Bay Banks of Virginia in Kilmarnock has increased the size of its fourth-quarter loss, after a commercial borrower pleaded guilty to creating false financial statements.

The $456 million-asset holding company for Bank of Lancaster had five outstanding loans with the commercial borrower, totaling $2.2 million, according to a Monday news release. After the borrower pleaded guilty in federal court, Bay Banks moved the loans to nonaccrual status, classified them as substandard and placed them under evaluation for impairment. As a result, Bay Banks retroactively raised the amount of its fourth-quarter loss to $590,000, or 12 cents per share, from $134,000, or 3 cents.

Additionally, Bay Banks has added $691,000 of impairment reserves to its allowance for loan losses, effective Dec. 31, 2015. Bay Banks also increased its fourth-quarter provision for loan losses to $1.2 million, from $552,000

Bay Banks has foreclosed on properties related to the loans, to be used as collateral.

Bay Banks did not identify the commercial borrower, or the federal court circuit in which the guilty plea was entered.

The borrower admitted to failing to collect or pay over employment tax and to creating false financial statements to submit to financial institutions, according to the news release. These statements led the borrower's banks to issue new loans or renew existing loans.

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