Bay Banks of Virginia, Inc. (fka BAYK)

[norweger1979]

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

RICHMOND, Va., Oct. 23, 2017 /PRNewswire/ -- Bay Banks of Virginia, Inc. (OTCQB: BAYK) (the "Company"), the parent holding company of Virginia Commonwealth Bank (the "Bank"), reports its unaudited third 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. For the third quarter of 2017, the Company reported net earnings of $742 thousand (net of merger related expenses) or $0.07 per diluted share. "Since the merger was finalized, the integration of Virginia Commonwealth Bank and Bank of Lancaster is progressing on schedule with operational systems conversion to occur mid-November. Our new headquarters in Richmond is complete with our market teams continuing to build strong customer relationships from both a lending and deposit perspective. The value that we bring to the total customer relationship makes the Company one of the premier banking institutions in Central and Eastern Virginia. At the end of August, we announced the completion of a $35 million capital raise offered to certain existing shareholders, institutional investors and other accredited investors raising $32.9 million in common equity net of issuance costs. The Company sold 3,783,784 shares of our common stock at an offering price of $9.25 per share. Our growing franchise is well positioned and the new capital will allow us to continue to pursue growth opportunities in the communities we serve as we strive to create value for our shareholders. Moreover, the addition of premier institutional bank investors to our shareholder base, together with the increase in our market capitalization, should help to promote liquidity for our common shares. This continues to support our strategic focus on the total customer relationship, providing not only the opportunity to have consistent, measured asset growth, but also a source of low cost funding for that growth." said Randal R. Greene, President and Chief Executive Officer. He continued, "Our total assets are now $960 million and pre-tax/pre-provision operating earnings are strong. We have declared our second dividend in the amount of $0.04 per share, with profitability supporting a diverse, well-capitalized balance sheet poised for growth."

HIGHLIGHTS

Consistent Operating Earnings Performance - During the third quarter, income before taxes grew by $204 thousand, driven by a $358 thousand increase in net interest income, a $73 thousand decrease in non-interest income, a $426 thousand decrease in non-interest expense, and a $507 increase in provision for loan losses due primarily to organic loan portfolio growth. As a result, return on average assets ("ROA") for the third quarter increased to 0.32% from 0.26% for the quarter ended June 30, and return on average equity increased to 3.10% from 2.65%. Excluding the effect of merger expenses, pre-tax/pre-provision operating earnings amounted to $2.240 million for the third quarter, as compared to $2.054 million last quarter.

Consistent and Measured Growth - Total assets as of September 30, 2017 were $959.9 million, increasing from $867.4 million as of June 30, 2017, primarily due to ongoing growth in our deposit base of $46.4 million since the beginning of the quarter combined with a successful private placement of common equity raising $32.9 million net of issuance costs. This funded loan growth of $38.5 million, accompanied by an increased liquidity position of cash and securities growing by $51.7 million. In September, loans previously held for sale amounting to $55.6 million at June 30 were reclassified back into the held to maturity portfolio, with the net loan portfolio standing at $739.9 million at September 30 quarter end.

Diversified Loan Base Supporting Net Interest Income - Benefiting from an effective mix of residential, non-residential, commercial and consumer loans, net interest margin was 3.62% for the third quarter compared to 3.80% last quarter, the variance owing primarily to tactical promotional deposit pricing and an increased liquidity position. Asset quality remains good. For the third quarter of 2017, net interest income was $7.8 million compared to $7.4 million last quarter. For the nine months ended September 30, 2017, net interest income was $19.1 million compared to $10.6 million for the nine months ended September 30, 2016.

Focus on Fee Income - Noninterest income, excluding the sale of investment securities, was $1.07 million and $3.07 million respectively for the quarter and year to date period ending September 30, 2017, both comparable to last year. During the quarter, VCB Financial Group, formerly Bay Trust Company, continued to execute its strategy of growing wealth management and trust services within the Company's market footprint.

Operating Efficiency - For the nine months ended September 30, 2017, non-interest expense was $18.8 million compared to $10.9 million for the nine months ended September 30, 2016, driven by merger-related costs as well as compensation expense related to severance costs and new hires associated with the merger and growth into the Richmond market. Non-interest expense for the third quarter of 2017 was $6.8 million compared to $7.2 million last quarter as merger expense decreased. As a result, the Company's efficiency ratio was 76.4% for the quarter as compared to 83.9% last quarter. Excluding merger-related expenses, the Company's efficiency ratio for the third quarter of 2017 was 74.9%.

Income tax expense was $273 thousand and $326 thousand for the third quarter of 2017 and 2016, respectively. For the first nine months of 2017 and 2016, income tax expense was $406 thousand and $669 thousand, respectively. The effective tax rate for the third quarter of 2017 and 2016 was 26.9% and 27.6%, respectively, and for the nine months ended September 30, 2017 and 2016, was 26.6% and 25.4%, respectively.

BALANCE SHEET AND CAPITAL STRENGTH

As of September 30, 2017, net loans totaled $739.7 million, of which $212.6 million were acquired in the merger. As of December 31, 2016 and September 30, 2016, net loans totaled $381.5 million and $364.8 million, respectively. Investment securities and interest-bearing cash liquidity increased by $51.7 million during the quarter to $147.1 million at September 30, 2017, and from $65.9 million at year-end 2016, with $34.4 million acquired in the merger on April 1, 2017.

Deposits totaled $735.4 million at September 30, 2017, increasing $353.7 million, or 92.7%, from $381.7 million at December 31, 2016, of which $267.9 million of deposits were acquired in the merger.

Stockholders' equity increased by $76.1 million to $117.8 million at September 30, 2017, from $41.7 million at December 31, 2016, of which $42.3 million related to the merger and $32.9 million raised in our common stock private placement conducted in August. The Company's GAAP capital ratio was 12.27% as of September 30, 2017 as compared to 8.96% as of September 30, 2016. The Company continues to be a "well capitalized" institution as defined by the banking regulations. On September 26, 2017, the Board of Directors declared a quarterly cash dividend to shareholders of $0.04 per common share, payable October 24, 2017, to shareholders of record on October 11, 2017.

The tangible equity to assets ratio was 11.22% at September 30, 2017, compared to 8.19% at December 31, 2016. The tangible book value per common share was $8.16 at September 30, 2017, as compared to $8.35 at December 31, 2016.

ASSET QUALITY

Non-performing assets ("NPAs") were $10.0 million at September 30, 2017, or 1.04% of total assets compared to $7.8 million, or 1.67% of total assets, at December 31, 2016. NPAs at September 30, 2017 included $5.16 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 $4.8 million at September 30, 2017 (excludes purchased credit-impaired loans), or 0.64% of total loans, compared to $5.3 million, or 1.38%, at December 31, 2016.

The provision for credit losses in the first nine months of 2017 was $1.8 million versus $407 thousand for the same period in 2016, the increase being driven by post-merger loan portfolio growth. The allowance for loan losses represented 0.66% of total loans (including those acquired in the merger) at September 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 eighteen 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 [e-mail].

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/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, 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 to our shareholders 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.





BAY BANKS OF VIRGINIA, INC.


Supplemental Financial Data (Unaudited)


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SOURCE Bay Banks of Virginia, Inc.

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