gaining full compliance will require securing additional capital through the offering described in this prospectus or otherwise, continuing to improve asset quality and curing the Company’s violation of Regulation W. The Company is seeking to cure the Regulation W violation by selling its headquarters building and relocating headquarters staff to another property already owned by the Company. The Company has not been successful in efforts to sell its headquarters building and continues to update the Reserve Bank on such efforts.

Our common stock is listed on the NASDAQ Capital Market under the ticker symbol “VBFC.” See “Risk Factors” and “Market Price of Common Stock and Dividend Policy − Market Price of Common Stock” regarding our noncompliance with NASDAQ Listing Rule 5550(a)(4) and the potential for delisting of our common stock.

Corporate Information

Our principal executive offices are located at 13319 Midlothian Turnpike, Midlothian, Virginia 23113 and our telephone number is (804) 897-3900. Our principal website is http://www.villagebank.com. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.

The Offering

The following summary describes the principal terms of the offering, but is not intended to be complete. See the information in the section entitled “The Offering” beginning on page [•] of this prospectus for a more detailed description of the terms and conditions of the offering.

Shares available in offering		1,051,866

Rights distributed		We are distributing to you, at no charge, one non-transferable subscription right for each share of our common stock that you own as of 5:00 p.m., Eastern Time, on the record date, either as a holder of record or, in the case of shares held of record by brokers, dealers, custodian banks, or other nominees on your behalf, as a beneficial owner of such shares.

Basic subscription privilege		The basic subscription privilege of each subscription right will entitle you to purchase three shares of our common stock at the subscription price.

Determination of subscription price		The subscription price will be determined pursuant to the formula set forth in the Standby Purchase Agreement. The formula was determined by the board of directors through negotiations with the standby investor and consideration of a variety of factors. We expect the subscription price to be between $11.00 and $13.00 per share. To be effective, any payment related to the exercise of a subscription right must clear prior to the expiration of the offering.

Oversubscription privilege		If you fully exercise your basic subscription privilege, you may also subscribe for additional shares in the event that not all available shares are purchased pursuant to the shareholders’ basic subscription privilege or by the standby investor. However, the oversubscription privilege will only be offered for an aggregate number of shares that, when combined with the number of shares purchased pursuant to the shareholders’ basic subscription privilege and by the standby investor, does not exceed 1,051,866 shares. We reserve the right to accept or reject oversubscriptions for any reason.

Limitations on amount purchased		Other than the standby investor or any shareholder that owns, as of the date of this prospectus, more than 5% of our common stock, a person or entity, together with related persons or entities, may not exercise subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, would result in such person or entity, together with any related persons or entities, owning 5% or more of our issued and outstanding shares of common stock following the offering, or that would otherwise require regulatory approval. In addition, any person or entity, together with related persons or entities, that exercises subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, results in such person or entity, together with any related persons or entities, owning 3% or more of our issued and outstanding shares of common stock following the offering will be required to enter into an agreement prohibiting such person or entity from purchasing additional shares that would result in such person or entity owning more than 5% of our common stock. In addition, we do not intend to accept any oversubscriptions that we believe may have an unfavorable effect on our ability to preserve our deferred tax asset.

Record date		5:00 p.m., Eastern Time, on January 20, 2015.

Expiration date of offering		5:00 p.m., Eastern Time, on [•], 2015, unless we extend the offering period for up to 30 days until [•], 2015.

Use of proceeds		Although the actual amount of proceeds will depend on participation in the offering, if the offering is fully-subscribed and the subscription price is $12.00 per share (the middle of the anticipated subscription price range), we expect the gross proceeds from the offering to be $12,622,392. We intend to use the proceeds from the offering to raise equity capital to improve our capital position, provide additional capital for the Bank to help achieve and maintain the capital ratios required by the Bank’s Consent Order, and for general corporate purposes. See “Use of Proceeds” on page [•] for more information.

No transfer		The subscription rights are not transferable.

No board recommendation		Neither our board of directors nor our sales agents, Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., are making any recommendation to you about whether you should exercise any subscription rights. You are urged to make an independent investment decision about whether to exercise your subscription rights based on your own assessment of our business and the offering. Please see the section of this prospectus entitled “Risk Factors” beginning on page [•] for a discussion of some of the risks involved in investing in our common stock.

No revocation		Any exercise of subscription rights is irrevocable, even if you later learn information that you consider to be unfavorable to the exercise of your rights. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of common stock at the subscription price.

U.S. federal income tax consequences		For U.S. federal income tax purposes, you should not recognize income or loss upon receipt or exercise of subscription rights. You should consult your own tax advisor as to your particular tax consequences resulting from the offering. For a detailed discussion, see “U.S. Federal Income Tax Consequences” on page [•].

Extension, cancellation, and amendment		We have the option to extend the period for exercising your subscription rights, for up to 30 days until [•], 2015. If we extend the offering period, we will give notice to the subscription agent prior to the expiration of the offering and will issue a press release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day after the most recently announced expiration date of the offering.

		Our board of directors may cancel the offering at any time for any reason. In the event that the offering is cancelled, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. We also reserve the right to amend or modify the terms of the offering. If we decide to extend, amend or modify the terms of the offering for any reason, subscriptions received prior to such extension, amendment or modification generally will remain irrevocable. However, if we amend this rights offering in a way which we believe is material, we will extend the offering and offer all subscription rights holders the right to revoke any subscription submitted prior to such amendment upon the terms and conditions we set forth in the amendment. The extension of the expiration date of this offering will not, in and of itself, be considered a material amendment for these purposes.

Procedure for exercising rights		To exercise your subscription rights, you must take the following steps: • If you are a registered holder of our shares of common stock, you must deliver payment and a properly completed subscription rights certificate, and any other subscription materials, to the subscription agent before 5:00 p.m., Eastern Time, on [•], 2015. You may deliver the documents and payments by mail or commercial carrier. If regular mail is used for this purpose, we recommend using registered mail, properly insured, with return receipt requested. • If you are a beneficial owner of shares that are registered in the name of a broker, dealer, custodian bank, or other nominee, you should instruct your broker, dealer, custodian bank, or other nominee to exercise your subscription rights on your behalf and deliver all documents and payments before 5:00 p.m., Eastern Time, on [•], 2015.

Subscription agent		Computershare, Inc.

Shares outstanding before the offering		350,622 shares of common stock as of November 30, 2014.

Shares outstanding after completion of the offering		Assuming that there are no other transactions by us involving shares of our common stock, no outstanding options for shares of our common stock are exercised prior to the expiration of the offering, and the full 1,051,866 shares are subscribed for in the offering or otherwise sold or exchanged for Series A preferred stock in connection with the offering, we expect 1,402,488 shares of common stock will be outstanding immediately after completion of the offering.

Risk factors		Shareholders considering exercising their subscription rights should carefully consider the risk factors described in the section of this prospectus entitled “Risk Factors,” beginning on page [•] of this prospectus.

Fees and expenses		We will pay the fees and expenses relating to the offering. However, if you exercise your subscription rights through your broker, dealer, custodian bank, or other nominee, you are responsible for paying any fees your nominee may charge you.

Trading symbol		Shares of our common stock are listed on the NASDAQ Capital Market under the symbol “VBFC.” The last reported sale price of our common stock on the NASDAQ Capital Market on January 14, 2015 was $25.99.

Questions

If you have any questions regarding completing a subscription rights certificate or submitting payment in the offering, please contact our sales agents, Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., at (216) 378-1297. If you have any general questions regarding the offering, the Company, or the Bank, please contact our Chief Financial Officer, C. Harril Whitehurst, Jr., at (804) 419-1232.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the specific risks described below and any risks described in our other filings with the Commission that are incorporated by reference in this prospectus before making an investment decision. Any of the risks we describe below or in the information incorporated by reference in this prospectus could cause our business, financial condition, results of operations, or future prospects to be materially adversely affected. The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events and you could lose all or part of your investment.

Risks Related to the Offering

The standby investor’s purchase of shares pursuant to the Standby Purchase Agreement is subject to conditions to closing that could result in such transaction being delayed or not consummated, which could negatively impact our stock price and future business operations.

The purchase of shares by the standby investor is subject to conditions to closing as set forth in the Standby Purchase Agreement, including obtaining the required regulatory approvals and non-objections and a letter from an independent accounting firm related to the Company’s deferred tax asset. If any of such conditions to closing are not satisfied or, where permissible, not waived, the standby investor will not participate in the offering. In addition, the standby investor may choose to terminate the Standby Purchase Agreement under certain circumstances, including if there is a material adverse change in our financial condition or operations. Failure to sell shares to the standby investor could negatively impact our stock price, future business and operations, and financial condition. In addition, any delay in the consummation of such sale, or any uncertainty about the participation of the standby investor, may adversely affect our future business, growth, revenue, and results of operations.

The subscription price determined for the offering may not be indicative of the value of our common stock.

Our board of directors determined the subscription price of the common stock after negotiations with the standby investor, discussions with our sales agents and consideration of a variety of factors. You should not consider the subscription price as an indication of value of our company or our common stock. You should not assume or expect that, after the offering, our shares of common stock will trade at or above the subscription price in any given time period. The market price of our common stock may decline during or after the offering, and you may not be able to sell the underlying shares of our common stock purchased during the offering at a price equal to or greater than the subscription price. The value of our common stock may also be subject to significant fluctuations in response to our future operating results and other factors.

Neither our board of directors nor our sales agents are making any recommendation to you about whether you should exercise any subscription rights. Shareholders who participate in the offering risk the loss of their entire investment.

The offering may cause the trading price of our common stock to decrease immediately, and this decrease may continue.

The subscription price at which we are selling shares in the offering is less than the recent trading prices of our common stock as reported by the NASDAQ Capital Market. Additionally, the number of shares we expect to issue if we complete the offering may result in an immediate decrease in the per share market value of our common stock. If the holders of the shares purchased in this offering choose to sell some or all of those shares, the resulting sales could further depress the market price of our common stock. On January 14, 2015, the last reported sale price of our common stock was $25.99 per share.

Your ownership interest may be significantly diluted if you do not exercise your subscription rights in the offering.

To the extent that you do not exercise your basic subscription privilege and shares are purchased by the standby investor or other shareholders in the offering, your proportionate voting interest will be reduced, and the percentage that your original shares represent of our outstanding common stock after the offering may be significantly diluted.

If you do not act promptly and follow the subscription instructions, your exercise of rights will be rejected.

If you desire to purchase shares of our common stock in the offering, you must act promptly to ensure that the subscription agent receives all required forms and payments before the expiration of the offering at 5:00 p.m., Eastern Time, on [•], 2015. If you own your shares in street name, you must act promptly to ensure that your broker, dealer, custodian bank, or other nominee acts for you and that the subscription agent receives all required forms and payments before the offering expires. We are not responsible if your nominee fails to ensure that the subscription agent receives all required forms and payments before the offering expires. If you fail to complete and sign the subscription rights certificate and other required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to the exercise of your rights before the offering expires, the subscription agent will reject your subscription or accept it only to the extent of the payment received before the offering expires. Neither we nor our sales agents or subscription agent undertake any responsibility or action to contact you concerning an incomplete or incorrect subscription form or payment, nor are we or they under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly complies with the subscription procedures.

You will not be able to sell the shares of common stock for which you subscribe in the offering until such shares are issued to you.

If you subscribe for shares in the offering by submitting a completed and signed subscription rights certificate with other required subscription forms and payment, we will issue your shares as soon as practicable following the expiration of the offering. If your shares are held by a broker, dealer, custodian bank, or other nominee and you subscribe for shares in the offering, your nominee will be credited with the shares you purchase and your account will be credited by your nominee at such time. Until the shares of common stock for which you subscribe are issued to you, you may not be able to sell your shares. The stock price may decline between the time you decide to sell your shares and the time you are actually able to sell your shares.

Since you cannot revoke the exercise of your subscription rights and the market price of our common stock may decline after you elect to exercise the subscription rights, you could be committed to buying shares above the market price of our common stock.

Your exercise of subscription rights is irrevocable, even if you learn information about us that you consider unfavorable during the offering period subsequent to your exercise and even if the terms of the offering are amended or modified. The market price of our common stock may decline after you elect to exercise your subscription rights. If you exercise your subscription rights and, afterwards, the public trading market price of our common stock decreases below the subscription price, you will have committed to buying shares of our common stock at a price above the prevailing market price and could have an immediate unrealized loss. Our common stock is listed on the NASDAQ Capital Market under the symbol “VBFC,” and the closing sale price of our common stock on January 14, 2015, as reported by the NASDAQ Capital Market, was $25.99 per share. Following the exercise of your subscription rights you may not be able to sell your common stock at a price equal to or greater than the subscription price. We will not pay you interest on any funds delivered to the subscription agent pursuant to the exercise of subscription rights.

Because our management will have broad discretion over the use of the net proceeds from the offering, you may not agree with how we use the proceeds.

We will have broad discretion over the use of the net proceeds of this offering. We currently intend to use the net proceeds from the offering to improve our capital position, provide additional capital for the Bank to help achieve and maintain the capital ratios required by the Bank’s Consent Order, and for general corporate purposes. However, our management may allocate the proceeds as it deems appropriate. Accordingly, you will be relying on the judgment of our management with regard to the use of the proceeds of the offering, and you will not have the opportunity, as part of your investment decision, to influence how the proceeds are being used.

The standby investor may have significant influence over our business and his interests may not align with your interests as a holder of our common stock.

The percentage of our outstanding shares that the standby investor will own after the completion of the offering will vary based on the number of subscription rights that are exercised by shareholders and the number of shares purchased by the standby investor under the Standby Purchase Agreement. Pursuant to the Standby Purchase Agreement, the standby investor may hold up to $8.0 million (based on the subscription price per share) of our outstanding shares after completion of the offering. The standby investor has agreed in the Standby Purchase Agreement to abide by certain standstill provisions that restrict his ability to, among other things, vote more than 40% of the outstanding shares of the Company’s common stock or support director nominees and business combination transactions that are not supported by the Company’s board. However, such restrictions are only applicable for a period of three years from the date of the Standby Purchase Agreement and are contingent upon (i) the Company achieving certain performance objectives, and (ii) the standby investor being a director or beneficial holder of 10% or more of a bank or bank holding company with one or more offices in the Richmond, Virginia metropolitan statistical area. The standby investor is currently a director and a beneficial holder of greater than 10% of the outstanding common stock of First Capital Bancorp, Inc., the parent holding company for First Capital Bank which has eight branch offices in the Richmond, Virginia metropolitan statistical area. Notwithstanding such restrictions, because of the percentage of our common stock that may be held by the standby investor, he may be able to influence the outcome of any matter submitted to a vote of our shareholders. In addition, if he makes a significant investment in the Company, we will likely seek the standby investor’s input on significant operational matters given his experience in the banking industry.

The interests of the standby investor may not align precisely with your interests as a holder of our common stock. In addition to being a director and a significant shareholder of First Capital Bancorp, Inc., the standby investor is also currently a significant shareholder of Four Oaks Fincorp, Inc., the parent holding company for Four Oaks Bank which is headquartered in Four Oaks, North Carolina. These affiliations may create conflicts of interest. For example, his affiliation with First Capital Bancorp, Inc., a competitor operating in our market, could incentivize him to take or approve actions with respect to First Capital Bancorp, Inc. that may have a negative impact on us (e.g. marketing efforts, product pricing, lending policies, business combination transactions, etc.). While we believe his potentially significant investment in the Company may provide some protection in this regard, he will not owe a fiduciary duty to the Company and we will have no control over his actions with regard to his other investments.

Significant sales of our common stock, or the perception that significant sales may occur in the future, could adversely affect the market price for our common stock.

The sale of substantial amounts of our common stock could adversely affect the price of the shares. The availability of shares for future sale, including up to 1,051,866 shares of our common stock to be issued in the offering, could adversely affect the prevailing market price of our common stock and could cause the market price of our common stock to remain low for a substantial amount of time. Additionally, we are obligated under the Standby Purchase Agreement to establish a restricted stock plan (the “Restricted Stock Plan”) immediately following the offering under which a number of shares of our common stock equal to 4.0% of the number of outstanding shares immediately after the closing of the offering will be reserved for issuance to our directors and officers. Under NASDAQ rules, adoption of the Restricted Stock Plan must be approved by the Company’s shareholders. Additional equity awards may also be granted under our existing incentive plan. It is possible that if a significant percentage of such available shares were attempted to be sold within a short period of time, the market for our shares would be adversely affected. It is unclear whether or not the market for our common stock could absorb a large number of attempted sales in a short period of time, regardless of the price at which they might be offered. Even if a substantial number of sales do not occur within a short period of time, the mere existence of this “market overhang” could have a negative impact on the market for our common stock and our ability to raise additional capital.

A substantial percentage of the proceeds from the offering may be used to pay for the offering expenses, and there is not a minimum number of shares that we must sell to complete the offering.

There is no condition in the offering to sell any minimum number or dollar amount of shares. To the extent that shareholders do not purchase significant shares through the exercise of basic subscription rights or oversubscription privilege, or the Standby Purchase Agreement is terminated, you may be one of only a small number of investors who elect to purchase shares of our common stock. In addition, a substantial percentage of the offering proceeds may be used to pay for the offering expenses, and not for providing additional capital to the Company and the Bank, which may have an adverse effect on our financial condition and future operations.

We may cancel the offering at any time, and neither we nor the subscription agent will have any obligation to you except to return your subscription payments.

We may, in our sole discretion, decide not to continue with the offering or cancel the offering at any time. If the offering is cancelled, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. We currently have no intention to terminate the offering, but are reserving the right to do so. If we elect to terminate the offering, none of the Company, the subscription agent or the sales agents will have any obligation with respect to subscriptions except to return, without interest or penalty, the previously submitted subscription payments.

We may not be able to realize the benefit of our net operating loss deferred tax asset.

As of December 31, 2013 and September 30, 2014, we had a total deferred tax asset of $14.0 million and $13.1 million, a valuation allowance of $11.9 million and $12.2 million, and a deferred tax liability of $100,000 and $79,000, respectively, for a net deferred tax asset of $2.0 million and $829,000, respectively. As of December 31, 2013, and September 30, 2014, the amount of the gross deferred tax asset attributable to our net operating loss carryforwards was $5.3 million and $7.4 million, respectively, and was fully reduced by a valuation allowance at both dates. A deferred tax asset is reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of the total deferred tax asset will not be realized. We believe that, subject to certain limitations including federal tax laws relating to “ownership changes,” should we return to profitability over a sustained period of time and project future profits while remaining well capitalized, then we would be able to reverse some or all of the deferred tax asset valuation allowance, including the portion allocable to our net operating loss carryforwards, and our shareholders’ equity would increase accordingly. Even if we are able to reverse the deferred tax asset valuation allowance, however, the only portion of a deferred tax asset that may be included in Tier 1 capital for regulatory capital purposes is the amount that may be utilized over the next 12 months.

We have attempted to structure the offering to avoid an “ownership change” under Section 382 of the Code. However, an ownership change may still occur as a result of the offering or otherwise, which would significantly limit the amount of the net operating loss carryforwards that we might otherwise be able to utilize once we have returned to profitability. Therefore, even if our results of future operations allow us to reverse the deferred tax valuation allowance allocable to our net operating loss deferred tax asset, the amount of that deferred tax asset could be significantly less than the $7.4 million balance at September 30, 2014. Accordingly the aforementioned increase in our shareholders’ equity that would result from the reversal of the valuation allowance allocable to our net operating loss deferred tax asset would also be significantly reduced.

Risks Related to Our Common Stock

An investment in our common stock is not an insured deposit, and as with any stock, inherent market risk may cause you to lose some or all of your investment.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.

Our common stock is thinly traded which may limit the ability of shareholders to sell their shares and may increase price volatility.

Our common stock is listed on the NASDAQ Capital Market under the symbol “VBFC.” Our common stock is thinly traded and has substantially less liquidity than the average trading market for many other publicly traded companies. We cannot assure you that a more active trading market for our common stock will develop or be sustained following the offering. The development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within our control. The number of active buyers and sellers of our common stock at any particular time may be limited. Therefore, our shareholders may not be able to sell their shares at the volume, prices, or times that they desire. You should consider the limited trading market for the shares and be financially prepared and able to hold your shares for an indefinite period.

In addition, thinly traded stocks can be more volatile than more widely traded stocks. Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include, but are not limited to, changes in analysts’ recommendations or projections, developments related to our business, operations, stock performance of other companies deemed to be peers, news reports of trends, concerns, irrational exuberance on the part of investors, and other issues related to the financial services industry. Over the past several years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies, including those in the financial services sector, have experienced wide price fluctuations that have not necessarily been related to operating performance. Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance. General market declines or market volatility in the future, especially in the financial institutions sector of the economy, could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

If our common stock is delisted from the NASDAQ Capital Market, the market value of, and your ability to sell, shares of our common stock may be materially and adversely affected.

On August 8, 2014, we received a letter from NASDAQ informing us that we were no longer in compliance with NASDAQ Listing Rule 5550(a)(4), which requires that we have at least 500,000 publicly held shares of common stock. The phrase “publicly held shares” is defined by NASDAQ to mean the total number of shares outstanding less any shares held by officers, directors or beneficial owners of 10% or more. According to the letter from NASDAQ, we had 227,276 publicly held shares as of August 8, 2014. On September 22, 2014, we submitted to NASDAQ a plan to regain compliance with such rule. The plan was accepted by NASDAQ and we were given a deadline of February 4, 2015 to implement our plan and regain compliance. This offering was one of the alternatives presented to NASDAQ in the plan. If the offering is fully-subscribed, we expect to issue 1,051,866 new shares of common stock and exceed the minimum of 500,000 publicly held shares following the offering. However, if the standby investor purchases, or receives in exchange for Series A preferred stock, sufficient shares of common stock such that he will own more than 10% of our outstanding common stock after the offering, his shares will not be considered publicly held shares and the Company may not be able to issue a sufficient number of other shares to regain compliance. In the event that we do not issue sufficient shares in the offering to meet such minimum, we intend to explore alternative actions to maintain our listing. However, there is no guarantee that such actions will be effective in increasing our publicly held shares, or that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our common stock. If our common stock is delisted from the NASDAQ Capital Market, your ability to sell your shares of common stock may be limited, and the market value of our common stock may be materially adversely affected as a result of lower trading volumes or trade delays. Delisting from NASDAQ could also result in negative publicity, adversely affect our ability to raise additional capital, adversely affect the liquidity of our common stock, limit our ability to meet our liquidity needs, and diminish investor, business partner and employee confidence.

As part of our capital raising efforts, we may issue additional shares of common stock or convertible securities that would dilute the percentage ownership interest of existing shareholders, and may dilute the book value per share of common stock. This could adversely affect the terms on which we may obtain additional capital.

Our authorized capital includes 10,000,000 shares of common stock. As of November 30, 2014, we had 350,622 shares of common stock outstanding and had 6,830 shares of common stock underlying options that are or may become exercisable at a weighted average exercise price of $92.34 per share. As of November 30, 2014, we had the ability to issue 19,596 shares of common stock pursuant to options that may be granted in the future under our existing equity compensation plans. Up to 1,051,866 shares of common stock may be issued to our existing shareholders and the standby investor pursuant to the offering. Additionally, we are obligated under the Standby Purchase Agreement to establish the Restricted Stock Plan immediately following the offering under which a number of shares of our common stock equal to 4.0% of the number of outstanding shares immediately after the closing of the offering will be reserved for issuance to our directors and officers. Under NASDAQ rules, adoption of the Restricted Stock Plan must be approved by the Company’s shareholders.

Subject to applicable law, our board of directors generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of common stock for any corporate purpose, including issuance of equity-based incentives under or outside of our equity compensation plans. Any issuance of additional shares of common stock or convertible securities will dilute the percentage ownership interest of our shareholders, may dilute the book value per share of our common stock, and could adversely affect the terms on which we may obtain additional capital.

In addition, as described in further detail under “Description of Capital Stock − U.S. Treasury Warrant,” the Treasury owns a warrant to purchase 31,189.31 shares of our common stock. The warrant includes provisions providing for an adjustment of the exercise price and the number of shares underlying the warrant if we issue common stock at or below a specified price relative to the then-current market price of common stock. We believe that the offering will cause minimal or no adjustment to the warrant. However, if the Treasury takes a different position or future issuances of our common stock result in adjustments to the warrant, our shareholders could experience additional dilution.

Our ability to pay dividends and interest on our outstanding securities is currently restricted.

We have not paid any cash dividends on our common stock since inception, and we do not expect to pay cash dividends on our common stock for the foreseeable future. In order to preserve capital, we have deferred interest payments on our junior subordinated debt securities and dividends on our Series A preferred stock. Pursuant to the terms of the indenture governing the junior subordinated debt securities and our Articles of Incorporation, as amended (the “Articles”), we may not pay any cash dividends on our common stock until we are current on interest payments on such junior subordinated debt securities and current on dividend payments on our Series A preferred stock. In addition, under the terms of our Written Agreement with the Reserve Bank, we may not pay cash dividends on our common stock or certain interest payments or dividends on our other securities without the prior consent of the Reserve Bank. Accordingly, our ability to pay dividends on our common stock will be restricted until the Written Agreement is terminated. As a bank holding company, our ability to declare and pay dividends also depends on certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. The Bank is also prohibited under the Consent Order from paying dividends to the Company without the prior approval of the FDIC and the Virginia BFI. See “Market Price of Common Stock and Dividend Policy − Dividends.”

The Company’s governing documents and Virginia law contain provisions that may discourage or delay an acquisition of the Company that is supported by shareholders.

Certain provisions of the Company’s Articles and Bylaws could delay or make a merger, tender offer or proxy contest involving the Company more difficult, even in instances where the shareholders deem the proposed transaction to be beneficial to their interests. These provisions, among others, provide that a plan of merger, share exchange, sale of all or substantially all of our assets, or similar transaction must be approved and recommended by the affirmative vote of two-thirds of the directors in office or by the affirmative vote of 80% or more of all of the votes entitled to be cast on such transaction by each voting group entitled to vote, and limit the ability of shareholders to call a special meeting. In addition, certain provisions of state and federal law may also have the effect of discouraging or prohibiting a future takeover attempt in which our shareholders might otherwise receive a substantial premium for their shares over then-current market prices. To the extent that these provisions discourage or prevent takeover attempts, they may tend to reduce the market price for the Company’s common stock.

The Company’s board of directors is authorized to issue preferred stock without shareholder approval.

The Company’s board of directors, without shareholder approval, is empowered under the Company’s Articles to authorize the issuance, in one or more series, of shares of preferred stock at such times, for such purposes and for such consideration as it may deem advisable. In connection with any such issuance, the board of directors may by resolution determine the designation, voting rights, preferences as to dividends, in liquidation or otherwise, participation, redemption, sinking fund, conversion, dividend or other special rights to powers, and the limitations, qualifications and restrictions of such shares of preferred stock. Such preferred stock may have voting and conversion rights that could adversely affect the voting power of the holders of common stock and, under certain circumstances, discourage an attempt by others to gain control of the Company.

Risks Related to Our Business

We are subject to agreements with our regulators, which will require us to dedicate a significant amount of resources and which could otherwise adversely affect us.

In February 2012, the Bank entered into a Consent Order with the FDIC and the Virginia BFI. Among other things, the Consent Order required the Bank to maintain Tier 1 and total risk-based capital in excess of 8% and 11%, respectively, to develop and submit plans to reduce and improve our loan portfolio, reduce our commercial real estate concentration, maintain an appropriate allowance for loan losses, review our management performance, and correct certain violations of law. In addition, the Consent Order requires the Bank to limit asset growth to no more than 10% per year and maintain certain capital ratios higher than those required to be considered “well capitalized.” The Bank has also agreed not to declare or pay any dividends, pay bonuses or make any other form of payment outside the ordinary course of business resulting in a reduction of capital without prior regulatory approval.

In June 2012, the Company entered into a Written Agreement with the Reserve Bank. Under the terms of the Written Agreement, the Company developed and submitted to the Reserve Bank for approval written plans to maintain sufficient capital and correct any violations of Section 23A of the Federal Reserve Act and Regulation W. In addition, the Company submitted a written statement of its planned sources and uses of cash for debt service, operation expenses, and other purposes. In addition, under the terms of the Written Agreement, the Company may not pay any dividends or repurchase any shares of its capital stock without obtaining prior approval from the Reserve Bank.

While subject to these agreements, we expect that our management and board of directors will be required to continue to focus considerable time and attention on taking corrective actions to comply with the terms. In addition, certain provisions of these regulatory agreements could adversely impact the Company’s businesses and results of operations.

There also is no guarantee that we will successfully address our regulators’ concerns in the agreements or that we will be able to comply with them. If we do not comply with these regulatory agreements, we could be subject to the assessment of civil monetary penalties, further regulatory sanctions or other regulatory enforcement actions.

The Company’s business has been adversely affected by conditions in the financial markets and economic conditions generally, and could be further impacted by continued stagnation.

From December 2007 through June 2009, the U.S. economy was in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced. Although economic conditions have improved, certain sectors, such as real estate, remain weak and unemployment remains relatively high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and the lack of liquidity in the credit markets. Market conditions also led to the failure or merger of several prominent financial institutions and numerous regional and community-based financial institutions. These failures, as well as potential future failures, have had a significant negative impact on the capitalization level of the Deposit Insurance Fund of the FDIC, which, in turn, has led to a significant increase in deposit insurance premiums paid by financial institutions. Such conditions have adversely affected the credit quality of the Company’s loans, and the Company’s results of operations and financial condition. The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services the Company offers, is highly dependent upon the business environment in the markets where the Company operates. If economic conditions do not improve, our financial condition and results of operations could be adversely impacted.

Improvements in economic indicators disproportionately affecting the financial services industry may lag improvements in the general economy.

If the U.S. economy continues to improve, the improvement of certain economic indicators, such as unemployment and real estate asset values and rents, may nevertheless continue to lag behind the overall economy. These economic indicators typically affect certain industries, such as financial services, more significantly. For example, improvements in commercial real estate fundamentals typically lag broad economic recovery by 12 to 18 months. The Company’s clients include entities active in these industries. Furthermore, financial services companies with a substantial lending business are dependent upon the ability of their borrowers to make debt service payments on loans. Should unemployment or real estate asset values fail to recover for an extended period of time, the Company could be adversely affected.

Our mortgage banking revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact our profits.

Our mortgage banking operations have at times contributed a large portion of our total revenues. Maintaining this revenue stream is dependent upon our ability to originate loans and sell them to investors at or near current volumes. Loan production levels are sensitive to changes in the level of interest rates and changes in economic conditions. Loan production levels may suffer if we experience a slowdown in the local housing market or tightening credit conditions. Any sustained period of decreased activity caused by fewer refinancing transactions, higher interest rates, housing price pressure or loan underwriting restrictions would adversely affect our mortgage originations and, consequently, could significantly reduce our income from mortgage banking activities. As a result, these conditions would also adversely affect our results of operations.

Deteriorating economic conditions may also cause home buyers to default on their mortgages. In certain cases where we have originated loans and sold them to investors, we may be required to repurchase loans or provide a financial settlement to investors if it is proven that the borrower failed to provide full and accurate information on, or related to, their loan application, if appraisals for such properties have not been acceptable or when the loan was not underwritten in accordance with the loan program specified by the loan investor. Such repurchases or settlements would adversely affect our results of operations.

Our results of operations are significantly affected by the ability of our borrowers to repay their loans.

A significant source of risk is the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most of the Company’s loans are secured but some loans are unsecured. With respect to the secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, widespread disease, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. The Company has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. During the recent recession, we sustained significant loan losses that resulted in operating losses. For the year ended December 31, 2013, we had a net loss of $(4.0) million and a net loss available to common shareholders of $(4.9) million. For the nine months ended September 30, 2014, we had a net loss totaling $(701,000) and a net loss available to common shareholders of $(1.8) million. For the three months ended September 30, 2014, we had net income of $134,000 and net loss available to common shareholders of $(411,000). The net loss available to common shareholders reflects the impact of the accrued dividends on our preferred stock. The loan losses were the result of borrowers’ inability to repay coupled with a decline in the value of the collateral, primarily real estate. Beginning in the fourth quarter of 2012, we have been able to significantly reduce our provision for loan losses as our loan portfolio improves. While we are encouraged by this decline in the provision for loan losses, overall asset quality continues to be a concern as there continues to be uncertainty in the economy and the level of nonperforming assets remains significant.

As of September 30, 2014, approximately 25.3% of the Company’s loan portfolio consisted of land acquisition, development and construction, and non-owner occupied commercial real estate loans. These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because the Company’s loan portfolio contains a significant number of construction, land acquisition and development, and non-owner occupied commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.

The Bank relies upon independent appraisals to determine the value of the real estate which secures a significant portion of its loans and the value of foreclosed properties carried on its books, and the values indicated by such appraisals may not be realizable if the Bank is forced to foreclose upon such loans or liquidate such foreclosed property.

A significant portion of the Bank’s loan portfolio consists of loans secured by real estate and the Bank still holds a significant portfolio of foreclosed properties. The Bank relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment that adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some of the Bank’s loans, and the foreclosed properties held by the Bank, may be more or less valuable than anticipated. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Bank may not be able to recover the outstanding balance of the loan. The Bank may also be unable to sell its foreclosed properties for the values estimated by their appraisals.

The Company’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses.

The Company assumes credit risk by virtue of making loans and leases and extending loan commitments and letters of credit. We manage our credit risk through a program of underwriting standards, the review of certain credit decisions and a continuous quality assessment process of credit already extended. Our exposure to credit risk is managed through the use of consistent underwriting standards that emphasize local lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The Company’s credit administration function employs risk management techniques to help ensure that problem loans and leases are promptly identified. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

Purchased loans may carry a greater level of risk than loans originated by us.

As of September 30, 2014, $22.1 million or 7.84% of our loan portfolio consisted of purchased loans that were originated by other entities. Approximately $19.1 million of such loans consisted of Federal Rehabilitated Student Loans that were purchased in July of 2014. These loans were originated under the Federal Family Education Loan Program, authorized by the Higher Education Act of 1965, as amended, and carry an approximate 98% federal government guaranty as to the payment of principal and interest in the event of default. We also have $2.9 million of loan participations purchased from other banks in our portfolio. We often pay a premium on loans that we purchase. In any instance where we pay a premium to purchase a loan, we bear the risk that the purchased loan is repaid or defaults before we have fully-amortized the premium, which would cause us to suffer an economic loss. Likewise, on purchased loans, we generally will not have direct knowledge of the borrower nor will we have a history of dealing with the borrower. As a result, there is a heightened exposure to fraud. We consider these risks in our due diligence and underwriting and attempt to mitigate these risks, but they are still present in any situation where we purchase loans.

The Company’s allowance for loan losses may be insufficient.

The Company maintains an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.

The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Continuing deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside the Company’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and have in the past required an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for loan losses, the Company will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly capital, and may have a material adverse effect on the Company’s financial condition and results of operations.

Nonperforming assets take significant time to resolve and adversely affect the Company’s results of operations and financial condition.

At September 30, 2014 and December 31, 2013, the Company had $23.6 million and $35.4 million of nonperforming assets, respectively, which represented 5.4% and 8.0% of the Company’s total assets, respectively, on such dates. The Company’s nonperforming assets adversely affect its net income in various ways. The Company generally does not record interest income on nonaccrual loans, which adversely affects its income and increases loan administration costs. When the Company receives collateral through foreclosures and similar proceedings, it is required to mark the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increase in the level of nonperforming assets also increases the Company’s risk profile and may affect the capital levels regulators believe are appropriate in light of such risks. We utilize various techniques such as workouts, restructurings, and loan sales to manage problem assets. Increases in or negative adjustments in the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect our business, results of operations, and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including origination of new loans. There can be no assurance that the Company will avoid further increases in nonperforming loans in the future.

The Company’s focus on lending to small to mid-sized community-based businesses may increase its credit risk.

Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, our results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle. Any deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations.

Changes in interest rates may have an adverse effect on the Company’s profitability.

The operations of financial institutions such as the Company are dependent to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. An institution’s net interest income is significantly affected by market rates of interest that in turn are affected by prevailing economic conditions, by the fiscal and monetary policies of the federal government and by the policies of various regulatory agencies. The Federal Reserve regulates the national money supply in order to manage recessionary and inflationary pressures. In doing so, the Federal Reserve may use techniques such as engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. The use of these techniques may also affect interest rates charged on loans and paid on deposits. The interest rate environment, which includes both the level of interest rates and the shape of the U.S. Treasury yield curve, has a significant impact on net interest income and may also impact the value of the Company’s securities portfolio. Like all financial institutions, the Company’s balance sheet is affected by fluctuations in interest rates. Volatility in interest rates can also result in disintermediation, which is the flow of deposits away from financial institutions into direct investments, such as U.S. Government and corporate securities and other investment vehicles, including mutual funds, which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than bank deposit products.

An inability to improve our regulatory capital position could adversely affect our operations.

Federal regulatory agencies are required by law to adopt regulations defining five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. As of September 30, 2014, the Bank exceeded applicable thresholds to be considered well capitalized; however, as a result of our Consent Order with the FDIC and Virginia BFI, the Bank currently is considered adequately capitalized. Until we are no longer subject to the capital directives contained in the Consent Order and become well capitalized for regulatory capital purposes, we cannot renew or accept brokered deposits without prior regulatory approval and we may not offer interest rates on our deposit accounts that are significantly higher than the average rates in our market area. As a result, it may be more difficult for us to attract new deposits as our existing brokered deposits mature and do not rollover, and to retain or increase non-brokered deposits. If we are not able to attract new deposits, our ability to fund our loan portfolio may be adversely affected. As a result of being adequately capitalized, we also could be subject to more frequent examinations by FDIC, restrictions on new branches and other potential limitations. In addition, we will pay higher insurance premiums to the FDIC, which will reduce our earnings.

In addition, federal law establishes mandatory and discretionary restrictions on insured depository institutions that fail to remain at least adequately capitalized, which could include: submissions and implementations of capital plans, restrictions on payment of dividends and certain management fees, increased supervisory monitoring, restrictions as to asset growth, and branching and new business lines without regulatory approval.

Declines in value may adversely impact our investment portfolio.

We have not realized any non-cash, other-than-temporary impairment charges during 2014 as a result of reductions in fair value below original cost of any investments in our investment portfolio. However, we could be required to record future impairment charges on our investment securities if they suffer any declines in value that are considered other-than-temporary. Considerations used to determine other-than-temporary impairment status to individual holdings include the length of time the stock has remained in an unrealized loss position, and the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent news that would affect expectations for recovery or further decline.

The Company may not be able to meet the cash flow requirements of its depositors and borrowers or meet its operating cash needs.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of the Company is used to service its debt. The liquidity of the Bank is used to make loans and leases and to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and limits are established by the board of directors. The overall liquidity position of the Company and the Bank are regularly monitored to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Funding sources include Federal funds purchased, securities sold under repurchase agreements and non-core deposits. The Bank is a member of the Federal Home Loan Bank of Atlanta, which provides funding through advances to members that are collateralized with mortgage-related assets.

If the Company is unable to access any of these funding sources when needed, we might be unable to meet customers’ needs, which could adversely impact our financial condition, results of operations, cash flows, and level of regulatory-qualifying capital.

We may have to rely on dividends from the Bank, but the Written Agreement prohibits payment of such dividends without prior regulatory approval.

We are a separate legal entity from the Bank. Although we have never received any dividends from the Bank, we may need such dividends in the future to pay our operating expenses. The Consent Order prohibits the Bank from paying dividends to us without the prior written approval of the FDIC and the Virginia BFI. Accordingly, our ability to receive dividends from the Bank will be restricted until the Consent Order is terminated. In addition, various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. The Bank is also subject to limitations under state law regarding the payment of dividends, including the requirement that the Bank not pay dividends that would reduce its capital below its applicable required capital. In addition to these explicit limitations, it is possible, depending upon the financial condition of the Bank and other factors, that the federal and state regulatory agencies could take the position that payment of dividends by the Bank would constitute an unsafe or unsound banking practice. Without the payment of dividends from the Bank, we may not be able to service our future obligations as they become due. Consequently, the inability to receive dividends from the Bank could adversely affect our financial condition, results of operations, cash flows, and prospects.

We will be subject to more stringent capital requirements in the future, which could adversely affect our results of operations and future growth.

In 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency approved a new rule that substantially amended the regulatory risk-based capital rules applicable to us. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The final rule includes new minimum risk-based capital and leverage ratios which became effective for us on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are (i) a common equity Tier 1 capital ratio of 4.5% and (ii) a Tier 1 to risk-based assets capital ratio of 6%, which increased from 4%. The requirements of a total capital ratio of 8% and a Tier 1 leverage ratio of 4% remained unchanged. The final rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and when fully effective in 2019, will result in the following minimum ratios: (a) a common equity Tier 1 capital ratio of 7.0%; (b) a Tier 1 to risk-based assets capital ratio of 8.5%; and (c) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such activities. In addition, the final rule provides for a number of new deductions from and adjustments to capital and prescribes a revised approach for risk weightings that could result in higher risk weights for a variety of asset categories.

The application of these more stringent capital requirements to us could, among other things, result in lower returns on equity, require us to raise additional capital, adversely affect our future growth opportunities, and result in regulatory actions such as a prohibition on the payment of dividends or on the repurchase shares if we were unable to comply with such requirements.

New regulations could adversely impact our earnings due to, among other things, increased compliance costs or costs due to noncompliance.

The Consumer Financial Protection Bureau has issued a rule, effective as of January 10, 2014, designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that satisfy this “qualified mortgage” safe-harbor will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including but not limited to:

excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

interest-only payments;

negative-amortization; and

terms longer than 30 years.

Also, to be considered a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive or time consuming to make these loans, which could adversely impact our growth or profitability.

Additionally, on December 10, 2013, five financial regulatory agencies, including our primary federal regulator, the FDIC, adopted final rules implementing a provision of the Dodd-Frank Act commonly referred to as the Volcker Rule. The final rules prohibit banking entities from, among other things, engaging in short term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account; or owning, sponsoring, or having certain relationships with hedge funds or private equity funds, referred to as “covered funds.” On January 14, 2014, the five financial regulatory agencies approved an adjustment to the final rule by allowing banks to keep certain collateralized debt obligations (“CDOs”) acquired before the Volcker Rule was finalized, if the CDOs were established before May 2010 and are backed primarily by trust preferred securities issued by banks with less than $15 billion in assets. The rules were effective April 1, 2014, but the conformance period has been extended from its statutory end date of July 21, 2014 until July 21, 2017. While we do not believe that the Volcker Rule will require us to divest any securities in our portfolio, our investment strategy could be limited and our compliance costs could increase as a result of the rule.

Holders of the Series A preferred stock currently have the right to elect two directors to our board of directors.

On May 1, 2009, the Company issued 14,738 shares of Series A preferred stock to the United States Department of the Treasury (the “Treasury”) in connection with the Troubled Asset Relief Program. In November 2013, we participated in a successful auction of the Series A preferred stock by the Treasury that resulted in the purchase of the securities by private and institutional investors. This freed us from some constraints and costs that were in place while the Treasury held the shares. However, in accordance with our Articles, because we have failed to pay dividends on the Series A preferred stock for six dividend periods, the holders of the Series A preferred stock are entitled to nominate up to two directors to serve on our board. We would be required to increase the size of the board to accommodate such additional directors and holders of the Series A preferred stock, together with the holders of any outstanding parity stock with like voting rights, voting as a single class, would be entitled to elect the two additional members of our board of directors at the next annual meeting (or at a special meeting called for the purpose of electing these directors prior to the next annual meeting), and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full. The holders of the Series A preferred stock have not nominated directors to our board and have not indicated to us that they plan to do so.

The Company’s dependency on its management team and the unexpected loss of any of these personnel could adversely affect operations.

The Company’s success is, and is expected to remain, highly dependent on our senior management team. This is particularly true because, as a community bank, we depend on our management team’s ties to the community and customer relationships to generate business for us. The Company’s growth will continue to place significant demands on our management, and the loss of any such person’s services may have an adverse effect upon our growth and profitability. If the Company fails to retain, or continue to recruit, qualified employees, our growth and profitability could be adversely affected.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

Changes in economic conditions and related uncertainties may have an adverse effect on the Company’s profitability.

Commercial banking is affected, directly and indirectly, by local, domestic, and international economic and political conditions, and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, tight money supply, real estate values, international conflicts and other factors beyond the Company’s control may adversely affect the potential profitability of the Company. Any future rises in interest rates, while increasing the income yield on the Company’s earnings assets, may adversely affect loan demand and the cost of funds and, consequently, the profitability of the Company. Any future decreases in interest rates may adversely affect the Company’s profitability because such decreases may reduce the amounts that the Company may earn on its assets. A return to a recessionary climate could result in the delinquency of outstanding loans. Management does not expect any one particular factor to have a material effect on the Company’s results of operations. However, downtrends in several areas, including real estate, construction and consumer spending, could have a material adverse impact on the Company’s profitability.

The supervision and regulation to which the Company is subject can be a competitive disadvantage.

The operations of the Company and the Bank are heavily regulated and will be affected by present and future legislation and by the policies established from time to time by various federal and state regulatory authorities. In particular, the monetary policies of the Federal Reserve have had a significant effect on the operating results of banks in the past, and are expected to continue to do so in the future. Among the instruments of monetary policy used by the Federal Reserve to implement its objectives are changes in the discount rate charged on bank borrowings and changes in the reserve requirements on bank deposits. It is not possible to predict what changes, if any, will be made to the monetary policies of the Federal Reserve or to existing federal and state legislation or the effect that such changes may have on the future business and earnings prospects of the Company.

The competition the Company faces is increasing and may reduce our customer base and negatively impact the Company’s results of operations.

There is significant competition among banks in the market areas served by the Company. In addition, as a result of deregulation of the financial industry, the Bank also competes with other providers of financial services such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, the mutual funds industry, full service brokerage firms and discount brokerage firms, some of which are subject to less extensive regulations than the Company with respect to the products and services they provide. Some of the Company’s competitors have greater resources than the Company and, as a result, may have higher lending limits and may offer other services not offered by our Company.

Our deposit insurance premium could be substantially higher in the future which would have an adverse effect on our future earnings.

The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. The recent recession increased bank failures. Further failures, or the expectation that such failures are likely, may result in the FDIC raising deposit premiums. In addition, the deposit insurance limit on FDIC deposit insurance coverage has increased from $100,000 to $250,000, which may result in even larger losses to the Deposit Insurance Fund. These developments and our financial condition have caused an increase to our assessment, and the FDIC may be required to make additional increases to the assessment rates and levy additional special assessments on us. Higher assessments increase our non-interest expense.

Changes in accounting standards could impact reported earnings.

The authorities that promulgate accounting standards, including the Financial Accounting Standards Board, the Commission, and other regulatory authorities, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes are difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of financial statements for prior periods. Such changes could also require the Company to incur additional personnel or technology costs.

Concern of customers over deposit insurance may cause a decrease in deposits.

With the continuing news about bank failures, customers are increasingly concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with us is fully insured. Decreases in deposits may adversely affect our liquidity, funding sources and costs and net income.

If the Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in the Company’s financial reporting, which could harm its business and the trading price of its common stock.

The Company has established a process to document and evaluate its internal controls over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations, which require annual management assessments of the effectiveness of the Company’s internal controls over financial reporting. In this regard, management has dedicated internal resources, engaged outside consultants and adopted a detailed work plan to (i) assess and document the adequacy of internal controls over financial reporting, (ii) take steps to improve control processes, where appropriate, (iii) validate through testing that controls are functioning as documented and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. The Company’s management and audit committee have made the Company’s compliance with Section 404 a high priority and believe that its system of internal controls is effective. However, the Company cannot be certain that these measures will ensure that the Company implements and maintains adequate controls over its financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations. If the Company fails to correct any issues in the design or operating effectiveness of internal controls over financial reporting, or fails to prevent fraud, current and potential shareholders could lose confidence in the Company’s financial reporting, which could harm its business and the trading price of its common stock.

The Company is subject to a variety of operational risks, including reputational risk, legal and compliance risk, and the risk of fraud or theft by employees or outsiders.

The Company is exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, and unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. Negative public opinion can result from its actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect its ability to attract and keep customers and can expose the Company to litigation and regulatory action.

Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. The Company’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. The Company also may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. The Company is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as the Company is) and to the risk that its (or its vendors’) business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability of the Company to operate its business, potential liability to clients, reputational damage and regulatory intervention, which could adversely affect its business, financial condition and results of operations, perhaps materially.

The Company relies on other companies to provide key components of its business infrastructure.

Third parties provide key components of the Company’s business infrastructure, for example, system support and network access. While the Company has selected these third party vendors carefully, it does not control their actions. Any problems caused by these third parties, including those resulting from their failure to provide services for any reason or their poor performance of services, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business. Replacing these third party vendors could also entail significant delay and expense.

The Company is a defendant in a variety of litigation and other actions, which may have a material adverse effect on its financial condition and results of operation.

The Company may be involved from time to time in a variety of litigation arising out of its business. The Company’s insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed the Company’s insurance coverage, they could have a material adverse effect on our financial condition and results of operations for any period. In addition, the Company may not be able to obtain appropriate types or levels of insurance in the future, nor may the Company be able to obtain adequate replacement policies with acceptable terms, if at all.

Consumers may increasingly decide not to use the Bank to complete their financial transactions, which would have a material adverse impact on the Company’s financial condition and operations.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

The Company’s operations may be adversely affected by cyber security risks.

In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of our customers and employees in systems and on networks. The secure processing, maintenance and use of this information is critical to operations and our business strategy. The Company has invested in accepted technologies, and continually reviews processes and practices that are designed to protect our networks, computers and data from damage or unauthorized access. Despite these security measures, the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to the Company’s reputation, which could adversely affect our business.

USE OF PROCEEDS

The proceeds to us from the offering will depend on the number of subscription rights that are exercised by shareholders and the number of shares purchased by the standby investor pursuant to the Standby Purchase Agreement. We estimate that the gross proceeds of the offering to us, before expenses, will be $12,622,392, assuming that the offering is fully-subscribed and that the subscription price is $12.00 per share (the middle of the anticipated subscription price range). The following table sets forth the calculation of our net proceeds from the offering. Because we have not conditioned the offering on the sale of a minimum number of shares, we are presenting this information assuming the basic subscription privilege is exercised with respect to 0%, 25%, 50% and 100% of the subscription rights held by shareholders.

	0% of Basic Subscriptions Exercised			25% of Basic Subscriptions Exercised		50% of Basic Subscriptions Exercised		100% of Basic Subscriptions Exercised
Shares sold pursuant to the basic subscription privilege (1)		0			262,966		525,933		1,051,866
Shares issued to standby investor in exchange for preferred stock (2)		336,872			382,656		382,656		0
Shares purchased by standby investor for cash (2)		0			206,871		143,277		0
Gross offering proceeds (3)	$	0		$	5,638,045	$	8,030,524	$	12,622,392
Sales agents’ fees and expenses (4)		277,123			554,940		643,008		579,896
Other offering expenses		237,500			237,500		237,500		237,500
Net proceeds (expenses) to us	$	(514,623	)	$	4,845,605	$	7,150,016	$	11,804,996

____________

(1)

If enough shares are purchased by shareholders through the exercise of their basic subscription rights, there will not be sufficient shares of common stock available to exchange all of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date. In such a scenario, we may seek to repurchase for cash any or all of the shares of Series A preferred stock owned by the standby investor that are not exchanged in the offering. Prior to repurchasing shares of Series A preferred stock for cash, we would be required to bring current the deferred interest payments on our junior subordinated debt securities ($1,009,712 as of September 30, 2014). We would also need to obtain the prior approval of the Reserve Bank to both bring current such deferred interest payments as well as to repurchase the shares of our Series A preferred stock for cash. No assurances can be given that the necessary approvals would be granted or would be granted without unacceptable conditions.

(2)

(3)

Only cash proceeds are reflected as gross offering proceeds.

(4)

Payable to Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., our sales agents. The terms of our arrangement with the sales agents are described under “Plan of Distribution.”

In order of priority, we intend to use approximately $500,000 of the net proceeds to improve our capital position, approximately $5.0 million of the net proceeds to infuse the Bank with additional capital to help achieve and maintain the capital ratios required by the Bank’s Consent Order, and any remaining net proceeds for general corporate purposes. The following table shows the impact on the Bank’s capital ratios assuming $5.0 million of net proceeds from the offering are contributed to the Bank. In addition to improving the following capital ratios, such additional capital will also improve the Bank’s ratio of capital to nonperforming assets and provide support for asset growth for the foreseeable future.

	Capital Ratios of Village Bank September 30, 2014
	Actual			Pro forma (1)			Requirements of Consent Order

Total risk-based capital to risk-weighted assets		11.88	%		13.60	%		11.00	%
Tier 1 capital to risk-weighted assets		10.62	%		12.35	%		—	%
Tier 1 capital to average assets		7.11	%		8.27	%		8.00	%

____________

(1)

Assumes we contribute to the Bank $5.0 million of the net proceeds from the offering.

In 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency approved a new rule implementing the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios which became effective for us on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. See “Risk Factors.”

We experienced operating losses in the years ended December 31, 2011, 2012 and 2013 and for the nine months ended September 30, 2014, and the amount of capital needed to improve the Bank’s capital ratios and support our future operations may increase in the event of future operating losses or other events. We cannot assure you that we will not need to seek additional financing or engage in additional capital raising transactions in the future. If we are unable to raise sufficient capital to meet our objectives, including our objective to provide additional capital for the Bank to help achieve and maintain the capital ratios required by the Bank’s Consent Order, we would expect to explore alternative methods of raising additional capital. These alternatives may include, among others, a public offering or private placement of common stock or securities convertible into common stock, preferred stock or debt. Our board of directors considered several alternative capital-raising methods prior to concluding that the offering was the best option under the current circumstances. Any future issuance of additional shares of common stock or convertible securities will dilute the percentage ownership interest of our shareholders, may dilute the book value per share of our common stock, and could adversely affect the terms on which we are able to obtain additional capital. Such shares may also be sold at prices that are lower than the subscription price and/or the prevailing market price of shares of our common stock, which could cause the market price of our common stock to fall.

CAPITALIZATION

The following table presents our capitalization as of September 30, 2014 (i) on an actual basis, and (ii) on an as-adjusted basis to give effect to (a) the sale of shares of common stock in this offering, and (b) the exchange of as many as possible of the 9,023 shares of Series A preferred stock that are expected to be held by the standby investor as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering. We are presenting this information assuming the basic subscription privilege is exercised with respect to 0%, 25%, 50% and 100% of the subscription rights held by shareholders, for net expenses of $(514,623) and net proceeds of $4.85 million, $7.15 million and $11.80 million, respectively, as set forth under “Use of Proceeds.”

The following data should be read in conjunction with the section entitled “Use of Proceeds” and the financial information incorporated by reference in this prospectus, including our historical financial statements and related notes.

	September 30, 2014 (dollars in thousands)
	Actual			Pro Forma
				0%			25%			50%			100%
Shareholders’ equity:
Preferred stock, $4.00 par value; $1,000 liquidation preference; 1,000,000 shares authorized; 14,738 shares issued and outstanding (actual); 6,795, 5,715, 5,715 and 14,738 shares issued and outstanding (pro forma) (1)	$	59		$	27		$	23		$	23		$	59
Common stock, $4.00 par value; 10,000,000 shares authorized; 350,622 shares issued and outstanding (actual); 687,494, 1,203,115, 1,402,488 and 1,402,488 shares issued and outstanding (pro forma)		1,402			2,749			4,812			5,609			5,609
Additional paid-in capital		58,059			57,979			61,517			63,023			65,657
Retained deficit		(39,829	)		(39,829	)		(39,829	)		(39,829	)		(39,829	)
Common stock warrant		732			732			732			732			732
Stock in directors rabbi trust		(878	)		(878	)		(878	)		(878	)		(878	)
Directors deferred fees obligation		878			878			878			878			878
Accumulated other comprehensive loss		(1,688	)		(1,688	)		(1,688	)		(1,688	)		(1,688	)
Total shareholders’ equity	$	18,735		$	19,970		$	25,567		$	27,870		$	30,540

Consolidated Capital Ratios:
Total capital to risk-weighted assets		11.15	%		11.57	%		13.48	%		14.27	%		15.18	%
Tier 1 capital to risk-weighted assets		7.47	%		7.89	%		9.80	%		10.59	%		11.50	%
Tier 1 capital to average assets		5.02	%		5.31	%		6.59	%		7.12	%		7.73	%

____________

(1)

Assumes that, in lieu of accepting cash, we elect to exchange as many as possible of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering. If enough shares are purchased by shareholders through the exercise of their basic subscription rights, there will not be sufficient shares of common stock available to exchange all of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date. In such a scenario, we may seek to repurchase for cash any or all of the shares of Series A preferred stock owned by the standby investor that are not exchanged in the offering. Prior to repurchasing shares of Series A preferred stock for cash, we would be required to bring current the deferred interest payments on our junior subordinated debt securities ($1,009,712 as of September 30, 2014). We would also need to obtain the prior approval of the Reserve Bank to both bring current such deferred interest payments as well as to repurchase the shares of our Series A preferred stock for cash. No assurances can be given that the necessary approvals would be granted or would be granted without unacceptable conditions. Assumes that the standby investor will be permitted to own a maximum of 49% of the Company’s outstanding shares of common stock on a fully-diluted basis after the offering without the Company incurring an “ownership change” under Section 382(g) of the Code. The actual percentage that he will be permitted to own may be slightly less than 49% and will depend on a number of factors that will not be known until completion of the offering.

DILUTION

Dilution represents the difference between the amount per share paid by purchasers of common stock in the offering and the tangible common equity per share of common stock immediately after the offering. The following table presents the tangible common equity of the Company as of September 30, 2014 (i) on an actual basis, and (ii) on an as-adjusted basis to give effect to (a) the sale of shares of common stock in this offering at a subscription price is $12.00 per share (the middle of the anticipated subscription price range), and (b) the exchange of as many as possible of the 9,023 shares of Series A preferred stock that are expected to be held by the standby investor as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering. We are presenting this information assuming the basic subscription privilege is exercised with respect to 0%, 25%, 50% and 100% of the subscription rights held by shareholders, for net expenses of $(514,623) and net proceeds of $4.85 million, $7.15 million and $11.80 million, respectively, as set forth under “Use of Proceeds.”

	September 30, 2014 (dollars in thousands except per share amounts)
	Actual			Pro Forma
				0%			25%			50%			100%

Total equity	$	18,735		$	18,735		$	18,735		$	18,735		$	18,735
Preferred equity (1)		(14,738	)		(6,794	)		(5,715	)		(5,715	)		(14,738	)

Common equity		3,997			11,941			13,020			13,020			3,997
Intangibles		(222	)		(222	)		(222	)		(222	)		(222	)
Net proceeds (expenses) to us		0			(515	)		4,845			7,150			11,805
Dividends forgiven on Series A preferred stock (1)		0			1,667			1,986			1,986			0
Tangible common equity	$	3,775		$	12,871		$	19,629		$	21,934		$	15,580

Shares of common stock outstanding (1)		350,622			687,494			1,203,115			1,402,488			1,402,488
Tangible common equity per share	$	10.77		$	18.72		$	16.32		$	15.64		$	11.11
Offering price per share	$	12.00		$	12.00		$	12.00		$	12.00		$	12.00
Dilution (accretion) per share	$	1.23		$	(6.72	)	$	(4.32	)	$	(3.64	)	$	0.89

____________

(1)

As the table above shows, the proposed exchange of the standby investor’s Series A preferred stock for common stock, and the associated forgiveness of accrued dividends on such shares of Series A preferred stock, would cause the offering to be accretive to tangible common equity. If, however, we are unable to exchange some or all of the standby investor’s shares of Series A preferred stock for common stock, purchasers of common stock in the offering may experience immediate dilution on new shares based on the difference between pro forma tangible common equity per share and the subscription price per share.

THE OFFERING

The Subscription Rights

We are distributing, at no charge, to the record holders of our shares of common stock as of January 20, 2015, non-transferable subscription rights to purchase up to an aggregate of 1,051,866 shares of our common stock at the subscription price.

Each eligible holder of record of shares of our common stock will receive one subscription right to purchase three shares of common stock for each share of common stock owned by such holder as of 5:00 p.m., Eastern Time, on the record date. Each subscription right will entitle the holder to a basic subscription privilege and an oversubscription privilege.

We intend to keep the offering open until [•], 2015, unless our board of directors, in its sole discretion, extends the offering period for up to 30 days until [•], 2015.

The Subscription Privilege

The basic subscription privilege of each subscription right entitles you to purchase three shares of our common stock, upon delivery of the required documents and payment of the subscription price, prior to the expiration of the offering. You will receive one subscription right for each share of our common stock you own as of 5:00 p.m., Eastern Time, on the record date. You may exercise all or a portion of your basic subscription privilege; however, if you exercise less than your full basic subscription privilege, you will not be entitled to purchase shares under your oversubscription privilege.

We will not issue fractional shares of common stock in the offering, and holders will only be entitled to purchase a whole number of shares of common stock, rounded down to the nearest whole number that a holder would otherwise be entitled to purchase, with the total subscription payment being adjusted accordingly. Any excess subscription payments received by the subscription agent will be returned promptly, without interest or penalty.

Oversubscription Privilege

If you purchase all of the shares of our common stock available to you pursuant to your basic subscription privilege, you may also subscribe to purchase additional shares should they be available after purchases by (i) all shareholders exercising their basic subscription privilege and (ii) the standby investor under the Standby Purchase Agreement. However, the oversubscription privilege will only be offered for an aggregate number of shares that, when combined with the number of shares purchased pursuant to the shareholders’ basic subscription privilege and by the standby investor, does not exceed 1,051,866 shares. We can provide no assurances that you will actually be able to purchase any shares of common stock upon the exercise of your oversubscription privilege.

If oversubscription requests exceed the number of shares of common stock available for sale after purchases by (i) all shareholders exercising their basic subscription privilege and (ii) the standby investor under the Standby Purchase Agreement, then we will allocate the available shares of common stock among shareholders who oversubscribed as we deem appropriate. When determining how to allocate such remaining shares, we may give priority to those oversubscription purchasers that we believe will develop future business relationships with us, refer business to us or purchase additional shares of our common stock on the open market after the closing of the offering.

We will credit the account of each rights holder with shares of our common stock purchased pursuant to the exercise of the oversubscription privilege as soon as practicable after the offering has expired.

To the extent the aggregate subscription price of the maximum number of unsubscribed shares available to you pursuant to the oversubscription privilege is less than the amount you actually paid in connection with the exercise of the oversubscription privilege, you will be allocated only the number of unsubscribed shares available to you, and any excess subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. To the extent the amount you actually paid in connection with the exercise of the oversubscription privilege is less than the aggregate subscription price of the maximum number of unsubscribed shares available to you pursuant to the oversubscription privilege, you will be allocated the number of unsubscribed shares for which you actually paid in connection with the oversubscription privilege.

Limitations on Amount You May Purchase

Other than the standby investor or any shareholder that owns, as of the date of this prospectus, more than 5% of our common stock, a person or entity may not exercise subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, would result in such person or entity, together with any of the following related persons or entities, owning 5% or more of our issued and outstanding shares of common stock following the offering, or that would otherwise require regulatory approval:

your immediate family, including your spouse, father, mother, stepfather, stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and the spouse of any of the foregoing;

companies, partnerships, trusts, or other entities in which you are a trustee, have a controlling beneficial interest, or hold a senior management position; or

other persons who may be your associates or persons acting in concert with you.

The term “associate” is used above to indicate any of the following relationships with a person:

any corporation or organization, other than the company or a subsidiary thereof, of which a person is a senior officer or partner, or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization;

any trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the estate (although a person who has a substantial beneficial interest in one of our tax-qualified or non-tax-qualified employee plans, or who is a trustee or fiduciary of the plan is not an associate of the plan, and our tax-qualified employee plans are not associates of a person);

any person who is related by blood or marriage to such person and who is a director or senior officer of the company or a subsidiary thereof; and

any person acting in concert with the persons or entities specified above.

A person or company that acts in concert with another person, company, or other party shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

Any person or entity, together with related persons or entities, that exercises subscription rights (including the oversubscription privilege) to purchase shares of our common stock that, when aggregated with their existing ownership, results in such person or entity, together with any related persons or entities, owning 3% or more of our issued and outstanding shares of common stock following the offering will be required to enter into an agreement prohibiting such person or entity from purchasing additional shares that would result in such person or entity owning more than 5% of our common stock.

In addition, we will not issue shares of common stock pursuant to the exercise of the basic subscription privilege or the oversubscription privilege to any shareholder who, in our sole opinion, could be required to obtain prior clearance or approval from or submit a notice to any state or federal bank regulatory authority to acquire, own, or control such shares, or if other regulatory approvals may be required. If we elect not to issue shares in such case, such shares will become available to satisfy any oversubscription by other shareholders pursuant to their oversubscription privilege.

Furthermore, the Standby Purchase Agreement requires that we not accept any subscriptions or oversubscriptions that we believe may have an unfavorable effect on our ability to preserve our net operating loss deferred tax asset. Notwithstanding any other information presented in this prospectus, we do not intend to accept any oversubscriptions that we believe may have an unfavorable effect on our ability to preserve our net operating loss deferred tax asset. For more information, see the section of this prospectus entitled “Our Net Operating Loss Deferred Tax Asset” on page [•].

Uncertified Delivery of Shares of Common Stock Acquired in the Offering

All shares of our common stock that you purchase in the offering will be issued electronically in book-entry (uncertificated) form. If you are a shareholder of record as of the record date and purchase shares in the offering by submitting a subscription rights certificate, other subscription materials, and payment, we will issue the new shares as soon as practicable after the completion of the offering, and you will receive confirmation from the subscription agent by mail that your shares were electronically issued. If, as of the record date, your shares were held by a custodian bank, broker, dealer, or other nominee, and you participate in the offering, your custodian bank, broker, dealer, or other nominee will be credited with the shares of common stock you purchase in the offering as soon as practicable after the completion of the offering, and your nominee will credit your account with such shares. Until your shares have been issued in book-entry form or your account is credited with such shares, you may not be able to sell your shares.

Reasons for the Offering

We are conducting the offering to improve our capital position, provide additional capital for the Bank to help achieve and maintain the capital ratios required by the Bank’s Consent Order, and for general corporate purposes. If sufficient proceeds are generated in the offering, we intend to contribute to the Bank approximately $5.0 million of additional capital. If contributed to the Bank, such capital will cause the Bank’s regulatory capital ratios to exceed the thresholds required by the Consent Order and exceed the capital levels established under the prompt corrective action regulations for well-capitalized institutions. See “Summary − Village Bank and Trust Financial Corp.” Such capital will also improve the Bank’s ratio of capital to nonperforming assets and provide support for asset growth for the foreseeable future. We believe that raising additional capital is prudent in light of current market conditions and the related impact on our financial condition. Our board of directors has chosen to raise capital through a rights offering to give our shareholders the opportunity to prevent ownership dilution by acquiring additional shares of common stock in the offering. Our board of directors also considered several alternative capital-raising methods prior to concluding that the offering was the best option under the current circumstances. We believe that the offering will strengthen our financial condition by raising additional capital; however, our board of directors is making no recommendation regarding your exercise of the subscription rights. We cannot assure you that we will not need to seek additional financing or engage in additional capital offerings in the future.

Effect of Offering on Existing Shareholders

The ownership interests and voting interests of the existing shareholders that do not fully exercise their basic subscription privilege may be significantly diluted. For more information, see below under the heading “− Outstanding Shares of Common Stock After the Offering.”

Insider Participation

Certain of our directors and officers have indicated that they intend to participate in the offering, although they are not required to do so. Collectively, we expect our directors and officers, together with their affiliates, to purchase up to approximately 85,000 shares in the offering for an aggregate investment of approximately $[•]. As of the record date, our directors and officers, together with their affiliates, beneficially own approximately 116,710 shares of common stock (excluding shares underlying options) and are entitled to purchase approximately 350,130 shares in the offering by exercising their respective basic subscription privileges on the same terms and conditions applicable to all shareholders. Following the offering, our directors and officers, together with their affiliates, are expected to own an aggregate of approximately 201,710 shares of common stock, or approximately 14.4% of our total outstanding shares of common stock if we sell, or exchange for shares of Series A preferred stock, all 1,051,866 shares offered in the offering.

Although directors and officers will be investing their own money in the offering, our board of directors makes no recommendation regarding your exercise of the subscription rights. You are urged to make your decision based on your own assessment of our common stock, our business, and the offering.

Method of Exercising Subscription rights

The exercise of subscription rights is irrevocable and may not be cancelled or modified. You may exercise your subscription rights as follows:

Subscription by Record Holders

If you are a record holder of our common stock, the number of rights you may exercise pursuant to the basic subscription privilege will be indicated on the subscription rights certificate delivered to you. You may exercise your subscription rights by (i) properly completing and executing the subscription rights certificate and forwarding it to the subscription agent at the address set forth below in this section under the heading “− Subscription Agent,” and (ii) delivering your full subscription payment to the subscription agent through the method described below in this section under the heading “− Payment Method” and in the subscription materials, each prior to the expiration of the offering.

Subscription by Beneficial Owners

If your shares of common stock are held in the name of a broker, dealer, custodian bank, or other nominee, you are a beneficial owner of our shares of common stock and will not receive a subscription rights certificate. Instead, one subscription right will be issued to the nominee record holder for each share of our common stock that you own as of the record date, and you will receive an instruction form to exercise your subscription rights through the nominee record holder. Each subscription right entitles you to purchase three shares of our common stock at the subscription price. We will ask your nominee record holder to notify you of the offering. If you are not contacted by your broker, dealer, custodian bank, or other nominee but believe you are entitled to subscription rights, you should promptly contact your broker, dealer, custodian bank, or other nominee in order to subscribe for shares of our common stock in the offering.

If you hold your shares of our common stock in the name of a broker, dealer, custodian bank, or other nominee, your nominee must exercise the subscription rights on your behalf in accordance with your instructions. Your nominee may establish a deadline that may be before the 5:00 p.m., Eastern Time, [•], 2015 expiration date we have established for the offering, by which you must provide it with your instructions to exercise your subscription rights and pay for your shares. We are not responsible if you do not receive notice from your broker, dealer, custodian bank, or other nominee or if you do not receive notice in time to respond to your nominee by the deadline established by the nominee.

personal check payable to “Computershare, Inc., as Subscription Agent for Village Bank and Trust Financial Corp.” drawn upon a U.S. bank; or

certified check payable to “Computershare, Inc., as Subscription Agent for Village Bank and Trust Financial Corp.” drawn upon Village Bank.

Payments made by check, as described above, should be delivered to Computershare, Inc., the subscription agent, as follows:

If by registered certified or express mail, to:

Computershare Trust Company, N.A.

c/o Voluntary Corporation Actions

P.O. Box 43011

Providence, RI 02940

If by courier, to:

Computershare Trust Company, N.A.

c/o Voluntary Corporate Actions

250 Royall Street Suite V

Canton, MA 02021

Payment received after the expiration of the offering will not be honored, and the subscription agent will return your payment to you, without interest or penalty, as soon as practicable. The subscription agent will be deemed to receive payment upon:

receipt by the subscription agent and clearance of a personal check drawn upon a U.S. bank;

receipt by the subscription agent of a certified check drawn upon Village Bank; or

receipt of collected funds in the subscription agent’s escrow account.

You should read the instruction letter accompanying the subscription rights certificate carefully and strictly follow it. DO NOT SEND SUBSCRIPTION RIGHTS CERTIFICATES OR PAYMENTS TO THE COMPANY OR THE BANK. We are not responsible for subscription materials sent directly to our offices. We will not consider your subscription received until the subscription agent has received delivery of a properly completed and duly executed subscription rights certificate and payment of the full subscription amount. The method of delivery of subscription rights certificates and payment of the subscription amount to the subscription agent will be at the risk of the holders of subscription rights. If sent by mail, we recommend that you send certificates and payments by overnight courier or by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the subscription agent and clearance of payment prior to the expiration of the offering.

Medallion Guarantee May Be Required

Your signature on each subscription rights certificate must be guaranteed by an “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 of the Exchange Act, subject to any standards and procedures adopted by the subscription agent, unless:

your subscription rights certificate provides that shares are to be issued to you as record holder of those subscription rights, as imprinted on the face of the subscription rights certificate; or

you are an eligible institution.

You can obtain a signature guarantee from a financial institution, such as a commercial bank, savings and loan association, brokerage firm, or credit union that participates in one of the Medallion signature guarantee programs. The three Medallion signature guarantee programs are the following:

Securities Transfer Agents Medallion Program, or STAMP, whose participants include more than 7,000 U.S. and Canadian financial institutions;

Stock Exchanges Medallion Program, or SEMP, whose participants include the regional stock exchange member firms and clearing and trust companies; and

New York Stock Exchange Medallion Signature Program, or MSP, whose participants include NYSE member firms

If a financial institution is not a member of a recognized Medallion signature guarantee program, it would not be able to provide signature guarantees. Also, if you are not a customer of a participating financial institution, it is likely the financial institution will not guarantee your signature. Therefore, the best source of a Medallion Guarantee would be a bank, savings and loan association, brokerage firm, or credit union with which you do business. The participating financial institution will use a Medallion imprint or stamp to guarantee the signature, indicating that the financial institution is a member of a Medallion signature guarantee program and is an acceptable signature guarantor.

Subscription Agent

The subscription agent for this offering is Computershare, Inc. Subscription documents and subscription rights certificates should be delivered to Computershare, Inc. as follows:

If by registered certified or express mail, to:

Computershare Trust Company, N.A.

c/o Voluntary Corporation Actions

P.O. Box 43011

Providence, RI 02940

If by courier, to:

Computershare Trust Company, N.A.

c/o Voluntary Corporate Actions

250 Royall Street Suite V

Canton, MA 02021

You are solely responsible for completing delivery to the subscription agent of your subscription materials. The subscription materials are to be received by the subscription agent on or prior to 5:00 p.m., Eastern Time, on [•], 2015. We urge you to allow sufficient time for delivery of your subscription materials to the subscription agent. If you deliver subscription materials in a manner different from those described in this prospectus, we may not honor the exercise of your subscription rights.

Missing or Incomplete Subscription Information

If you do not indicate the number of subscription rights being exercised, or the subscription agent does not receive the full subscription payment for the number of subscription rights that you indicate are being exercised, then you will be deemed to have exercised the maximum number of subscription rights that may be exercised with the aggregate subscription payment you delivered to the subscription agent. If the subscription agent does not apply your full subscription payment to your purchase of our shares of common stock, any excess subscription payment received by the subscription agent will be returned promptly, without interest or penalty.

Expiration Date, Extensions

The period during which you may exercise your subscription rights expires at 5:00 p.m., Eastern Time, on [•], 2015, which is the expiration of the offering period. If you do not exercise your subscription rights prior to that time, your subscription rights will expire and will no longer be exercisable. We will not be required to issue shares of common stock to you if the subscription agent receives your subscription rights certificate and subscription payment after that time, regardless of when the subscription rights certificate and subscription payment were sent by you. We have the option to extend the offering period for up to 30 days until [•], 2015, although we do not presently intend to do so. We may extend the offering period by giving oral or written notice to the subscription agent prior to the expiration of the offering period. If we elect to extend the offering period, we will issue a press release announcing such extension no later than 9:00 a.m., Eastern Time, on the next business day after the most recently announced expiration date of the offering.

Determination of Subscription Price

The board of directors and the standby investor agreed in the Standby Purchase Agreement that the subscription price would be determined by dividing “Modified Tangible Book Value” by the number of shares of common stock outstanding as of the month-end prior to declaration of effectiveness of the registration statement of which this prospectus is a part (the “Determination Date”). The term “Modified Tangible Book Value” is defined in the Standby Purchase Agreement to mean the Company’s total consolidated equity as of the Determination Date (i) less preferred shareholder equity included in total consolidated equity on that date, (ii) less intangible assets recorded on the balance sheet on that date, (iii) plus dividends accrued from October 1, 2014 through the Determination Date on the shares owned by the standby investor, (iv) plus dividends accrued from October 1, 2014 through the Determination Date on any additional shares of Series A preferred stock purchased by the standby investor in addition to the 4,023 shares he owned as of the date of the Standby Purchase Agreement (the “Purchased TARP Shares”), (v) plus dividends accrued from October 1, 2014 through the Determination Date on any shares of Series A preferred stock redeemed by the Company (the “Redeemed TARP Shares”), and (vi) less the “TARP Purchase Premium.” The term “TARP Purchase Premium” is defined in the Standby Purchase Agreement to mean the product determined by multiplying (x) the price per Purchased TARP Share paid by the standby investor, as applicable, less $500.34 and (y) the number of Purchased TARP Shares (if any) plus 4,023. The standby investor has entered into an agreement to purchase an additional 5,000 shares of Series A preferred stock from another holder for $500.34 per share; provided, however, that, pursuant to the terms of such agreement, the purchase price per share has been increasing by $0.274 per day since November 20, 2014 and will continue to increase until the closing date of such purchase. The standby investor closed on the purchase of 2,221 of such shares (the maximum amount allowable without receipt of additional regulatory approval) on December 23, 2014 for $509.656 per share. As of January 15, 2015, the purchase price per share for the remaining 2,779 shares was $515.96. The purchase of the additional 2,779 shares is contingent upon, among other things, the standby investor obtaining approval of the Reserve Bank to purchase such shares. Any increase in the price paid for the additional 5,000 shares of Series A preferred stock will cause the offering subscription price to be reduced pursuant to the terms of the Standby Purchase Agreement. We believe that the subscription price will be between $11.00 and $13.00 per share.

You should not consider the subscription price as an indication of value of our company or our common stock. You should not assume or expect that, after the offering, our shares of common stock will trade at or above the subscription price in any given time period. The market price of our common stock may decline during or after the offering, and you may not be able to sell the underlying shares of our common stock purchased during the offering at a price equal to or greater than the subscription price. You should obtain a current quote for our common stock before exercising your subscription rights and make your own assessment of our business and financial condition, our prospects for the future, and the terms of the offering. On January 14, 2015, the last reported sale price of our common stock was $25.99 per share.

Amendment or Cancellation

We reserve the right to amend or cancel the offering at any time and for any reason. We may cancel the offering, in whole or in part, if at any time before completion of the offering there is any judgment, order, decree, injunction, statute, law, or regulation entered, enacted, amended, or held to be applicable to the offering that in the sole judgment of our board of directors would or might make the offering or its completion, whether in whole or in part, illegal or otherwise restrict or prohibit completion of the offering. We may waive any of these conditions and choose to proceed with the offering even if one or more of these events occur. If we cancel the offering, we will issue a press release notifying shareholders of the cancellation and all subscription payments received by the subscription agent will be returned promptly, without interest or penalty.

Sales Agents

Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. have been engaged to assist us in selling the shares on a best efforts basis. The sales agents are each broker-dealers registered with the Financial Industry Regulatory Authority (“FINRA”). The sales agents have agreed to assist in the offering by among other things, consulting as to the structure of the offering, helping identify potential standby investors including the standby investor, reviewing all offering documents, including this prospectus, stock order forms and related offering materials, assisting in the design and implementation of a marketing strategy for the offering, assisting management in scheduling and preparing for meetings with potential investors and providing such other general advice and assistance as may be reasonably necessary to complete the offering. The sales agents are not required to purchase any shares in the offering, but will use their best efforts to sell the shares offered.

The sales agents express no opinion and make no recommendation to holders of the subscription rights as to the purchase by any person of shares of common stock in the offering. The sales agents also express no opinion as to the prices at which shares to be distributed in connection with the offering may trade if and when they are issued or at any future time.

As compensation for their financial advisory services, we have agreed to pay to the sales agents the following consideration:

A retainer fee equal to $40,000, which was paid at the time of execution of the engagement letter among the sales agents and the Company and will be credited towards the expense reimbursement due to the sales agents;

Two percent (2%) of the gross proceeds from shares sold to shareholders exercising their basic subscription privilege;

An additional two percent (2%) of the gross proceeds from shares sold to shareholders exercising their basic subscription privilege, if shareholders purchase, in the aggregate, 35% of the shares available through the exercise of their basic subscription privilege;

Five percent (5%) of the gross proceeds from shares sold to shareholders exercising their oversubscription privilege; and

Five percent (5%) of the gross proceeds from shares sold to the standby investor.

The fees described above will be divided between the sales agents as described in the sales agency agreement. In addition to such fees, we have agreed to reimburse the sales agents for their reasonable out-of-pocket expenses, not to exceed $100,000 (including the amount of the retainer fee), incurred in connection with their engagement, subject to certain limitations depending on the aggregate amount of shares sold in connection with the offering.

We have also agreed to indemnify the sales agents and certain of their affiliated persons against certain claims, liabilities and expenses arising in connection with the offering, or contribute to payments they may be required to make in respect thereof.

The sales agents and their respective affiliates are financial institutions engaged in various activities, which may include investment banking, securities trading, financial advisory, investment management, investments, hedging, financing, and brokerage activities. The sales agents and certain of their affiliates have in the past provided, and they may from time to time in the future provide, certain financial advisory, investment banking, or other services to us, for which they in the past received, and may in the future receive, customary fees and reimbursement for their expenses. In the ordinary course of its business as a broker-dealer, the sales agents may purchase securities from and sell securities to the Company and its affiliates. The sales agents may also actively trade the equity or debt securities of the Company or its affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

Fees and Expenses

We will pay all fees charged by the subscription agent and the sales agents. If you exercise your subscription rights through your broker, dealer, custodian bank, or other nominee, you are responsible for paying any fees your nominee may charge you.

Notice to Nominees

If you are a broker, dealer, custodian bank, or other nominee that holds shares of our common stock for the account of others on the record date, you should notify the beneficial owners of the shares for whom you are the nominee of the offering as soon as possible to learn their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owner, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If the beneficial owner so instructs, you should submit subscription information and payment for shares. If you hold shares of our common stock for the account(s) of more than one beneficial owner, you may exercise the number of subscription rights to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of our common stock on the record date, provided that you, as a nominee record holder, make a proper showing to the subscription agent by submitting the form entitled “Nominee Holder Certification” which is provided with your offering materials.

Procedures for The Depository Trust & Clearing Corporation Participants

We expect that subscription rights may be exercised through the facilities of DTC. If your subscription rights are held of record through DTC, you may exercise your subscription rights for each beneficial holder by instructing DTC, or having your broker instruct DTC, to transfer your subscription rights from your account to the account of the subscription agent, together with certification as to the aggregate number of subscription rights you are exercising and the exercise price.

No Transfer of Subscription Rights

You may not sell, or otherwise transfer, your subscription rights. We are not applying for listing or quotation of the subscription rights on any exchange or dealer quotation system.

Validity of Subscriptions

We will resolve all questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility to participate in the offering. Our determination will be final and binding. Once made, subscriptions and directions are irrevocable, and we will not accept any alternative, conditional, or contingent subscriptions or directions. We reserve the absolute right to reject any subscriptions or directions not properly submitted or the acceptance of which would be unlawful. You must resolve any irregularities in connection with your subscription before the subscription period expires, unless waived by us in our sole discretion. Neither we nor the subscription agent or our sales agents shall be under any duty to notify you or your representative of defects in your subscription. A subscription will be considered accepted, subject to our right to cancel the offering, only when a properly completed and duly executed subscription rights certificate and any other required documents and the full subscription payment have been received by the subscription agent. Our interpretations of the terms and conditions of the offering will be final and binding.

Return of Funds

The subscription agent will hold funds received in payment for shares of our common stock in a segregated account pending completion of the offering. Such funds will be held in escrow until the offering is completed or is cancelled. If the offering is cancelled for any reason, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty.

Shareholder Rights

You will have no rights as a holder of our shares of common stock that you purchase in the offering until such shares of common stock are issued to you or until your account at your record holder is credited with shares of common stock purchased in the offering.

No Revocation or Change

Once you submit the form of subscription rights certificate to exercise any subscription rights, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you later learn information about us that you consider to be unfavorable. If we decide to extend, amend or modify the terms of the offering for any reason, subscriptions received prior to such extension, amendment or modification generally will remain irrevocable. However, if we amend this rights offering in a way which we believe is material, we will extend the offering and offer all subscription rights holders the right to revoke any subscription submitted prior to such amendment upon the terms and conditions we set forth in the amendment. The extension of the expiration date of this offering will not, in and of itself, be considered a material amendment for these purposes. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of common stock at the subscription price.

U.S. Federal Income Tax Consequences

For U.S. federal income tax purposes, you should not recognize income or loss upon receipt or exercise of subscription rights. For a more detailed discussion, see the section titled “U.S. Federal Income Tax Consequences” in this prospectus.

No Recommendation to Rights Holders

Our board of directors is not making a recommendation regarding your exercise of the subscription rights. Shareholders who exercise subscription rights risk investment loss on money invested. The market price of our common stock may decline to a price that is less than the subscription price and, if you purchase shares at the subscription price, you may not be able to sell the shares in the future at the same price or a higher price. You should make your decision based on your assessment of our business and financial condition, our prospects for the future, and the terms of the offering. Please see the section entitled “Risk Factors” in this prospectus for a discussion of some of the risks involved in investing in our common stock.

Trading Symbol

Our common stock is listed on the NASDAQ Capital Market under the symbol “VBFC.” On January 14, 2015, the last reported sale price of our common stock was $25.99 per share. We urge you to obtain a current market price for the shares of our common stock before making any determination with respect to the exercise of your rights.

Outstanding Shares of Common Stock After the Offering

As of November 30, 2014, 350,622 shares of our common stock were issued and outstanding. Assuming that there are no other transactions by us involving shares of our common stock, no outstanding options for shares of our common stock are exercised prior to the expiration of the offering, and all 1,051,866 shares of our common stock are subscribed for, or exchanged for Series A preferred stock, in the offering, we expect 1,402,488 shares of common stock to be outstanding immediately after completion of the offering. As a result of the offering, the ownership interests and voting interests of the existing shareholders that do not fully exercise their basic subscription privilege will be diluted.

Questions

THE STANDBY PURCHASE AGREEMENT

To facilitate the offering, we have entered into the Standby Purchase Agreement with the standby investor. The standby investor is a private investor, attorney, and banking entrepreneur. He was an attorney with the Commission from 1988 through 1992, and in 1993, he co-founded a nationally recognized law firm that specializes in securities, mergers and acquisitions, and banking. He retired from that firm in 2002. Since 2003, he has co-founded three banks and served as a director of several banks and bank holding companies. The publicly traded companies on whose boards he has served over the last five years include Tower Bancorp, Inc. (2009-2012), Virginia Commerce Bancorp, Inc. (2009-2013), and First Capital Bancorp, Inc. (since 2011).

Background of the Standby Purchase Agreement

In November 2013, we participated in a successful auction of the 14,738 shares of our Series A preferred stock that was originally issued to the Treasury in connection with the Troubled Asset Relief Program. The Series A preferred stock was purchased in the auction by private and institutional investors, including 4,023 of such shares that were purchased by the standby investor. We sought guidance from Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. on the auction and also received their advice on potential capital raising transactions.

After being notified that he was a winning bidder in the auction, the standby investor sent a letter to our board of directors indicating his potential interest in exchanging his shares of Series A preferred stock for common stock of the Company. He also indicated a preliminary interest in acquiring additional shares of our common stock through a private placement or by serving as a standby investor in a rights offering. The board of directors reviewed the initial proposal and discussed it with the board’s financial and legal advisors. The board of directors concluded that the terms of the proposal were not in the best interests of the Company or its shareholders, partly because the transaction proposed may have had an unfavorable effect on the Company’s ability to preserve its net operating loss deferred tax asset.

In April 2014, the standby investor reached out to the Company with a new proposal that included terms that the board of directors viewed as more favorable to the Company and its shareholders. The board of directors was exploring alternatives for raising additional capital prior to the second approach from the standby investor, and his proposal was particularly attractive to the board of directors because it would allow the Company to raise additional capital while redeeming a portion of the Series A preferred stock at a discount. Our Series A preferred stock became more expensive on May 1, 2014 when, pursuant to its terms, the annual dividend rate on such shares increased from 5% to 9%. The board of directors also believed the new proposal could be structured to preserve the Company’s net operating loss deferred tax asset.

On July 11, 2014, we entered into a nondisclosure agreement with the standby investor and began negotiating a written letter of intent outlining the structure of a proposed transaction. On July 18, 2014, we formally engaged Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. as financial advisors to explore various alternatives for raising additional capital, including a potential transaction with the standby investor. Over the next several months, we continued negotiating with the standby investor. During such time, we also separately entered into nondisclosure agreements and participated in discussions with other potential investors, some of whom were also holders of our Series A preferred stock.

After considering the effects on shareholder value, the Bank’s long-term viability, regulatory burdens and restrictions, and alternative transactions with other potential investors, we decided that pursuing a transaction with the standby investor was in the best interests of the Company and its shareholders. Thereafter, the standby investor and his agents conducted a detailed due diligence review of the Company and we, the standby investor and our respective counsels then negotiated the Standby Purchase Agreement. We entered into the Standby Purchase Agreement on November 11, 2014.

Terms of the Standby Purchase Agreement

The terms of the Standby Purchase Agreement apply only to the standby investor and the Company. Purchasers in the offering are not parties to the Standby Purchase Agreement, and they do not receive any rights pursuant to it. The following summary includes a description of all the material terms of the Standby Purchase Agreement. The Standby Purchase Agreement is incorporated by reference as an exhibit to the registration statement of which this prospectus forms a part.

Pursuant to the Standby Purchase Agreement, the standby investor has agreed, subject to there being sufficient shares available after purchases by shareholders exercising their basic subscription privilege, to purchase from us, and we have agreed to sell to him, at the subscription price, the lesser of (i) $8.0 million of our common stock (based on the subscription price per share), (ii) all shares of common stock not purchased by shareholders exercising their basic subscription privilege, and (iii) the maximum number of shares that he may purchase without causing an “ownership change” under Section 382(g) of the Code.

We will not know the aggregate amount of common stock to be sold to the standby investor until the completion of the offering. The consummation of the sale of our common stock to the standby investor is conditioned on the completion of the offering and upon the number of unsubscribed shares available. The chart below presents different scenarios that may occur depending on the number of subscription rights that are exercised by shareholders and the number of shares purchased by the standby investor under the Standby Purchase Agreement. The chart below presents the standby investor’s ownership if the basic subscription privilege is exercised with respect to 0%, 25%, 50% and 100% of the subscription rights held by shareholders.

	0% of Basic Subscriptions Exercised			25% of Basic Subscriptions Exercised			50% of Basic Subscriptions Exercised			100% of Basic Subscriptions Exercised

Shares of Common Stock Sold Pursuant to the Basic Subscription Privilege		0			262,966			525,933			1,051,866
Shares of Common Stock Issued to Standby Investor in Exchange for Preferred Stock (1)		336,872			382,656			382,656			0
Shares of Preferred Stock Owned by the Standby Investor After Offering (1)		1,080			0			0			9,023
Total Shares of Preferred Stock Outstanding After Offering (1)		6,795			5,715			5,715			14,738
Shares of Common Stock Purchased by Standby Investor for Cash (1)		0			206,871			143,277			0
Total Shares of Common Stock Issued in Offering		336,872			852,493			1,051,866			1,051,866
Total Shares of Common Stock Outstanding After Offering		687,494			1,203,115			1,402,488			1,402,488
Percentage Ownership of Common Stock of Standby Investor After Closing of the Offering		49.00	%		49.00	%		37.50	%		0.00	%
Total Cash Investment of Standby Investor	$	0		$	2,482,447		$	1,719,328		$	0

____________

(1)

The Standby Purchase Agreement requires that, for a period of three years from the date of the agreement, the standby investor will not (i) serve as a director of the Company unless nominated by the Company’s board, (ii) nominate anyone to serve as a director of the Company, (iii) vote his shares in support of a director candidate that has not been nominated by the Company’s board, (iv) vote his shares in support of a business combination transaction with another entity unless such transaction has been approved by at least 80% of the Company’s board, or (v) vote any shares beneficially owned in excess of 40% of the Company’s total outstanding shares; provided, however, that such restrictions will only apply for so long as Company achieves certain performance targets and the standby investor is a director or beneficial holder of 10% or more of a bank or bank holding company with one or more offices in the Richmond, Virginia metropolitan statistical area. The standby investor is currently a director and a beneficial holder of greater than 10% of the outstanding common stock of First Capital Bancorp, Inc., which has branch offices in the Richmond, Virginia metropolitan statistical area.

The Standby Purchase Agreement requires our board of directors to adopt the Restricted Stock Plan as part of or immediately following the offering under which a number of shares of our common stock equal to 4.0% of the number of outstanding shares immediately after the closing of the offering will be reserved for issuance to our directors and officers. Under NASDAQ rules, adoption of the Restricted Stock Plan must be approved by the Company’s shareholders. It is expected that the Restricted Stock Plan will be submitted to shareholders for approval no later than the 2015 annual meeting of shareholders. The number of shares that the Company will be required to reserve for the Restricted Stock Plan will be approximately 56,100 shares, assuming the offering is fully-subscribed. Each award granted under the Restricted Stock Plan would be divided into four tranches that may vest at the end of 2015, 2016, 2017 and 2018 if we achieve certain performance targets established in pro forma financial projections that are mutually agreed to by us and the standby investor. Participants will forfeit all shares that do not vest in a particular year. The number of shares to be issued to individual officers under the Restricted Stock Plan will be determined by our board of directors in its sole discretion.

Additional Agreements with the Standby Investor

In the Standby Purchase Agreement, the standby investor has granted to the Company an option to redeem for cash, or exchange in connection with the offering at the subscription price, (i) all of the 4,023 shares of Series A preferred stock that he owned as of the date of the Standby Purchase Agreement based on a valuation of $500.34 per share of Series A preferred stock, and (ii) any additional shares of Series A preferred stock that he subsequently acquires based on a valuation of the Series A preferred stock that equates to a 5% annualized return on the amount that the standby investor pays to purchase such additional shares of Series A preferred stock. The standby investor has entered into an agreement to purchase an additional 5,000 shares of Series A preferred stock from another holder. The standby investor closed on the purchase of 2,221 of such shares (the maximum amount allowable without receipt of additional regulatory approval) on December 23, 2014 for $509.656 per share. The purchase of the additional 2,779 shares is contingent upon, among other things, the standby investor obtaining approval of the Reserve Bank to purchase such shares. Any redemption by the Company of Series A preferred stock for cash will also be contingent upon approval from the Reserve Bank. Such agreement is contingent upon, among other things, the standby investor obtaining approval of the Reserve Bank to purchase such shares. If enough shares are purchased by shareholders through the exercise of their basic subscription rights, there will not be sufficient shares of common stock available to exchange all of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date. In such a scenario, we may seek, but are not obligated, to repurchase for cash any or all of the shares of Series A preferred stock owned by the standby investor that are not exchanged in the offering. Prior to repurchasing shares of Series A preferred stock for cash, we would be required to bring current the deferred interest payments on our junior subordinated debt securities ($1,009,712 as of September 30, 2014). We would also need to obtain the prior approval of the Reserve Bank to both bring current such deferred interest payments as well as to repurchase the shares of our Series A preferred stock for cash. No assurances can be given that the necessary approvals would be granted or would be granted without unacceptable conditions.

In addition, if the Company terminates the Standby Purchase Agreement because of a breach of the agreement by the standby investor or because the standby investor is unable to obtain regulatory approval to acquire the shares he has committed to purchase, the Company will have an option, subject to certain conditions, expiring June 30, 2015 to redeem all of the shares of Series A preferred stock that he owns based on a valuation of the greater of (i) $500.34 per share, (ii) the average price paid by the standby investor to purchase any additional Series A preferred stock increased by an amount that equates to a 5% annualized return on such purchases, and (iii) the average redemption price paid to other holders of Series A preferred stock whose shares have been redeemed for cash by the Company on or prior to such date. Such option is contingent upon the standby investor purchasing at least 5,000 additional shares of Series A preferred stock from other holders (including the 2,221 shares he has already purchased) or the Company redeeming at least 5,000 additional shares of Series A preferred stock by June 30, 2015.

We also agreed to enter into the Registration Rights Agreement with the standby investor which will provide the standby investor demand registration and piggyback registration rights with respect to the standby investor’s resale of the Company’s equity securities, subject to customary limitations. The Registration Rights Agreement is expected to be executed in connection with closing of the sale of shares to the standby investor. We have agreed to pay the expenses associated with any registration statements filed with the Commission pursuant to the Registration Rights Agreement. The standby investor’s demand registration rights will be immediately exercisable upon execution of the Registration Rights Agreement for, subject to certain limitations, the number of shares of common stock held by the standby investor and any equity securities issued or issuable directly or indirectly with respect to the shares of common stock held by the standby investor by way of conversion, exercise or exchange thereof or stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization.

Conditions to Closing

The obligations of the Company and the standby investor to consummate the transactions contemplated by the Standby Purchase Agreement are subject to fulfillment of the following conditions:

The Company must obtain any required federal, state and regulatory approvals on conditions reasonably satisfactory to the Company and the standby investor;

The Reserve Bank must have issued a letter of nonobjection to the notice of change in control filed by the standby investor without the imposition of any restrictions or conditions that the standby investor determines are, in his reasonable discretion, unreasonably burdensome;

The Virginia BFI must have approved the standby investor’s acquisition of shares of the Company under Virginia law without the imposition of any restrictions or conditions that the standby investor determines are, in his reasonable discretion, unreasonably burdensome;

The Company must have received a letter from BDO USA, LLP, its outside accounting firm, to the effect that, among other things, the transactions contemplated by the Standby Purchase Agreement will not cause the Company to undergo an “ownership change” for purposes of Section 382 of the Code;

No judgment, injunction, decree, regulatory proceeding or other legal restraint prohibits, or has the effect of rendering unachievable, the consummation of the offering or the material transactions contemplated by the Standby Purchase Agreement; and

No stop order suspending the effectiveness of the registration statement of which this prospectus forms a part, or any part thereof, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the registration statement or otherwise shall have been complied with.

The obligations of the Company to consummate the transactions contemplated by the Standby Purchase Agreement are further subject to the condition that the representations and warranties of the standby investor set forth in the Standby Purchase Agreement are true and correct in all material respects and the standby investor must have performed all of his obligations under the Standby Purchase Agreement.

The obligations of the standby investor to consummate the transactions contemplated by the Standby Purchase Agreement are further subject to the fulfillment of the following conditions:

The representations and warranties of the Company set forth in the Standby Purchase Agreement are true and correct in all material respects and the Company must have performed all of its obligations under the Standby Purchase Agreement;

There has not been any material adverse effect with respect to the Company and the Company must not have breached its covenants under the Standby Purchase Agreement;

Trading in the Company’s common stock must not have been suspended by the Commission or trading in securities generally on the NASDAQ Capital Market must not have been suspended or limited or minimum prices must not have been established on the NASDAQ Capital Market;

The Company must have redeemed at least 5,000 shares of Series A preferred stock from other holders for no more than $500.34 per share or the standby investor must have purchased at least 5,000 shares of Series A preferred stock from other holders (including the 2,221 shares he has already purchased);

If the Company’s common stock remains listed on the NASDAQ Capital Market as of the closing date, the common stock issued in the offering must have been authorized for listing on the NASDAQ Capital Market; and

The Company’s disinterested directors must have approved the standby investor’s acquisition of share under Virginia’s Affiliated Transactions statute, and opted out of Virginia’s Control Share Acquisition statute, and taken all action necessary to ensure that the voting or other rights of shares acquired by the standby investor are not limited by such laws and/or regulations.

Termination Provisions

The Standby Purchase Agreement may be terminated under the following circumstances:

By the standby investor at any time prior to the closing date if there is (i) a material adverse change in the Company’s business or results of operations, or (ii) trading in the Company’s common stock has been suspended by the Commission or trading in securities generally on the NASDAQ Capital Market has been suspended or limited or minimum prices have been established on the NASDAQ Capital Market, and such events have not been cured within 21 days of their occurrence;

By the Company or the standby investor by written notice to the other party:

At any time prior to the closing date, if there is a material breach of the Standby Purchase Agreement by the other party that is not cured within 15 days after notice;

At any time after June 30, 2015, unless the closing has occurred prior to such date; or

If consummation of the offering is prohibited by law, rule or regulation; or

By the Company in the event that the Company determines that it is not in the best interests of the Company or its shareholders to go forward with the offering.

In the event that the Standby Purchase Agreement is terminated because we determine that the offering is not in the best interests of the Company or its shareholders, we are required to pay the standby investor liquidated damages of $150,000.

Expenses

We are obligated to pay the reasonable actual out-of-pocket expenses of the standby investor up to $37,500 upon closing of the offering or if the Standby Purchase Agreement is terminated for any reason.

OUR NET OPERATING LOSS DEFERRED TAX ASSET

As of September 30, 2014, we had a total deferred tax asset of $13.1 million, a valuation allowance of $12.2 million, and a deferred tax liability of $79,000, for a net deferred tax asset of $829,000. A total deferred tax asset is reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion or all of the total deferred tax asset will not be realized. We believe that, subject to certain limitations including federal tax laws relating to “ownership changes” discussed below, should we return to profitability over a sustained period of time and project future profits while remaining well capitalized, then we would be able to reverse some or all of the deferred tax asset valuation allowance including the portion allocable to our net operating loss carryforwards, and our shareholders’ equity would increase accordingly. Even if we are able to reverse the deferred tax asset valuation allowance, however, the only portion of a deferred tax asset that may be included in Tier 1 capital for regulatory capital purposes is the amount that may be utilized over the next 12 months.

As of September 30, 2014, we had net operating loss carryforwards of approximately $21.7 million, which begin to expire in 2028. As of September 30, 2014, $7.4 million of our total deferred tax asset related to our net operating loss carryforwards and was fully reduced by a valuation allowance. While we cannot estimate the exact amount of net operating loss carryforwards that we can use to reduce future income tax liability because we cannot predict the amount and timing of our future taxable income, we believe our net operating loss carryforwards represent a very valuable asset that could save substantial amounts of federal and state taxes over the next 20 years.

Our ability to utilize our net operating loss carryforwards to offset future taxable income may be significantly limited if we experience an “ownership change,” as determined under Section 382 of the Code. Under Section 382 of the Code, an “ownership change” occurs if, over a rolling three-year period, there has been an aggregate increase of 50 percentage points or more in the percentage of our common stock owned by one or more of our “5-percent stockholders” (as determined under the rules of Section 382 of the Code and the related regulations and guidance thereunder). An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax losses and credit carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the Internal Revenue Service (the “IRS”) (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The limitation on our ability to utilize our net operating loss carryforwards arising from an ownership change under Section 382 of the Code would depend on the value of our equity at the time of any ownership change.

If an ownership change were to occur, the limitations imposed by Section 382 of the Code could result in a material amount of our net operating loss carryforwards expiring unused, which would significantly impair their value. While the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has occurred, we currently believe that an ownership change will not occur as a result of the offering.

We have attempted to structure the offering so as to avoid an “ownership change” under Section 382 of the Code. We will not accept a subscription pursuant to the oversubscription privilege if we believe that doing so will have an unfavorable effect on our ability to avoid an “ownership change” or preserve our net operating loss deferred tax asset. We do not believe that the exercise of basic subscription rights will have any unfavorable effect on our ability to avoid an “ownership change” or preserve our net operating loss deferred tax asset.

It is important to note that, notwithstanding this measure, an ownership change may occur, which would significantly limit the amount of the net operating loss carryforwards that we might otherwise be able to utilize once we have returned to profitability. Therefore, even if our results of future operations allow us to reverse the deferred tax valuation allowance allocable to our net operating loss deferred tax asset, the amount of that deferred tax asset could be significantly less than the $7.4 million balance at September 30, 2014. Accordingly, the aforementioned increase in our shareholders’ equity that would result from the reversal of the valuation allowance to our net operating loss deferred tax asset would also be significantly reduced.

U.S. FEDERAL INCOME TAX CONSEQUENCES

The following summary describes our management’s understanding of the U.S. federal income tax consequences of the receipt and exercise (or expiration) of the subscription rights, including the basic subscription privilege and the oversubscription privilege, acquired through the offering and owning and disposing of the shares of common stock received upon exercise of the subscription rights. This summary is based upon the Code, Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.

This summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular holder in light of its particular circumstances or to holders that may be subject to special tax rules, including, but not limited to, partnerships or other pass-through entities, banks and other financial institutions, tax-exempt entities, employee stock ownership plans, certain former citizens or residents of the United States, insurance companies, regulated investment companies, real estate investment trusts, dealers in securities or currencies, brokers, traders in securities that have elected to use the mark-to-market method of accounting, persons holding subscription rights or shares of common stock as part of an integrated transaction, including a “straddle,” “hedge,” “constructive sale,” or “conversion transaction,” persons whose functional currency for tax purposes is not the U.S. dollar, persons holding our common stock through a foreign financial account, and persons subject to the alternative minimum tax provisions of the Code.

This summary applies to you only if you are a U.S. holder (as defined below) and receive your subscription rights in the offering, and you hold your subscription rights or shares of common stock issued to you upon exercise of the subscription rights as capital assets for tax purposes. This summary does not apply to you if you are not a U.S. holder. We recommend that non-U.S. holders consult with their own tax advisors with respect to U.S. federal income tax consequences that may apply to them.

We have not sought, and will not seek, a ruling from the IRS regarding the federal income tax consequences of the offering or the related share issuances. The following summary does not address the tax consequences of the offering or the related share issuance under foreign, state, or local tax laws.

You are a “U.S. holder” if you are a beneficial owner of subscription rights or common stock and you are:

An individual who is a citizen or resident of the United States for U.S. federal income tax purposes;

A corporation (or other business entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

An estate, the income of which is subject to U.S. federal income tax regardless of its source; or

A trust (a) if a court within the United States can exercise primary supervision over its administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) receives the subscription rights or holds the common stock received upon exercise of the subscription rights including, if applicable, the oversubscription privilege, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. Such a partner or partnership is urged to consult its own tax advisor as to the U.S. federal income tax consequences of receiving and exercising the subscription rights and acquiring, holding or disposing of our shares of common stock.

We recommend that you consult your own tax advisor with respect to the U.S. federal, state, local, non-U.S., and other tax consequences of the receipt and ownership of the subscription rights acquired in the offering and the ownership of shares of common stock received upon exercise of the subscription rights.

Taxation of Subscription Rights

Receipt of Subscription Rights

Your receipt of subscription rights pursuant to the offering should not be treated as a taxable distribution with respect to your existing shares of common stock for U.S. federal income tax purposes. The discussion below assumes that the receipt of the subscription rights will be treated as a non-taxable distribution.

Tax Basis in the Subscription Rights

If the fair market value of the subscription rights you receive is less than 15% of the fair market value of your existing shares of common stock on the date you receive the subscription rights, the subscription rights will be allocated a zero basis for U.S. federal income tax purposes, unless you elect to allocate your basis in your existing shares of common stock between your existing shares of common stock and the subscription rights in proportion to the relative fair market values of the existing shares of common stock and the subscription rights determined on the date of receipt of the subscription rights. If you choose to allocate basis between your existing shares of common stock and the subscription rights, you must make this election on a statement included with your tax return for the taxable year in which you receive the subscription rights. Such an election is irrevocable.

However, if the fair market value of the subscription rights you receive is 15% or more of the fair market value of your existing shares of common stock on the date you receive the subscription rights, then you must allocate your basis in your existing shares of common stock between your existing shares of common stock and the subscription rights you receive in proportion to their fair market values determined on the date you receive the subscription rights. The fair market value of the subscription rights on the date the subscription rights will be distributed is uncertain. In determining the fair market value of the subscription rights, you should consider all relevant facts and circumstances.

Exercise and Expiration of Subscription Rights

Generally, you will not recognize gain or loss on the exercise of a subscription right. If you allow subscription rights received in the offering to expire, you should not recognize any gain or loss for U.S. federal income tax purposes, and you should re-allocate any portion of the tax basis in your existing shares of common stock previously allocated to the subscription rights that have expired to the existing shares of common stock.

Taxation of Shares of Common Stock

Basis and Holding Period

Your tax basis in a new share of common stock acquired when you exercise a subscription right will be equal to your adjusted tax basis in the subscription right, if any, plus the subscription price. The holding period of a share of common stock acquired when you exercise your subscription rights will begin on the date of exercise.

Distributions

Distributions with respect to shares of common stock acquired upon exercise of subscription rights will be taxable as dividend income when actually or constructively received to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Subject to the discussion below concerning the additional 3.8% tax on net investment income, dividends received by non-corporate shareholders of common stock are taxed at the shareholder’s capital gain tax rate (a maximum rate of 20%), provided that the shareholder meets applicable holding period and other requirements. To the extent that the amount of a distribution exceeds our current and accumulated earnings and profits, such distribution will be treated first as a tax-free return of capital to the extent of your adjusted tax basis in such shares of common stock and thereafter as capital gain. We currently do not make any cash distributions on our shares of common stock.

Dispositions

If you sell or otherwise dispose of the shares of common stock acquired upon exercise of the subscription rights, you will generally recognize capital gain or loss equal to the difference between the amount realized and your adjusted tax basis in the shares of common stock. Such capital gain or loss will be long-term capital gain or loss if your holding period for the shares of common stock is more than one year. Long-term capital gain of an individual is generally taxed at favorable rates (currently a maximum rate of 20%). Long-term capital gains recognized by corporations are taxable at ordinary corporate tax rates. If you have held your shares of common stock for one year or less, your capital gain or loss will be short-term. Short-term capital gains are taxed at a maximum rate equal to the maximum rate applicable to ordinary income. The deductibility of capital losses is subject to limitations.

Net Investment Income Tax

U.S. shareholders who are individuals, estates, or trusts are subject to a 3.8% tax on net investment income. Net investment income includes, among other things, dividends on and capital gains from the sale or other disposition of stock. More specifically, the 3.8% tax applies to the lesser of (i) “net investment income” and (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are attributable to such income. U.S. shareholders should consult their tax advisors regarding the effect, if any, of the net investment tax on their ownership and disposition of our common stock.

Information Reporting and Backup Withholding

You may be subject to information reporting or backup withholding with respect to dividend payments on, or the gross proceeds from the disposition of, our common stock acquired through the exercise of subscription rights. Backup withholding may apply under certain circumstances if you (1) fail to furnish your social security or other taxpayer identification number (“TIN”), (2) furnish an incorrect TIN, (3) fail to report interest or dividends properly, or (4) fail to provide a certified statement, signed under penalty of perjury, that the TIN provided is correct, that you are not subject to backup withholding, and that you are a U.S. person. Any amount withheld from a payment under the backup withholding rules is allowable as a credit against (and may entitle you to a refund with respect to) your U.S. federal income tax liability, provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and financial institutions. You are urged to consult your own tax advisor as to your qualification for exemption from backup withholding and the procedure for obtaining such exemption.

EXECUTIVE COMPENSATION

Director Compensation

Members of the board of directors of the Company do not receive fees for their service as directors. However, all of the directors of the Company also serve as directors of the Bank. In 2014, as compensation for their service to the Bank, each non-employee member of the board of directors received the following fees:

a retainer fee of $10,000, paid quarterly in increments of $2,500;

an attendance fee of $500 for each meeting of the board attended ($650 for the Chair of the board); and

an attendance fee of $200 for each meeting of a committee attended ($300 for the Chair of the committee), with the exception that the Audit Committee members receive $300 for each meeting attended ($450 for the Chair of the committee).

In 2015, the Chairman of the board of directors of the Bank will receive a $22,000 retainer payable semi-annually in increments of $11,000. Each other non-employee member of the board of directors of the Bank will receive a $20,000 retainer payable semi-annually in increments of $10,000.

Board members who are also officers of the Company or the Bank receive compensation only for their executive roles. They do not receive additional compensation for board service or attending committee meetings.

In 2005, the Bank adopted the Outside Directors Deferral Plan under which non-employee directors of the Bank have the opportunity to defer receipt of all or a portion of their compensation until retirement or departure from the board of directors. Any amounts deferred under this plan are maintained in an account for the benefit of the director and are credited annually with interest on the deferred amount at a market rate established at the beginning of each plan year (5.55% for 2014).

In August 2013, Thomas W. Winfree stepped down from his position as President of the Company and the Bank and entered into a new employment agreement pursuant to which he continued to serve as Chief Executive Officer until his retirement in February 2014. Mr. Winfree continues to serve as a member of the board of directors of the Company and the Bank. Further information about Mr. Winfree’s employment agreements is included under “– Executive Officer Compensation – Employment and Change-in-Control Agreements with Named Executive Officers.”

The following table provides information concerning the compensation of all non-employee directors for the year ended December 31, 2014:

Director Compensation for 2014

	Fees Earned
	or Paid
Name	in Cash ($)			Total ($)

R.T. Avery, III	$	24,050	(1)	$	24,050
Donald J. Balzer, Jr.		19,900	(1)		19,900
Craig D. Bell		22,400	(1)		22,400
William B. Chandler		22,250	(1)		22,250
R. Calvert Esleeck, Jr.		22,100			22,100
O. Woodland Hogg, Jr.		21,900			21,900
Michael A. Katzen		26,050	(1)		26,050
Michael L. Toalson		22,850			22,850
Charles E. Walton		21,800			21,800
John T. Wash, Sr.		23,300			23,300
George R. Whittemore		26,100			26,100
Thomas W. Winfree		20,133	(2)		20,133

(1) All fees earned by the director were deferred for the year ended December 31, 2014.

(2) Mr. Winfree earned these fees as a nonexecutive director subsequent to his retirement as an executive officer on February 28, 2014.

Executive Officer Compensation

The following table presents information concerning the compensation of the named executive officers for services rendered in all capacities to the Company and the Bank.

Summary Compensation Table

								Nonqualified
				Stock		Option		Deferred				All Other
Name and Principal				Awards		Awards		Compensation				Compensation
Position	Year	Salary ($)		($) ⁽²⁾		($) ⁽²⁾		Earnings				($) ⁽⁴⁾		Total

Thomas W. Winfree⁽¹⁾	2014	$	35,700	$	-	$	13,008	$	29,692			$	3,333	$	81,733
President and Chief	2013		211,925		-		-		163,384	(3	)		9,260		384,569
Executive Officer

William G. Foster ⁽¹⁾	2014		243,750		92,316		-		48,646				12,549		397,261
President and Chief	2013		181,573		84,048		-		61,776				10,675		338,072
Executive Officer

James E. Hendricks, Jr.	2014		180,000		98,248		-		18,017				10,905		307,170
Executive Vice President/	2013		59,308		-		-		2,844				2,385		64,537
Chief Credit Officer

C. Harril Whitehurst, Jr.	2014		178,500		43,968		-		38,109				10,678		271,255
Executive Vice President/	2013		175,852		-		4,845		50,557				10,790		242,044
Chief Financial Officer

____________

(1) Mr. Winfree retired effective February 28, 2014 and Mr. Foster assumed the duties of Chief Executive Officer of the Company and the Bank.

(2) The amounts represent the aggregate grant date fair value of each award calculated in accordance with Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") Topic 718. Assumptions used in the calculation of these amounts are included in Note 14 of the Company's audited financial statements for the year ended December 31, 2013 included in the Annual Report on Form 10-K filed with the Commission on March 26, 2014 and incorporated herein by reference. Assumptions used for the December 31, 2014 amounts are consistent with those used for the year ended December 31, 2013.

(3) Amount reflects, in part, an increase in the duration of his supplemental retirement plan benefit payments from 15 years to 20 years.

(4) Amounts shown in the "All Other Compensation" column are detailed in the following table:

All Other Compensation

				Company
				Contributions		Company						Cancer
		Life		to Retirement		Vehicle /						Policy
Name and Principal		Insurance		and 401(k)		Automobile		Telephone		Financial		Insurance
Position	Year	Premium		Plans		Allowance		Allowance		Planning		Premium		Total

Thomas W. Winfree	2014	$	858	$	904	$	-	$	-	$	1,500	$	71	$	3,333
	2013		4,591		4,242		-		-		-		427		9,260

William G. Foster, Jr.	2014		368		4,875		6,000		600		-		705		12,549
	2013		338		3,632		6,000		-		-		705		10,675

James E. Hendricks, Jr.	2014		-		3,600		6,000		600		-		705		10,905
	2013		-		-		2,000		150		-		235		2,385

C. Harril Whitehurst, Jr.	2014		1,176		3,124		6,000		-		-		378		10,678
	2013		1,026		3,386		6,000		-		-		378		10,790

Mr. Foster was promoted to the position of President of the Company and the Bank effective August 19, 2013, assuming those duties from Mr. Winfree. Prior to this promotion, Mr. Foster served as Senior Vice President-Chief Credit Officer of the Bank since March 2012. Upon Mr. Winfree’s retirement on February 28, 2014, Mr. Foster assumed the position of President and Chief Executive Officer of the Company and the Bank.

Prior to his retirement, Mr. Winfree had an employment agreement with the Company and the Bank. Mr. Foster currently has an employment agreement with the Company and Mr. Hendricks has an employment agreement with the Bank. Additional information on these employment agreements is included below under “− Employment and Change-in-Control Agreements with Named Executive Officers.” Information on the components of executive compensation is set forth below.

Salary. The Company believes that a competitive salary for executive management is essential. Furthermore, flexibility to adapt to the particular skills of an individual or the specific needs of the Company is required. Proposed salary adjustments for executive management are presented to the Compensation Committee by the Chief Executive Officer, typically during the second quarter. The Compensation Committee reviews the recommendations, makes any further adjustments and generally approves the recommendations with input from the Compensation Committee’s external compensation advisor. Recommendations regarding adjustments to Mr. Foster’s salary are reviewed and, if appropriate, approved by the Executive Committee. Mr. Foster received a salary increase in March 2014 upon his promotion to President and Chief Executive Officer of the Company and the Bank. The other named executive officers received no salary increases in 2014.

Stock-Based Compensation. The Compensation Committee recommends for approval by the board of directors stock option and restricted stock awards to employees under the Village Bank and Trust Financial Corp. Incentive Plan, as amended and restated February 25, 2014. These awards of stock options and restricted stock are utilized to attract new employees, reward existing employees for performance, and retain key employees.

In granting stock awards in 2014, the Compensation Committee asked its external compensation advisor to provide a recommendation regarding stock awards for executive management. The Compensation Committee’s advisor recommended stock awards for each executive based on the Company’s executive compensation philosophy statement. As a result of this evaluation, the Compensation Committee and Board approved a combination of time-vested restricted stock grants, performance-based restricted stock grants and one option grant to reward and retain the named executives and other key officers of the Company and Bank. The stock-based compensation for the named executives includes the full value of the time-vested restricted stock grants as of the date of grant.

For performance-based restricted stock grants, the Company adopted the Village Bank & Trust 2014-5 Management Incentive Plan (“MIP”) that will award grants to each executive officer based on achieving identified goals. The performance period is July 1, 2014 to December 31, 2015. Goals were established for the following categories and carry the following weighting:

40% Consolidated Net Income Before Taxes and Preferred Stock Dividends

15% Consolidated Total Nonperforming Assets to Total Assets

15% Consolidated Classified Assets to Total Assets

15% Tier 1 Capital Ratio for the Bank

15% Total Risk-Based Capital Ratio for the Bank

100%

The stock based compensation for the named executives includes the full value as of the date of grant of the performance-based restricted stock grants assuming management receives the stock awards associated with achieving the targeted goals.

In conjunction with his promotion to President on August 19, 2013, Mr. Foster was granted a time-vested restricted stock award of 3,835 shares (adjusted for the 1 for 16 reverse stock split effective August 8, 2014) which vested 25% after one year, will vest an additional 25% after two years and the remaining 50% after three years. In accordance with FASB ASC Topic 718, the compensation expense for these restricted stock awards was recognized in the 2013 fiscal year.

Information on restricted stock and option awards to the named executive officers in 2014 is provided in the following table:

				All Other
		All Other		Option
		Stock Awards:		Awards:		Exercise or		Grant Date
		Number of		Number of		Base Price of		Fair Value
		Shares of		Securities		Option		of Stock
	Grant	Stock or		Underlying		Awards		and Option
Name	Date	Units (#) (2)		Options (#)		($/Sh)		Awards ($) (3)

Thomas W. Winfree	1/3/2014		-		885	$	25.28	$	13,008

William G. Foster	7/30/2014		1,750					$	47,320
	8/20/2014		1,625					$	44,996
			3,375					$	92,316

James E. Hendricks, Jr.	3/25/2014		2,235					$	47,548
	7/30/2014		1,062					$	28,716
	7/30/2014		813					$	21,984
			4,110					$	98,248

C. Harril Whitehurst, Jr.	7/30/2014		813					$	21,984
	7/30/2014		813					$	21,984
			1,626					$	43,968

____________

(1) All stock awards prior to August 8, 2014 have been adjusted for a 1 for 16 reverse stock split effective August 8, 2014.

(2) Consists of restricted stock awards.

(3) The amounts reported reflect the aggregate grant date fair value of the awards computed in accordance with the FASB ASC Topic 718, Compensation – Stock Compensation.

Supplemental Executive Retirement Plan. We believe that retirement compensation plays an important role in retaining key executives, as well as helping them provide for retirement. In 2014, the Compensation Committee engaged an independent compensation advisor to analyze the total retirement benefits provided by the Company and/or the Bank and Social Security to employees with various levels of compensation and years of service so that the Compensation Committee could determine the projected replacement ratio of income at retirement compared with active employment. Because of limits under our qualified retirement plan on the amount of deferrals that our executives can make, several of our executives can expect to have a lower retirement replacement ratio than we have targeted for all employees. Consequently, as a matter of “pension equity”, we have adopted a supplemental plan which should provide a benefit for designated executives that will help approach the targeted retirement replacement ratio.

The Company provides a potential supplemental retirement plan benefit of $50,000 annually for 20 years to Mr. Foster and a potential benefit of $25,000 annually for 15 years to each of Messrs. Whitehurst and Hendricks. The benefits vest ratably each year over a 10 year period. Under the plan’s vesting schedule, Mr. Foster is in his third year of service, Mr. Hendricks is in his second year of service and Mr. Whitehurst has completed his 10 year vesting requirement and is fully vested in his benefit. In the event of a pre-retirement death, vesting is accelerated and the executive’s named beneficiary receives the benefit under the applicable payout schedule. In the event of a post-retirement death, the executive’s named beneficiary receives any remaining benefit payments under the applicable payout schedule. In the event of a termination of employment resulting from a change in control of the Company, vesting is accelerated and the benefit is paid under the applicable payout schedule.

Outstanding Equity Awards

The following table sets forth certain information with respect to the amount and value of outstanding equity awards on an award-by-award basis held by the named executive officers at December 31, 2014.

Outstanding Equity Awards at Fiscal Year-end

		Option Awards							Stock Awards
									Number of			Market Value
									Shares			of Shares
		Number of Securities							or Units			or Units
		Underlying				Option		Option	of Stock That			of Stock That
	Grant	Unexercised Options (#)				Exercise		Expiration	Have Not			Have Not
Name	Date	Exercisable		Unexercisable		Price ($)		Date (2)	Vested (#)			Vested ($) (3)

Thomas W. Winfree	1/3/2014		-		885	$	25.28	1/3/2024		-			-

William G. Foster, Jr.	8/20/2012		-		313	$	16.00	8/20/2022
	8/19/2013									2,876	(4)	$	63,272
	7/30/2014									1,750		$	38,500
	8/20/2014									1,625	(4)	$	35,750
										6,251		$	137,522

James E. Hendricks, Jr.	3/25/2014									1,676	(4)	$	36,878
	7/30/2014									1,062	(4)	$	23,364
	7/30/2014									813		$	17,886
										3,551		$	78,128

C. Harril Whitehurst, Jr.	9/26/2013		-		313	$	25.28	9/26/2023
	7/30/2014									813	(4)	$	17,886
	7/30/2014									813		$	17,886
										1,626		$	35,772

____________

(1) All stock awards prior to August 8, 2014 have been adjusted for a 1 for 16 reverse stock split effective August 8, 2014.

(2) Each of the incentive stock option awards cliff vests at the end of three years from date of grant. Once the shares vest and become exercisable, the award recipient may exercise such options, or any portion thereof, for a term of ten years after the date of grant.

(3) The market value of the stock awards that have not vested was determined based on the per share closing price of the Company's common stock on December 31, 2014 ($22.00).

(4) Stock award is time vested according to the following schedule: 25% after one year, an additonal 25% after two years and the remaining 50% after three years.

Employment and Change-in-Control Agreements with Named Executive Officers

Securing the continued service of key executives is essential to the successful future of the Company. Employment agreements and management continuity agreements (which help retain key executives during a possible change of control situation) assist the Company by providing security to key executives.

The Company has an employment agreement with Mr. Foster and the Bank has an employment agreement with Mr. Hendricks. In addition, the Company and the Bank had an employment agreement with Mr. Winfree prior to his retirement on February 28, 2014.

Mr. Foster’s employment agreement was entered into on August 8, 2013 with an initial term of three years. Pursuant to the terms of his agreement, Mr. Foster was employed initially as the President of the Company and the Bank and became Chief Executive Officer and a director of the Company and the Bank upon Mr. Winfree’s retirement. The agreement may be extended by mutual agreement of the parties at any time. Annually, the Executive Committee of the board of directors reviews Mr. Foster’s performance for the immediately preceding year and, after such review, may extend his employment agreement (it has not yet been extended). Mr. Foster currently receives a base salary of $250,000 per year, an increase from the initial base salary of $200,000 per year set forth in his employment agreement. Pursuant to his agreement, he is entitled to participate in the Village Bank Supplemental Executive Retirement Plan with a potential annual benefit of $50,000 for 20 years. In addition, he was granted restricted stock awards in the amount of $100,000 upon being named President on August 19, 2013 and is entitled to participate in benefit plans available to senior executives of the Company and the Bank. Mr. Foster is not entitled to any severance benefits pursuant to his employment agreement. The Company has applied for approval from the Reserve Bank and the FDIC of a separate severance and change of control agreement for Mr. Foster.

Mr. Hendrick’s employment agreement was entered into on May 16, 2014 and will expire on May 16, 2016 unless renewed or extended in writing by the parties. Pursuant to the agreement, Mr. Hendricks serves as Executive Vice President and Chief Credit Officer of the Bank and receives an annual base salary of $180,000. The Bank’s board of directors will review his base salary at least annually and may make adjustments in its discretion. Mr. Hendricks will be entitled to cash bonuses and stock-based awards in such amounts as may be determined by the Company’s or the Bank’s board of directors in accordance with the terms and conditions of the applicable incentive plans in effect for senior executives of the Company and the Bank. Pursuant to his agreement, Mr. Hendricks is entitled to certain benefits in the event of a “Change of Control” (as defined in his agreement) of the Bank. If, following a Change of Control of the Bank, he is terminated by the Bank without Cause (as defined in his agreement), he terminates his employment for Good Reason (as defined in his agreement) or the Bank fails to renew his agreement, he will be entitled to receive a lump sum cash payment equal to his annual base salary, payable in equal monthly installments for a period of 12 months succeeding the date of his termination.

Mr. Winfree’s employment agreement with the Company and the Bank was entered into on May 1, 2001 with an initial term of three years. Under the agreement, Mr. Winfree agreed to perform the services and duties appropriate to his positions at that time of President and Chief Executive Officer of the Company and the Bank. Such agreement was effective until September 28, 2013, at which time Mr. Winfree stepped down as President and entered into a new employment agreement covering the period from September 28, 2013 to September 27, 2014. His new agreement was effective until his retirement from his position as Chief Executive Officer on February 28, 2014.

MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY

Market Price of Common Stock

Our common stock trades on the NASDAQ Capital Market under the symbol “VBFC.” As of November 30, 2014, there were 350,622 shares of our common stock issued and outstanding held by approximately 1,645 shareholders of record. On January 14, 2015, the last reported sale price of our common stock was $25.99 per share. The following table shows the high and low sales prices of our common stock during the periods indicated.

	Sales Prices (1)
	High		Low
2012
First Quarter	$	44.00	$	18.72
Second Quarter		34.24		18.40
Third Quarter		23.36		13.12
Fourth Quarter		23.20		9.76

2013
First Quarter	$	41.12	$	15.36
Second Quarter		37.76		26.56
Third Quarter		30.08		21.76
Fourth Quarter		27.20		17.92

2014
First Quarter	$	30.40	$	20.16
Second Quarter		24.00		20.64
Third Quarter		40.80		19.04
Fourth Quarter		27.22		16.22

2015
First Quarter (through January 14, 2015)	$	25.99	$	22.00

____________

(1)

On August 8, 2014, we completed a 1-for-16 reverse split of our common stock. All prices are presented as if the reverse split was effective at the beginning of the earliest period presented.

Dividends

We have not paid any dividends on our common stock since inception. We intend to retain all of our earnings to finance our operations and we do not anticipate paying cash dividends for the foreseeable future. Any decision by the board of directors to declare dividends in the future will depend on our future earnings, capital requirements, financial condition and other factors deemed relevant by the board. Banking regulations limit the amount of cash dividends that may be paid without prior approval of the Bank’s regulatory agencies. Such dividends are limited to the Bank’s accumulated retained earnings. The Federal Reserve has issued guidelines that bank holding companies should inform and consult with the Federal Reserve in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse charge to the organization’s capital structure.

We also are subject to a Written Agreement with the Reserve Bank that restricts our ability pay dividends on our capital stock, including our Series A preferred stock, trust preferred securities or common stock without the prior consent of the Federal Reserve. In addition, the Bank is subject to a Consent Order with the FDIC and the Virginia BFI that prohibits the Bank from paying dividends, paying bonuses or making any other form of payment outside the ordinary course of business that would result in a reduction of capital without approval.

We have deferred interest payments on our junior subordinated debt securities of $1,009,712 as of September 30, 2014. Although we elected to defer payment of the interest due, the amount has been accrued and is included in interest expense. In addition, the Company has deferred dividend payments on our outstanding Series A preferred stock, including dividends that accrue on the unpaid balance. The total arrearage on our Series A preferred stock as of September 30, 2014 is $3,243,600 and has been accrued and reflected as a reduction of retained earnings. Pursuant to the terms of the indenture governing the junior subordinated debt securities and our Articles, we may not pay any cash dividends on our common stock until we are current on interest payments on such junior subordinated debt securities and current on dividend payments on our Series A preferred stock.

DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock is qualified by reference to applicable provisions of federal and state law and to our Articles of Incorporation, as amended, and Bylaws, as amended. Our Articles and Bylaws are incorporated by reference as exhibits to the registration statement of which this prospectus forms a part.

General

Our authorized capital stock consists of 10,000,000 shares of common stock, par value $4.00 per share, and 1,000,000 shares of preferred stock, par value $4.00 per share. As of November 30, 2014, there were 350,622 shares of common stock outstanding and 14,738 shares of Series A preferred stock outstanding.

Common Stock

General

Each share of our common stock has the same relative rights as, and is identical in all respects to, each other share of our common stock. Our common stock is traded on the NASDAQ Capital Market under the symbol “VBFC.” All outstanding shares of common stock are, and any common stock issued or sold under this prospectus will be, fully paid and nonassessable.

Voting Rights

Except as otherwise provided by law, each holder of our common stock has one vote per share on all matters voted upon by shareholders. With respect to the election of directors, cumulative voting is not available to our shareholders.

Dividends

Holders of shares of common stock are entitled to receive dividends when and as declared by our board of directors out of funds legally available therefor. We are a corporation separate and distinct from the Bank and most of our revenues are received in the form of dividends or interest paid by the Bank.

Any decision by the board of directors to declare dividends in the future will depend on our future earnings, capital requirements, financial condition and other factors deemed relevant by the board. Banking regulations limit the amount of cash dividends that may be paid without prior approval of the Bank’s regulatory agencies. Such dividends are limited to the Bank’s accumulated retained earnings. The Federal Reserve has issued guidelines that bank holding companies should inform and consult with the Federal Reserve in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse charge to the organization’s capital structure.

We also are subject to a Written Agreement with the Reserve Bank that restricts our ability pay dividends on our capital stock, including our Series A preferred stock, trust preferred securities or common stock without the prior consent of the Reserve Bank. In addition, the Bank is subject to a Consent Order with the FDIC and the Virginia BFI that prohibits the Bank from paying dividends, paying bonuses or making any other form of payment outside the ordinary course of business that would result in a reduction of capital without approval.

Liquidation Rights

In the event of our liquidation, dissolution or winding up, the holders of shares of our common stock shall be entitled to receive, in cash or in kind, our assets available for distribution remaining after payment or provision for payment of our debts and liabilities.

Directors and Classes of Directors

Our board of directors is divided into three classes, apportioned as evenly as possible, with directors serving staggered three-year terms. Currently, our board of directors consists of 13 directors. Under the Articles, directors may be removed with or without cause with the affirmative vote of a majority of the outstanding shares entitled to vote.

No Preemptive or Conversion Rights

Holders of shares of our common stock do not have preemptive rights to purchase additional shares of our common stock, and have no conversion or redemption rights.

Calls and Assessments

All of the issued and outstanding shares of our common stock are non-assessable and non-callable.

Shares are Not Insured by the FDIC

Investments in our common stock will not qualify as deposits or savings accounts and will not be insured or guaranteed by the FDIC or any other governmental agency and are subject to investment risk, including the possible loss of principal.

Transfer Agent

Computershare, Inc., 250 Royall Street, Suite V, Canton, Massachusetts, is the transfer agent for our common stock.

Preferred Stock

The board of directors may, from time to time, without shareholder approval, issue shares of our authorized, undesignated preferred stock, in one or more classes or series. In connection with any such issuance, the board of directors may by resolution determine the designation, voting rights, preferences as to dividends, in liquidation or otherwise, participation, redemption, sinking fund, conversion, dividend or other special rights or powers, and the limitations, qualifications and restrictions of such shares of preferred stock.

As of the date hereof, the board of directors has created one series of preferred stock, the Series A preferred stock, which was issued to the Treasury in connection with the Troubled Asset Relief Program. The Series A preferred stock consists of 14,738 shares having a liquidation amount per share of $1,000. In November 2013, we participated in a successful auction of the Series A preferred stock by the Treasury that resulted in the purchase of the securities by private and institutional investors. This freed us from some constraints and costs that were in place while the Treasury held the shares. The Series A preferred stock pays cumulative dividends at a rate of 9% per year, prior to the payment of dividends on any shares of common stock or other Junior Stock, as defined in the Articles.

The Series A preferred stock is non-voting, except in limited circumstances. In accordance with our Articles, because we have failed to pay dividends on the Series A preferred stock for six dividend periods, the holders of the Series A preferred stock are entitled to nominate up to two directors to serve on our board. We would be required to increase the size of the board to accommodate such additional directors and holders of the Series A preferred stock, together with the holders of any outstanding parity stock with like voting rights, voting as a single class, would be entitled to elect the two additional members of our board of directors at the next annual meeting (or at a special meeting called for the purpose of electing these directors prior to the next annual meeting), and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full. The holders of the Series A preferred stock have not nominated directors to our board and have not indicated to us that they plan to do so.

U.S. Treasury Warrant

In addition to the Series A preferred stock that was initially issued to the Treasury, we also issued a warrant to purchase 499,029 shares of our common stock at an exercise price of $4.43 per share for up to 10 years so long as the Series A preferred stock is outstanding. The warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of common stock, and upon certain issuances of common stock at or below a specified price relative to the then-current market price of common stock. The number of shares of common stock underlying the warrant was adjusted to 31,189.31 shares, and the exercise price was adjusted to $70.88, to reflect the 1-for-16 reverse split of our common stock that was completed on August 8, 2014. We believe that the offering will cause minimal or no adjustment to the warrant. However, if the Treasury takes a different position or future issuances of our common stock result in adjustments to the warrant, our shareholders could experience additional dilution. The Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant.

Anti-Takeover Considerations

The following is a summary of certain provisions of the Articles and the Bylaws that may have the effect of discouraging, delaying, or preventing a change of control, change in management, or an unsolicited acquisition proposal that a shareholder might consider favorable, including proposals that might result in the payment of a premium over the market price for the shares held by the Company’s shareholders. This summary does not purport to be complete and is qualified in its entirety by reference to our Articles and Bylaws and to the relevant provisions of Virginia law.

While these provisions of the Articles and the Bylaws might be deemed to have some “anti-takeover” effect, the principal effect of these provisions is to protect our shareholders generally and to provide the board of directors and shareholders a reasonable opportunity to evaluate and respond to unsolicited acquisition proposals.

Classified Board of Directors.

Our Articles divide the board of directors into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors will be elected at each annual meeting of shareholders. The classification of directors, together with the provision in the Articles that permits the remaining directors to fill any vacancies on the board of directors, will have the effect of making it more difficult for shareholders to change the composition of the board of directors. As a result, at least two annual meetings of shareholders may be required for the shareholders to change a majority of the directors, whether or not a change in the board of directors would be beneficial and whether or not a majority of shareholders believe that such a change would be desirable.

Authorized Preferred Stock.

The Articles authorize our board of directors, subject to applicable Virginia law and federal banking regulations, to authorize the issuance of preferred stock at such times, for such purposes and for such consideration as the board may deem advisable without further shareholder approval. The issuance of preferred stock under certain circumstances may have the effect of discouraging an attempt by a third party to acquire control of the Company by, for example, authorizing the issuance of a series of preferred stock with rights and preferences designed to impede the proposed transaction.

Supermajority Voting.

The Virginia Stock Corporation Act (the “Virginia SCA”) provides that, unless a corporation’s articles of incorporation provide for a higher or lower vote, certain significant corporate actions must be approved by the affirmative vote of the holders of more than two-thirds of the votes entitled to be cast on the matter. Corporate actions requiring a two-thirds vote include:

adoption of plans of merger or exchange;

sales of all or substantially all of a corporation’s assets other than in the ordinary course of business; and

adoption of plans of dissolution.

The Virginia SCA provides that a corporation’s articles may either increase the vote required to approve those actions or may decrease the required vote to not less than a majority of the votes entitled to be cast.

Our Articles provide that the actions set out above must be approved by the vote of a majority of all the votes entitled to be cast on such transactions by each voting group entitled to vote, provided that the transaction has been approved and recommended by at least two-thirds of our directors in office at the time of such approval and recommendation. If the transaction is not so approved and recommended by at least two-thirds of our directors, then the transaction must be approved by the vote of at least 80% of all the votes entitled to be cast on such transactions by each voting group entitled to vote.

Increasing the Number of Directors.

Under Virginia law, a board of directors may amend or repeal bylaws unless articles of incorporation or other provisions of Virginia law reserve such power exclusively in the shareholders or the shareholders, in adopting or amending particular bylaws, expressly prohibit the board of directors from amending or repealing that bylaw. Our Articles require that our board be composed of no fewer than seven and no more than 25 directors, and we currently have 13 directors. Our Articles do not reserve the power to amend the Bylaws to increase or decrease the number of directors exclusively to the shareholders and no bylaw, and no amendment thereto, expressly prohibits the board of directors from amending the Bylaws to increase or decrease the number of directors. According to Virginia law, our board of directors may amend our Bylaws at any time to increase or decrease the number of directors by up to 30% of the number of directors of all classes immediately following the most recent election of directors by the shareholders. In addition, the newly created directorships resulting from an increase in the number of authorized directors shall be filled by the affirmative vote of a majority of the directors then in office. As a result, if faced with an attempt to take control of our board, our directors may increase the size of the board and install directors opposed to the hostile takeover attempt.

Inability of Shareholders to Call Special Meetings.

Pursuant to our Bylaws, special meetings of shareholders may be called only by our president or the board of directors. As a result, shareholders are not able to act on matters other than at annual shareholders’ meetings unless they are able to persuade the president or a majority of the board of directors to call a special meeting.

Advance Notification Requirements.

Our Bylaws also require a shareholder who desires to raise new business, or nominate a candidate for election to the board of directors, at an annual meeting of shareholders to provide us advance notice of at least 60 days and not more than 90 days before the date of the scheduled annual meeting; provided that in the event that less than 70 days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by a shareholder, to be timely, must be received not later than the close of business on the 10^thday following the earlier of the date on which such notice of the meeting was mailed or the date public disclosure of the meeting was made. The Bylaws require a shareholder who desires to raise new business to provide certain information to the Company concerning the nature of the new business, the shareholder and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide the Company with certain information concerning the nominee and the proposing shareholder. Such requirements may discourage the Company’s shareholders from submitting nominations and proposals.

Amendments to Articles of Incorporation and Bylaws.

An amendment to our Articles must be approved by the vote of a majority of all the votes entitled to be cast on the amendment by each voting group entitled to vote, provided that the amendment has been approved and recommended by at least two-thirds of our directors in office at the time of such approval and recommendation. If the amendment is not so approved and recommended by at least two-thirds of our directors, then the amendment must be approved by the vote of at least 80% of all the votes entitled to be cast on such amendment by each voting group entitled to vote.

Our Bylaws may be amended or repealed by our board of directors except to the extent that: (i) the power of amendment is reserved exclusively to the shareholders by law or the Articles, or (ii) the shareholders, in adopting or amending a particular bylaw, provide expressly that the board of directors may not amend or repeal such bylaw.

Affiliated Transactions.

The Virginia SCA contains provisions governing “Affiliated Transactions.” Affiliated Transactions include certain mergers and share exchanges, material dispositions of corporate assets not in the ordinary course of business, any dissolution of the corporation proposed by or on behalf of an Interested Shareholder (as defined below), or reclassifications, including reverse stock splits, recapitalizations or mergers of the corporation with its subsidiaries which have the effect of increasing the percentage of voting shares beneficially owned by an Interested Shareholder by more than 5%. For purposes of the provisions governing Affiliated Transactions, an “Interested Shareholder” is defined as any beneficial owner of more than 10% of any class of the voting securities of a Virginia corporation.

Subject to certain exceptions discussed below, the provisions governing Affiliated Transactions require that, for three years following the date upon which any shareholder becomes an Interested Shareholder, a Virginia corporation cannot engage in an Affiliated Transaction with such Interested Shareholder unless approved by the affirmative vote of the holders of two-thirds of the voting shares of the corporation, other than the shares beneficially owned by the Interested Shareholder, and by a majority (but not less than two) of the “Disinterested Directors.” A “Disinterested Director” is, with respect to a particular Interested Shareholder, a member of a corporation’s board of directors who (i) was a member before the later of January 1, 1988 and the date on which an Interested Shareholder became an Interested Shareholder, and (ii) was recommended for election by, or was elected to fill a vacancy and received the affirmative vote of, a majority of the Disinterested Directors then on the board. At the expiration of the three-year period, these provisions require approval of Affiliated Transactions by the affirmative vote of the holders of two-thirds of the voting shares of the corporation, other than those beneficially owned by the Interested Shareholder.

The principal exceptions to the special voting requirement apply to Affiliated Transactions occurring after the three-year period has expired and require either that the transaction be approved by a majority of the Disinterested Directors or that the transaction satisfy certain fair price requirements set forth in the statute. In general, the fair price requirements provide that the shareholders must receive the highest per share price for their shares as was paid by the Interested Shareholder for his shares or the fair market value of their shares, whichever is greater. They also require that, during the three years preceding the announcement of the proposed Affiliated Transaction, all required dividends have been paid and no special financial accommodations have been accorded the Interested Shareholder unless approved by a majority of the Disinterested Directors.

None of the foregoing limitations and special voting requirements applies to an Affiliated Transaction with an Interested Shareholder whose acquisition of shares making such person an Interested Shareholder was approved by a majority of the corporation’s Disinterested Directors. A majority of the Company’s Disinterested Directors approved of the Standby Purchase Agreement and the offering.

These provisions were designed to deter certain takeovers of Virginia corporations. In addition, the statute provides that, by affirmative vote of a majority of the voting shares other than shares owned by any Interested Shareholder, a corporation may adopt, by meeting certain voting requirements, an amendment to its articles of incorporation or bylaws providing that the Affiliated Transactions provisions shall not apply to the corporation. The Company has not adopted such an amendment.

Control Share Acquisitions.

The Virginia SCA also contains provisions regulating certain “Control Share Acquisitions,” which are transactions causing the voting strength of any person acquiring beneficial ownership of shares of a public corporation in Virginia to meet or exceed certain threshold percentages (20%, 33 1/3% or 50%) of the total votes entitled to be cast for the election of directors. Shares acquired in a Control Share Acquisition have no voting rights unless: (i) the voting rights are granted by a majority vote of all outstanding shares other than those held by the acquiring person or any officer or employee director of the corporation, or (ii) the articles of incorporation or bylaws of the corporation provide that these Virginia law provisions do not apply to acquisitions of its shares. The acquiring person may require that a special meeting of the shareholders be held to consider the grant of voting rights to the shares acquired in the Control Share Acquisition. These provisions were designed to deter certain takeovers of Virginia public corporations. The Bylaws of the Company do not contain a provision that makes these statutes inapplicable to acquisitions of our common stock. However, issuances of shares directly from the issuer are exempt from these provisions so the issuance of shares to the standby investor will not trigger these provisions.

PLAN OF DISTRIBUTION

On or about [•], 2015, we intend to issue subscription rights and distribute the subscription rights certificates and copies of this prospectus to individuals who owned shares of common stock on January 20, 2015. Upon completion of the offering, we intend to issue shares of our common stock directly to those persons who properly exercised their subscription rights prior to the expiration of the offering. We have also entered into the Standby Purchase Agreement with the standby investor pursuant to which he has committed to buy certain shares in the offering to the extent shares are available after issuances to shareholders exercising their basic subscription rights.

Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. have been engaged to assist us in selling the shares on a best efforts basis. The sales agents are each broker-dealers registered with FINRA. The sales agents have agreed to assist in the offering by among other things, consulting as to the structure of the offering, helping identify potential standby investors including the standby investor, reviewing all offering documents, including this prospectus, stock order forms and related offering materials, assisting in the design and implementation of a marketing strategy for the offering, assisting management in scheduling and preparing for meetings with potential investors and providing such other general advice and assistance as may be reasonably necessary to complete the offering. The sales agents are not required to purchase any shares in the offering, but will use their best efforts to sell the shares offered.

As compensation for their financial advisory services, we have agreed to pay to the sales agents the following consideration:

Two percent (2%) of the gross proceeds from shares sold to shareholders exercising their basic subscription privilege;

Five percent (5%) of the gross proceeds from shares sold to shareholders exercising their oversubscription privilege; and

Five percent (5%) of the gross proceeds from shares sold to the standby investor.

The following shows the per share and the total sales agent advisory fees based upon the assumptions set forth below.

	Per Share	Aggregate (1)
Subscription price	$	$
Estimated sales agent commissions and expenses (2)	$	$
Estimated proceeds to us, before expenses	$	$

(1)

Assumes that 501,441 shares (50% of the shares offered) are purchased in the offering by shareholders exercising their basic subscription privilege and the remaining 501,441 shares are purchased by the standby investor. Assumes that, in lieu of accepting cash, we elect to exchange all of the 9,023 shares of Series A preferred stock that the standby investor is expected to own as of the closing date for shares of our common stock in the offering based on a $500.34 per share valuation for 4,023 of such shares of Series A preferred stock owned by the standby investor as of the date of the standby purchase agreement, a $509.656 per share valuation for 2,221 of such shares of Series A preferred stock acquired by the standby investor on December 23, 2014 and a $520.71 per share valuation for 2,779 of such shares of Series A preferred stock expected to be acquired by the standby investor prior to the closing of the offering. See “Use of Proceeds” and “The Standby Purchase Agreement − Termination Provisions.”

(2)

Payable to our sales agents, Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. Assumes that 501,441 shares (50% of the shares offered) are purchased in the offering by shareholders exercising their basic subscription privilege and the remaining 501,441 shares are purchased by the standby investor.

In July 2014, the Company engaged Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. to serve as the co-managers for a standby rights offering or any other offering of common equity of the Company. Under the terms of the engagement, which has a term of one year, the Company granted Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc., a right of first refusal to serve as Company's lead managing underwriters or lead placement agents and joint book runners in connection with any public or private offering of equity securities, including preferred securities and preferred securities convertible into common equity, that the Company determined to pursue during the one year period subsequent to the date of completion of this offering.

Our directors and officers may participate in the solicitation of the exercise of subscription rights for the purchase of common stock. Other trained employees of the Company may assist in the offering in ministerial capacities, providing clerical work in effecting an exercise of subscription rights, or answering questions of a ministerial nature. Our officers, directors, and employees will rely on the safe harbor from broker-dealer registration set forth in Rule 3a4-1 of the Exchange Act. None of our officers, directors, or employees will be compensated in connection with their participation in the offering by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the shares of common stock.

We will pay the fees and out-of-pocket expenses of Computershare, Inc., the subscription agent, which are estimated to be approximately $50,000. We have also agreed to indemnify the subscription agent for certain losses in connection with the offering.

LEGAL MATTERS

The validity of the shares of common stock issuable upon exercise of the subscription rights and offered by this prospectus has been passed upon for us by LeClairRyan, A Professional Corporation, Richmond, Virginia. Certain legal matters will be passed upon for Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. by Silver, Freedman, Taff & Tiernan LLP.

EXPERTS

The consolidated balance sheets of Village Bank and Trust Financial Corp. and Subsidiary as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013, have been incorporated by reference herein in reliance upon the report of BDO USA, LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other information with the Commission. Our filings with the Commission are available to the public on the Internet at the Commission’s website at http://www.sec.gov and on the Investor Relations section of our website at http://www.villagebank.com. Information on our website is not part of this prospectus. You may also read and copy any document we file with the Commission at the Commission’s Public Reference Room at 100 F Street N.E., Washington, DC 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our Commission file number is 000-50765.

We have filed a registration statement, of which this prospectus is a part, covering the securities offered hereby. As allowed by Commission rules, this prospectus does not contain all of the information and exhibits included in the registration statement. We refer you to the information and exhibits included in the registration statement for further information. This prospectus is qualified in its entirety by such information and exhibits.

INCORPORATION OF DOCUMENTS BY REFERENCE

The Commission allows us to incorporate by reference the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus. Information in this prospectus supersedes information incorporated by reference that we filed with the Commission prior to the date of this prospectus. We incorporate by reference into this registration statement and prospectus the documents listed below, except for portions of such reports that were deemed to be furnished and not filed:

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the Commission on March 26, 2014.

Our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2014, as filed with the Commission on October 31, 2014; June 30, 2014, as filed with the Commission on August 1, 2014; and March 31, 2014, as filed with the Commission on May 15, 2014.

Our Current Reports on Form 8-K, as filed with the Commission on May 22, 2014, May 27, 2014, June 6, 2014, August 11, 2014, August 13, 2014, November 12, 2014, December 19, 2014 and January 9, 2015.

The information specifically incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 from our definitive proxy statement on Schedule 14A, as filed with the Commission on April 16, 2014.

The information contained in this prospectus should be read together with the information in the documents incorporated in this prospectus by reference.

You may obtain any of these incorporated documents from us without charge, excluding any exhibits to these documents unless the exhibit is specifically incorporated by reference in such document, by requesting them from us in writing or by telephone at the following address:

C. Harril Whitehurst, Jr.

Executive Vice President and Chief Financial Officer

Village Bank and Trust Financial Corp.

13319 Midlothian Turnpike

Midlothian, Virginia 23113

(804) 419-1232

These incorporated documents may also be available on the Investor Relations section of our website at http://www.villagebank.com. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.

Common Stock Underlying Subscription Rights

To Purchase Up To 1,051,866 Shares of Common Stock


	PROSPECTUS

[•], 2015

We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy these securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein nor have the affairs of the company not changed since the date of this prospectus.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth all expenses to be paid by the Registrant, other than estimated sales agents’ fees and commissions (including reimbursable expenses), in connection with this offering. All amounts shown are estimates except for the Securities and Exchange Commission (the “SEC”) registration fee.

SEC Registration Fee	$	1,588.95
FINRA Fee		3,000.00
Accounting Fees and Expenses		50,000.00
Legal Fees and Expenses		100,000.00
Printing Expenses		20,000.00
Transfer and Subscription Agent Fees and Expenses		50,000.00
Miscellaneous		12,911.05
Total	$	237,500.00

Item 14. Indemnification of Directors and Officers

As permitted by the Virginia Stock Corporation Act, the Articles of Incorporation of Village Bank and Trust Financial Corp. contain provisions that indemnify its directors and officers to the full extent permitted by Virginia law and eliminate the personal liability of its directors and officers for monetary damages to Village Bank and Trust Financial Corp. or its shareholders for breach of their fiduciary duties, except to the extent that the Virginia Stock Corporation Act prohibits indemnification or elimination of liability. These provisions do not limit or eliminate the rights of Village Bank and Trust Financial Corp. or any shareholder to seek an injunction or any other non-monetary relief in the event of a breach of a director’s or officer’s fiduciary duty. In addition, these provisions apply only to claims against a director or officer arising out of his role as a director or officer and do not relieve a director or officer from liability if he engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law.

In addition, the Articles of Incorporation of Village Bank and Trust Financial Corp. provide for the indemnification of both directors and officers for expenses that they incur in connection with the defense or settlement of claims asserted against them in their capacities as directors and officers. This right of indemnification extends to judgments or penalties assessed against them. Village Bank and Trust Financial Corp. has limited its exposure to liability for indemnification of directors and officers by purchasing directors and officers liability insurance coverage.

The rights of indemnification provided in the Articles of Incorporation of Village Bank and Trust Financial Corp. are not exclusive of any other rights that may be available under any insurance or other agreement, by vote of shareholders or disinterested directors or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Village Bank and Trust Financial Corp. pursuant to the foregoing provisions, Village Bank and Trust Financial Corp. has been informed that in the opinion of the SEC this type of indemnification is against public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”), and is therefore unenforceable.

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Item 15. Recent Sales of Unregistered Securities

On December 4, 2013, Village Bank and Trust Financial Corp. issued 1,086,500 new shares of common stock through a private placement to directors and executive officers at a price of $1.55 per share, or an aggregate of $1,684,075. The shares were offered and sold pursuant to an exemption from the registration requirements of the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.

Item 16. Exhibits.

	Exhibit No.		Description

	1.1		Engagement Letter, as amended, dated July 18, 2014, among Village Bank and Trust Financial Corp., Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc.

	1.2		Form of Sales Agency Agreement among Village Bank and Trust Financial Corp., Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc.

	3.1		Articles of Incorporation of Village Bank and Trust Financial Corp., as amended (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the period ended September 30, 2014, filed with the SEC on October 31, 2014).

	3.2		Amended and Restated Bylaws of Village Bank and Trust Financial Corp. (incorporated herein by reference to Exhibit 3.2 of the Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed with the SEC on August 1, 2014).

	4.1		Specimen of Certificate for Village Bank and Trust Financial Corp. common stock.*

	4.2		Specimen of Certificate for Village Bank and Trust Financial Corp. subscription rights.*

	5.1		Opinion of LeClairRyan, A Professional Corporation.*

	10.1		Standby Purchase Agreement, dated November 11, 2014, between Village Bank and Trust Financial Corp. and Kenneth R. Lehman (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on November 12, 2014).*

	10.2		Incentive Plan, as amended June 18, 2014 (incorporated by reference to Exhibit 99.1 of the Form S-8 Registration Statement filed with the SEC on June 18, 2014 (SEC File No. 333-196893)).

	10.3		Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed with the SEC on April 1, 2005).

	10.4		Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed with the SEC on April 1, 2005).

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	10.5		Outside Directors Deferral Plan, dated January 1, 2005 (incorporated by reference to Exhibit 10.9 of the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 18, 2011).

	10.6		Supplemental Executive Retirement Plan, dated January 1, 2005 (incorporated by reference to Exhibit 10.10 of the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 18, 2011).

	10.7		Employment Agreement, dated August 8, 2013, by and between Village Bank and Trust Financial Corp. and William G. Foster (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on August 19, 2013).

	10.8		Employment Agreement, dated May 16, 2014, by and between Village Bank and James E. Hendricks, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on May 22, 2014).

	10.9		Employment Agreement, dated May 16, 2014, by and between Village Bank and Max C. Morehead, Jr. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on May 22, 2014).

	10.10		Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

	10.11		Side Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

	10.12		Form of Senior Executive Officer Waiver (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

	10.13		Form of Senior Executive Officer Consent Letter (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

	10.14		Stipulation and Consent to the Issuance of a Consent Order (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on February 9, 2012).

	10.15		Consent Order (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on February 9, 2012).

	10.16		Written Agreement by and between Village Bank and Trust Financial Corp. and the Federal Reserve Bank of Richmond (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on July 2, 2012).

	21		Subsidiaries of Village Bank and Trust Financial Corp. (incorporated by reference to Exhibit 21 of the Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 26, 2014).

II-3

	23.1		Consent of BDO USA, LLP.

	23.2		Consent of LeClairRyan, A Professional Corporation (included in Exhibit 5.1).*

	24.1		Power of Attorney.*

	99.1		Form of Instructions for Use of Subscription Rights Certificate.*

	99.2		Form of Letter to Record Holders of Common Stock.*

	99.3		Form of Letter to Nominee Holders.*

	99.4		Form of Letter to Clients of Nominee Holders.*

	99.5		Form of Beneficial Owner Election Form.*

	99.6		Form of Nominee Holder Certification.*

____________

* Previously filed.

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

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(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act of 1933;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(5) To supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer and the terms of any subsequent reoffering thereof. If any public offering by is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering.

(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(7) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to rule 424(b)(1), or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(8) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Chesterfield, Commonwealth of Virginia, on January 15, 2015.

	VILLAGE BANK AND TRUST FINANCIAL CORP.


	By:	/s/ William G. Foster, Jr.
		William G. Foster, Jr.
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ William G. Foster, Jr.	President, Chief Executive	January 15, 2015
William G. Foster, Jr.	Officer and Director
	(Principal Executive Officer)

/s/ C. Harril Whitehurst, Jr.	Executive Vice President and	January 15, 2015
C. Harril Whitehurst, Jr.	Chief Financial Officer
	(Principal Financial and Accounting Officer)

*	Director	January 15, 2015
R.T. Avery, III

	Director
Donald J. Balzer, Jr.

*	Director and	January 15, 2015
Craig D. Bell	Chairman of the Board

*	Director	January 15, 2015
William B. Chandler

*	Director	January 15, 2015
R. Calvert Esleeck, Jr.

*	Director	January 15, 2015
O. Woodland Hogg, Jr.

*	Director	January 15, 2015
Michael A. Katzen

II-6

*	Director	January 15, 2015
Michael L. Toalson

*	Director	January 15, 2015
Charles E. Walton

*	Director	January 15, 2015
John T. Wash, Sr.

*	Director	January 15, 2015
George R. Whittemore

*	Director and	January 15, 2015
Thomas W. Winfree	Vice Chairman of the Board

*By:	/s/ William G. Foster as attorney-in-fact
	William G. Foster

II-7

EXHIBIT INDEX

Exhibit No.		Description

1.1		Engagement Letter, as amended, dated July 18, 2014, among Village Bank and Trust Financial Corp., Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc.

1.2		Form of Sales Agency Agreement among Village Bank and Trust Financial Corp., Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc.

3.1		Articles of Incorporation of Village Bank and Trust Financial Corp., as amended (incorporated herein by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the period ended September 30, 2014, filed with the SEC on October 31, 2014).

3.2		Amended and Restated Bylaws of Village Bank and Trust Financial Corp. (incorporated herein by reference to Exhibit 3.2 of the Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed with the SEC on August 1, 2014).

4.1		Specimen of Certificate for Village Bank and Trust Financial Corp. common stock.*

4.2		Specimen of Certificate for Village Bank and Trust Financial Corp. subscription rights.*

5.1		Opinion of LeClairRyan, A Professional Corporation.*

10.1		Standby Purchase Agreement, dated November 11, 2014, between Village Bank and Trust Financial Corp. and Kenneth R. Lehman (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on November 12, 2014).

10.2		Incentive Plan, as amended June 18, 2014 (incorporated by reference to Exhibit 99.1 of the Form S-8 Registration Statement filed with the SEC on June 18, 2014 (SEC File No. 333-196893)).

10.3		Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed with the SEC on April 1, 2005).

10.4		Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed with the SEC on April 1, 2005).

10.5		Outside Directors Deferral Plan, dated January 1, 2005 (incorporated by reference to Exhibit 10.9 of the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 18, 2011).

10.6		Supplemental Executive Retirement Plan, dated January 1, 2005 (incorporated by reference to Exhibit 10.10 of the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 18, 2011).

10.7		Employment Agreement, dated August 8, 2013, by and between Village Bank and Trust Financial Corp. and William G. Foster (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on August 19, 2013).

10.8		Employment Agreement, dated May 16, 2014, by and between Village Bank and James E. Hendricks, Jr. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on May 22, 2014).

10.9		Employment Agreement, dated May 16, 2014, by and between Village Bank and Max C. Morehead, Jr. (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on May 22, 2014).

10.10		Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

10.11		Side Letter Agreement, dated as of May 1, 2009, by and between Village Bank and Trust Financial Corp. and the United States Department of the Treasury (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

10.12		Form of Senior Executive Officer Waiver (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

10.13		Form of Senior Executive Officer Consent Letter (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed with the SEC on May 6, 2009).

10.14		Stipulation and Consent to the Issuance of a Consent Order (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on February 9, 2012).

10.15		Consent Order (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC on February 9, 2012).

10.16		Written Agreement by and between Village Bank and Trust Financial Corp. and the Federal Reserve Bank of Richmond (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on July 2, 2012).

21		Subsidiaries of Village Bank and Trust Financial Corp. (incorporated by reference to Exhibit 21 of the Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 26, 2014).

23.1		Consent of BDO USA, LLP.

23.2		Consent of LeClairRyan, A Professional Corporation (included in Exhibit 5.1).*

24.1		Power of Attorney.*

99.1

Form of Instructions for Use of Subscription Rights Certificate.*

99.2		Form of Letter to Record Holders of Common Stock.*

99.3		Form of Letter to Nominee Holders.*

99.4		Form of Letter to Clients of Nominee Holders.*

99.5		Form of Beneficial Owner Election Form.*

99.6		Form of Nominee Holder Certification.*

____________

* Previously filed.

Exhibit 1.1

July 18, 2014

Village Bank and Trust Financial Corp.

15521 Midlothian Turnpike

Midlothian, VA 23113

Ladies and Gentlemen:

This letter ("Engagement Letter" or the "Agreement") is to confirm the engagement of Compass Point Research & Trading, LLC ("Compass") and Boenning & Scattergood Inc. ("Boenning") (together the "Co-Managers") by Village Bank and Trust Financial Corp. (the "Company") as Co-Managers for a standby rights offering (or any other offering of common equity) of the Company's equity securities (the "Offering").

Services to Be Rendered. The Co-Managers will perform such of the following services in connection with the Offering:

The Co-Managers will conduct due diligence of the Company by familiarizing themselves to the extent they deem appropriate with the business, operations, financial condition and prospects of the Company;

The Co-Managers will advise the Company regarding the structure of the Offering;

The Co-Managers will assist the Company's management in preparing an investor presentation that describes the terms of the offered securities and the issuer, a confidentiality agreement, a standby purchaser agreement and any related marketing materials that describe the Company's operations and financial condition and include current financial data and other appropriate information about the Company, the industry in which it operates, and the structure of the transaction (together the "Standby Purchaser Documents");

The Co-Managers will assist the Company's management in (i) developing a list of possible investors to serve as standby purchasers (it being understood that such participants may include parties to whom either of the Co-Managers has rendered or is now rendering investment banking services), and (ii) contacting and eliciting interest from those investors to act as standby purchasers;

The Co-Managers will assist the Company's management in preparing any necessary filings required by the S.E.C. including a registration statement, prospectus, prospectus supplement or other required documents (the "Offering Documents");

The Co-Managers will provide services to the Company related to providing documentation and information to shareholders, marketing the rights offering to shareholders, collecting exercised rights certificates and payment from shareholders and filing documentation with the S.E.C. and applicable market centers.

The Co-Managers will provide such other financial advisory and investment banking services reasonably necessary to complete the offering.

In connection with the Co-Managers' activities on the Company's behalf, the Company agrees to cooperate with the Co-Managers and will furnish to, or cause to be furnished to, the Co-Managers all information and data concerning the Company and the Offering (the "Information") that the Co-Managers reasonably deem appropriate and will provide the Co-Managers with access to the Company's manager(s), officers, trustees, employees and advisors. The Company agrees that all Information made available to the Co-Managers by the Company with respect to itself and any Information will be complete, to the knowledge of the Company, and correct in all material respects and that any projections, forecasts or other Information provided by the Company to the Co-Managers, any other party to the Offering, or contained in the Standby Purchaser Documents and the Offering Documents, will have been provided in good faith and will be based upon reasonable assumptions. The Company agrees to promptly notify the Co-Managers if the Company believes that any Information previously provided to the Co-Managers or to any possible investor has become materially misleading. The Company acknowledges and agrees that, in rendering their services hereunder, including, without limitation, assisting the Company's management in the preparation of the Standby Purchaser Documents and the Offering Documents, the Co-Managers will be using and relying on the Information (and information available from public sources and other sources deemed reliable by the Co-Managers) without independent verification thereof or independent appraisal of any of the Company's assets or those of any possible investor. The Co-Managers do not assume responsibility for the accuracy or completeness of the Information or any other information regarding the Company. If all or any portion of the business of the Company is engaged in through subsidiaries or other affiliates, the references in this letter agreement to the Company will, when appropriate, be deemed also to include such subsidiaries or other affiliates.

The Co-Managers have the right to approve any written communication (including the Offering Documents) that refers to the Co-Managers in connection with the Offering.

It is further understood that any advice rendered by the Co-Managers pursuant to its engagement hereunder, including any advice rendered during the course of participating in negotiations, meetings or conversations with the Company, as well as any written materials provided by the Co-Managers, will be solely for the benefit and confidential use of the Company and will not be reproduced, summarized, described or referred to or given to any other person for any purpose without the Co-Managers prior consent, provided, however, that no consent of the Co-Managers shall be necessary for the Company's use of its own confidential information or information excluded from Confidentiality under the following paragraph.

It is understood that the decision to proceed with, and the final terms of, the Offering will depend on the satisfactory results of the Co-Managers' due diligence investigation (including review of legal and accounting issues), the Company's business prospects, prevailing securities market conditions at the time of the Offering, execution of a definitive placement agency agreement (the "Placement Agency Agreement") between the Company and the Co-Managers, and final approval by the Co-Managers' respective Investment Committees. It is understood that execution of this Agreement does not assure the successful completion of any Offering.

The Placement Agency Agreement. In connection with the Offering, the Placement Agency Agreement shall serve as the principal agreement between the Company and the Co-Managers. In the Placement Agency Agreement, the Company shall agree to retain the Co-Managers on an exclusive basis as its placement agents. The Company will make certain representations and warranties about itself and its business; will agree to certain covenants; and agree to indemnify the Co-Managers and their respective affiliates from Securities Act liabilities arising in connection with the Offering. The Placement Agency Agreement shall also require as conditions of closing that the Company delivers to the Co-Managers certain legal opinions, including an opinion of the Company's counsel, addressed to the Co-Managers, which provides a 10b-5 negative assurance. The Company will be required, at its own expense, to make state "blue sky" applications in such states and jurisdictions as necessary in connection with the Offering. The Placement Agency Agreement also shall require that the Company's independent accountants deliver a comfort letter addressed to the Co-Managers. The Company also will be required to deliver all other customary closing certificates. The Placement Agency Agreement shall not require the Co-Managers to purchase any of the offered securities.

The Company will not authorize any other party to act on its behalf as investment banker or placement agent with respect to any offering involving an equity offering for a period of 180 days, commencing on the date of this letter. Nonetheless, the Co-Managers reserve the right to involve other Financial Industry Regulatory Authority, Inc. ("FINRA") member Broker Dealers in good standing in the Offering, subject to the approval of the Company, which will not be unreasonably withheld.

Mutual Confidentiality. The Co-Managers and the Company (together, the "Parties") agree that during the term of the engagement being entered into herein, unless the other party has consented, or unless required by law, an industry regulator, or a court or agency of the government, the Parties will not reveal or disclose any Confidential Information of the other party to any third party, except to utilize such Confidential Information in a manner consistent with customary industry practices in connection with the provision of services under the foregoing letter, and then only to those persons who are under obligations of confidentiality similar to those set forth herein. The term "Confidential Information" means (1) confidential business or technical information or data of the Parties that is competitively and commercially valuable to the Parties and not generally known, or available by legal means, to the competitors of' the Parties or (ii) material nonpublic information about the Parties. To the extent that either party discloses Confidential Information of the other party to its agents, affiliates, representatives, and employees in a manner consistent with the first sentence of the foregoing paragraph, the Parties agree that such disclosing party will be responsible for a breach of this section by its agents, affiliates, representatives, and employees. Following the termination of the foregoing letter and this engagement, all such nonpublic Confidential Information in either party's possession will be promptly returned to the other party at the other party's request. Notwithstanding this requirement, the Parties shall be entitled to retain copies of Confidential Information to the extent that they are required to do so by law, statute or regulation or to comply with internal document retention requirements.

Neither the previous paragraph nor any restriction, non-disclosure nor use limitation or other obligation contained in the foregoing letter shall apply to information, data or item of any kind which is: (i) in the public domain, through no action of the disclosing party; (ii) already known by the disclosing party (as can be established by the disclosing party's records); (iii) disclosed to the disclosing party by any person or entity not known by the disclosing party to be under an obligation of confidentiality to the other party; or (iv) independently developed or derived by the disclosing party (as can be established by the disclosing party's records).

Fees and Reimbursement of Expenses. Upon execution of this Engagement Letter, the Company shall pay to each Co-Manager a non-refundable retainer fee of $20,000 (for a total of $40,000) (the "Retainer Fee"). Additionally, the Company agrees to pay the Co-Managers an advisory fee (the "Advisory Fee") equal to:

two percent (2%) of the gross proceeds from shares purchased by current shareholders through the exercise of the basic subscription right; plus,

an additional two percent (2%) of the gross proceeds from shares purchased by current shareholders through the exercise of the basic subscription right if current shareholders exercise greater than 35% of their basic subscription rights (excluding shares purchased through exercise of the oversubscription privilege); plus,

five percent (5%) of the gross proceeds from shares purchased by current shareholders through the exercise of the oversubscription privilege; plus,

five percent (5%) of the gross proceeds from shares purchased by standby purchasers and other purchasers (except from shares purchased by Wellington, JAM, Endicott or Cloister or any of their affiliates); plus,

six percent (6%) of the gross proceeds from shares purchased by Wellington, JAM, Endicott or Cloister or any of their affiliates, irrespective of which portion of the Transaction in which the shares are purchased.

The Advisory Fee shall be divided into two parts, a management fee (the "Management Fee") and a sales credit (the "Sales Credit"), which are to be calculated as follows:

The Management Fee equals seventy percent (70%) of the total Advisory Fee. The Company shall pay to Compass sixty percent (60%) of the Management Fee and shall pay to Boenning forty percent (40%) of the Management Fee.

The Sales Credit equals thirty (30%) of the total Advisory Fee. When purchasers submit orders in the Offering they may designate their shares to either Co-Manager. The Co-Managers will split the Sales Credit proportionally based upon how many shares are designated to each Co-Manager. The aggregate shares that are not designated with either Co-manager will be split fifty (50%)/fifty (50%) between the Co-Managers.

The Advisory Fee owed to the Co-Managers shall be diminished by an amount equal the aggregate Retainer Fee paid to the Co-Managers under this Engagement Letter.

In addition to the foregoing fees, and regardless of whether any Offering is consummated, the Company shall reimburse the Co-Managers for their reasonable attorney's fees and related legal expenses, not to exceed $75,000; as well as all out-of-pocket expenses incurred from time to time in connection with the provision of their services hereunder, including database and similar information charges related to third party vendors; travel-related expenses; postage, telecommunication, printing, and duplicating expenses; and any background checks on individuals required for compliance purposes, not to exceed $25,000 in aggregate. If any compensation or expenses payable to the Co-Managers pursuant to this Agreement are not fully paid when due, the Company agrees to pay all costs of collection or other enforcement of the Co-Managers' rights hereunder, including but not limited to attorneys' fees and expenses, whether collected or enforced by suit or otherwise.

Indemnification. The Co-Managers and the Company have entered into a separate indemnity agreement, dated the date hereof and set forth in Appendix A hereto (the "Indemnity Agreement"), providing among other things for the indemnification of the Co-Managers by the Company in connection with Losses and Expenses (as defined in the Indemnity Agreement) in connection with the Co-Managers' engagement hereunder. The terms of the Indemnity Agreement are incorporated by reference into this letter agreement.

Term and Termination. The foregoing engagement will terminate 12 months from the date of this Engagement Letter. Additionally, the Co-Managers' engagement hereunder may be terminated by either the Company or the Co-Managers at any time, with or without cause, upon written notice to the other party. Should the Agreement terminate without an Offering having been completed, if the Company, on or before the first anniversary of the date of such termination, executes an Offering with any investors contacted by the Co-Managers during the term of the engagement in connection with the Offering, the Company will pay to the Co-Managers the fees that would have been payable to the Co-Managers in accordance with Section 4 above. Termination of the Agreement will not affect (a) any party's rights to, or obligations of, confidentiality under Section 3, (b) the indemnification contemplated by Section 5 or the Indemnity Agreement, or (c) the Co-Managers' right to receive any payments owed pursuant to this Agreement.

Right of First Refusal. Effective upon the final closing date of the Offering, the Co-Managers shall have a right of first refusal for the period beginning on the final closing date and ending on the 365^th day following the final closing date to act as a lead managing underwriter or a lead placement agent and book runner in connection with any public or private offering of equity securities, preferred securities or preferred securities convertible into equity securities contemplated by the Company. The Co-Managers shall have ten (10) business days from its receipt of the written terms offering such engagement (the "Written Offering Terms") in which to determine whether or not to accept such offer and, if the Co-Managers refuse, and provided that such financing is consummated (A) with another placement agent or underwriter upon substantially the same terms and conditions as the Written Offering Terms and (B) within three months after the end of the aforesaid ten (10)-business day period, this right of first refusal shall be forfeited and terminated; provided, however, if the financing is not consummated under the conditions of clause (A) and (B) above, then the right of first refusal shall once again be reinstated under the same terms and conditions set forth in this paragraph during the remainder of such 365-day period.

Advertising. Upon the consummation of any Offering, each Co-Managers may, at its own expense, produce and distribute materials announcing and describing the Offering, and its role therein, as well as place advertisements (such as a customary "tombstone" advertisement) in newspapers, magazines, and other print and online media outlets announcing and describing the Offering. The content of such materials and advertisements may include the use of the Company's logos, trademarks or other identifying marks; however, such materials or advertisements shall not disclose the financial terms of any Transaction without the Company's prior approval, other than such financial terms disclosed in press releases, public filings, or the media.

Governing Law; Jurisdiction; Waiver of Jury Trial. This letter agreement and the Indemnity Agreement will be governed by the laws of the Commonwealth of Virginia. Each of the Company and the Co-Managers irrevocably submit to the exclusive jurisdiction of any state or federal court of the Commonwealth of Virginia for the purpose of any suit, action or other proceeding arising out of this letter agreement or the Indemnity Agreement, or any of the agreements or transactions contemplated hereby, which is brought by or against either party. Each of the Company (and, to the extent permitted by law, on behalf of the Company's equity holders and creditors) and the Co-Managers hereby knowingly, voluntarily and irrevocably waives any right it may have to a trial by jury in respect of any claim based upon, arising out of or in connection with the Indemnity Agreement and this engagement letter.

10.

No Assignability. This Agreement may not be amended or otherwise modified except by a writing signed by each of the parties to this Agreement. No party may assign this Agreement without the prior written consent of the other parties. This Agreement embodies the entire agreement and understanding among the parties and supersedes any prior agreements and understandings relating to its subject matter. If any provision of this Agreement shall be determined to be invalid or unenforceable in any respect, such determination shall not affect such provision in any other respect or any other provision of this Agreement, which shall remain in full force and effect. This Agreement is made solely for the benefit of the Company and the Co-Managers (and, to the extent provided in Appendix A, the Indemnified Parties) and their respective successors and assigns, heirs and personal representatives, and no other person shall have or acquire any rights under or by virtue of this Agreement.

11.

No Rights in Equityholders, Creditors. This letter agreement does not create, and will not be construed as creating, rights enforceable by any person or entity not a party hereto, except those entitled thereto by virtue of the Indemnity Agreement. The Company acknowledges and agrees that (i) the Co-Managers will act as independent contractors, (ii) the Co-Managers are not and will not be construed to be fiduciaries of the Company or any affiliate thereof and will have no duties or liabilities to the equityholders or creditors of the Company, any affiliate of the Company or any other person by virtue of this letter agreement and the retention of the Co-Managers hereunder, all of which duties and liabilities are hereby expressly waived, and (iii) any advice rendered by the Co-Managers does not constitute a recommendation to any equityholder that such equityholder might or should take in connection with the Offering. Neither equityholders nor creditors of the Company are intended beneficiaries hereunder.

12.

The Co-Managers; Other Advisors. It is understood and agreed, except to the extent prohibited by law or regulatory requirements, that the Co-Managers may, from time to time, make a market in, have a long or short position, buy and sell or otherwise effect transactions for customer accounts and for their own accounts in the securities of, or perform investment banking or other services for, the Company and other entities that are or may be the subject of the engagement contemplated by this letter agreement. The Company confirms that it will rely on its own counsel, accountants and other similar expert advisors for legal, accounting, tax and other similar advice.

13.

No Restrictions on the Co-Managers' Business. The Company acknowledges that the Co-Managers are FINRA-registered broker-dealers engaged in securities trading and brokerage activities and providing investment banking and financial advisory services. The Company acknowledges that the Co-Managers, in the ordinary course of business, may, both during and after the term of this Agreement, perform various investment banking and financial advisory services for other clients and customers who are similar companies to the Company and/or who may have conflicting interests with respect to the Company. Nothing in this Agreement shall be construed to in any way restrict or limit the Co-Managers from engaging in investment banking or financial advisory services for any such company. The Co-Managers agree not to furnish any Confidential Information of the Company to any such other companies. The Company also acknowledges that the Co-Managers have no obligation to use in connection with the purpose of this Agreement, or to furnish the Company, confidential information that the Co-Managers obtained from such other companies.

If the foregoing correctly sets forth our agreement, please so indicate by signing below and returning an executed copy to us. We look forward to working with you.

	Very truly yours,

	COMPASS POINT RESEARCH & TRADING, LLC

	By:	/s/ D. Sloan Deerin
		D. Sloan Deerin

	BOENNING & SCATTERGOOD, INC.

	By:	/s/ Michael C. Voinovich
		Michael C. Voinovich Managing Director

Accepted and agreed as of
the date first written above:

Village Bank and Trust Financial Corp.

By:	/s/ William G. Foster
	William G. Foster President & CEO

Appendix A

Indemnity Agreement relating to Engagement Letter dated as of July 18, 2014

In connection with the engagement of Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. ("the Co-Managers") by Village Bank and Trust Financial Corp. (the "Company") under the letter agreement of even date herewith (the "Engagement Letter"), as modified or amended from time to time, the Company agrees to indemnify and hold harmless the Co-Managers and each of the Other Indemnified Parties (as defined below), to the fullest extent permitted by law, from and against any and all losses, claims, damages, obligations, penalties, judgments, awards, costs, disbursements and liabilities, including amounts paid in settlement, (collectively, "Losses"), and expenses, including, without limitation, all reasonable fees and expenses of the Co-Managers' and each of the Other Indemnified Parties' counsel and all of the Co-Managers' and each of the Other Indemnified Parties' reasonable travel and other reasonable out-of-pocket expenses incurred in connection with the investigation of any pending or threatened claims or the preparation for, the defense of, or the furnishing of testimony or evidence in, any pending or threatened litigation, investigation or proceedings, whether or not the Co-Managers or any Other Indemnified Party is a party thereto (collectively, "Expenses"), based upon, arising out of or relating to the rendering of services by the Co-Managers contemplated under the Engagement Letter (including any services rendered prior to the date hereof) or to the Offering (as defined therein), provided that the Company will have no obligation to indemnify and hold harmless hereunder a Co-Manager with respect to any Losses or Expenses that are finally judicially determined to have resulted from the gross negligence or bad faith of that specific Co-Manager or any of the Other Indemnified Parties in performing the services that are the subject of the Engagement Letter. For the sake of clarity, in the instance that the Losses or Expenses are finally judicially determined to have resulted from the gross negligence or bad faith of one Co-Manager but not the other Co-Manager ("Not-At-Fault Co-Manager"), the Company shall still be obligated to indemnify and hold harmless the Not-At-Fault Co-Manager pursuant to the terms of this Indemnity Agreement. Expenses will be paid when and as incurred upon submission by the Co-Managers of statements to the Company. The Other Indemnified Parties are (i) the respective members, principals, partners, directors, officers, agents and employees of and counsel to the Co-Managers and their affiliates, (ii) each other person, if any, controlling the Co-Managers or any of their affiliates and (iii) the successors, assigns, heirs and personal representatives of any of the foregoing.

If for any reason the foregoing indemnification is unavailable to the Co-Managers or any of the Other Indemnified Parties or is insufficient to hold them harmless in respect of any Losses or Expenses, the Company will contribute to the amount paid or payable by the Co-Managers or any of the Other Indemnified Parties as a result of such Losses and Expenses in such proportion as is appropriate to reflect (1) the relative benefits (or anticipated benefits) to the Company and its stockholders, on the one hand, and the Co-Managers and the Other Indemnified Parties, on the other hand, or, (2) if such allocation is not permitted by applicable law, then in such proportion as is appropriate to reflect not only the relative benefits received by the respective parties, but also the relative fault of the Company, its directors, officers, employees, agents and advisers (other than the Co-Managers) on the one hand, and the Co-Managers and the Other Indemnified Parties on the other hand, and (3) any other relevant equitable considerations; provided that the amount required to be contributed by the Co-Managers and the Other Indemnified Parties hereunder will not exceed the total amount of fees paid to the Co-Managers pursuant to the Engagement Letter and otherwise in connection with the Offering. You and we agree that it would not be just and equitable if contribution were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above.

If any litigation, investigation or proceeding is commenced as to which the Co-Managers propose to demand indemnification, the Co-Managers will notify the Company with reasonable promptness; provided, however, that the Company will be relieved from its obligations hereunder only to the extent the Company has been prejudiced by any failure or delay of notification. The Company may assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to the Co-Managers or such Other Indemnified Parties and the payment of the fees and expenses of such counsel. In the event (i) the Co-Managers or any such Other Indemnified Party reasonably determines, upon the advice of counsel, that having common counsel would present a conflict of interest or that, where the Co-Managers and Other Indemnified Parties are defendants or targets, there may be legal defenses available to it or them that are different from or in addition to those available to the Company, or (ii) the Company fails to assume the defense of the action or proceeding or to employ counsel reasonably satisfactory to the Co-Managers or such Other Indemnified Party in a timely manner, then the Co-Managers or such Other Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the Company will pay the reasonable and customary fees and disbursements of such separate counsel (in addition to local counsel, as needed) for the Co-Managers and such Other Indemnified Parties. The Co-Managers will reasonably cooperate with the Company and its counsel (including, to the extent possible and consistent with its own interests, keeping the Company reasonably informed of its defenses). The Company will not be liable for any settlement of any claim against the Co-Managers or any of the Other Indemnified Parties made without the Company's written consent, which consent will not be unreasonably withheld.

The obligations of the Company hereunder will (i) be in addition to any liability the Company may otherwise have, (ii) survive the completion or termination of the Co-Managers' engagement hereunder, and (iii) be binding upon any successors and assigns of the Company. Prior to entering into any agreement or arrangement with respect to, or effecting, any proposed sale, exchange, dividend or other distribution or liquidation of all or a significant portion of its assets in one or a series of transactions or any significant recapitalization or reclassification of its outstanding securities that does not directly or indirectly provide for the assumption of the obligations of the Company set forth in this Indemnity Agreement, the Company will notify the Co-Managers in writing and, if requested by the Co-Managers, will arrange alternative means of providing for the obligations of the Company set forth herein, including the assumption of such obligations by another party, insurance, surety bonds or the creation of an escrow, in each case in an amount and upon terms and conditions reasonably satisfactory to the Co-Managers.

The Company agrees that it will not, without the Co-Managers' prior written consent, which consent shall not be unreasonably withheld or delayed, settle any pending or threatened litigation, investigation or proceeding relating in any way to the transactions contemplated under the Engagement Letter unless such settlement (i) provides an unconditional release of the Co-Managers and the Other Indemnified Parties from any and all claims and liabilities (whether or not the Co-Managers and the Other Indemnified Parties are named) and (ii) contains no statement as to an admission of fault, culpability or failure to act by or on behalf of the Co-Managers or the Other Indemnified Parties.

Reference is made to the Engagement Letter for provisions relating to governing law, jurisdiction and waiver of jury trial, which are applicable hereto.

This Indemnity Agreement may not be modified or amended except in writing executed by the parties hereto. This Indemnity Agreement, and any modification or amendment thereto, may be executed in counterparts, each of which will be deemed an original and all of which will constitute one and the same instrument.

Agreed and Accepted:

Village Bank and Trust Financial Corp.

By:	/s/ William G. Foster
	Name:	William G. Foster
	Title:	President & CEO

	Compass Point Research & Trading, LLC

	By:	/s/ D. Sloan Deerin
		D. Sloan Deerin Managing Director

	Boenning & Scattergood, Inc.

	By:	/s/ Michael C. Voinovich
		Michael C. Voinovich Managing Director

January 13, 2015

VIA ELECTRONIC MAIL

Board of Directors

Village Bank and Trust Financial Corp.

13319 Midlothian Turnpike

Midlothian, Virginia 23113

Attention: William G. Foster

President and Chief Executive Officer

Re: Amendment of Engagement Letter

Dear Mr. Foster:

By letter dated July 18, 2014 (the “Engagement Letter”), Compass Point Research & Trading, LLC and Boenning & Scattergood, Inc. (each a “Co-Manager” and collectively, “Co-Managers”) set forth the terms of their engagement as the Co-Managers of Village Bank and Trust Financial Corp.’s (the “Company”) proposed standby rights offering (and any other offering of common equity) of the Company’s equity securities (the “Offering”). The Company accepted the Engagement Letter as of July 18, 2014.

Upon further review of the Engagement Letter and in order to clarify certain provisions of the Engagement Letter, the Co-Managers propose to amend the Engagement Letter as follows:

1. The second paragraph of Section 2 is amended to delete the first sentence thereof and replace it with the following:

“The Company will not authorize any other party to act on its behalf as investment banker or placement agent with respect to any offering involving an equity offering for a period of 180 days, commencing on the date of this letter; provided, however, in the event of termination of this letter prior to the expiration of such period, said restriction shall lapse.”

2. Section 4 is hereby amended to delete the first sentence of said section and replace it with the following:

“Upon execution of this Engagement Letter, the Company shall pay each Co-Manager a retainer fee of $20,000 (for a total of $40,000) (the “Retainer Fee”).”

3. Section 4 is hereby amended to delete the sixth bullet in its entirety under the first paragraph of the section addressing the potential for an advisory fee of 6% in the event of purchases by certain potential investors.

4. The third and fourth paragraphs of Section 4 are deleted in their entirety and replaced with the following:

“In addition to the foregoing fees, and regardless of whether any Offering is consummated, except as otherwise provided herein, the Company shall reimburse the Co-Managers for their reasonable attorney’s fees and related legal expenses, not to exceed $75,000; as well as all out-of-pocket expenses incurred from time to time in connection with the provision of their services hereunder, including database and similar information charges related to third party vendors; travel related expenses; postage, telecommunication, printing, and duplicating expenses; and any background checks on individuals required for compliance purposes, not to exceed $25,000 in aggregate.

The Retainer Fee represents a reasonable advance against the Co-Managers’ reasonable attorney’s fees and related expenses as well as out-of-pocket expenses expected to be incurred in connection with the provision of the services thereby as set forth herein. In the event the Co-Managers’ reimbursable expenses incurred in connection with the services rendered pursuant to the Engagement Letter are less than the Retainer Fee, any such excess of the Retainer Fee remaining shall be refunded to the Company. Notwithstanding anything to the contrary herein, in the event the Offering is consummated, in no event shall the aggregate amount of expenses for which the Co-Managers are reimbursed, when aggregated with the aggregate amount of the Advisory Fee paid thereto pursuant to Section 4 of the Engagement Letter, amount in the aggregate to more than eight percent (8%) of the gross proceeds from the sale of shares sold in the Offering. If any compensation or expenses payable to the Co-Managers pursuant to this Agreement are not fully paid when due, the Company agrees to pay all costs of collection or other enforcement of the Co-Managers’ rights hereunder, including but not limited to attorneys’ fees and expenses, whether collected or enforced by suit or otherwise.”

All other terms, conditions and obligations of the parties to the Engagement Letter remain in full force and effect and shall otherwise be unaffected.

Please confirm that the foregoing correctly sets forth our agreement with regard to the amendment of the Engagement Letter by signing and returning to the Co-Managers a copy of this letter.

	Very truly ours,

	COMPASS POINT RESERARCH &
	TRADING, LLC

	By:	/s/ D. Sloan Deerin
		D. Sloan Deerin
		Managing Director

	BOENNING & SCATTERGOOD, INC.

	By:	/s/ Michael C. Voinovich
		Michael C. Voinovich
		Managing Director

Accepted and agreed to as of the date first written above:

VILLAGE BANK AND TRUST FINANCIAL CORP.

By:	/s/ William G. Foster
	William G. Foster
	President and Chief Executive Officer

Exhibit 1.2

Up to 1,051,866 Shares

Village Bank and Trust Financial Corp.
(a Virginia corporation)

Common Stock
(par value $4.00 per share)

SALES AGENCY AGREEMENT

January __, 2015

Compass Point Research & Trading, LLC

3000 K Street N.W., Suite 340

Washington, D.C. 20007

Boenning & Scattergood, Inc.

4 Tower Bridge

200 Barr Harbor Drive

Suite 300

West Conshohocken, Pennsylvania 19428

Ladies and Gentlemen:

Village Bank and Trust Financial Corp., a Virginia corporation (the “Company”) and the bank holding company for Village Bank, a Virginia chartered bank (the “Bank”), hereby confirms their agreement with Compass Point Research & Trading, LLC (“Compass Point”) and Boenning & Scattergood, Inc. (“Boenning” and, together with Compass Point, the “Sales Agents”) to assist the Company, on a best-efforts basis, in the proposed public offering (as described herein, the “Offering”) of up to 1,051,866 shares of the Company’s common stock, par value $4.00 per share (the “Common Stock”). The shares of Common Stock to be sold in the Offering are hereinafter called the “Shares.”

The Shares are being offered for sale in a rights offering to existing shareholders of the Company as of January 20, 2015, whereby shareholders of the Company as of the record date for the offering will receive one subscription right to purchase three Shares at $_________ per Share (the “Subscription Price”) for each share of Common Stock owned as of the record date (the “Basic Subscription Privilege”). The Company has entered into a Standby Purchase Agreement dated November 11, 2014 [, as amended] (the “Standby Purchase Agreement”), with Kenneth R. Lehman, a private investor (the “Standby Investor”), who has agreed, subject to there being sufficient Shares available after purchases by shareholders exercising their Basic Subscription Privilege are filled, to purchase from the Company at the Subscription Price, the lesser of (i) $8.0 million of Common Stock (based on the Subscription Price), (ii) all Shares not purchased by shareholders exercising their Basic Subscription Privilege, and (iii) the maximum number of Shares that the Standby Investor may purchase without causing an “ownership change” under Section 382(g) of the Internal Revenue Code of 1986, as amended (the “Code”). Shareholders who fully exercise their Basic Subscription Privilege may also subscribe for additional Shares in the event that all not available Shares are purchased pursuant to the Basic Subscription Privilege or by the Standby Investor (the “Oversubscription Privilege”).

The Company and the Bank hereby confirm their agreement with the Sales Agents concerning the sale of the Shares, as follows:

1. Registration Statement. The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (File No. 333-200147), including the related preliminary prospectus covering the registration of the Shares under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement has been declared effective by the Commission in such form under the Securities Act. After execution and delivery of this Agreement, the Company will file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the rules and regulations of the Commission under the Securities Act and paragraph (b) of Rule 424 (“Rule 424(b)”) under the Securities Act. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to paragraph (b) of Rule 430A is referred to as “Rule 430A Information.” Each prospectus used before such registration statement became effective, and any prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “preliminary prospectus.” Such registration statement, including the amendments thereto, the exhibits and any schedules thereto, if any, at the time it became effective and including the Rule 430A Information is herein called the “Registration Statement.”

Any registration statement filed pursuant to Rule 462(b) under the Securities Act is herein referred to as the “Rule 462(b) Registration Statement,” and after such filing the term “Registration Statement” shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference, in the form first furnished to the Sales Agents for use in connection with the Offering and filed with the Commission pursuant to Rule 424(b) is herein called the “Prospectus.” For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”).

The term “General Disclosure Package” shall mean the following documents, all considered together: (i) the preliminary prospectus, if any, used most recently prior to the date and time as of which the Registration Statement was declared effective by the Commission, (ii) any Issuer Free Writing Prospectus (as defined below) identified in Annex A hereto, and (iii) any other “free writing prospectus” (as defined pursuant to Rule 405 under the Securities Act) that the parties hereto shall hereafter expressly agree in writing to treat as part of the General Disclosure Package. “Applicable Time” shall mean [10:00] [a.m.] Eastern Time on the date of execution and delivery of this Agreement.

2. Appointment of the Sales Agents; Terms. The Company hereby appoints the Sales Agents as its sole and exclusive agents for the purpose of selling, in accordance with the terms and conditions hereof, the Shares. Each of the Sales Agents hereby accepts such agency and agrees to use its best efforts to assist the Company and the Bank with sale of the Shares on terms and conditions set forth herein.

(a) Subject to the conditions herein set forth, the Company agrees to issue and sell up to 1,051,866 Shares in the Offering. All Shares to be offered and sold in the Offering shall be issued and sold by the Company to the public and each of the Sales Agents agrees to use its best efforts to assist the Company in the sale of the Shares, at the Subscription Price. In consideration for the Sales Agents’ efforts under this Section 2, the Company agrees to pay the Sales Agents, collectively, an advisory fee equal to the sum of (i) two percent (2%) of the gross proceeds from Shares sold to shareholders exercising their Basic Subscription Privilege; (ii) an additional two percent (2%) of the gross proceeds from Shares sold to shareholders exercising their Basic Subscription Privilege, if shareholders purchase in the aggregate 35% or more of the Shares available through the exercise of their Basic Subscription Privilege; (iii) five percent (5%) of the gross proceeds from Shares sold to shareholders exercising their Oversubscription Privilege; and (iv) five percent (5%) of the gross proceeds from Shares sold to the Standby Investor (collectively, the “Advisory Fee”). The Advisory Fee shall be divided into two parts, a management fee (the “Management Fee”) and a sales credit (the “Sales Credit’), which are to be calculated as follows: the Management Fee equals seventy percent (70%) of the total Advisory Fee and the Sales Credit equals thirty percent (30%) of the total Advisory Fee. The Company shall pay to Compass Point sixty percent (60%) of the Management Fee and shall pay to Boenning forty percent (40%) of the Management Fee. When purchasers submit orders in the Offering, they may designate their Shares to either Sales Agent. The Sales Agents will split the Sales Credit proportionally based upon how many Shares are designated to each Sales Agent. The aggregate Sales Credit from Shares that are not designated to either Sales Agent will be split evenly between the Sales Agents, with each Sales Agent receiving fifty percent (50%) of such Sales Credit. The Company may reject any offer to purchase the Shares made through the Sales Agents in whole or in part, and any such rejection shall not be deemed a breach of the respective parties’ agreement contained herein. This is strictly a “best efforts” offering and there is no minimum contingency of a specific number of Shares which must be sold prior to proceeding with a closing and the Sales Agents are not required to purchase any Shares that are not sold to shareholders, the Standby Investor or the public. The Company will not sell or agree to sell any of the Shares otherwise than with the assistance of the Sales Agents until after the Closing Date (as defined below), subject to Section 4(h) of this Agreement. In the event the Company or any of its executive officers is contacted directly or indirectly by prospective purchasers of the Shares, the Company will promptly forward the names of such prospective purchasers to the Sales Agents.

(b) The release of the Shares against payment therefor shall be made on a date and at a place mutually acceptable to the Company and the Sales Agents. The Shares shall be delivered directly to the purchasers in certificated or uncertificated form (book-entry) in accordance with the instructions of the Company and Computershare, Inc. (the “Subscription Agent”). The date upon which the Company shall release or deliver the Shares sold in the Offering, in accordance with the terms herein, is called the “Closing Date.”

(c) The Company acknowledges and agrees that each of the Sales Agents is acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the Offering contemplated hereby (including in connection with determining the terms of the Offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, the Sales Agents have not provided any legal, tax, investment, accounting or regulatory advice with respect to the Offering, and the Company has consulted with its own advisors concerning such matters to the extent it deemed appropriate. Any review by the Sales Agents of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Sales Agents and shall not be on behalf of the Company.

3. Representations and Warranties of the Company and the Bank. The representations and warranties in this Section 3 shall not apply to any statements in or omissions from the Registration Statement, any preliminary prospectus, the Prospectus, any Issuer Free Writing Prospectus or any other free writing prospectus that is part of the General Disclosure Package made in reliance upon and in conformity with written information furnished to the Company by the Sales Agents (provided that the Company, the Bank and the Sales Agents hereby acknowledge and agree that the only information that the Sales Agents have furnished to the Company specifically for inclusion in the Registration Statement, any preliminary prospectus, the Prospectus, any Issuer Free Writing Prospectus or any other free writing prospectus that is part of the General Disclosure Package, or any amendment or supplement thereto, is the [fourth and ninth paragraphs] of the Section titled “Plan of Distribution” in the Prospectus (collectively, the “Sales Agent Information”)). The Company and the Bank hereby jointly and severally represent and warrant to the Sales Agents that:

(a) Preliminary Prospectus. No order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and any preliminary prospectus included in the General Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no preliminary prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b) General Disclosure Package. The General Disclosure Package as of the Applicable Time did not, and as of the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the preliminary prospectus and the Prospectus, the Company (including its agents and representatives, other than the Sales Agents, each in its capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents (other than a communication referred to in clause (i) below) an “Issuer Free Writing Prospectus”) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act, (ii) the documents listed on Annex A hereto, or (iii) each bona fide electronic road show (as defined in Rule 433 under the Securities Act) and any other written communications approved in writing in advance by the Sales Agents. Each such Issuer Free Writing Prospectus complied in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and, when taken together with the General Disclosure Package at the Applicable Time, did not, and as of the Closing Date, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d) Registration Statement and Prospectus. The Registration Statement has been declared effective by the Commission under the Securities Act. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the Offering has been initiated or threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(e) Incorporated Documents. The documents incorporated by reference in the Registration Statement, the Prospectus and the General Disclosure Package, when they were filed with the Commission conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and none of such documents, as of the date they were filed with the Commission, as of the date hereof and as of the Closing Date contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; any further documents so filed and incorporated by reference in the Registration Statement, the Prospectus and the General Disclosure Package or any further amendment or supplement thereto, when such documents are filed with the Commission and as of the Closing Date will conform in all material respects to the requirements of the Exchange Act and will not contain an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(f) Financial Statements. The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) applied on a consistent basis throughout the periods covered thereby. To the extent applicable, all disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Securities Act, as applicable.

(g) No Material Adverse Change. Since the date of the most recent financial statements of the Company included or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in, and the grant of options and awards under existing equity incentive plans described in, the Registration Statement, the General Disclosure Package and the Prospectus), material change in short-term debt or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, prospects, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority.

(h) Organization and Good Standing. The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, and, in the case of the Bank, is validly chartered as a Virginia-chartered bank. The Company and each of its subsidiaries are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, have a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”). The Company is duly registered as a bank holding company under the Bank, Holding Company Act of 1956, as amended (the “BHC Act”). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the Bank, Village Bank Mortgage Corporation, Village Insurance Agency, Village Financial Services Corporation, Southern Community Financial Capital Trust I and Village Financial Statutory Trust II.

(i) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statement, the General Disclosure Package and the Prospectus under the heading “Capitalization;” all the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights, except for such rights as may have been fully satisfied or waived; except for options, restricted stock, restricted stock units and similar securities issued under the Company’s existing equity compensation plans or as described in or expressly contemplated by the General Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company are owned, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party.

(j) Due Authorization. The Company has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.

(k) Sales Agency Agreement. This Agreement has been duly executed by the Company and the Bank.

(l) The Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof in the Registration Statement, the General Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights.

(m) No Violation or Default. Neither the Company nor any of its subsidiaries is (i) in violation of its articles of incorporation, charter or bylaws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject (other than the Company has been deferring interest payments, as permitted by the terms thereof, on its junior subordinated debt securities since June 2011); or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

(n) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the articles of incorporation, charter or bylaws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

(o) No Consents Required. No material consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company and the Bank of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except as already obtained or for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by the Financial Industry Regulatory Authority (“FINRA”), the Nasdaq Stock Market, Inc. (“Nasdaq”) and under applicable state securities laws in connection with the Offering.

(p) Legal Proceedings. Except as described in the Registration Statement (including by incorporation), the General Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or may be a party or to which any property of the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company and the Bank, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so described in the Registration Statement, the General Disclosure Package and the Prospectus and (ii) there are no contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus.

(q) Independent Accountants. BDO USA, LLP, who has certified certain financial statements and supporting schedules of the Company and its subsidiaries contained in or incorporated into the Registration Statement, the Prospectus and the General Disclosure Package, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

(r) Title to Real and Personal Property. The Company and its subsidiaries have good and marketable title in fee simple (in the case of real property) to, or have valid and marketable rights to lease or otherwise use, all items of real and personal property and assets that are material to the business of the Company and its subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(s) Title to Intellectual Property. The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses as currently conducted, except where the failure to own, possess, license or have such rights would not have or reasonably be expected to have a Material Adverse Effect. To the Company’s and the Bank’s knowledge, the conduct of their and their subsidiaries’ businesses do not conflict in any material respect with any such rights of others. The Company and its subsidiaries have not received any notice of any claim of infringement, misappropriation or conflict with any such rights of others in connection with its patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how, which could reasonably be expected to result in a Material Adverse Effect.

(t) No Undisclosed Relationships. To the Company’s and the Bank’s knowledge, no relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement, the Prospectus and the General Disclosure Package and that is not so described in such documents.

(u) Investment Company Act. Neither the Company nor the Bank is and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, the General Disclosure Package and the Prospectus, will be required to register as an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”).

(v) Taxes. The Company and its subsidiaries have paid all federal, state, local and foreign taxes that are material in amount and filed all tax returns required to be paid or filed through the date hereof except where the failure to so pay or file any such tax would not have or reasonably be expected to have a Material Adverse Effect; and except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company and the Bank do not have knowledge of any material tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets.

(w) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; and except as described in the Registration Statement, the General Disclosure Package and the Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation, suspension or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course, except as would not have a Material Adverse Effect.

(x) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company and the Bank, is contemplated or threatened, except as would not reasonably be expected to have a Material Adverse Effect.

(y) Compliance with and Liability under Environmental Laws. (i) The Company and its subsidiaries (a) are, and at all prior times were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, release or threat of release of hazardous materials (collectively, “Environmental Laws”), (b) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (c) have not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any release or threat of release of hazardous materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (d) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (e) are not a party to any order, decree or agreement that imposes any obligation or liability under any Environmental Law; and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except, in the case of each of (i) and (ii) above, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(z) Compliance with ERISA. The Company and the Bank are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (herein called “ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company or the Bank would have any liability that would reasonably be expected to have a Material Adverse Effect; neither the Company nor the Bank has incurred, and neither the Company nor the Bank expects to incur, liability under (i) Title IV of ERISA with respect termination of, or withdrawal from, any “pension plan,” or (ii) Sections 412 or 4971 of the Code that would reasonably be expected to have a Material Adverse Effect; and each “Pension Plan” for which the Company or the Bank would have liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, to the Company’s or the Bank’s knowledge, whether by action or by failure to act, which would cause the loss of such qualification.

(aa) Disclosure Controls. The Company maintains an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. The Company has carried out evaluations of the effectiveness of its disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.

(bb) Accounting Controls. The Company maintains a system of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there are no material weaknesses in the Company’s internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

(cc) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as are adequate, in the reasonable belief of the Company, to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other material expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.

(dd) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor any director, officer or employee of the Company nor, to the knowledge of the Company and the Bank, any agent, affiliate, or other person acting on behalf of the Company or any of its subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken any act in furtherance of an offer of any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977 or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(ee) Compliance with Money Laundering Laws. The operations of the Company and its subsidiaries are and have been conducted at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company and the Bank, threatened.

(ff) Compliance with OFAC. None of the Company, any of its subsidiaries or, to the knowledge of the Company and the Bank, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”); and the Company will not knowingly, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC or other relevant sanction law.

(gg) No Restrictions on Subsidiaries. Except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

(hh) No Broker’s Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or the Sales Agents for a brokerage commission, finder’s fee or like payment in connection with the Offering.

(ii) No Registration Rights. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares.

(jj) No Stabilization. The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of its Common Stock.

(kk) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the General Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

(ll) Statistical and Market Data. Nothing has come to the attention of the Company or the Bank that has caused the Company and the Bank to believe that the statistical and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

(mm) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Section 402 related to loans and Sections 302 and 906 related to certifications.

(nn) Status under the Securities Act. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any Offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act. The Company has paid the registration fee for this Offering pursuant to Rule 456(a) under the Securities Act or will pay such fee within the time period required by such rule (without giving effect to the proviso therein) and in any event prior to the Closing Date.

(oo) Bank Regulatory Authorities. Each of the Company and its subsidiaries are in compliance with all applicable laws administered by, and all rules and regulations of, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Deposit Insurance Corporation (the “FDIC”), the Virginia Bureau of Financial Institutions (the “VBFI”), and any other federal or state bank regulatory authorities with jurisdiction over the Company or its subsidiaries (collectively, the “Bank Regulatory Authorities”), except where such noncompliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The deposit accounts of the Bank are insured up to applicable limits by the FDIC and no proceedings for the termination or revocation of such insurance are pending or, to the knowledge of the Company and the Bank, threatened. The Bank is a member in good standing of the Federal Home Loan Bank of Atlanta. Except as set forth in the Registration Statement, the Prospectus or any Issuer Free Writing Prospectus, neither the Company nor any of its subsidiaries is subject or is a party to, or has received any notice or advice that any of them may become subject or a party to, any investigation with respect to any written agreement, cease and desist order, memorandum of understanding or other regulatory enforcement action, proceeding or order with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions (other than board resolutions required by law or regulation and applicable to the banking industry as a whole) at the request of, any Bank Regulatory Authority that currently restricts in any material respects the conduct of its business or that in any material manner relates to its capital adequacy, its liquidity and funding policies and practices, its ability to pay dividends, its credit risk management or compliance policies, internal controls or its management, and to the knowledge of the Company, neither the Company nor the Bank has been advised in writing by any Bank Regulatory Authority that it intends to issue or request any such order, directive, or extraordinary supervisory letter; and, except as disclosed in the General Disclosure Package and the Prospectus, there is no unresolved violation, criticism or exception by any Bank Regulatory Authority with respect to any report or statement relating to any examinations of the Company or any of its subsidiaries that would be reasonably expected to result in a Material Adverse Effect, or that might materially and adversely affect the properties or assets thereof or that might materially and adversely affect the consummation of the Offering or the performance of this Agreement.

(pp) Application of Takeover Protections; Rights Agreements. The Company has not adopted any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable, with respect to the Offering, any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s articles of incorporation, bylaws or other organizational documents or the laws of the Commonwealth of Virginia or otherwise which is or could become applicable solely as a result of the transactions contemplated by this Agreement, including, without limitation, the Offering.

(qq) Off Balance Sheet Arrangements. There is no transaction, arrangement or other relationship between the Company (or any subsidiary of the Company) and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act reports and is not so disclosed.

(rr) Risk Management Instruments. Except as has not had or would not reasonably be expected to have a Material Adverse Effect, since January 1, 2012, all material derivative instruments, including, swaps, caps, floors and option agreements, whether entered into for the Company’s own account, or for the account of one or more of the Company’s subsidiaries, were entered into (1) only in the ordinary course of business, (2) in accordance with prudent practices and in all material respects with all applicable laws, rules, regulations and regulatory policies and (3) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding obligation of the Company or one of the Company’s subsidiaries, enforceable in accordance with its terms. Neither the Company nor the Company’s subsidiaries, nor, to the knowledge of the Company, any other party thereto, is in breach of any of its material obligations under any such agreement or arrangement.

(ss) Nonperforming Assets. To the knowledge of the Company, except as disclosed in the Company’s Exchange Act reports, the Company believes that the amount of reserves and allowances for loan and lease losses and other nonperforming assets established on the Company’s and Bank’s financial statements is adequate and such belief is reasonable under all the facts and circumstances known to the Company and Bank.

(tt) Change in Control. The Offering as contemplated by this Agreement will not trigger any rights under any “change of control” provision in any of the agreements to which the Company or any of its subsidiaries is a party, including any employment, “change in control,” severance or other compensatory agreements and any benefit plan, which results in payments to the counterparty or the acceleration of vesting of benefits.

(uu) Common Control. The Company is not and, after giving effect to the Offering, will not be under the control (as defined in the BHC Act and the Federal Reserve Board’s Regulation Y (12 CFR Part 225) (“BHC Act Control”) of any company (as defined in the BHC Act and the Federal Reserve Board’s Regulation Y). The Company is not in BHC Act Control of any federally insured depository institution other than the Bank. The Bank is not under the BHC Act Control of any company (as defined in the BHC Act and the Federal Reserve Board’s Regulation Y) other than the Company. Neither the Company nor the Bank controls, in the aggregate, more than five percent of the outstanding voting class, directly or indirectly, of any federally insured depository institution. The Bank is not subject to the liability of any commonly controlled depository institution pursuant to Section 5(e) of the Federal Deposit Insurance Act (12 U.S.C. § 1815(e)). Depending on the amount of Common Stock purchased by the Standby Investor, he may be deemed to control the Company pursuant to the provisions of the Change in Bank Control Act.

(vv) Relationship with Sales Agents. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company does not have any material lending or other relationship with either of the Sales Agents or any affiliate of either of the Sales Agents.

(ww) Listing of Additional Shares. The Company has submitted all notices required to have the Shares quoted on the Nasdaq Capital Market effective as of the Closing Date.

(xx) FINRA Affiliations. There are no affiliations or associations as such terms are defined by the FINRA, direct or indirect, between any FINRA member participating in the Offering or any of the Company’s or the Bank’s officers or directors.

(yy) Compliance with Florida Statutes. Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes. For purposes of this subsection, “affiliate” means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company.

4. Further Agreements of the Company and the Bank. The Company and the Bank covenant and agree with the Sales Agents that:

(a) Required Filings. The Company will file the Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A, 430B or 430C under the Securities Act; will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; will timely file all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; and will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Sales Agents as soon as practicable following execution of this Agreement in such quantities as the Sales Agents may reasonably request.

(b) Delivery of Copies. The Company will deliver, without charge, (i) to each of the Sales Agents, one signed copy of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each of the Sales Agents (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and documents incorporated by reference therein and each Issuer Free Writing Prospectus) as the Sales Agents may reasonably request. As used herein, the term “Prospectus Delivery Period” means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Sales Agents a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares.

(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before preparing, using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Sales Agents and counsel for the Sales Agents a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Sales Agents reasonably object.

(d) Notice to the Sales Agents. The Company will advise the Sales Agents promptly, and confirm such advice in writing, (i) when any amendment to the Registration Statement has been filed or becomes effective; (ii) when any supplement to the Prospectus or any Issuer Free Writing Prospectus or any amendment to the Prospectus has been filed; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information; (iv) of the issuance by the Commission of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any preliminary prospectus, any of the General Disclosure Package or the Prospectus or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act; (v) of the occurrence of any event within the Prospectus Delivery Period as a result of which the Prospectus, the

General Disclosure Package or any Issuer Free Writing Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the General Disclosure Package or any such Issuer Free Writing Prospectus is delivered to a purchaser, not misleading; (vi) of the receipt by the Company of any notice of objection of the Commission to the use of the Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)(1) under the Securities Act; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any preliminary prospectus, any of the General Disclosure Package or the Prospectus or suspending any such qualification of the Shares and, if any such order is issued, will use its best efforts to obtain as soon as possible the withdrawal thereof.

(e) Ongoing Compliance. (i) If during the Prospectus Delivery Period (a) any event shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading, or (b) it is necessary to amend or supplement the Prospectus to comply with law, the Company will immediately notify the Sales Agents thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Sales Agents and to such dealers as the Sales Agents may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law, and (ii) if at any time prior to the Closing Date (a) any event shall occur or condition shall exist as a result of which the General Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the General Disclosure Package is delivered to a purchaser, not misleading or (b) it is necessary to amend or supplement the General Disclosure Package to comply with law, the Company will immediately notify the Sales Agents thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Sales Agents and to such dealers as the Sales Agents may designate such amendments or supplements to the General Disclosure Package as may be necessary so that the statements in the General Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the General Disclosure Package is delivered to a purchaser, be misleading or so that the General Disclosure Package will comply with law.

(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Sales Agents shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) make any filings to qualify the Sales Agents as brokers or dealers eligible to act as sellers with respect to the Shares in any such jurisdiction, (ii) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (iii) file any general consent to service of process in any such jurisdiction, or (iv) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

(g) Earnings Statement. The Company will make generally available to its security holders (which may be satisfied by making publicly available on EDGAR) as soon as practicable an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the “effective date” (as defined in Rule 158) of the Registration Statement.

(h) Clear Market. For a period of 90 days after the date of the Prospectus (the “Restricted Period”), the Company will not, without the prior written consent of the Sales Agents (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of the Common Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing shall not apply to (i) the Shares to be sold hereunder, (ii) any shares of Common Stock of the Company and options to purchase shares of Common Stock granted under the Company’s equity compensation plans, and shares of Common Stock issued upon exercise of options granted under such equity compensation plans or any warrants issued by the Company and (iii) any shares of Common Stock issued by the Company in connection with a dividend reinvestment plan. Notwithstanding the foregoing, in the event that either (i) during the period that begins on the date that is 15 calendar days plus 3 business days before the last day of the Restricted Period and ends on the last day of the Restricted Period, the Company issues an earnings release or material news or a material event relating to the Company occurs, or (ii) prior to the expiration of the Restricted Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Restricted Period, the restrictions set forth herein will continue to apply until the expiration of the date that is 15 calendar days plus 3 business days after the date on which the earnings release is issued or the material news or event related to the Company occurs.

(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the General Disclosure Package and the Prospectus under the heading “Use of Proceeds.”

(j) No Stabilization. The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of its Common Stock.

(k) Reports. During a period of five years from the date hereof, the Company will furnish to the Sales Agents, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports or financial statements to the Sales Agents to the extent they are made available on EDGAR.

(l) Record Retention. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.

(m) Notice of Action. The Company and the Bank will promptly inform the Sales Agents upon their receipt of service with respect to any material litigation or administrative action instituted with respect to the Offering.

(n) Reporting of Use of Proceeds. The Company will report the use of proceeds from the Offering on its first periodic report filed pursuant to Sections 13(a) and 15(d) of the Exchange Act and on any subsequent periodic reports as may be required pursuant to Rule 463 of the Securities Act.

(o) FINRA Information. The Company and the Bank will take such actions and furnish such information as are reasonably requested by the Sales Agents in order for the Sales Agents to ensure compliance with FINRA Rules 5110, 5130 and 5131 to the extent applicable.

(p) Compliance with Conditions to Closing. The Company shall not deliver the Shares until the Company and the Bank have satisfied each condition set forth in Section 6 hereof, unless such condition is waived by the Sales Agents.

(q) Compliance with Applicable law and Regulation. During the period in which the Prospectus is required to be delivered, each of the Company and the Bank will conduct its respective business in compliance in all material respects with all applicable federal and state laws, rules, regulations, decisions, directives and orders, including all decisions, directives and orders of the Commission, the Federal Reserve Board, the VBFI, and the FDIC.

(r) Efforts to Satisfy Closing Conditions. The Company and the Bank will use all reasonable efforts to comply with, or cause to be complied with, the conditions precedent to the obligations of the Sales Agents specified in Section 6 hereof.

5. Certain Agreements of the Sales Agents. Each of the Sales Agents hereby represents and agrees that:

(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any “free writing prospectus”, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the preliminary prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Sections 3(c) or 4(c) above (including any electronic road show), or (iii) any free writing prospectus prepared by such Sales Agent and approved by the Company in advance in writing.

(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission.

(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the Offering (and will promptly notify the Company if any such proceeding against it is initiated during the Prospectus Delivery Period).

6. Conditions of Sales Agents’ Obligations. The obligations of the Sales Agents to offer the Shares on a best-efforts basis under this Agreement are subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:

(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose, pursuant to Rule 401(g)(1) or pursuant to Section 8A of the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 4(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Sales Agents.

(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date.

(c) No Material Adverse Change. No event or condition of a type described in Section 3(g) hereof shall have occurred or shall exist, which event or condition is not described in the General Disclosure Package (excluding any amendment or supplement thereto subsequent to the date of this Agreement) and the Prospectus (excluding any amendment or supplement thereto subsequent to the date of this Agreement) and the effect of which in the reasonable judgment of the Sales Agents makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date on the terms and in the manner contemplated by this Agreement, the General Disclosure Package and the Prospectus; provided, however, that notwithstanding anything in this Agreement to the contrary, the involuntary delisting of the Company’s common stock from the Nasdaq Capital Market shall not constitute an event or condition of the type described in Section 3(g) hereof.

(d) Officer’s Certificate. The Sales Agents shall have received on and as of the Closing Date a certificate of the chief executive officer and chief financial officer of the Company (i) confirming that such officers have carefully reviewed the Registration Statement, the General Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations set forth in Sections 3(b) and 3(d) hereof are true and correct, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the closing and (iii) to the effect set forth in paragraphs (a) and (c) above.

(e) Comfort Letters. On the date of this Agreement and on the Closing Date, BDO USA, LLP shall have furnished to the Sales Agents, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Sales Agents, in form and substance reasonably satisfactory to the Sales Agents, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date shall use a “cut-off” date no more than three business days prior to such Closing Date.

(f) Opinion and 10b-5 Statement of Counsel for the Company. The law firm of LeClairRyan, A Professional Corporation, counsel for the Company, shall have furnished to the Sales Agents, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date and addressed to the Sales Agents, in form and substance reasonably satisfactory to the Sales Agents, to the effect set forth in Exhibit A hereto.

(g) Opinion and 10b-5 Statement of Counsel for the Sales Agents. The Sales Agents shall have received on and as of the Closing Date an opinion and 10b-5 statement of Silver, Freedman, Taff & Tiernan LLP, counsel for the Sales Agents, with respect to such matters as the Sales Agents may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

(h) Section 382. At or prior to the Closing, the Company will have received a letter from an independent accounting firm stating that (i) the issuance of the Common Stock pursuant to the transactions contemplated by the Standby Purchase Agreement should not cause the Company to undergo an “ownership change” for purposes of Section 382 of the Code, (ii) there should be no adverse tax or accounting consequences of the issuance of the Common Stock pursuant to the transactions contemplated by the Standby Purchase Agreement, and (iii) the structure of the transaction should preserve the Company’s deferred tax asset (subject to any valuation allowance).

(i) No Legal Impediment to Issuance. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date prevent the issuance or sale of the Shares; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date, prevent the issuance or sale of the Shares.

(j) Good Standing. The Sales Agents shall have received on and as of the Closing Date evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Sales Agents may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.

(k) Additional Documents. On or prior to the Closing Date, the Company shall have furnished to the Sales Agents such further certificates and documents as the Sales Agents may reasonably request.

(l) Market Conditions. Market conditions at the time of the Offering shall, in the judgment of the Sales Agents, continue to justify the Offering. All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Sales Agents.

7. Indemnification and Contribution.

(a) Indemnification of the Sales Agents. The Company and the Bank agree to indemnify and hold harmless each Sales Agent, its affiliates, directors and officers and each person, if any, who controls such Sales Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable legal fees and other reasonable expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act or the General Disclosure Package (including any subsequent amendment to the General Disclosure Package), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any Sales Agent Information.

(b) Indemnification of the Company. Each Sales Agent, severally but not jointly, agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company and the Bank within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each director, officer, employee, partner, agent or affiliate of the Company and the Bank to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any Sales Agent Information; provided, however, that the obligation of each Sales Agent to indemnify the Company, and each person, if any, who controls the Company and the Bank within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each director, officer, employee, partner, agent or affiliate of the Company and the Bank shall be limited to the amount of fees actually received by such Sales Agent pursuant to this Agreement.

(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for each of the Sales Agents, its affiliates, directors and officers and any control persons of such Sales Agent shall be designated in writing by such Sales Agent and any such separate firm for the Company, its directors, officers and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding, and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

(d) Contribution. If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Sales Agents on the other, from the Offering, or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Sales Agents on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Sales Agents on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total fees and commissions received by the Sales Agents in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Sales Agents on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Sales Agents and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding anything to the contrary herein, the Sales Agents’ obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective amounts of fees each has actually received pursuant to this Agreement and not joint.

(e) Limitation on Liability. The Company and the Sales Agents agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Sales Agent be required to contribute any amount in excess of the total fees and commissions actually received by such Sales Agent with respect to the Offering. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(f) No Liability. The Company and the Bank also agree that the Sales Agents shall not have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company and its security holders or the Bank’s or the Company’s creditors relating to or arising out of the engagement of the Sales Agents pursuant to, or the performance by the Sales Agents of the services contemplated by, this Agreement, except to the extent that any liability is found in a final judgment by a court of competent jurisdiction to have resulted primarily from the Sales Agents’ bad faith, willful misconduct or gross negligence.

(g) Expense Reimbursement. In addition, in the event that the Sales Agents, any person, if any, who controls the Sales Agents within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or any of its partners, directors, officers, employees, affiliates or agents is requested or required to appear as a witness or otherwise gives testimony in any action, proceeding, investigation or inquiry brought by or on behalf of or against the Company, the Bank, either or both of the Sales Agents or any of their affiliates or any participant in the transactions contemplated hereby in which the Sales Agent or such person or agent is not named as a defendant, the Company and the Bank jointly and severally agree to reimburse the Sales Agent and its partners, directors, officers, employees or agents for all reasonable and necessary out-of-pocket expenses incurred by them in connection with preparing or appearing as a witness or otherwise giving testimony and to compensate the Sales Agent and its partners, directors, officers, employees or agents in an amount to be mutually agreed upon.

(h) Non-Exclusive Remedies. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.

8. Effectiveness of Agreement. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

9. Termination. This Agreement may be terminated in the absolute discretion of the Sales Agents, by notice to the Company and the Bank, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange, the NYSE MKT, the NASDAQ Stock Market or the OTC Markets Group, Inc.; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or Virginia authorities; (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Sales Agents, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date on the terms and in the manner contemplated by this Agreement, the General Disclosure Package and the Prospectus or (v) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, the occurrence of an event resulting in a Material Adverse Effect with regard to the Company and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business; provided, however, that notwithstanding anything in this Agreement to the contrary, the Sales Agents may not terminate this agreement solely as a result of the involuntary delisting of the Company’s common stock from the Nasdaq Capital Market.

10. Payment of Expenses.

(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the preliminary prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Company’s counsel and independent accountants; (iv) the fees and expenses of the Company’s counsel incurred in connection with the registration or qualification of the Shares under the state securities or blue sky laws of such jurisdictions as the Sales Agents may reasonably designate; (v) the cost of preparing stock certificates and closing transcripts; (vi) the costs and charges of any transfer agent and any registrar; (vii) the fees and expenses of the Subscription Agent; (viii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA (other than the fees of the Sales Agents’ counsel incurred in connection therewith); and (ix) all expenses incurred by the Company or the Bank in connection with any “road show” presentation to potential investors.

(b) Subject to the last sentence of this section, whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and the Bank shall reimburse the Sales Agents for their reasonable attorney’s fees and related legal expenses, not to exceed $75,000, as well as all out-of-pocket expenses incurred from time to time in connection with the provision of their services hereunder, including database and similar information charges related to third party vendors; travel-related expenses; postage, telecommunication, printing, and duplicating expenses, and any background checks on individuals required for compliance purposes, not to exceed $25,000 in aggregate. The previously paid aggregate retainer fee ($40,000) will be applied to any reimbursement of expenses required hereby. If any compensation or expenses payable to the Sales Agents pursuant to this Agreement are not fully paid when due, the Company and the Bank agrees to pay all costs of collection or other enforcement of the Sales Agents’ rights hereunder, including but not limited to attorneys’ fees and expenses, whether collected or enforced by suit or otherwise. Notwithstanding anything to the contrary herein, in the event the Offering is consummated in accordance with Section 6 hereof, in no event shall the aggregate amount of expenses for which the Sales Agents are reimbursed, when aggregated with the aggregate amount of the Advisory Fee paid thereto pursuant to Section 2(a) of this Agreement, amount in the aggregate to more than eight percent (8%) of the gross proceeds from the sale of Shares sold in the Offering.

11. Right of First Refusal. Effective upon the Closing Date, the Sales Agents shall have a right of first refusal for the period beginning on the Closing Date and ending on the 365^th day following the Closing Date to act as a lead managing underwriter or a lead placement agent and book runner in connection with any public or private offering of equity securities, preferred securities or preferred securities convertible into equity securities contemplated by the Company. The Sales Agents shall have ten (10) business days from its receipt of the written terms offering such engagement (the “Written Offering Terms”) in which to determine whether or not to accept such offer and, if the Sales Agents refuse, and provided that such financing is consummated (a) with another placement agent or underwriter upon substantially the same terms and conditions as the Written Offering Terms and (b) within three months after the end of the aforesaid ten (10)-business day period, this right of first refusal shall be forfeited and terminated; provided, however, if the financing is not consummated under the conditions of clauses (a) and (b) above, then the right of first refusal shall once again be reinstated under the same terms and conditions set forth in this section during the remainder of such 365-day period; provided, further, that the right of first refusal provided hereby shall not survive beyond three years from the date of the commencement of the Offering.

12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any control persons referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares shall be deemed to be a successor merely by reason of such purchase in the Offering.

13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Bank and the Sales Agents contained in this Agreement or made by or on behalf of the Company, the Bank or the Sales Agents pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company and the Bank or the Sales Agents.

14. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; and (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act.

15. Miscellaneous.

(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Sales Agents shall be sent to Compass Point Research & Trading, LLC, 3000 K Street N.W., Suite 340, Washington, D.C. 20007 (fax: (202) 540-7309), Attention: Sloan Deerin, and to Boenning & Scattergood, Inc., 4 Tower Bridge, 200 Barr Harbor Drive, Suite 300, West Conshohocken, Pennsylvania 19428 (fax ______________) , Attention: Michael C. Voinovich with a copy to Ross Bevan, Esq. at Silver, Freedman, Taff & Tiernan LLP, 3299 K Street, N.W., Suite 100, Washington, D.C. 20007, and to the Company and the Bank shall be sent to Village Bank and Trust Financial Corp., 13319 Midlothian Turnpike, Midlothian, Virginia 23113 (fax: (___) ___-____), Attention: William G. Foster, with a copy to Benjamin A. McCall, Esq. at LeClairRyan, 951 East Byrd Street, Eighth Floor, Richmond, Virginia 23219.

(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia applicable to agreements made and to be performed in such jurisdiction.

(c) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

(d) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

(e) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

(f) Entire Agreement. This Agreement, together with the annexes and exhibits hereto, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such agreement, annexes and exhibits. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein.

[Signature Page Follows]

If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

	Very truly yours,

	VILLAGE BANK AND TRUST FINANCIAL CORP.

	By:
	Name:	William G. Foster, Jr.
	Title:	President and Chief Executive Officer

	VILLAGE BANK

	By:
	Name:	William G. Foster, Jr.
	Title:	President and Chief Executive Officer

	Accepted: ____________, 2015

	COMPASS POINT RESEARCH & TRADING, LLC

	By:
	Name:	D. Sloan Deerin
	Title:	Managing Director

	BOENNING & SCATTERGOOD, INC.

	By:
	Name:	Michael C. Voinovich
	Title:	Managing Director

Annex A

Free-writing Prospectuses

[None]

Exhibit A

FORM OF OPINION

1. The Company and each of its subsidiaries are validly existing and in good standing under the laws of their respective jurisdictions of incorporation or organization, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the General Disclosure Package and the Prospectus.

2. The Company is duly registered as a bank holding company under the BHC Act, and no action, event or proceeding has occurred, is pending, or to our knowledge, is threatened, that would result in the Company no longer being qualified as a bank holding company.

3. The Bank is validly existing as a Virginia-chartered bank, with corporate power and authority to own or lease its properties and conduct its business as described in the General Disclosure Package and the Prospectus. The deposit accounts of the Bank are insured by the FDIC up to applicable limits.

4. The Company and the Bank have all requisite power and authority to execute and deliver this Agreement and to issue, sell and deliver the Shares to be sold by the Company as provided herein. The Agreement has been duly authorized, executed and delivered by the Company and the Bank.

5. The authorized capital stock of the Company conforms as to legal matters in all material respects to the descriptions thereof contained in the Prospectus.

6. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights to subscribe for or to purchase any securities of the Company under the Company’s articles of incorporation and bylaws or under Virginia law.

7. To counsel’s knowledge, neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any right requiring the registration of any securities of the Company under the Securities Act.

8. The issue and sale of the Shares by the Company, the performance of the Company’s and the Bank’s obligations under this Agreement and the consummation of the transactions hereby will not (i) to counsel’s knowledge, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the articles of incorporation, charter or bylaws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law or statute (assuming compliance with all applicable state securities or Blue Sky laws) or, to such counsel’s knowledge, any judgment, order, rule or regulation of any court or governmental or regulatory authority having jurisdiction over the Company, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

9. No consent, approval, authorization, order, license, registration or qualification of or with any court or governmental or regulatory authority is required on the part of the Company for the issuance and sale of the Shares by the Company, the performance of the Company’s and the Bank’s obligations under this Agreement or the consummation of the transactions hereby, except such as have been obtained under the Securities Act and such as may be required under the rules of FINRA and under applicable state securities or Blue Sky laws (as to which such counsel expresses no opinion).

10. The statements set forth in the General Disclosure Package and the Prospectus under the caption “Description of Capital Stock,” insofar as such statements constitute matters of law, summaries of legal matters, the Company’s articles of incorporation or bylaws, documents or legal proceedings, fairly summarize in all material respects such matters, documents or proceedings.

11. Neither Company nor the Bank is and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the General Disclosure Package and the Prospectus, will be required to register as an “investment company” within the meaning of the Investment Company Act.

12. The Registration Statement, the General Disclosure Package and the Prospectus and any further amendments and supplements thereto made by the Company prior to the Closing Date (other than the financial statements and notes thereto and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder;

13. The Shares have been duly authorized and, when issued and delivered against payment therefor as provided herein, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights, and will conform to the descriptions thereof contained in the Prospectus.

14. The Registration Statement has been declared effective under the Securities Act. Any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b). No stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to such counsel’s knowledge, threatened under the Securities Act.

15. To such counsel’s knowledge, except as described in the General Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is a party or to which any property or assets of the Company or any of its subsidiaries is subject that, if determined adversely to the Company or any of its subsidiaries, would, individually or in the aggregate, have a Material Adverse Effect; to counsel’s knowledge, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and to such counsel’s knowledge (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so described in the Registration Statement, the General Disclosure Package and the Prospectus and (ii) there are no contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the General Disclosure Package or the Prospectus.

16. To such counsel’s knowledge, neither the Company nor the Bank is in violation of its respective articles of incorporation or bylaws.

In addition, although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement, the General Disclosure Package or the Prospectus, except as specified in paragraph 10 of its opinion, such counsel shall state that nothing came to its attention that causes it to believe that, (a) as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to the Closing Date (other than the financial statements, notes to financial statements and related schedules therein, financial tables and other tabular, financial, statistical and accounting data included therein or omitted therefrom, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) as of its date, the General Disclosure Package contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (other than the financial statements, notes to financial statements and related schedules therein, financial tables and other tabular, financial, statistical and accounting data included therein or omitted therefrom, as to which such counsel need express no opinion), (c) that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date (other than the financial statements, notes to financial statements and related schedules therein, financial tables and other tabular, financial, statistical and accounting data included therein or omitted therefrom, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (d) that, as of the Applicable Time or the Closing Date, the Registration Statement or any further amendment or supplement thereto made by the Company prior to the Applicable Time or the Closing Date (other than the financial statements, notes to financial statements and related schedules therein, financial tables and other tabular, financial, statistical and accounting data included therein or omitted therefrom, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading, or (e) that, as of the Applicable Time or the Closing Date, either the General Disclosure Package or the Prospectus or any further amendment or supplement thereto made by the Company prior to the Applicable Time or the Closing Date (other than the financial statements, notes to financial statements and related schedules therein, financial tables and other tabular, financial, statistical and accounting data included therein or omitted therefrom, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

With respect to the immediately preceding paragraph, such counsel may state that their beliefs are based upon their participation in the preparation of the Registration Statement, the General Disclosure Package and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Village Bank and Trust Financial Corp.

Midlothian, Virginia

We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated March 26, 2014, relating to the consolidated financial statements of Village Bank and Trust Financial Corp. which is incorporated by reference in that Prospectus.

We also consent to the reference to us under the caption “Experts” in the Prospectus.