Virginia Partners Bank Reports 44.9% Increase in Net Income Excluding Merger Expense (Non-GAAP) of $2.8 million for the First Nine Months of 2019 and a 10.5% Increase in Net Income Excluding Merger Expense (Non-GAAP) of $914 thousand for the Third Quarter 2019

Virginia Partners Bank Fredericksburg VA

Companies Mentioned:

Primary Exchange: OTCQX
Under the Symbol: PTRS

Virginia Partners Bank Reports 44.9% Increase in Net Income Excluding Merger Expense (Non-GAAP) of $2.8 million for the First Nine Months of 2019 and a 10.5% Increase in Net Income Excluding Merger Expense (Non-GAAP) of $914 thousand for the Third Quarter 2019

Tuesday, October 22, 2019 5:30 PM

FREDERICKSBURG, VA / ACCESSWIRE / October 22, 2019 / Virginia Partners Bank (OTCQX:PTRS) (the "Bank") reported adjusted net income (Non-GAAP, excluding tax-effected merger expense of $174 thousand) of $914 thousand for the three months ended September 30, 2019, a 10.5% increase when compared to net income of $827 thousand for the same period in 2018. For the nine months ended September 30, 2019, the Bank reported adjusted net income (Non-GAAP, excluding tax-effected merger expense of $633 thousand) of $2.8 million, a 44.9% increase when compared to net income of $1.9 million for the same period in 2018. The Bank's results of operations for the three and nine months ended September 30, 2019 were negatively impacted by merger expense of $187 thousand and $662 thousand, respectively, related to the pending merger of equals with Delmar Bancorp ("Delmar") and The Bank of Delmarva ("Delmarva").

On a GAAP basis, the Bank reported net income of $740 thousand for the three months ended September 30, 2019, a 10.5% decrease when compared to net income of $827 thousand for the same period in 2018. On a GAAP basis, the Bank reported net income of $2.2 million for the nine months ended September 30, 2019, a 12.2% increase when compared to net income of $1.9 million for the same period in 2018.

For the three months ended September 30, 2019, the Bank's return on average assets, return on average equity and efficiency ratio was 0.67%, 6.14% and 72.35%, respectively, as compared to 0.78%, 7.88% and 72.95%, respectively, for the same period in 2018. Excluding tax-effected merger expense for the three months ended September 30, 2019, return on average assets (Non-GAAP), return on average equity (Non-GAAP) and efficiency ratio (Non-GAAP) was 0.83%, 7.58% and 68.21%, respectively. For the nine months ended September 30, 2019, the Bank's return on average assets, return on average equity and efficiency ratio was 0.67%, 6.26% and 73.76%, respectively, as compared to 0.63%, 6.43% and 75.74%, respectively, for the same period in 2018. Excluding tax-effected merger expense for the nine months ended September 30, 2019, return on average assets (Non-GAAP), return on average equity (Non-GAAP) and efficiency ratio (Non-GAAP) was 0.87%, 8.08% and 68.52%, respectively.

The decrease in net income for the three months ended September 30, 2019, as compared to the same period in 2018, was driven by a decrease in net interest income, higher provision for loan losses, noninterest expense and income tax expense, and partially offset by higher noninterest income. The Bank's results of operations for the three months ended September 30, 2019 were negatively impacted by lower net interest income as compared to the same period in 2018. The decrease in net interest income was due to an increase in total interest expense due primarily to an increase in Federal Home Loan Bank borrowings and increases in the average rate paid on interest bearing deposits and Federal Home Loan Bank borrowings, which were partially offset by an increase in total interest income due primarily to loan growth and an increase in the average yield earned on loans. The Bank's results of operations for the three months ended September 30, 2019 were negatively impacted by higher provision for loan losses due primarily to higher loan growth over the same period in 2018 and not due to asset quality issues in the loan portfolio. The Bank's results of operations, primarily noninterest income and noninterest expense, for the three months ended September 30, 2019 and 2018 were directly affected by Johnson Mortgage Company, LLC, the Bank's majority-owned subsidiary. For the three months ended September 30, 2019, the Bank recorded net income of approximately $67 thousand (net of income tax expense and noncontrolling interest) related to Johnson Mortgage Company, LLC as compared to a net loss of approximately $8 thousand (net of income tax benefit and noncontrolling interest) for the same period in 2018. In addition, the Bank's results of operations for the three months ended September 30, 2019 were negatively impacted by higher income tax expense due primarily to higher consolidated income before income taxes and the non-deductibility of merger expense. For the three months ended September 30, 2019, the Bank's effective tax rate was 23.7% as compared to 19.9% for the same period in 2018.

The increase in net income for the nine months ended September 30, 2019, as compared to the same period in 2018, was driven by increases in net interest income, and noninterest income, lower provision for loan losses, and partially offset by higher noninterest expense and income tax expense. The Bank's results of operations for the nine months ended September 30, 2019 were positively impacted by higher net interest income as compared to the same period in 2018. The increase in net interest income was due to an increase in total interest income due primarily to loan growth and an increase in the average yield earned on loans, which were partially offset by an increase in total interest expense due primarily to an increase in Federal Home Loan Bank borrowings and increases in the average rate paid on interest bearing deposits and Federal Home Loan Bank borrowings. The Bank's results of operations for the nine months ended September 30, 2019 were positively impacted by lower provision for loan losses due primarily to lower loan growth and the overall improvement in the risks inherent in the loan portfolio over the same period in 2018. The Bank's results of operations, primarily noninterest income and noninterest expense, for the nine months ended September 30, 2019 and 2018 were directly affected by Johnson Mortgage Company, LLC, the Bank's majority-owned subsidiary. For the nine months ended September 30, 2019, the Bank recorded net income of approximately $93 thousand (net of income tax expense and noncontrolling interest) related to Johnson Mortgage Company, LLC as compared to a net loss of approximately $39 thousand (net of income tax benefit and noncontrolling interest) for the same period in 2018. In addition, the Bank's results of operations for the nine months ended September 30, 2019 were negatively impacted by higher income tax expense due primarily to higher consolidated income before income taxes and the non-deductibility of merger expense. For the nine months ended September 30, 2019, the Bank's effective tax rate was 24.9% as compared to 19.2% for the same period in 2018.

Total assets as of September 30, 2019 were $441.8 million, an increase of $21.7 million or 5.2% from September 30, 2018. Over the same period, gross loans held for investment increased 7.4% to $346.7 million, total investment securities - taxable decreased 11.8% to $62.3 million, total deposits decreased 1.5% to $339.5 million, however noninterest bearing deposits grew 13.4% to $63.4 million, total Federal Home Loan Bank borrowings increased 90.8% to $47.9 million and total equity increased 15.9% to $48.2 million. The decrease in investment securities - taxable was due to the strategic utilization of the cash flows from these investment securities to fund loan growth. The decrease in total deposits and the corresponding increase in total Federal Home Loan Bank borrowings were due to a decrease in money market deposits which was driven by withdrawals by several large deposit customers due to other business related needs and not due to the loss of relationships. In addition, the Bank has been able to reduce its utilization of time deposits - wholesale. As of September 30, 2019, time deposits - wholesale were $19.2 million, which represents a decrease of 11.8% from September 30, 2018. All of the Bank's capital ratios continue to exceed regulatory requirements, with total risk-based capital substantially above well-capitalized regulatory requirements.

"I am pleased with our Bank's profitability and growth during the first nine months of 2019," said Lloyd B. Harrison, III, Virginia Partners Bank President & CEO. "Net income (Non-GAAP) for the third quarter of 2019 improved by $87 thousand or 10.5% when compared to the third quarter of 2018. The net income improvement from the third quarter of 2018 to the third quarter of 2019 was due primarily to a net income contribution from Johnson Mortgage Company, LLC, which was partially offset by higher provision for loan losses and total noninterest expense excluding merger expense. Building on its momentum from the second quarter of 2019, during the third quarter of 2019 Johnson Mortgage Company, LLC recorded its highest level of net income since the Bank acquired its majority-ownership at the beginning of 2018 and was the primary driver of the higher total noninterest income and total noninterest expense as compared to the third quarter of 2018. The overall increase in Johnson Mortgage Company, LLC's profitability was due to a higher volume of loan closings which lead to a 120.1% increase in mortgage banking income from the third quarter of 2018 to the third quarter of 2019. Excluding the total noninterest expense contribution from Johnson Mortgage Company, LLC and merger expense, we were able to reduce Bank only total noninterest expense by approximately $67 thousand or 2.5% during the third quarter of 2019, as compared to the third quarter of 2018. During the third quarter of 2019 we generated loan growth of 5.2% bringing our total loan growth over the first nine months of 2019 to 7.6%, which outpaced our internal targets. This loan growth was the primary driver of the increase in provision for loan losses during the third quarter of 2019 as compared to the same period in 2018, which negatively impacted our current period earnings. We continue to remain optimistic about the growth activity we are seeing in our current markets and our current pipeline of opportunities. We believe this growth activity, combined with our emphasis on total relationship banking, positions us to deliver solid growth and increased profitability throughout the balance of 2019."

Harrison continued, "We continue to be very excited and focused on our pending merger of equals with Delmar and Delmarva. In late August 2019, we announced the joint agreement to extend the time to complete the share exchange to November 30, 2019 and we remain on track to close the merger prior to that date. We are very excited about the future prospects and increased efficiencies of our combined organization and look forward to maximizing the potential of this combined franchise."

About Virginia Partners Bank

Virginia Partners Bank, headquartered in Fredericksburg, Virginia, was founded in 2008 and has three branches in Fredericksburg, Virginia. In Maryland, the Bank trades under the name Maryland Partners Bank (a division of Virginia Partners Bank), and operates a full service branch and commercial banking office in La Plata, Maryland and a Loan Production Office in Annapolis, Maryland. Virginia Partners Bank also owns a controlling stake in Johnson Mortgage Company, LLC, which is a residential mortgage company headquartered in Newport News, Virginia, with branch offices in Fredericksburg and Williamsburg, Virginia. For more information, visit www.vapartnersbank.com.

For further information, please contact Lloyd B. Harrison, III, President & CEO, at 540-899-2234.

Non-GAAP Financial Measures

The accounting and reporting policies of the Bank conform to generally accepted accounting principles ("GAAP") in the United States of America and prevailing practices in the banking industry. However, management uses certain Non-GAAP financial measures to supplement the evaluation of the Bank's performance. These financial measures include net income, return on average assets, return on average equity and efficiency ratio excluding merger expense. Management believes presentations of these Non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Bank's core business. These Non-GAAP financial measures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to Non-GAAP financial measures that may be presented by other companies. Reconciliations of GAAP to Non-GAAP financial measures are included as tables at the end of this earnings release.

Cautionary Statement Regarding Forward-Looking Statements

This earnings release may contain forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‑looking statements are not statements of historical fact and are based on assumptions and describe future plans, strategies, and expectations of management, and are inherently subject to risks and uncertainties. These statements are generally identifiable by use of words such as "believe," "expect," "intend," "anticipate," "estimate," "project," "may," "will" or similar expressions. Forward-looking statements in this earnings release may include, without limitation, statements regarding anticipated future financial performance, funding sources including loan portfolio composition, deposit and loan growth, adequacy of the allowance for loan losses and future provisions for loan losses, investment securities portfolio composition and future performance, and strategic business initiatives, including the pending merger of equals of the Bank and Delmar and Delmarva. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the effects of or changes in: management's efforts to maintain asset quality and control operating expenses; the quality, composition and growth of the loan and investment securities portfolios; interest rates; and general economic and financial market conditions. These risks and uncertainties should be considered in evaluating forward‑looking statements contained herein. We have based our forward-looking statements on management's beliefs, assumptions, expectations and projections based on information available as of the date of this earnings release. You should not place undue reliance on such statements, because the beliefs, assumptions, expectations and projections about future events on which they are based may, and often do, differ materially from actual events and, in many cases, are outside of our control. We undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Virginia Partners Bank
Balance Sheet

Unaudited
 

 
  September 30,
2019
    September 30,
2018
 
 
           
ASSETS
           
Cash and due from banks
  5,036,574     3,715,184  
Federal funds sold
    1,046,000       -  
Interest bearing deposits in other banks
    2,000,000       2,000,000  
Investment securities - taxable
    62,297,777       70,614,369  
Investment securities - tax-exempt
    8,191,418       7,821,264  
Loans held for sale
    2,985,619       2,407,007  
Loans, net of unearned income
    346,692,278       322,735,098  
Less: Allowance for loan losses
    (4,281,692 )     (3,981,591 )
Premises and equipment, net
    3,742,480       3,853,254  
Accrued interest receivable
    1,079,821       1,102,253  
Deferred income taxes, net
    1,170,597       1,628,417  
Bank owned life insurance
    7,765,399       7,552,280  
Right of use asset
    3,531,977       -  
Other assets
    546,685       612,244  
Total Assets
  441,804,933     420,059,779  
 
               
LIABILITIES
               
Noninterest bearing deposits
  63,368,626     55,896,213  
Interest-bearing demand deposits
    22,770,720       17,476,157  
Savings and money market deposits
    97,953,860       114,068,148  
Time deposits - retail
    136,198,797       135,329,731  
Time deposits - wholesale
    19,171,000       21,745,000  
Total deposits
    339,463,003       344,515,249  
Federal funds purchased
    -       5,931,000  
Federal Home Loan Bank borrowings
    47,900,000       25,100,000  
Warehouse line of credit
    -       221,441  
Other borrowings
    1,415,425       1,461,035  
Lease liability
    3,559,682       -  
Accrued expenses and other liabilities
    1,300,720       1,269,369  
Total Liabilities
    393,638,830       378,498,094  
 
               
EQUITY
               
Common stock
    20,425,905       19,785,905  
Capital surplus
    19,231,174       18,569,435  
Retained earnings
    5,462,524       2,810,211  
Noncontrolling interest in consolidated subsidiaries
    718,962       590,781  
Accumulated other comprehensive income (loss)
    157,883       (2,128,259 )
Net income
    2,169,655       1,933,612  
Total Equity
    48,166,103       41,561,685  
Total Liabilities and Equity
  441,804,933     420,059,779  
                 



Virginia Partners Bank
Statement of Income

Unaudited
 

 
  For the Quarter Ending
September 30,
    For the Nine Months Ending
September 30,
 
 
  2019     2018     2019     2018  
 
                       
INTEREST INCOME
                       
Interest and fees on loans
  4,375,696     4,062,976     12,838,450     11,452,903  
Interest on federal funds sold
    14,068       2,894       29,692       24,075  
Interest on deposits with banks
    23,705       20,527       68,459       46,415  
Investment securities - taxable
    415,487       464,761       1,302,478       1,336,321  
Investment securities - tax-exempt
    42,376       42,376       127,129       127,129  
Total interest income
    4,871,332       4,593,534       14,366,208       12,986,843  
INTEREST EXPENSE
                               
Interest-bearing demand deposits
    22,095       9,773       52,984       27,843  
Savings and money market deposits
    166,893       159,963       478,711       433,219  
Time deposits - retail
    710,853       572,024       2,029,554       1,621,367  
Time deposits - wholesale
    97,097       88,901       261,699       273,053  
Total interest expense on deposits
    996,938       830,661       2,822,948       2,355,482  
Interest on federal funds purchased
    2,560       3,591       18,526       5,375  
Interest on Federal Home Loan Bank borrowings
    247,507       119,520       813,412       316,393  
Interest on warehouse line of credit
    57,119       17,419       101,793       34,037  
Interest on other borrowings
    26,986       27,394       81,268       82,435  
Total interest expense
    1,331,110       998,585       3,837,947       2,793,722  
Net interest income
    3,540,222       3,594,949       10,528,261       10,193,121  
Provision for loan losses
    186,000       66,600       270,500       379,600  
Net interest income after provision
    3,354,222       3,528,349       10,257,761       9,813,521  
NONINTEREST INCOME
                               
Service charges and fees
    97,596       84,739       266,543       237,227  
Securities (losses), net
    -       (8,114 )     -       (20,614 )
Mortgage banking income
    716,424       325,507       1,481,947       770,660  
Earnings on bank owned life insurance policies
    53,438       55,455       158,602       165,288  
Other noninterest income
    108,555       32,458       149,556       61,755  
Total noninterest income
    976,013       490,045       2,056,648       1,214,316  
NONINTEREST EXPENSE
                               
Salaries and employee benefits
    1,762,273       1,676,491       4,913,878       4,798,180  
Occupancy and equipment expense
    269,397       247,266       782,136       753,212  
Professional services
    155,888       169,068       434,939       549,806  
Data processing
    323,147       333,450       917,008       938,700  
Promotion and marketing
    31,616       50,875       112,587       166,825  
FDIC assessment
    -       35,000       47,800       112,400  
Merger expense
    187,227       -       661,694       -  
Other operating expense
    546,055       482,126       1,437,988       1,362,045  
Total noninterest expense
    3,275,603       2,994,276       9,308,030       8,681,168  
Consolidated income before income taxes
    1,054,632       1,024,118       3,006,379       2,346,669  
Income tax expense
    230,383       206,068       720,932       459,275  
Consolidated net income
  824,249     818,050     2,285,447     1,887,394  
 
                               
Net (income) loss attributable to noncontrolling interest
    (83,845 )     9,417       (115,792 )     46,218  
Net income
  740,404     827,467     2,169,655     1,933,612  
                                 



Reconciliation of Non-GAAP Financial Measures
 

 
  For the Quarter Ending     For the Nine Months Ending  
 
  September 30,     September 30,  
 
  2019     2018     2019     2018  
Net income excluding merger expense
                       
Net income
  740,404     827,467     2,169,655     1,933,612  
Merger expense
    187,227       -       661,694       -  
Income tax effect of adjustment
    (13,597 )     -       (28,842 )     -  
Net income excluding merger expense (Non-GAAP)
  914,034     827,467     2,802,507     1,933,612  
 
                               
Return on average assets excluding merger expense (1)
                               
Return on average assets
    0.67 %     0.78 %     0.67 %     0.63 %
Effect to adjust for merger expense
    0.16 %     0.00 %     0.20 %     0.00 %
Return on average assets excluding merger expense (Non-GAAP)
    0.83 %     0.78 %     0.87 %     0.63 %
 
                               
Return on average equity excluding merger expense (1)
                               
Return on average equity
    6.14 %     7.88 %     6.26 %     6.43 %
Effect to adjust for merger expense
    1.44 %     0.00 %     1.82 %     0.00 %
Return on average equity excluding merger expense (Non-GAAP)
    7.58 %     7.88 %     8.08 %     6.43 %
 
                               
Efficiency ratio excluding merger expense
                               
Efficiency ratio
    72.35 %     72.95 %     73.76 %     75.74 %
Effect to adjust for merger expense
    -4.14 %     0.00 %     -5.24 %     0.00 %
Efficiency ratio excluding merger expense (Non-GAAP)
    68.21 %     72.95 %     68.52 %     75.74 %
 
                               
(1) Annualized for the quarter and nine months ending September 30, 2019 and 2018, respectively.
                               


SOURCE: Virginia Partners Bank Fredericksburg VA


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