Press Release

Bay Banks of Virginia, Inc. Reports Third Quarter and Year-to-date 2020 Results

Company Release - 10/29/2020 5:51 PM ET

RICHMOND, Va., Oct. 29, 2020 /PRNewswire/ -- Bay Banks of Virginia, Inc. (OTCQB: BAYK), holding company of Virginia Commonwealth Bank and VCB Financial Group, Inc., announced financial results for the three and nine months ended September 30, 2020.

Bay Banks of Virginia Logo (PRNewsfoto/Bay Banks of Virginia, Inc.)

On August 13, 2020, the company and Blue Ridge Bankshares, Inc. (NYSE American: BRBS)  ("Blue Ridge") jointly announced the signing of a definitive merger agreement pursuant to which the companies will combine in an all-stock merger (the "Merger") to create a leading Virginia-based community bank. Under the terms of the merger agreement, shareholders of the company will receive 0.50 shares of Blue Ridge common stock for each share of the company's common stock they own. Upon completion of the Merger, the company's shareholders will own approximately 54% and Blue Ridge shareholders will own approximately 46% of the combined company's stock. The Merger is subject to customary closing conditions, including regulatory approvals and approval from the shareholders of both companies. The company anticipates the Merger will close in the first quarter of 2021.

The company reported net income of $1.5 million, or $0.11 per diluted share, for the third quarter of 2020 compared to a net loss of $8.1 million or $(0.62) per diluted share, for the second quarter of 2020 and net income of $1.8 million, or $0.14 per diluted share, for the third quarter of 2019. For the nine months ended September 30, 2020, the company reported a net loss of $6.6 million, or $(0.51) per diluted share, compared to net income of $5.1 million, or $0.39 per diluted share, for the nine months ended September 30, 2019. Net loss for the nine months ended September 30, 2020 included a $10.4 million ($9.8 million after tax1), or $0.751 per diluted share, charge for the impairment of goodwill reported in the second quarter of 2020.  For the three months ended September 30, 2020, results included approximately $1.5 million ($1.4 million after tax1), or $0.111 per diluted share, of expenses incurred in connection with the anticipated Merger.

In addition to the goodwill impairment charge and Merger-related expenses, net income (loss) for the three and nine months ended September 30, 2020 included loan loss provision expense of $869 thousand and $5.7 million, respectively. A significant portion of the provision for loan losses in 2020 relates to estimated reserve needs as a result of the COVID-19 pandemic. Excluding the $10.4 million goodwill impairment charge and $1.5 million of Merger-related expenses, pre-tax, pre-loan loss provision income for the third quarter of 2020 was $4.5 million1 compared to $4.1 million1 and $2.8 million1 for the second quarter of 2020 and third quarter of 2019, respectively.

The company has actively participated in the Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act, closing nearly 700 loans totaling $56.8 million and receiving $2.4 million in processing fees. Of the processing fees received, $287 thousand and $532 thousand were recognized in interest income in the third-quarter and year-to-date periods ended September 30,  2020, while the remaining fees were deferred and will be recognized over the life of the loans, accelerated for pre-payments.

From the onset of the global pandemic, the company has proactively addressed the needs of its commercial and individual borrowers, modifying loans allowing for the short-term deferral of principal payments or of principal and interest payments. The following table presents the loan balances and number by loan type and the percentage these loans comprise within each loan type for modified loans as of September 30, 2020. Of the following balances, $39.5 million were to borrowers in the hotel/motel industry, $18.6 million were to borrowers in the restaurant and restaurant-related industry, and $9.3 million were to borrowers in the retail industry.





Loan Type

Loan Count


Principal Balance (in thousands)


% of Loan Type






Mortgage loans on real estate:













Residential first mortgages

14


$

2,886


1%






Commercial mortgages (non-owner occupied)

23



47,102


17%






Construction, land and land development

13



22,879


17%






Commercial mortgages (owner occupied)

17



10,520


14%






Residential revolving and junior mortgages

1



257


1%






Commercial and industrial

87



17,575


9%






Consumer

2



8


0%






     Total

157


$

101,227


10%
















Randal R. Greene, President and Chief Executive Officer, commented: "The global pandemic and resulting government mandates have caused tremendous hardships for families and businesses. Last quarter, I stated we'd begin in the last half of the year to gain some clarity into the lasting impact the COVID-19 virus may have on the financial health of our borrowers. Our borrowers have benefited from payment deferrals and, I'm pleased to report, many are back to paying status during the third quarter. Even though there is some improvement, some of our borrowers are still struggling with the extended economic downturn. Our branch lobbies are open at this time, though branch traffic is not at pre-pandemic levels; I believe the virus has accelerated the adoption of digital access. In spite of these difficult times, our employees have supported our customers, grown our loan portfolio and deposit franchise, and driven increased operating profitability. Excluding the effect of the unusual expense items, the company earned $4.5 million1 on a pre-tax, pre-loan loss provision basis, exceeding any levels earned in recent periods."

Operating Results

Third Quarter 2020 compared to Second Quarter 2020

  • Income before income taxes for the third quarter of 2020 was $2.1 million compared to a loss before income taxes of $8.3 million for the second quarter of 2020. Income before income taxes for the third quarter of 2020 included $1.5 million of Merger-related expenses, while the loss before income taxes for the second quarter of 2020 included a $10.4 million goodwill impairment charge, as reported previously.
  • Interest income for the three months ended September 30, 2020 was $12.1 million, on average interest-earning assets of $1.19 billion, compared to $12.0 million, on average interest-earning assets of $1.16 billion, for the three months ended June 30, 2020. Interest income in the third and second quarters of 2020 included accretion of acquired loan discounts of $97 thousand and $93 thousand, respectively. Yields on average interest-earning assets were 4.03% and 4.17% for the third and second quarters of 2020, respectively. Yields on average interest-earning assets in the third quarter of 2020 were negatively affected by lower yields on loans originated or renewed at lower rates. PPP loans, which the company began originating early in the second quarter of 2020, had a negative 4 and 3 basis point effect on loan yields in the third and second quarters of 2020, respectively. Partially offsetting the decline in yield were higher average balances of gross loans in the third quarter of 2020 of $31.8 million.
  • Interest expense was $2.7 million and $3.0 million for the three months ended September 30, 2020 and June 30, 2020, respectively, and cost of funds was 0.96% and 1.12% for the sequential quarter periods. Average interest-bearing liabilities were $925.8 million and $914.8 million for the third and second quarters of 2020, respectively. Cost of deposits was 0.82% for the third quarter of 2020, down 15 basis points from 0.97% for the second quarter of 2020.
  • Net interest margin ("NIM") was 3.14% for the third quarter of 2020 compared to 3.11% for the second quarter of 2020. The increase in NIM was primarily attributable to lower cost of funds, including higher average noninterest-bearing demand deposit balances, partially offset by lower yields on interest-earning assets.
  • Provision for loan losses was $869 thousand for the third quarter of 2020 compared to $2.0 million for the second quarter of 2020. The third quarter of 2020 provision expense was primarily attributable to specific reserves on loans to borrowers adversely effected by the COVID-19 pandemic. Of the second quarter of 2020 provision amount, approximately $1.4 million was attributable to qualitative loss factors to provide for losses estimated to have been incurred as of June 30, 2020, as a result of challenges certain borrowers are facing due to the pandemic.
  • Noninterest income for the three months ended September 30, 2020 and June 30, 2020 was $2.3 million and $2.2 million, respectively. Secondary market sales and servicing income increased $351 thousand in the third quarter of 2020 compared to the second quarter of 2020, driven by an increase in the demand for purchase money and refinance mortgages and a positive fair market value adjustment to the company's mortgage servicing rights asset. In addition, wealth management fee income increased $122 thousand on a sequential quarter basis. Partially offsetting these increases was lower referral fee income of $410 thousand in the third quarter of 2020. As previously reported, the company earns referral fees for referring loan customers to a third-party financial institution to execute interest rate swaps.
  • Noninterest expense for the three months ended September 30, 2020 and June 30, 2020 was $8.6 million and $17.5 million, respectively. The third quarter of 2020 included $1.5 million of Merger-related expenses compared to none for the second quarter of 2020, while the second quarter of 2020 included a $10.4 million goodwill impairment charge, as previously reported. The company's efficiency ratio was 74.1% and 156.7% for the third and second quarters of 2020, respectively. The company's efficiency ratio excluding Merger-related expenses and the goodwill impairment charge was 61.6%1 and 63.6%1 for the third and second quarters of 2020, respectively.
  • Income tax expense for the third quarter of 2020 was $655 thousand, reflective of a 30.5% effective income tax rate, while income tax benefit for the second quarter of 2020 was $217 thousand, reflective of a 2.6% effective income tax rate. The effective income tax rate in the third quarter of 2020 was higher than the statutory federal income tax rate of 21% primarily as a result of nondeductible Merger-related expenses. The income tax benefit in the second quarter of 2020 was a result of income tax expense before the goodwill impairment charge, offset by an income tax benefit (reversal of a deferred tax liability) of $590 thousand related to a portion of the goodwill.

Year-to-date 2020 compared to Year-to-date 2019

  • Loss before income taxes for the nine months ended September 30, 2020 was $6.3 million compared to income before income taxes of $6.2 million for the nine months ended September 30, 2019. The loss before income taxes for the nine months ended September 30, 2020 included a $10.4 million goodwill impairment charge recorded in the second quarter of 2020 and $1.5 million of Merger-related expenses recorded in the third quarter of 2020.
  • Interest income for the nine months ended September 30, 2020 was $36.3 million, on average interest-earning assets of $1.14 billion, compared to $37.5 million for the nine months ended September 30, 2019, on average interest-earning assets of $1.04 billion. Interest income in the first nine months of 2020 included accretion of acquired loan discounts of $381 thousand, while interest income in the first nine months of 2019 included $993 thousand of accretion of acquired loan discounts. Yields on average interest-earning assets were 4.24% and 4.85% for the nine months ended September 30, 2020 and 2019, respectively. The lower yield on average interest-earning assets in the 2020 period was primarily due to lower yields on loans originated during the period, the repricing of variable rate loans, the addition of lower yielding PPP loans, which had a negative 3 basis point effect on yield, and lower accretion of acquired loan discounts, which had a negative 8 basis point effect on yield. Partially offsetting these negative effects were higher average balances of gross loans in the 2020 period of $90.9 million.
  • Interest expense was $9.3 million and $11.2 million for the nine months ended September 30, 2020 and 2019, respectively, and cost of funds was 1.16% and 1.55% for the respective periods. Average balances of noninterest-bearing demand accounts increased $50.0 million for the 2020 period from the 2019 period. Average interest-bearing liabilities were $904.2 million and $854.1 million for the nine months ended September 30, 2020 and 2019, respectively.
  • NIM was 3.15% for the first nine months of 2020 compared to 3.39% for the same period of 2019. Lower NIM in the 2020 period was primarily due to lower yields on average interest-earning assets, primarily loans, and lower accretion of acquired loan discounts, partially offset by lower cost of funds.
  • Provision for loan losses was $5.7 million for the first nine months of 2020 compared to $871 thousand for the same period of 2019. Provision for loan losses in the 2020 period was primarily attributable to qualitative loss factors for increases in state unemployment rates, including Virginia, and for losses estimated to have been incurred as of September 30, 2020 due to the COVID-19 pandemic, gross loan growth, excluding PPP loans, of approximately $71.9 million, and higher specific reserves on impaired loans. The company recorded no provision for loan losses for PPP loans due to the U.S. government guarantee.
  • Noninterest income for the nine months ended September 30, 2020 and 2019 was $5.9 million and $3.6 million, respectively. The 2020 period included higher secondary market sales and servicing income of $1.4 million and $1.1 million of referral fee income, while the 2019 period included no income from such activities.
  • Noninterest expense for the nine months ended September 30, 2020 and 2019 were $33.4 million and $22.7 million, respectively. Excluding the goodwill impairment charge of $10.4 million and Merger-related expenses of $1.5 million incurred in the 2020 period, noninterest expense decreased $1.1 million on a comparative period basis. Decreases in certain noninterest expenses in the 2020 period were primarily attributable to reduced headcount and occupancy costs, resulting from temporary and permanent branch closures, and overall general expense control.
  • Income tax expense for the first nine months of 2020 was $378 thousand, reflective of a 6.0% effective income tax rate, while income tax expense for the first nine months of 2019 was $1.2 million, reflective of an 18.9% effective income tax rate. Income tax expense for the first nine months of 2020 includes the result of income tax expense before the goodwill impairment charge, offset by the related deferred tax benefit, and the effect of nondeductible Merger-related expenses, as noted previously.

Third Quarter 2020 compared to Third Quarter 2019

  • Income before income taxes for the third quarter of 2020 was $2.1 million compared to income before income taxes of $2.3 million for the third quarter of 2019. Income before income taxes for the third quarter of 2020 includes $1.5 million of Merger-related expenses.
  • Interest income for the three months ended September 30, 2020 was $12.1 million, on average interest-earning assets of $1.19 billion, compared to $12.8 million, on average interest-earning assets of $1.04 billion, for the three months ended September 30, 2019. Interest income in the third quarter of 2020 included accretion of acquired loan discounts of $97 thousand, while interest income in the third quarter of 2019 included $357 thousand of accretion of acquired loan discounts. Yields on average interest-earning assets were 4.03% and 4.87% for the third quarters of 2020 and 2019, respectively. Yields on average interest-earning assets in the third quarter of 2020 were negatively affected by lower yields on loans originated, including PPP loans, in 2020, the repricing of variable rate loans, and lower accretion of acquired loan discounts, which had a negative 10 basis point effect.
  • Interest expense was $2.7 million and $3.7 million for the three months ended September 30, 2020 and 2019, respectively, and cost of funds was 0.96% and 1.52% for the respective periods. Average interest-bearing liabilities were $925.8 million and $851.4 million for the third quarters of 2020 and 2019, respectively. Cost of deposits was 0.82% for the third quarter of 2020, down 58 basis points from 1.40% for the third quarter of 2019.
  • NIM was 3.14% for the third quarter of 2020 compared to 3.45% for the third quarter of 2019. The decrease in NIM was primarily attributable to lower yields on loans, partially offset by lower cost of funds.
  • Provision for loan losses was $869 thousand in the third quarter of 2020 compared to $495 thousand in the third quarter of 2019.
  • Noninterest income for the three months ended September 30, 2020 and 2019 was $2.3 million and $1.2 million, respectively. Higher noninterest income in the 2020 period was primarily due to higher secondary market sales and servicing income of $789 thousand and higher wealth management fee income of $165 thousand.
  • Noninterest expense for the three months ended September 30, 2020 and 2019 was $8.6 million and $7.4 million, respectively. The company's efficiency ratio was 74.1% and 72.8% for the third quarters of 2020 and 2019, respectively. The company's efficiency ratio, excluding the $1.5 million of Merger-related expenses incurred in the 2020 period, was 61.6%1 and 72.8%1 for the third quarters of 2020 and 2019, respectively.
  • Income tax expense for the third quarter of 2020 was $655 thousand, reflective of a 30.5% effective income tax rate, due to the reasons noted previously. Income tax expense for the third quarter of 2019 was $448 thousand, reflective of an 19.6% effective income tax rate.

Balance Sheet        

  • Total assets were $1.25 billion and $1.13 billion at September 30, 2020 and December 31, 2019, respectively.
  • Loans, net of allowance for loan losses, were $1.04 billion at September 30, 2020 compared to $916.6 million at December 31, 2019, a $125.1 million increase, including $56.8 million of PPP loans. Excluding PPP loans, net loan growth for the first nine months of 2020 was $68.3 million, an annualized rate of approximately 10%.
  • Deposits were $1.03 billion at September 30, 2020 compared to $910.4 million at December 31, 2019, a $117.2 million increase, including an increase of $52.9 million of noninterest-bearing demand account balances. Noninterest-bearing demand accounts comprised 18.6% of total deposits at September 30, 2020, an increase from 15.2% and 13.6% at December 31, 2019 and September 30, 2019, respectively.
  • Shareholders' equity was $121.4 million and $126.2 million at September 30, 2020 and December 31, 2019, respectively, a decrease of $4.8 million. The decrease in shareholders' equity in the 2020 period was primarily attributable to a year-to-date net loss of $6.6 million, partially offset by net unrealized gains of approximately $1.1 million on the company's available-for-sale securities portfolio. Tangible book value, calculated as shareholders' equity less goodwill and core deposit intangible assets, net of the associated deferred tax liability, divided by common shares outstanding, was $9.041 and $8.641 at September 30, 2020 and December 31, 2019, respectively.
  • The company made no purchases of its common stock outstanding in the first nine months of 2020, pursuant to a share repurchase program authorized by its board of directors in the fourth quarter of 2019.
  • Capital ratios for Virginia Commonwealth Bank were above regulatory minimum guidelines for well-capitalized banks as of September 30, 2020 and December 31, 2019.
  • Annualized return (loss) on average assets for the quarters ended September 30, 2020, June 30, 2020, and September 30, 2019 was 0.48%, (2.64)%, and 0.66%, respectively, while annualized return (loss) on average shareholders' equity for the same periods was 4.95%, (25.40)%, and 5.97%, respectively. Excluding the $1.5 million of Merger-related expenses reported in the third quarter of 2020, annualized return on average assets and annualized return on average shareholders' equity for the three months ended September 30, 2020 were 0.93%1 and 9.64%1, respectively. Excluding the goodwill impairment charge of $10.4 million incurred in the second quarter of 2020, annualized return on average assets and annualized return on average shareholders' equity for the three months ended June 30, 2020 were 0.54%1 and 5.18%1, respectively. 

Asset Quality

  • Nonperforming assets were $18.3 million, or 1.46% of total assets, as of September 30, 2020, compared to $6.4 million, or 0.56% of total assets, as of December 31, 2019, and $9.4 million, or 0.84% of total assets, as of September 30, 2019. The increase in nonperforming assets from December 31, 2019 to September 30, 2020 was primarily attributable to $12.7 million of higher balances of nonaccrual loans to borrowers adversely affected by the COVID-19 pandemic.
  • The ratio of allowance for loan losses to total gross loans was 1.22%, 0.82%, and 0.80% at September 30, 2020, December 31, 2019, and September 30, 2019, respectively. Due to the full U.S. government guarantee on PPP loans, the company has recorded no allowance for loan losses for $56.8 million of PPP loans outstanding as of September 30, 2020. Excluding PPP loans from the denominator of the ratio of allowance for loan losses to total gross results in a ratio of 1.29%1 as of September 30, 2020. Further, the company's allowance for loan losses does not include discounts recorded on loans acquired in the company's 2017 merger with Virginia BanCorp, Inc., which were $1.5 million, $1.9 million, and $2.9 million as of September 30, 2020, December 31, 2019, and September 30 2019, respectively.

Outlook

Greene concluded: "The recent up-tick in virus cases and the stalling of further government actions to support the economy could further impact our borrowers' ability to satisfy their loans. These factors and the low interest rate environment expected for several years puts pressure on banks, such as ours. We believe the ensuing combination with Blue Ridge, positioning us with a larger balance sheet and a more diversified revenue base, should be to our advantage."

About Bay Banks of Virginia, Inc.

Bay Banks of Virginia, Inc. is the bank holding company for Virginia Commonwealth Bank and VCB Financial Group, Inc. Founded in the 1930s, Virginia Commonwealth Bank is headquartered in Richmond, Virginia. With 18 banking offices, located throughout the greater Richmond region of Virginia, the Northern Neck region of Virginia, Middlesex County, and the Hampton Roads region of Virginia, the bank serves businesses, professionals, and consumers with a wide variety of financial services, including retail and commercial banking, and mortgage banking. VCB Financial Group provides management services for personal and corporate trusts, including estate planning, estate settlement and trust administration, and investment and wealth management services.

Caution About Forward-Looking Statements

This press release contains statements concerning the company's expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute "forward-looking statements" as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the company include, but are not limited to: the effect of the COVID-19 pandemic, including its potential adverse effect on economic conditions, and the company's employees, customers, loan losses, and financial performance; changes in interest rates and general economic conditions; the ability to close the Merger on the expected terms and schedule; difficulties, delays and unforeseen costs in completing the Merger and in integrating the company's and Blue Ridge's businesses; the ability to realize cost savings and other benefits of the Merger; business disruption during the pendency of or following the Merger; the legislative/regulatory climate; monetary and fiscal policies of the U.S. Government, including policies of the U.S.Treasury and Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the company's market area; acquisitions and dispositions; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; and tax and accounting rules, principles, policies and guidelines; and other factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and other reports filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date they are made. Except to the extent required by applicable law or regulation, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

For further information, contact Randal R. Greene, President and Chief Executive Officer, at 844-404-9668 or Judy C. Gavant, Executive Vice President and Chief Financial Officer, at 804-518-2606 or inquiries@baybanks.com.

1 See discussion of non-GAAP financial measures at the end of the Supplemental Financial Data tables that follow.                     

 

 

BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS











(unaudited)






(Dollars in thousands, except share data)


September 30,
2020



December 31,
2019 (1)


ASSETS









Cash and due from banks


$

9,324



$

6,096


Interest-earning deposits



50,069




34,358


Federal funds sold



152




1,359


Certificates of deposit



1,266




2,754


Available-for-sale securities, at fair value



87,853




99,454


Restricted securities



5,022




5,706


Loans receivable, net of allowance for loan losses of $12,899 and $7,562, respectively



1,041,711




916,628


Loans held for sale



2,687




1,231


Premises and equipment, net



17,859




20,141


Accrued interest receivable



4,664




3,035


Other real estate owned, net



1,113




1,916


Bank owned life insurance



20,103




19,752


Goodwill






10,374


Mortgage servicing rights



845




935


Core deposit intangible



1,094




1,518


Other assets



7,820




6,666


Total assets


$

1,251,582



$

1,131,923











LIABILITIES









Noninterest-bearing demand deposits


$

190,843



$

137,933


Savings and interest-bearing demand deposits



424,001




382,607


Time deposits



412,837




389,900


Total deposits



1,027,681




910,440











Securities sold under repurchase agreements



1,117




6,525


Federal Home Loan Bank advances



25,000




45,000


Federal Reserve Bank advances



32,637





Subordinated notes, net of unamortized issuance costs



31,083




31,001


Other liabilities



12,635




12,772


Total liabilities



1,130,153




1,005,738











SHAREHOLDERS' EQUITY









Common stock ($5 par value; authorized - 30,000,000 shares; outstanding - 13,342,104 and 13,261,801 shares, respectively) (2)



66,711




66,309


Additional paid-in capital



36,816




36,658


Unearned employee stock ownership plan shares



(1,326)




(1,525)


Retained earnings



18,012




24,660


Accumulated other comprehensive income, net



1,216




83


Total shareholders' equity



121,429




126,185


Total liabilities and shareholders' equity


$

1,251,582



$

1,131,923




(1)

Derived from audited December 31, 2019 Consolidated Financial Statements.

(2)

Preferred stock is authorized; however, none was outstanding as of September 30, 2020 and December 31, 2019.

 

 

BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)




For the Three Months Ended


(Dollars in thousands, except per share data)


September 30,
2020



June 30,
2020



September 30,
2019


INTEREST INCOME













Loans, including fees


$

11,371



$

11,290



$

11,930


Securities:













Taxable



596




573




553


Tax-exempt



88




89




113


Federal funds sold









6


Interest-earning deposit accounts



6




8




145


Certificates of deposit



9




14




18


Total interest income



12,070




11,974




12,765















INTEREST EXPENSE













Deposits



2,104




2,411




3,123


Securities sold under repurchase agreements






1




4


Subordinated notes and other borrowings



510




510




142


Federal Home Loan Bank advances



50




90




465


Federal Reserve Bank advances



29




20





Total interest expense



2,693




3,032




3,734


Net interest income



9,377




8,942




9,031


Provision for loan losses



869




2,027




495


Net interest income after provision for loan losses



8,508




6,915




8,536















NONINTEREST INCOME













Trust management



220




203




201


Service charges and fees on deposit accounts



155




137




243


Wealth management



350




228




185


Interchange fees, net



149




130




108


Other service charges and fees



33




28




32


Secondary market sales and servicing



1,082




731




293


Increase in cash surrender value of bank owned life insurance



117




116




122


Net gains on sales and calls of available-for-sale securities






3




1


Net gains on disposition of other assets



12




1





Net gains on rabbi trust assets



74




114





Referral fees



86




496





Other



8




7




15


Total noninterest income



2,286




2,194




1,200















NONINTEREST EXPENSE













Salaries and employee benefits



3,801




3,839




3,666


Occupancy



700




705




805


Data processing



491




498




541


Bank franchise tax



256




257




209


Telecommunications and other technology



396




371




258


FDIC assessments



262




147




(7)


Foreclosed property



22




28




48


Consulting



54




70




156


Advertising and marketing



47




26




124


Directors' fees



187




188




148


Audit and accounting



92




170




193


Legal



(210)




154




20


Core deposit intangible amortization



134




142




164


Net other real estate owned losses



176




81




375


Goodwill impairment






10,374





Merger-related



1,456








Other



782




403




747


Total noninterest expense



8,646




17,453




7,447


Income (loss) before income taxes



2,148




(8,344)




2,289


Income tax expense (benefit)



655




(217)




448


Net income (loss)


$

1,493



$

(8,127)



$

1,841


Basic and diluted earnings (loss) per share


$

0.11



$

(0.62)



$

0.14



 

 

BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)






For the Nine Months Ended


(Dollars in thousands, except per share data)


September 30,
2020



September 30,
2019


INTEREST INCOME









Loans, including fees


$

34,013



$

34,849


Securities:









Taxable



1,821




1,725


Tax-exempt



270




327


Federal funds sold



2




31


Interest-earning deposit accounts



119




432


Certificates of deposit



37




57


Total interest income



36,262




37,421











INTEREST EXPENSE









Deposits



7,364




9,019


Securities sold under repurchase agreements



3




11


Subordinated notes and other borrowings



1,531




417


Federal Home Loan Bank advances



374




1,784


Federal Reserve Bank advances



49





Total interest expense



9,321




11,231


Net interest income



26,941




26,190


Provision for loan losses



5,673




871


Net interest income after provision for loan losses



21,268




25,319











NONINTEREST INCOME









Trust management



615




621


Service charges and fees on deposit accounts



529




727


Wealth management



824




654


Interchange fees, net



378




330


Other service charges and fees



94




88


Secondary market sales and servicing



2,015




632


Increase in cash surrender value of bank owned life insurance



351




362


Net gains (losses) on sales and calls of available-for-sale securities



29




(1)


Net gains (losses) on disposition of other assets



5




(2)


Net (losses) gains on rabbi trust assets



(76)




130


Referral fees



1,052





Other



54




44


Total noninterest income



5,870




3,585











NONINTEREST EXPENSE









Salaries and employee benefits



11,267




11,532


Occupancy



2,156




2,510


Data processing



1,526




1,738


Bank franchise tax



770




655


Telecommunications and other technology



1,176




727


FDIC assessments



557




371


Foreclosed property



58




110


Consulting



195




418


Advertising and marketing



140




300


Directors' fees



568




525


Audit and accounting



402




586


Legal



135




130


Core deposit intangible amortization



425




517


Net other real estate owned losses



256




441


Goodwill impairment



10,374





Merger-related



1,456





Other



1,947




2,108


Total noninterest expense



33,408




22,668


(Loss) income before income taxes



(6,270)




6,236


Income tax expense



378




1,180


Net (loss) income


$

(6,648)



$

5,056


Basic and diluted (loss) earnings per share


$

(0.51)



$

0.39


 

 

BAY BANKS OF VIRGINIA, INC.
Supplemental Financial Data (Unaudited)























































As of and for the




As of and for the Three Months Ended



Year Ended




September 30,



June 30,



March 31,



December 31,



September 30,



December 31,


(Dollars in thousands, except per share amounts)


2020



2020



2020



2019



2019



2019


Select Consolidated Balance Sheet Data

























Total assets


$

1,251,582



$

1,238,226



$

1,183,553



$

1,131,923



$

1,112,219






Cash, interest-earning deposits and federal funds sold



59,545




39,912




56,006




41,813




31,405






Available-for-sale securities, at fair value



87,853




92,560




94,618




99,454




80,748






Loans:

























Mortgage loans on real estate



806,283




798,109




762,404




730,788




731,280






Commercial and industrial



187,219




193,740




198,278




181,730




186,281






Paycheck Protection Program



56,788




55,496















Consumer



6,443




7,855




9,846




11,985




14,471






Loans receivable



1,056,733




1,055,200




970,528




924,503




932,032






Unamortized net deferred loan fees



(2,123)




(2,345)




(333)




(313)




(269)






Allowance for loan losses (ALL)



(12,899)




(12,007)




(10,172)




(7,562)




(7,495)






Net loans



1,041,711




1,040,848




960,023




916,628




924,268






Loans held for sale



2,687




2,521




747




1,231




268






Other real estate owned, net



1,113




1,903




1,679




1,916




2,178































Total liabilities


$

1,130,153



$

1,118,536



$

1,056,151



$

1,005,738



$

987,362






Deposits:

























Noninterest-bearing demand deposits



190,843




185,201




136,437




137,933




124,670






Savings and interest-bearing demand deposits



424,001




413,025




394,637




382,607




372,404






Time deposits



412,837




408,672




433,393




389,900




396,614






Total deposits



1,027,681




1,006,898




964,467




910,440




893,688






Securities sold under repurchase agreements



1,117




1,035




3,284




6,525




6,323






Federal Home Loan Bank advances



25,000




35,000




45,000




45,000




68,000






Federal Reserve Bank advances



32,637




33,160















Subordinated notes, net of unamortized issuance costs



31,083




31,056




31,029




31,001




6,906































Shareholders' equity



121,429




119,690




127,402




126,185




124,857































Interest income


$

12,070



$

11,974



$

12,218



$

12,997



$

12,765



$

50,418


Interest expense



2,693




3,032




3,596




3,854




3,734




15,085


Net interest income



9,377




8,942




8,622




9,143




9,031




35,333


Provision for loan losses



869




2,027




2,777




311




495




1,182


Noninterest income



2,286




2,194




1,391




1,373




1,200




4,958


Noninterest expense



8,646




17,453




7,308




7,734




7,447




30,402


Income (loss) before income taxes



2,148




(8,344)




(72)




2,471




2,289




8,707


Income tax expense (benefit)



655




(217)




(58)




469




448




1,649


Net income (loss)


$

1,493



$

(8,127)



$

(14)



$

2,002



$

1,841



$

7,058


 

 

BAY BANKS OF VIRGINIA, INC.
Supplemental Financial Data (Unaudited)























































As of and for the




As of and for the Three Months Ended



Year Ended




September 30,



June 30,



March 31,



December 31,



September 30,



December 31,


(Dollars in thousands, except per share amounts)


2020



2020



2020



2019



2019



2019


Basic earnings (loss) per share


$

0.11



$

(0.62)



$



$

0.15



$

0.14



$

0.54


Diluted earnings (loss) per share



0.11




(0.62)







0.15




0.14




0.54


Book value per share



9.10




8.98




9.55




9.51




9.36






Tangible book value per share (1)



9.04




8.90




8.69




8.64




8.49






Shares outstanding at end of period



13,342,104




13,334,049




13,346,789




13,261,801




13,334,302






Weighted average shares outstanding, basic



13,090,035




13,080,689




13,056,576




13,071,708




13,077,600




13,053,080


Weighted average shares outstanding, diluted



13,137,990




13,080,689




13,056,576




13,145,522




13,132,459




13,111,853



























Performance Measures and Other Metrics (tax-equivalent basis):

























Yield on average interest-earning assets



4.03

%



4.17

%



4.56

%



4.87

%



4.87

%



4.85

%

Accretion of discounts on acquired loans


$

97



$

93



$

189



$

929



$

357



$

1,922


Cost of funds



0.96

%



1.12

%



1.44

%



1.54

%



1.52

%



1.55

%

Cost of deposits



0.82

%



0.97

%



1.24

%



1.34

%



1.40

%



1.37

%

Net interest spread



2.88

%



2.83

%



2.90

%



3.09

%



3.13

%



3.09

%

Net interest margin (NIM)



3.14

%



3.11

%



3.22

%



3.43

%



3.45

%



3.40

%

Average interest-earnings assets to total average assets



95.6

%



94.1

%



94.4

%



94.2

%



94.0

%



94.0

%

Return (loss) on average assets (annualized)



0.48

%



-2.64

%



0.00

%



0.71

%



0.66

%



0.64

%

Operating return on average assets (annualized) (1)



0.93

%



0.54

%



0.00

%



0.71

%



0.66

%



0.64

%

Return (loss) on average equity (annualized)



4.95

%



-25.40

%



-0.04

%



6.39

%



5.97

%



5.79

%

Operating return (loss) on average equity (annualized) (1)



9.64

%



5.18

%



-0.04

%



6.39

%



5.97

%



5.79

%

Efficiency ratio



74.1

%



156.7

%



73.0

%



73.5

%



72.8

%



75.5

%

Operating efficiency ratio (1)



61.6

%



63.6

%



73.0

%



73.5

%



72.8

%



75.5

%

Average assets


$

1,246,989



$

1,230,249



$

1,143,879



$

1,126,663



$

1,109,986



$

1,107,670


Average interest-earning assets



1,192,670




1,158,248




1,079,351




1,061,227




1,043,243




1,041,622


Average interest-bearing liabilities



925,812




914,832




871,597




860,421




851,392




855,703


Average shareholders' equity



120,570




127,960




126,955




125,285




123,399




121,859


Shareholders' equity to total assets ratio



9.7

%



9.7

%



10.8

%



11.1

%



11.2

%





Tangible shareholders' equity to tangible total assets (1)



9.6

%



9.6

%



9.9

%



10.2

%



10.3

%






























Asset Quality Data and Ratios:

























Nonaccrual loans


$

17,198



$

12,279



$

5,441



$

4,476



$

7,194






Other real estate owned, net



1,113




1,903




1,679




1,916




2,178






Total nonperforming assets



18,311




14,182




7,120




6,392




9,372






Net charge-offs (recoveries)



(23)




193




166




245




478




1,522


Net charge-offs (recoveries) to average loans (annualized)



-0.01

%



0.08

%



0.07

%



0.11

%



0.21

%



0.17

%

Total nonperforming assets to total assets



1.46

%



1.15

%



0.60

%



0.56

%



0.84

%





Gross loans to total assets



84.3

%



85.0

%



82.0

%



81.6

%



83.8

%





ALL to gross loans



1.22

%



1.14

%



1.05

%



0.82

%



0.80

%





ALL to gross loans, excluding PPP loans (1)



1.29

%



1.20

%



1.05

%



0.82

%



0.80

%





Discounts on acquired loans


$

1,523



$

1,640



$

1,750



$

1,935



$

2,886








(1)

Non-GAAP financial measure.  See GAAP to Non-GAAP financial measure reconciliation at the end of the Supplemental Financial Data tables that follow.

 

 

BAY BANKS OF VIRGINIA, INC.
Supplemental Financial Data (Unaudited)















































As of and for the




As of and for the Three Months Ended



Year Ended




September 30,



June 30,



March 31,



December 31,



September 30,



December 31,


(Dollars in thousands, except per share amounts)


2020



2020



2020



2019



2019



2019


Reconciliation of Non-GAAP Financial Measures (1)

























Tangible book value per share

























Total shareholders' equity


$

121,429



$

119,690



$

127,402



$

126,185



$

124,857






Less: intangible assets, net of deferred tax liability on core deposit intangible (a)(b)



864




970




11,456




11,573




11,697






Tangible shareholders' equity


$

120,565



$

118,720



$

115,946



$

114,612



$

113,160






Shares outstanding at end of period



13,342,104




13,334,049




13,346,789




13,261,801




13,334,302






Tangible book value per share


$

9.04



$

8.90



$

8.69



$

8.64



$

8.49































Tangible shareholders' equity to tangible total assets

























Total assets


$

1,251,582



$

1,238,226



$

1,183,553



$

1,131,923



$

1,112,219






Less: intangible assets, net of deferred tax liability on core deposit intangible (a)(b)



864




970




11,456




11,573




11,697






Tangible total assets


$

1,250,718



$

1,237,256



$

1,172,097



$

1,120,350



$

1,100,522






Tangible shareholders' equity


$

120,565



$

118,720



$

115,946



$

114,612



$

113,160






Tangible shareholders' equity to tangible total assets



9.6

%



9.6

%



9.9

%



10.2

%



10.3

%






























Allowance for loan losses to gross loans, excluding PPP loans

























Gross loans


$

1,054,610



$

1,052,855



$

970,195



$

924,190



$

931,763






Less:  PPP loans



56,788




55,496















Gross loans excluding PPP loans


$

997,822



$

997,359



$

970,195



$

924,190



$

931,763






Allowance for loan losses


$

12,899



$

12,007



$

12,007



$

7,562



$

7,495






Allowance for loan losses to gross loans, excluding PPP loans



1.29

%



1.20

%



1.05

%



0.82

%



0.80

%






























Select noninterest expenses, after-tax basis (ATB)

























Goodwill impairment


$



$

10,374



$



$



$



$


Goodwill impairment, ATB (b)(c)






9,784














Merger-related expenses (MRE)



1,456

















MRE, ATB (b)(d)



1,412

















Weighted average shares outstanding year-to-date, diluted



13,075,761




13,068,598



N/A



N/A



N/A



N/A


Goodwill impairment and MRE, ATB effect on earnings (loss) per diluted share


$

(0.11)



$

(0.75)



$



$



$



$



























Operating return on average assets (annualized)

























Net income (loss)


$

1,493



$

(8,127)



$

(14)



$

2,002



$

1,841



$

7,058


Add: Goodwill impairment, ATB






9,784














Add: MRE, ATB



1,412

















Operating net income (loss)


$

2,905



$

1,657



$

(14)



$

2,002



$

1,841



$

7,058


Average assets


$

1,246,989



$

1,230,249



$

1,143,879



$

1,126,663



$

1,109,986



$

1,107,670


Operating return on average assets (annualized)



0.93

%



0.54

%



0.00

%



0.71

%



0.66

%



0.64

%


























Operating return (loss) on average equity (annualized)

























Net income (loss)


$

1,493



$

(8,127)



$

(14)



$

2,002



$

1,841



$

7,058


Add: Goodwill impairment, ATB






9,784














Add: MRE, ATB



1,412

















Operating net income (loss)


$

2,905



$

1,657



$

(14)



$

2,002



$

1,841



$

7,058


Average shareholders' equity


$

120,570



$

127,960



$

126,955



$

125,285



$

123,399



$

121,859


Operating return (loss) on average equity (annualized)



9.64

%



5.18

%



-0.04

%



6.39

%



5.97

%



5.79

%


























Operating efficiency ratio

























Total noninterest expense


$

8,646



$

17,453



$

7,308



$

7,734



$

7,447



$

30,402


Less: Goodwill impairment






10,374














Less: MRE



1,456

















Operating noninterest expense



7,190




7,079




7,308




7,734




7,447




30,402


Net interest income



9,377




8,942




8,622




9,143




9,031




35,333


Noninterest income



2,286




2,194




1,391




1,373




1,200




4,958


Operating efficiency ratio



61.6

%



63.6

%



73.0

%



73.5

%



72.8

%



75.5

%


























Pre-tax, pre-loan loss provision income, excluding goodwill impairment and MRE

























Net income (loss)


$

1,493



$

(8,127)



$

(14)



$

2,002



$

1,841



$

7,058


Add: Income tax expense (benefit)



655




(217)




(58)




469




448




1,649


Add: Provision for loan losses



869




2,027




2,777




311




495




1,182


Add: Goodwill impairment






10,374














Add: MRE



1,456

















Pre-tax, pre-loan loss provision income, excluding goodwill impairment and MRE


$

4,473



$

4,057



$

2,705



$

2,782



$

2,784



$

9,889



 


(a)  Excludes mortgage servicing rights.

(b)  Assumes a federal income tax rate of 21%.

(c)  $7.6 million of the $10.4 million goodwill charged-off in the second quarter of 2020 originated as a result of the company's tax-free merger with Virginia BanCorp, Inc. in 2017 and is nondeductible for federal income tax purposes. The remaining $2.8 million of goodwill originated from branch acquisitions from 1994-2000, the basis of which had been fully amortized for income tax purposes, resulting in a deferred tax liability. Due to the goodwill impairment charge, the company recorded an income tax benefit (and reversal of the deferred tax liability) of approximately $590 thousand in the second quarter of 2020.

(d)  Of the $1,456 thousand of Merger-related expenses incurred in the third quarter of 2020, the company has determined, at this time, that $1,246 thousand is nondeductible for federal income tax purposes.




(1) Set forth above are calculations of each of the non-GAAP (generally accepted accounting principles) financial measures included in the Supplemental Financial Data tables. Tangible book value per share, tangible shareholders' equity to tangible total assets ratio, allowance for loan losses to gross loans, excluding PPP loans, select noninterest expenses on an after-tax basis, operating return on average assets, operating efficiency ratio, and pre-tax, pre-loan loss provision income are supplemental financial measures that are not required nor presented in accordance with GAAP. Management believes tangible book value per share and tangible shareholders' equity to tangible total assets ratios are meaningful because they are measures management uses to assess capital levels. Management believes the ratio of allowance for loan losses to gross loans, excluding PPP loans, is meaningful because management uses it to assess allowance levels excluding the impact of PPP loans which carry no allowance for loan losses due to the full U.S. government guarantee. Management believes that select noninterest expenses on an after-tax basis, operating return on average assets, operating efficiency ratios, and pre-tax, pre-loan loss provision income, excluding goodwill impairment and Merger-related expenses are meaningful because management uses them to assess the financial performance of the company. Calculations of these non-GAAP financial measures may not be comparable to the calculation of similarly titled measures reported by other companies.

 

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