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Walking on the Beach

Bay Banks of Virginia, Inc. Reports June 30, 2017 Quarterly Operating Results

26-Jul-2017 RICHMOND, VA – July 26, 2017 – Bay Banks of Virginia, Inc. (OTCQB: BAYK) (the “Company”), the parent holding company of Virginia Commonwealth Bank (the “Bank”), reports its unaudited second quarter 2017 results.

The Company completed its merger with Virginia BanCorp, Inc. on April 1, 2017 and the combined bank began operating as Virginia Commonwealth Bank. During the second quarter of 2017, the Company reported net earnings of $557 thousand (net of merger related expenses) or $0.06 per diluted share. “Since the merger was finalized, the integration of Virginia Commonwealth Bank and Bank of Lancaster is progressing on schedule and the move of our headquarters to Richmond has been completed,” said Randal R. Greene, President and Chief Executive Officer. He continued, “Our total assets are now $867.4 million and pre-tax/pre-provision operating earnings are strong. We have declared our first dividend in a number of years in the amount of $0.04 per share, with profitability supporting a diverse, well-capitalized balance sheet.”

HIGHLIGHTS

Strong Operating Earnings Performance - Net interest income grew by $4.4 million, non-interest income was unchanged at $2.0 million and provision for loan losses increased by $610 thousand primarily due to organic loan portfolio growth. Cumulative non-interest expense over the course of the first and second quarters increased by $4.7 million or 64.8% from the six month period last year, driven by merger-related costs ($985,000) as well as compensation expense related to severance costs and new hires associated with the merger and growth into the Richmond market. As a result, return on average assets (“ROA”) for the second quarter decreased to 0.26% from 0.51% for the comparable prior-year period, and return on average equity decreased to 2.65% from 5.74%. Excluding the effect of merger expenses, pre-tax/pre-provision operating earnings amounted to $2.054 million for the second quarter, as compared to $908 thousand for the same period last year.

Consistent and Measured Growth - Total assets immediately post-merger were $834.7 million and increased to $867.4 million as of June 30, 2017, reflective of growth in our deposit base of $38.5 million since the merger date. This funded loan growth of $32.2 million, with the total portfolio standing at $649.6 million at second quarter end.

Diversified Loan Base and Improved Margins – Benefiting from an effective mix of residential, non-residential, commercial and consumer loans, net interest margin was 3.7% for the 2017 quarter compared to 3.37% for the second quarter of 2016. Asset quality remains good. For the second quarter of 2017, net interest income was $7.4 million compared to $3.5 million during the second quarter of 2016. For the six months ended June 30, 2017, net interest income was $11.3 million compared to $7.0 million for the six months ended June 30, 2016.

Focus on Fee Income - Noninterest income was $1.1 million and $2.0 million respectively for the quarter and year to date period ending June 30, 2017, both comparable to last year. During the quarter, VCB Financial Group, formerly Bay Trust and Wealth Management Group, was established with a focus on growing wealth management and trust services within the Company’s market footprint.

Operating Efficiency - Noninterest expense for the second quarter of 2017 was $7.2 million compared to $3.6 million for the second quarter of 2016. For the six months ended June 30, 2017, noninterest expense was $12.1 million compared to $7.3 million for the six months ended June 30, 2016. As a result, the Company’s efficiency ratio was 83.94% for the quarter as compared to 79.13% for the same period last year. Excluding merger-related expenses, the Company’s efficiency ratio for the second quarter of 2017 was 75.96%.

Income tax expense was $254 thousand and $190 thousand for the second quarter of 2017 and 2016, respectively. For the first half of 2017 and 2016, income tax expense was $133 thousand and $343 thousand, respectively. The effective tax rate for the second quarter of 2017 and 2016 was 31.3% and 24.5%, respectively, and for the six months ended June 30, 2017 and 2016, was 25.9% and 23.6%, respectively.

BALANCE SHEET AND CAPITAL STRENGTH

As of June 30, 2017, loans totaled $649.6 million, of which $212.6 million were acquired in the merger. As of December 31, 2016 and June 30, 2016, loans totaled $385.0 million and $350.9 million, respectively. Investment securities and interest-bearing cash liquidity increased by $26.0 million to $91.2 million at June 30, 2017, from $65.2 million at year-end 2016, with $34.4 million acquired in the merger.

Deposits totaled $689.0 million at June 30, 2017, increasing $307.3 million, or 80.5%, from $381.7 million at December 31, 2016, of which $267.9 million of deposits were acquired in the merger.

Stockholders' equity increased by $42.8 million to $84.5 million at June 30, 2017, from $41.7 million at December 31, 2016, of which $42.3 million related to the merger. The Company’s GAAP capital ratio was 9.74% as of June 30, 2017 as compared to 8.80% as of June 30, 2016. The Company continues to be a “well capitalized” institution as defined by the banking regulations.

The tangible equity to assets ratio was 8.55% at June 30, 2017, compared to 8.19% at December 31, 2016. The tangible book value per common share was $7.89 at June 30, 2017, as compared to $8.35 at December 31, 2016.

ASSET QUALITY

Non-performing assets (“NPAs”) were $10.7 million at June 30, 2017, or 1.24% of total assets compared to $7.8 million, or 1.67% of total assets, at December 31, 2016. NPAs at June 30, 2017 included $5.4 million of other real estate owned (including $3.1 million acquired in the merger), up from $2.5 million at December 31, 2016. Nonaccrual loans were $5.4 million at June 30, 2017 (excludes purchased credit-impaired loans), or 0.83% of total loans, compared to $5.3 million, or 1.39%, at December 31, 2016.

The provision for credit losses in the first half of 2017 was $758 thousand versus $148 thousand for the first half of 2016, the increase being driven by post-merger loan portfolio growth. The allowance for loan losses (“ALL”) represented 0.65% of total loans (including those acquired in the merger) at June 30, 2017, compared to 1.00% at December 31, 2016.


About Bay Banks of Virginia


Bay Banks of Virginia, Inc. is the holding company for Virginia Commonwealth Bank and VCB Financial Group. Founded in the 1930's, Virginia Commonwealth Bank and the former Bank of Lancaster are now combined and headquartered in Richmond, Virginia. With nineteen banking offices located throughout the Richmond market area, the Northern Neck region, the Tri-Cities area of Petersburg, Hopewell and Colonial Heights, Middlesex County and Suffolk, the Bank serves businesses, professionals and consumers with a variety of financial services, including retail and commercial banking, investment services, and mortgage banking. VCB Financial Group provides management services for personal and corporate trusts, wealth management services, estate planning, estate settlement and trust administration.

For further information, contact Randal R. Greene, President and Chief Executive Officer, at 800-435-1140 or inquiries@baybanks.com.

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 ability to successfully implement integration plans associated with the Virginia BanCorp merger, which integration may be more difficult, time-consuming or costly than expected, the ability to achieve the cost savings and synergies contemplated by the merger within the expected timeframe, disruptions to customer and employee relationships and business operations caused by the merger, changes in interest rates, general economic conditions, the legislative/regularity 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, and accounting principles, polices and guidelines. 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.

NON-GAAP FINANCIAL MEASURES

Important disclosures about and reconciliations of non-GAAP measures to the corresponding GAAP measures, are provided below and attached to this press release.

This press release and the accompanying Supplemental Financial Data contain financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”) in the United States. Management uses these "non-GAAP" measures in their analysis of the Company's performance. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures are provided within the accompanying tables to this press release.


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