Fauquier Bankshares Announces Fourth Quarter 2017 Results

WARRENTON, Va., Feb. 9, 2018

The results for the year and quarter ended December 31, 2017 include the effect of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. Among other things, the Act permanently lowers the federal corporate income tax rate to 21% from the maximum rate prior to the passage of the Act of 35%, effective January 1, 2018. As a result of the reduction of the federal corporate income tax rate, U.S. generally accepted accounting principles (GAAP) require companies to re-measure their deferred tax assets and deferred tax liabilities, including those accounted for in accumulated other comprehensive income, as of the date of the Act's enactment and record the corresponding effects in income tax expense in the fourth quarter of 2017.  As a result of the permanent reduction in the corporate income tax rate, the Company recognized a $1.7 million reduction in the value of its net deferred tax asset and recorded a corresponding incremental income tax expense of $1.7 million in the Company's consolidated results of operations for the fourth quarter of 2017.  Management expects the negative effect of the Act on the Company's results of operations in 2017 will be recovered over future periods when the lower corporate income tax rate of 21% will be used to calculate income tax expense, which is expected to positively affect the Company's net income.  The Company's evaluation of the effect of the Act is subject to refinement for up to one year after enactment.

For the year ended December 31, 2017, the Company's return on average equity (ROE) and on average assets (ROA) were 4.44% and 0.39%, respectively, compared to 6.82% and 0.60%, respectively, for the year ended December 31, 2016.  For the fourth quarter of 2017, the Company's ROE and ROA were (3.77)% and (0.33)%, respectively, compared to 8.96% and 0.80%, respectively, for the prior quarter and 5.91% and 0.51%, respectively, for the fourth quarter of 2016.  Excluding the effect of the revaluation of the Company's net deferred tax asset, for the year ended December 31, 2017, the Company's adjusted ROE and adjusted ROA were 7.39% and 0.66%, respectively, and for the fourth quarter of 2017, the Company's adjusted ROE and adjusted ROA were 7.72% and 0.69%, respectively.  

Marc Bogan, President and CEO, said, "We are pleased with the progress made in the fourth quarter and the full year of 2017. Excluding the one-time adjustment as a result of the Tax Cuts and Jobs Act, we were able to increase profitability through growth in our earning assets, improved margins, and expense management.  As we continue to make progress on our strategic goals, we are encouraged by our ability to improve profitability by executing on our mission in seeking excellence through an engaged and empowered team, and building valued relationships with our customers and community.  Our management team recognizes future opportunities and is confident that we will execute our strategic initiatives to grow the balance sheet and net interest income, increase fee income and manage expenses, which will allow us to move toward our goal of becoming a high performing community bank."

Total assets were $644.6 million on December 31, 2017 compared to $631.7 million on September 30, 2017 and $624.4 million on December 31, 2016. Net loans increased $12.4 million or 2.55% to $497.7 million on December 31, 2017 from $485.3 million on September 30, 2017 and increased $39.1 million or 8.53% from $458.6 million on December 31, 2016. Total deposits were $570.0 million on December 31, 2017 compared to $556.2 million and $546.2 million on September 30, 2017 and December 31, 2016, respectively. Low cost transaction deposits (demand and interest checking accounts) were $361.2 million, an increase of $13.2 million and $12.4 million from September 30, 2017 and December 31, 2016, respectively.

Net interest margin was 3.75% for the fourth quarter of 2017, unchanged from the prior quarter and 3.50% for the same period in 2016. Net interest income for the fourth quarter of 2017 increased $149,000 when compared to the prior quarter and increased $555,000 to $5.6 million when compared to $5.1 million for the same period in 2016. Net interest margin was 3.66% for the year ended December 31, 2017 compared to 3.50% for the same period in 2016. Net interest income for the year ended December 31, 2017 increased $1.5 million to $21.3 million when compared to $19.7 million for the same period in 2016.

Nonperforming assets were $10.4 million on December 31, 2017, compared to $13.0 million on December 31, 2016. Included in nonperforming assets on December 31, 2017 were $3.2 million of nonperforming loans and $1.36 million of other real estate owned. The ratio of nonperforming loans to total loans was 0.63% at December 31, 2017 compared to 0.76% at December 31, 2016.