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Section 1: 8-K (8-K)

bayk-8k_20200630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): August 3, 2020

 

BAY BANKS OF VIRGINIA, INC.

(Exact Name of Registrant as Specified in Charter)

 

 

Virginia

 

0-22955

 

54-1838100

(State or Other Jurisdiction

 

(Commission File Number)

 

(IRS Employer

of Incorporation)

 

 

 

Identification No.)

 

1801 Bayberry Court, Suite 101, Richmond, VA 23226

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (844) 404-9668

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 


Item 2.02 Results of Operations and Financial Condition.

On August 3, 2020, Bay Banks of Virginia, Inc. (the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2020.

A copy of the Company’s press release is attached and furnished herewith as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

 

Exhibit No.

 

Description

 

 

 

 

 

99.1

 

Press release, dated August 3, 2020, announcing the Company’s financial results for the three and six months ended June 30, 2020.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

BAY BANKS OF VIRGINIA, INC.

 

 

 

 

 

 

 

 

 

By:

  /s/ Judy C. Gavant

 

 

Judy C. Gavant

 

Executive Vice President and Chief Financial Officer

 

August 3, 2020

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

bayk-ex991_6.htm

Exhibit 99.1

Bay Banks of Virginia, Inc. Reports Second Quarter and First Half 2020 Results

Update to Company’s COVID-19 Pandemic Response

RICHMOND, VA, August 3, 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 six months ended June 30, 2020 and an update to the company’s response to the COVID-19 pandemic.

The company reported a net loss of $8.1 million, or $(0.62) per diluted share, for the second quarter of 2020 compared to a net loss of $14 thousand, or $0.00 per diluted share, for the first quarter of 2020 and net income of $1.7 million, or $0.13 per diluted share, for the second quarter of 2019. For the six months ended June 30, 2020, the company reported a net loss of $8.1 million, or $(0.62) per diluted share, compared to net income of $3.2 million, or $0.25 per diluted share, for the six months ended June 30, 2019. Net loss for the three- and six-month periods of 2020 included a $10.4 million ($9.8 million after tax1), or $0.751 per diluted share, charge for the impairment of goodwill. The $10.4 million goodwill impairment charge resulted from a second quarter impairment assessment triggered by the adverse effect the deterioration of the macroeconomic environment due to the COVID-19 pandemic has had on the company’s market value relative to its book value.

In addition to the goodwill impairment charge, net loss for the three and six months ended June 30, 2020 included loan loss provision expense of $2.0 million and $4.8 million, respectively, a significant portion of which related to estimated reserve needs as a result of the COVID-19 pandemic. Excluding the $10.4 million goodwill impairment charge, pre-tax, pre-loan loss provision income for the three months ended June 30, 2020 was $4.1 million1 compared to $2.7 million1 and $2.2 million1 for the three months ended March 31, 2020 and June 30, 2019, respectively.

Beginning on April 3, 2020, the company has actively participated in the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, closing nearly 680 loans totaling $55.5 million and receiving $2.3 million in processing fees in the second quarter of 2020. Of the nearly 680 loans, approximately 95% were for less than $350 thousand, with an overall average loan balance of $82 thousand. Of the processing fees received from the PPP, $246 thousand were recognized in interest income in the second quarter of 2020, while the remaining fees were deferred and will be recognized over the life of the loans, accelerated for pre-payments. Through the PPP, the federal government partnered with banks to provide over $650 billion to small businesses to support payrolls and other operating expenses.

From the onset of the national pandemic, the company has proactively addressed the needs of its commercial and individual borrowers modifying nearly 390 loans with balances totaling approximately $163 million, or 15.4% of total gross loans, through June 30, 2020. The modifications allow 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 which modifications were made. Dollar amounts are presented in thousands.

 

Loan Type

Loan Count

Principal Balance

 

% of Loan Type

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

Residential first mortgages

138

$

29,004

 

 

10

%

Commercial mortgages (non-owner occupied)

44

 

61,564

 

 

22

%

Construction, land and land development

17

 

26,206

 

 

20

%

Commercial mortgages (owner occupied)

52

 

21,484

 

 

29

%

Residential revolving and junior mortgages

10

 

1,552

 

 

5

%

Commercial and industrial

119

 

22,702

 

 

12

%

Consumer

7

 

144

 

 

2

%

     Total

387

$

162,656

 

 

 

 


Randal R. Greene, President and Chief Executive Officer, commented: “It was a quarter that tested the resiliency of our institution. Branch hours were reduced and physical access limited, yet we experienced an increase in the adoption of digital channel access. The Paycheck Protection Program was executed in-house, supporting primarily our customers and our communities; 100% of our customers that requested a PPP loan received one. Following regulatory guidance, we worked with our borrowers modifying their loans, providing needed relief while they manage through the economic devastation brought by the pandemic. Our support teams worked remotely, while our technology infrastructure remained effective. Our second quarter results demonstrated we remain focused on improving our operating metrics. I believe our institution has excelled.”  

Excluding the charge-off of goodwill, on a pre-tax, pre-provision basis, we earned $4.1 million1 in the second quarter of 2020, significantly higher than any recent quarter in the company’s history. In the midst of this pandemic, we are continuing to execute our strategy. We are selectively growing loans in our primary markets, selling most of our originated residential mortgages, driving deposit costs lower, and controlling noninterest expenses. Loans, excluding PPP loans, have grown 8% in the first half of 2020, though many of these opportunities were in our pipeline before the onset of the virus. We are experiencing downward pressure on our net interest margin, as the federal funds rate has been lowered 200 basis points in the last four quarters, 150 basis points in the first quarter of 2020. In response, we’ve aggressively lowered our deposit costs resulting in deposit costs of 0.97% in the second quarter of this year compared to 1.42% in the second quarter of 2019. And, we are prudently building our reserve for loan losses in response to losses we have estimated to have been incurred through the end of the second quarter due to the pandemic.”

Operating Results

Second Quarter 2020 compared to First Quarter 2020

 

 

Loss before income taxes for the second quarter of 2020 was $8.4 million compared to a loss before income taxes of $72 thousand for the first quarter of 2020. The loss before income taxes for the second quarter of 2020 included a $10.4 million goodwill impairment charge, as noted previously.

 

Interest income for the three months ended June 30, 2020 was $12.0 million, on average interest-earning assets of $1.16 billion, compared to $12.2 million, on average interest-earning assets of $1.08 billion, for the three months ended March 31, 2020. Interest income in the second quarter of 2020 included accretion of acquired loan discounts of $93 thousand, while interest income in the first quarter of 2020 included $189 thousand of accretion of acquired loan discounts. Yields on average interest-earning assets were 4.17% and 4.56% for the second and first quarters of 2020, respectively. Yields on average interest-earning assets in the second quarter of 2020 were negatively affected by lower yields on loans originated, the repricing of variable rate loans due to the decline in index rates, 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 3 basis point effect. Partially offsetting the decline in yield was higher average balances of gross loans in the second quarter of 2020 of $86.6 million.

 

Interest expense was $3.0 million and $3.6 million for the three months ended June 30, 2020 and March 31, 2020, respectively, and cost of funds was 1.12% and 1.44% for the sequential quarter periods. Average interest-bearing liabilities were $914.8 million and $871.6 million for the second and first quarters of 2020, respectively. Cost of deposits was 0.97% for the second quarter of 2020, down 27 basis points from 1.24% for the first quarter of 2020, reflective of the company’s efforts to reduce deposit rates since mid-2019, which was accelerated in the second quarter of 2020 as the federal funds rate was decreased 150 basis points in the first quarter of 2020, and an increase of average noninterest-bearing demand deposit accounts of $42.8 million on a sequential quarter basis. The company accessed the Federal Reserve Bank’s PPP Liquidity Facility, which provides funding for PPP loans at a fixed rate of 35 basis points over the term the funded PPP loan is outstanding. PPP loans securing the PPP Liquidity Facility are afforded preferential regulatory capital treatment. As of June 30, 2020, outstanding advances under the PPP Liquidity Facility totaled $33.2 million.

 

Net interest margin (“NIM”) was 3.11% for the second quarter of 2020 compared to 3.22% for the first quarter of 2020. The 11 basis point decrease in NIM was primarily attributable to lower yields on loans originated in the second quarter of 2020, including PPP loans, and the repricing of variable rate loans, partially offset by lower cost of funds.

 

Provision for loan losses was $2.0 million for the second quarter of 2020 compared to $2.8 million for the first quarter of 2020. Of the second quarter of 2020 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, evidenced, in part, by loan deferrals and modifications granted to these borrowers. The remaining provision for loan losses in the second quarter of 2020 was due to gross loan growth of $27.0 million, excluding PPP loans, higher specific reserves, and charge-offs. No provision for loan losses was recorded on PPP loans as these loans are subject to a full U.S. government guarantee.

 

Noninterest income for the three months ended June 30, 2020 and March 31, 2020 was $2.2 million and $1.4 million, respectively, an increase of $803 thousand. Of the increase, $529 thousand was attributable to higher secondary market sales and servicing income in the second quarter of 2020, driven by an increase in the demand for purchase money and refinance mortgages. Also contributing to the increase on a sequential quarter basis was a $114 thousand unrealized gain in the second quarter of 2020 on assets held in a rabbi trust for the benefit of participants in the company’s deferred compensation plan compared to an unrealized loss of $263 thousand in the first quarter of 2020.


 

Noninterest expenses for the three months ended June 30, 2020 and March 31, 2020 were $17.5 million and $7.3 million, respectively. Excluding the goodwill impairment charge of $10.4 million, noninterest expenses decreased $229 thousand on a sequential quarter basis. The company’s efficiency ratio was 156.7% and 73.0% for the second and first quarters of 2020, respectively. The company’s efficiency ratio excluding the goodwill impairment charge was 63.6%1 and 73.0%1 for the second and first quarters of 2020, respectively.

 

Income tax benefit for the second quarter of 2020 was $217 thousand, reflective of a 2.6% effective income tax rate, while income tax benefit for the first quarter of 2020 was $58 thousand, reflective of an 80.6% effective income tax rate. 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. The effective income tax rate of 80.6% in the first quarter of 2020 was primarily due to the amount of tax-exempt income relative to the company’s pre-tax net loss for the quarter.

 

First Half 2020 compared to First Half 2019

 

 

Loss before income taxes for the first half of 2020 was $8.4 million compared to income before income taxes of $3.9 million for the first half of 2019. The loss before income taxes for the first half of 2020 included a $10.4 million goodwill impairment charge recorded in the second quarter of 2020, as noted previously.

 

Interest income for the six months ended June 30, 2020 was $24.2 million, on average interest-earning assets of $1.19 billion, compared to $24.7 million for the six months ended June 30, 2019, on average interest-earning assets of $1.03 billion. Interest income in the first half of 2020 included accretion of acquired loan discounts of $282 thousand, while interest income in the first half of 2019 included $636 thousand of accretion of acquired loan discounts. Yields on average interest-earning assets were 4.36% and 4.83% for the first halves of 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 in the period, the repricing of variable rate loans, the addition of lower yielding PPP loans, which had a negative 2 basis point effect on yield, and lower accretion of acquired loan discounts, which had a negative 6 basis point effect. Partially offsetting these negative effects were higher average balances of gross loans in the 2020 period of $69.4 million.

 

Interest expense was $6.6 million and $7.5 million for the six months ended June 30, 2020 and 2019, respectively, and cost of funds was of 1.27% and 1.56% for the respective periods. Lower cost of funds in the first half of 2020 was primarily reflective of the company’s efforts to reduce deposit rates since mid-2019, lower borrowing costs, particularly Federal Home Loan Bank of Atlanta advances, and higher average balances of noninterest-bearing demand accounts of $42.2 million in the 2020 period. Average interest-bearing liabilities were $893.2 million and $855.5 million for the first half of 2020 and 2019, respectively.

 

NIM was 3.17% for the first half of 2020 compared to 3.37% for the first half 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 $4.8 million for the first half of 2020 compared to $376 thousand for the first half of 2019.  Provision for the first half of 2020 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 June 30, 2020 due to the COVID-19 pandemic, as noted above, gross loan growth of approximately $72.9 million, excluding PPP loans, higher specific reserves, and charge-offs. As previously noted, the company recorded no provision for loan losses for PPP loans.

 

Noninterest income for the six months ended June 30, 2020 and 2019 was $3.6 million and $2.4 million, respectively. The 2020 period included approximately $966 thousand of fee income for referring loan customers to a third-party financial institution to execute interest rate swaps, while the 2019 period included no income from such activities. Additionally, the 2020 period included higher secondary market sales and servicing income of approximately $594 thousand. Partially offsetting these increases was a $150 net unrealized loss on rabbi trust assets in the 2020 period compared to a $130 net unrealized gain in the 2019 period.

 

Noninterest expenses for the six months ended June 30, 2020 and 2019 were $24.5 million and $15.2 million, respectively. Excluding the goodwill impairment charge of $10.4 million, noninterest expenses decreased $836 thousand on a comparative period basis. Lower 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 benefit for the first half of 2020 was $276 thousand, reflective of an 3.3% effective income tax rate, while income tax expense for the first half of 2019 was $732 thousand, reflective of an 18.6% effective income tax rate. Income tax benefit in the first half of 2020 was a result of income tax expense before the goodwill impairment charge, offset by the related deferred tax benefit.

Second Quarter 2020 compared to Second Quarter 2019

 

 

Loss before income taxes for the second quarter of 2020 was $8.4 million compared to income before income taxes of $2.1 million for the second quarter of 2019. The loss before income taxes for the second quarter of 2020 included a $10.4 million goodwill impairment charge, as noted previously.


 

Interest income for the three months ended June 30, 2020 was $12.0 million, on average interest-earning assets of $1.16 billion, compared to $12.3 million, on average interest-earning assets of $1.04 billion, for the three months ended June 30, 2019. Interest income in the second quarter of 2020 included accretion of acquired loan discounts of $93 thousand, while interest income in the second quarter of 2019 included $197 thousand of accretion of acquired loan discounts. Yields on average interest-earning assets were 4.17% and 4.77% for the second quarters of 2020 and 2019, respectively. Yields on average interest-earning assets in the second quarter of 2020 were negatively affected by lower yields on loans originated in the quarter, including PPP loans, the repricing of variable rate loans, and lower accretion of acquired loan discounts.

 

Interest expense was $3.0 million and $3.8 million for the three months ended June 30, 2020 and 2019, respectively, and cost of funds was 1.12% and 1.58% for the respective periods. Average interest-bearing liabilities were $914.8 million and $857.4 million for the second quarters of 2020 and 2019, respectively. Cost of deposits was 0.97% for the second quarter of 2020, down 45 basis points from 1.42% for the second quarter of 2019, reflective of the company’s efforts to reduce deposit rates and $60.3 million of higher average balances noninterest-bearing demand deposit accounts in the 2020 period.

 

NIM was 3.11% for the second quarter of 2020 compared to 3.29% for the second quarter of 2019. The 18 basis point decrease in NIM was primarily attributable to lower yields on loans originated in the second quarter of 2020, including PPP loans, and the repricing of variable rate loans, partially offset by lower cost of funds.

 

Provision for loan losses was $2.0 million in the second quarter of 2020 compared to $62 thousand in the second quarter of 2019. Higher provision for loan losses in the 2020 quarter was primarily attributable to estimated reserve needs related to the COVID-19 pandemic, gross loan growth, excluding PPP loans, and higher specific reserves.

 

Noninterest income for the three months ended June 30, 2020 and 2019 was $2.2 million and $1.3 million, respectively. Higher noninterest income in the 2020 period was primarily due to higher secondary market sales and servicing income of $464 thousand and $496 thousand of fee income for referring loan customers to a third-party financial institution to execute interest rate swaps, while the 2019 quarter included no referral fee income.

 

Noninterest expense for the three months ended June 30, 2020 and 2019 was $17.5 million and $7.6 million, respectively. Excluding, the $10.4 million goodwill impairment charge recorded in the 2020 period, noninterest expenses decreased $513 thousand on a comparative period basis. The company’s efficiency ratio was 156.7% and 77.7% for the second quarters of 2020 and 2019, respectively. The company’s efficiency ratio, excluding the goodwill impairment charge, was 63.6%1 and 77.7%1 for the second quarters of 2020 and 2019, respectively.

 

Income tax benefit for the second quarter of 2020 was $217 thousand, reflective of a 2.6% effective income tax rate, as noted above. Income tax expense for the first quarter of 2019 was $395 thousand, reflective of an 18.6% effective income tax rate.

 

Balance Sheet

 

 

Total assets were $1.24 billion and $1.13 billion at June 30, 2020 and December 31, 2019, respectively.

 

Loans, net of allowance for loan losses, were $1.04 billion at June 30, 2020 compared to $916.6 million at December 31, 2019, a $124.2 million increase, including $55.5 million of PPP loans originated in 2020. Excluding PPP loans, net loan growth for the first half of 2020 was $68.7 million, an annualized rate of approximately 15%.

 

Deposits were $1.01 billion at June 30, 2020 compared to $910.4 million at December 31, 2019, a $96.5 million increase, including an increase of $47.3 million of noninterest-bearing demand account balances. Higher noninterest-bearing accounts were partially attributable to PPP loans, which were funded in these accounts. Noninterest-bearing demand accounts comprised 18.4% of total deposits at June 30, 2020, an increase from 15.2% and 13.3% at December 31, 2019 and June 30, 2019, respectively.

 

Shareholders’ equity was $119.7 million and $126.2 million at June 30, 2020 and December 31, 2019, respectively, a decrease of $6.5 million. The decrease in shareholders’ equity in the 2020 period was primarily attributable to a net loss of $8.2 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 $8.901 and $8.641 at June 30, 2020 and December 31, 2019, respectively.

 

The company made no repurchases of its common stock outstanding in the first or second quarters 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 June 30, 2020 and December 31, 2019.

 

Annualized return (loss) on average assets for the quarters ended June 30, 2020, March 31, 2020, and June 30, 2019 was (2.64)%, 0.00%, and 0.62%, respectively, while annualized return (loss) on average shareholders’ equity for the same periods was (25.40)%, (0.04)%, and 5.72%, respectively. Excluding the goodwill impairment charge in the second quarter 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

 

 

Loans in industry segments highly affected by the COVID-19 pandemic were subject to risk rating downgrades as of March 31, 2020. During the second quarter of 2020, risk ratings for certain loans in these segments were adjusted as additional


 

information became available. The following table presents industry segments the company believes may be negatively affected by the pandemic and the balances of loans and numbers in each segment. Loans to borrowers in these segments totaled approximately $148.2 million, or 14.1% of the company’s gross loans as of June 30, 2020. Dollar amounts are presented in thousands.

 

Industry Segment

Loan Count

Principal Balance

 

Hotels and motels

22

$

61,770

 

Restaurants and related services

53

 

20,557

 

Retail and retail services

98

 

56,213

 

Churches, assisted living, and other

25

 

9,645

 

 

198

$

148,185

 

 

 

Nonperforming assets were $9.9 million, or 0.80% of total assets, as of June 30, 2020, compared to $6.4 million, or 0.56% of total assets, as of December 31, 2019, and $7.7 million, or 0.71% of total assets, as of June 30, 2019. The increase in nonperforming assets from December 31, 2019 to June 30, 2020 was primarily attributable to $3.5 million of higher nonaccrual loan balances, mainly commercial and industrial loans to borrowers adversely affected by the COVID-19 pandemic.

 

The ratio of allowance for loan losses to total gross loans was 1.14%, 0.82%, and 0.82% at June 30, 2020, December 31, 2019, and June 30, 2019, respectively. The 32 basis point increase in the ratio of allowance for loan losses to total gross loans for the first half of 2020 was primarily due to qualitative loss factors applied to the majority of the company’s loan portfolio for higher state unemployment rates, particularly in Virginia, and for estimated losses incurred as of June 30, 2020, as a result of challenges facing certain borrowers due to the COVID-19 pandemic, evidenced, in part, by loan deferrals and modifications granted to these borrowers. Due to the full U.S. government guarantee on PPP loans, the company has recorded no allowance for loan losses for the $55.5 million of PPP loans outstanding as of June 30, 2020. Excluding PPP loans from the denominator of the ratio of allowance for loan losses to total gross results in a ratio of 1.20%1 as of June 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 $1.6 million, $1.9 million, and $3.3 million as of June 30, 2020, December 31, 2019, and June 30 2019, respectively.

Outlook

Greene concluded: “As I look to the last half of the year, we expect to begin to gain some clarity into the lasting impact the COVID-19 virus may have on the financial health of our borrowers. Our borrowers that have benefited from payment deferrals will face the end of deferral periods in the coming quarters. This timing, of course, is dependent on slowing the spread of the virus and further actions that could be taken by governments to support the economy. The economic surge as various states lifted pandemic orders was a positive; however, this economic surge appears to be followed by a surge in COVID-19 cases creating less certainty as to the length and severity of the economic slowdown. And it appears the low interest rate environment is expected for the near future, all putting pressure on community banks. We believe that our strong balance sheet and healthy capital levels should be to our advantage until some state of normalcy resumes.”

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 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. 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 [email protected]

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)

 

June 30, 2020

 

 

December 31, 2019 (1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

10,778

 

 

$

6,096

 

Interest-earning deposits

 

 

28,667

 

 

 

34,358

 

Federal funds sold

 

 

467

 

 

 

1,359

 

Certificates of deposit

 

 

2,506

 

 

 

2,754

 

Available-for-sale securities, at fair value

 

 

92,560

 

 

 

99,454

 

Restricted securities

 

 

5,327

 

 

 

5,706

 

Loans receivable, net of allowance for loan losses of $12,007 and

   $7,562, respectively

 

 

1,040,848

 

 

 

916,628

 

Loans held for sale

 

 

2,521

 

 

 

1,231

 

Premises and equipment, net

 

 

18,330

 

 

 

20,141

 

Accrued interest receivable

 

 

4,128

 

 

 

3,035

 

Other real estate owned, net

 

 

1,903

 

 

 

1,916

 

Bank owned life insurance

 

 

19,985

 

 

 

19,752

 

Goodwill

 

 

 

 

 

10,374

 

Mortgage servicing rights

 

 

687

 

 

 

935

 

Core deposit intangible

 

 

1,228

 

 

 

1,518

 

Other assets

 

 

8,291

 

 

 

6,666

 

Total assets

 

$

1,238,226

 

 

$

1,131,923

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

185,201

 

 

$

137,933

 

Savings and interest-bearing demand deposits

 

 

413,025

 

 

 

382,607

 

Time deposits

 

 

408,672

 

 

 

389,900

 

Total deposits

 

 

1,006,898

 

 

 

910,440

 

 

 

 

 

 

 

 

 

 

Securities sold under repurchase agreements

 

 

1,035

 

 

 

6,525

 

Federal Home Loan Bank advances

 

 

35,000

 

 

 

45,000

 

Federal Reserve Bank advances

 

 

33,160

 

 

 

 

Subordinated notes, net of unamortized issuance costs

 

 

31,056

 

 

 

31,001

 

Other liabilities

 

 

11,387

 

 

 

12,772

 

Total liabilities

 

 

1,118,536

 

 

 

1,005,738

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Common stock ($5 par value; authorized - 30,000,000 shares;

   outstanding - 13,334,049 and 13,261,801 shares, respectively) (2)

 

 

66,670

 

 

 

66,309

 

Additional paid-in capital

 

 

36,729

 

 

 

36,658

 

Unearned employee stock ownership plan shares

 

 

(1,394

)

 

 

(1,525

)

Retained earnings

 

 

16,519

 

 

 

24,660

 

Accumulated other comprehensive income, net

 

 

1,166

 

 

 

83

 

Total shareholders' equity

 

 

119,690

 

 

 

126,185

 

Total liabilities and shareholders' equity

 

$

1,238,226

 

 

$

1,131,923

 

 

(1) Derived from audited December 31, 2019 Consolidated Financial Statements.

(2) Preferred stock is authorized; however, none was outstanding as of June 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)

 

June 30, 2020

 

 

March 31, 2020

 

 

June 30, 2019

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

11,290

 

 

$

11,352

 

 

$

11,458

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

573

 

 

 

652

 

 

 

577

 

Tax-exempt

 

 

89

 

 

 

94

 

 

 

97

 

Federal funds sold

 

 

 

 

 

2

 

 

 

18

 

Interest-earning deposit accounts

 

 

8

 

 

 

104

 

 

 

152

 

Certificates of deposit

 

 

14

 

 

 

14

 

 

 

19

 

Total interest income

 

 

11,974

 

 

 

12,218

 

 

 

12,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,411

 

 

 

2,848

 

 

 

3,088

 

Securities sold under repurchase agreements

 

 

1

 

 

 

2

 

 

 

4

 

Subordinated notes and other borrowings

 

 

510

 

 

 

512

 

 

 

138

 

Federal Home Loan Bank advances

 

 

90

 

 

 

234

 

 

 

614

 

Federal Reserve Bank advances

 

 

20

 

 

 

 

 

 

 

Total interest expense

 

 

3,032

 

 

 

3,596

 

 

 

3,844

 

Net interest income

 

 

8,942

 

 

 

8,622

 

 

 

8,477

 

Provision for loan losses

 

 

2,027

 

 

 

2,777

 

 

 

62

 

Net interest income after provision for loan losses

 

 

6,915

 

 

 

5,845

 

 

 

8,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Trust management

 

 

203

 

 

 

193

 

 

 

206

 

Service charges and fees on deposit accounts

 

 

137

 

 

 

236

 

 

 

246

 

Wealth management

 

 

228

 

 

 

247

 

 

 

262

 

Interchange fees, net

 

 

130

 

 

 

98

 

 

 

121

 

Other service charges and fees

 

 

28

 

 

 

33

 

 

 

27

 

Secondary market sales and servicing

 

 

731

 

 

 

202

 

 

 

267

 

Increase in cash surrender value of bank owned life insurance

 

 

116

 

 

 

118

 

 

 

121

 

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

 

 

3

 

 

 

26

 

 

 

(2

)

Net gains (losses) on disposition of other assets

 

 

1

 

 

 

(7

)

 

 

(1

)

Net gains (losses) on rabbi trust assets

 

 

114

 

 

 

(263

)

 

 

40

 

Referral fees

 

 

496

 

 

 

471

 

 

 

 

Other

 

 

7

 

 

 

37

 

 

 

8

 

Total noninterest income

 

 

2,194

 

 

 

1,391

 

 

 

1,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,839

 

 

 

3,628

 

 

 

3,892

 

Occupancy

 

 

705

 

 

 

751

 

 

 

837

 

Data processing

 

 

498

 

 

 

537

 

 

 

609

 

Bank franchise tax

 

 

257

 

 

 

256

 

 

 

230

 

Telecommunications and other technology

 

 

371

 

 

 

358

 

 

 

262

 

FDIC assessments

 

 

147

 

 

 

148

 

 

 

162

 

Foreclosed property

 

 

28

 

 

 

7

 

 

 

19

 

Consulting

 

 

70

 

 

 

71

 

 

 

147

 

Advertising and marketing

 

 

26

 

 

 

67

 

 

 

109

 

Directors' fees

 

 

188

 

 

 

192

 

 

 

213

 

Audit and accounting

 

 

170

 

 

 

140

 

 

 

189

 

Legal

 

 

154

 

 

 

191

 

 

 

27

 

Core deposit intangible amortization

 

 

142

 

 

 

149

 

 

 

173

 

Net other real estate owned losses

 

 

81

 

 

 

 

 

 

72

 

Goodwill impairment

 

 

10,374

 

 

 

 

 

 

 

Other

 

 

403

 

 

 

813

 

 

 

651

 

Total noninterest expense

 

 

17,453

 

 

 

7,308

 

 

 

7,592

 

(Loss) income before income taxes

 

 

(8,344

)

 

 

(72

)

 

 

2,118

 

Income tax (benefit) expense

 

 

(217

)

 

 

(58

)

 

 

395

 

Net (loss) income

 

$

(8,127

)

 

$

(14

)

 

$

1,723

 

Basic and diluted (loss) earnings per share

 

$

(0.62

)

 

$

 

 

$

0.13

 


BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

For the Six Months Ended

 

(Dollars in thousands, except per share data)

 

June 30, 2020

 

 

June 30, 2019

 

INTEREST INCOME

 

 

 

 

 

 

 

 

Loans, including fees

 

$

22,642

 

 

$

22,919

 

Securities:

 

 

 

 

 

 

 

 

Taxable

 

 

1,225

 

 

 

1,172

 

Tax-exempt

 

 

183

 

 

 

214

 

Federal funds sold

 

 

2

 

 

 

25

 

Interest-earning deposit accounts

 

 

112

 

 

 

287

 

Certificates of deposit

 

 

28

 

 

 

39

 

Total interest income

 

 

24,192

 

 

 

24,656

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

Deposits

 

 

5,260

 

 

 

5,896

 

Securities sold under repurchase agreements

 

 

3

 

 

 

7

 

Subordinated notes and other borrowings

 

 

1,021

 

 

 

275

 

Federal Home Loan Bank advances

 

 

324

 

 

 

1,319

 

Federal Reserve Bank advances

 

 

20

 

 

 

 

Total interest expense

 

 

6,628

 

 

 

7,497

 

Net interest income

 

 

17,564

 

 

 

17,159

 

Provision for loan losses

 

 

4,804

 

 

 

376

 

Net interest income after provision for loan losses

 

 

12,760

 

 

 

16,783

 

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

Trust management

 

 

396

 

 

 

420

 

Service charges and fees on deposit accounts

 

 

373

 

 

 

484

 

Wealth management

 

 

475

 

 

 

469

 

Interchange fees, net

 

 

228

 

 

 

222

 

Other service charges and fees

 

 

61

 

 

 

56

 

Secondary market sales and servicing

 

 

933

 

 

 

339

 

Increase in cash surrender value of bank owned life insurance

 

 

233

 

 

 

240

 

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

 

 

29

 

 

 

(2

)

Net losses on disposition of other assets

 

 

(7

)

 

 

(1

)

Net (losses) gains on rabbi trust assets

 

 

(150

)

 

 

130

 

Referral fees

 

 

966

 

 

 

 

Other

 

 

46

 

 

 

28

 

Total noninterest income

 

 

3,583

 

 

 

2,385

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,466

 

 

 

7,893

 

Occupancy

 

 

1,456

 

 

 

1,705

 

Data processing

 

 

1,035

 

 

 

1,197

 

Bank franchise tax

 

 

514

 

 

 

446

 

Telecommunications and other technology

 

 

780

 

 

 

469

 

FDIC assessments

 

 

295

 

 

 

378

 

Foreclosed property

 

 

35

 

 

 

62

 

Consulting

 

 

141

 

 

 

262

 

Advertising and marketing

 

 

93

 

 

 

176

 

Directors' fees

 

 

381

 

 

 

377

 

Audit and accounting

 

 

310

 

 

 

393

 

Legal

 

 

346

 

 

 

110

 

Core deposit intangible amortization

 

 

291

 

 

 

353

 

Net other real estate owned losses

 

 

80

 

 

 

66

 

Goodwill impairment

 

 

10,374

 

 

 

 

Other

 

 

1,163

 

 

 

1,335

 

Total noninterest expense

 

 

24,760

 

 

 

15,222

 

(Loss) income before income taxes

 

 

(8,417

)

 

 

3,946

 

Income tax (benefit) expense

 

 

(276

)

 

 

732

 

Net (loss) income

 

$

(8,141

)

 

$

3,214

 

Basic and diluted (loss) earnings per share

 

$

(0.62

)

 

$

0.25

 


BAY BANKS OF VIRGINIA, INC.

Supplemental Financial Data (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the

 

 

 

As of and for the Three Months Ended

 

 

Year Ended

 

 

 

June 30,

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands, except per share amounts)

 

2020

 

 

2020

 

 

2019

 

 

2019

 

 

2019

 

 

2019

 

Select Consolidated Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,238,226

 

 

$

1,183,553

 

 

$

1,131,923

 

 

$

1,112,219

 

 

$

1,094,260

 

 

 

 

 

Cash, interest-earning deposits and federal funds sold

 

 

39,912

 

 

 

56,006

 

 

 

41,813

 

 

 

31,405

 

 

 

24,604

 

 

 

 

 

Available-for-sale securities, at fair value

 

 

92,560

 

 

 

94,618

 

 

 

99,454

 

 

 

80,748

 

 

 

81,169

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans on real estate

 

 

798,109

 

 

 

762,404

 

 

 

730,788

 

 

 

731,280

 

 

 

713,247

 

 

 

 

 

Commercial and industrial

 

 

193,740

 

 

 

198,278

 

 

 

181,730

 

 

 

186,281

 

 

 

187,531

 

 

 

 

 

Paycheck Protection Program

 

 

55,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

7,855

 

 

 

9,846

 

 

 

11,985

 

 

 

14,471

 

 

 

16,889

 

 

 

 

 

Loans receivable

 

 

1,055,200

 

 

 

970,528

 

 

 

924,503

 

 

 

932,032

 

 

 

917,667

 

 

 

 

 

Unamortized net deferred loan fees

 

 

(2,345

)

 

 

(333

)

 

 

(313

)

 

 

(269

)

 

 

(275

)

 

 

 

 

Allowance for loan losses (ALL)

 

 

(12,007

)

 

 

(10,172

)

 

 

(7,562

)

 

 

(7,495

)

 

 

(7,479

)

 

 

 

 

Net loans

 

 

1,040,848

 

 

 

960,023

 

 

 

916,628

 

 

 

924,268

 

 

 

909,913

 

 

 

 

 

Loans held for sale

 

 

2,521

 

 

 

747

 

 

 

1,231

 

 

 

268

 

 

 

593

 

 

 

 

 

Other real estate owned, net

 

 

1,903

 

 

 

1,679

 

 

 

1,916

 

 

 

2,178

 

 

 

3,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

1,118,536

 

 

$

1,056,151

 

 

$

1,005,738

 

 

$

987,362

 

 

$

971,643

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

 

185,201

 

 

 

136,437

 

 

 

137,933

 

 

 

124,670

 

 

 

116,229

 

 

 

 

 

Savings and interest-bearing demand deposits

 

 

413,025

 

 

 

394,637

 

 

 

382,607

 

 

 

372,404

 

 

 

374,175

 

 

 

 

 

Time deposits

 

 

408,672

 

 

 

433,393

 

 

 

389,900

 

 

 

396,614