Fauquier Bankshares, Inc. (NASDAQ: FBSS), parent company of The Fauquier Bank, reported net income of $1.4 million, or $0.36 per diluted share for the fourth quarter, compared with $1.5 million, or $0.41 per diluted share for the prior quarter and $1.6 million or $0.41 per diluted share for the fourth quarter of 2019. For the twelve months ended December 31, 2020, net income was $5.9 million, or $1.55 per diluted share, compared with $6.8 million, or $1.80 per diluted share for the twelve months ended December 31, 2019.

Marc Bogan, President and CEO, stated "Financial results for the fourth quarter, and full year 2020, were strong given the headwind our bank, and the overall economy, faced during this unprecedented year. Excluding the one-time expenses associated with our previously announced merger with Virginia National Bankshares Corporation, net income for the fourth quarter and full year 2020 exceeded the previous quarter over quarter, and full year results. Mr. Bogan continued by saying, "Even in this very difficult operating environment, our net interest margin held up well, and our cost of funds remained at very low levels. Also, our Wealth Management team crossed $500 million in assets under management in 2020, and as a result, contributed favorably to our noninterest income. As we enter 2021, we are eager to finalize our merger and begin integrating with the Virginia National team to continue to provide our clients and communities with exceptional financial services and support in the upcoming year."

Fourth Quarter and Year to Date Highlights

• Net income of $1.4 million for the fourth quarter, compared to $1.5 million for the prior quarter and $1.6 million for the fourth quarter of 2019. Year to date net income of $5.9 million, compared to $6.8 million for the twelve months ended December 31, 2019;
• Net interest margin of 3.43% for the fourth quarter, compared to 3.22% for the prior quarter and 3.65% for the fourth quarter of 2019. Year to date net interest margin of 3.46%, compared to 3.74% for the twelve months ended December 31, 2019;
• Total loans of $616.7 million at December 31, 2020, compared to $638.1 million at September 30, 2020 and $550.2 million at December 31, 2019;
• Allowance for loan losses of $6.9 million at December 31, 2020, compared to $6.7 million at September 30, 2020 and $5.2 million at December 31, 2019;
• Provision for loan losses of $167,000 for the fourth quarter, compared to $345,000 for the prior quarter and $91,000 for the fourth quarter of 2019. Year to date provision for loan losses was $1.8 million, compared to $346,000 for the twelve months ended December 31, 2019;
• Deposits of $766.1 million at December 31, 2020, compared to $739.8 million at September 30, 2020 and $622.2 million at December 31, 2019;
• Regulatory capital remains strong with ratios exceeding the well capitalized thresholds in all categories.

As part of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), the Bank originated 549 Paycheck Protection Program ("PPP") loans, totaling $53.1 million as of December 31, 2020. The Bank's forgiveness of 223 PPP loans under the terms of the PPP, with an aggregate principal balance of $22.6 million, contributed to the overall decline of $21.4 million in the loan portfolio at December 31, 2020. In addition, the CARES Act along with interagency guidance provided financial institutions the option to temporarily suspend certain accounting requirements related to troubled debt restructurings ("TDR") with respect to loan modifications, including the deferral of scheduled payments. As of December 31, 2020, under the current regulatory guidance, 5 loans, totaling $518,000 in principal loan balances, were granted a 90-day deferment of scheduled payments and one loan, with a principal balance of $2.6 million was modified. These 6 loans were not considered TDRs under the current guidance.

Return on average equity ("ROE") was 7.47% for the fourth quarter of 2020, compared to 8.58% for the prior quarter and 9.35% for the fourth quarter of 2019. Return on average assets ("ROA") was 0.63% for the fourth quarter of 2020, compared to 0.74% for the prior quarter and 0.85% for the fourth quarter of 2019. For the twelve months ended December 31, 2020, ROE and ROA were 8.31% and 0.73%, respectively, compared to 10.64% and 0.96%, respectively, for the twelve months ended December 31, 2019.

Net interest income was $6.9 million for the fourth quarter of 2020, compared to $6.3 million for the prior quarter and $6.2 million for the fourth quarter of 2019. Net interest income for the twelve months ended December 31, 2020 and 2019 was $25.8 million and $24.7 million, respectively. While interest income has been significantly impacted by the lower interest rate environment, interest income has benefited from the PPP loans and related fees. PPP loans contributed approximately $660,000 and $1.2 million to interest income for the fourth quarter and for the twelve months ended December 31, 2020, respectively. The interest rate environment also contributed to the decrease in interest expense during the fourth quarter, resulting in a 3 basis point and 41 basis point decline in the cost of funds when compared to the prior quarter and fourth quarter of 2019, respectively. Cost of funds for the twelve months ended December 31, 2020 and 2019 was 0.35% and 0.71%, respectively.

The Company's allowance for loan loss methodology determines the level of loan provision at the end of each quarter, based on loan portfolio growth, net charge-off history, asset quality, impaired loans and other qualitative factors, including economic indicators. The provision for loan losses for the fourth quarter of 2020 was $167,000, compared to $345,000 for the prior quarter and $91,000 for the fourth quarter of 2019. The provision for loan losses for the twelve months ended December 31, 2020 and 2019 was $1.8 million and $346,000, respectively. The allowance for loan losses increased to $6.9 million or 1.11% of total loans on December 31, 2020, compared with $6.7 million or 1.05% of total loans for the prior quarter and $5.2 million or 0.95% of total loans on December 31, 2019.

Nonperforming assets were $11.5 million on December 31, 2020, compared to $11.6 million for the prior quarter and $6.5 million on December 31, 2019. Included in nonperforming assets were $10.2 million of nonperforming loans and $1.4 million of other real estate owned. Net loan recoveries were $2,000 for the fourth quarter of 2020, compared to net charge-offs of $44,000 for the prior quarter and net charge-offs of $259,000 for the fourth quarter of 2019. Net charge-offs for the twelve months ended December 31, 2020 and 2019 were $130,000 and $295,000, respectively. The Bank continues to monitor the performance of our entire loan portfolio for indications of stress, including identifying certain commercial loan industries that we believe are more susceptible to risk presented by the pandemic.

Noninterest income was $2.4 million in the fourth quarter of 2020, compared to $1.5 million for the prior quarter and fourth quarter of 2019. Noninterest income for the twelve months ended December 31, 2020 and 2019 was $6.5 million and $6.0 million, respectively. Noninterest income during the fourth quarter of 2020 included $992,000 of net gains on the sales of available for sale securities, resulting from a strategic repositioning of the investment portfolio.

Noninterest expense for the fourth quarter of 2020 was $7.4 million, compared with $5.7 million for the prior quarter and $5.8 million for the fourth quarter of 2019. Noninterest expense for the twelve months ended December 31, 2020 and 2019 was $23.5 million and $22.5 million, respectively. Included in noninterest expenses were $1.2 million of merger related expenses which were primarily legal and consulting expenses incurred in connection with the merger.

Shareholders' equity was $72.5 million on December 31, 2020, compared with $72.2 million for the prior quarter and $67.1 million on December 31, 2019. Book value per common share was $19.08 on December 31, 2020, compared to $19.03 for the prior quarter and $17.74 on December 31, 2019.

About Fauquier Bankshares, Inc. 

Fauquier Bankshares, through its operating subsidiary, The Fauquier Bank, is an independent community bank offering a full range of financial services, including internet banking, mobile banking, commercial, retail, insurance, wealth management, and financial planning services through eleven banking offices throughout Fauquier and Prince William counties in Virginia. Additional information is available at www.tfb.bank