UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
BAY BANKS OF VIRGINIA, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER)
VIRGINIA 54-1838100
(STATE OF INCORPORATION) (IRS EMP. ID NO.)
100 S. MAIN STREET, KILMARNOCK, VA 22482
(ADDRESS OF PRINCIPAL OFFICE)
(804)435-1171
(ISSUER'S TELEPHONE NO.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days
[X] yes [ ] no
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,144,309 shares of
common stock at SEPTEMBER 30, 1997.
Transitional Small Business Disclosure Format [ ] yes [X] no
<PAGE>
BAY BANKS OF VIRGINIA, INC.
FORM 10-QSB
For the interim period ending September 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1-3
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 1997 AND DECEMBER 1996 1
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 2
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE SEPTEMBER 1997 AND 1996 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 4-7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 8
ITEM 5. OTHER INFORMATION 8
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 8
SIGNATURES 9
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER DECEMBER
BALANCE SHEET CATEGORIES 1997 1996
ASSETS:
CASH DUE FROM BANKS 8776341 3995017
TOTAL SECURITIES 40906136 45249656
FED FUNDS SOLD 9180000 4537000
TOTAL LOANS,NET UNEARNED 105522711 101731314
LESS: LOAN LOSS RESERVE -882291 -1020000
NET LOANS 104640420 100711314
NET PREM., FURN., FIXT. 2927179 2840420
OTHER ASSETS 4013782 1999804
TOTAL ASSETS 170443858 159333211
LIABILITIES
DEMAND DEPOSITS 12734509 11674974
SAVINGS AND NOW 94786450 98517380
CERTIFICATES OF DEPOSIT 44012530 31917532
TOTAL DEPOSITS 151533489 142109886
FED FUNDS PURCHASED 0 0
OTHER LIABILITIES 795351 438458
TOTAL LIABILITIES 152328840 142548344
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,144,309 AND 1,133,218 5702868 5666088
PAID IN CAPITAL 3015954 2887618
RETAINED EARNINGS 9228721 8279343
MKT.ADJ.-SEC.-UNREALIZED 167475 -48182
TOTAL SHAREHOLDERS EQUITY 18115018 16784867
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 170443858 159333211
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER END QUARTER END YEAR TO DATE YEAR TO DATE
SEPT 1997 SEPT 1996 SEPT 1997 SEPT 1996
<S> <C>
INTEREST INCOME
INTEREST INCOME ON LOANS 2331464 2122673 6837778 6260515
FEES ON LOANS 81447 84617 230043 258343
INTEREST ON TAXABLE SECURITIES 359013 473409 1163497 1324925
INTEREST ON TAX EXEMPT MUNICIPALS 208505 245917 638316 675332
INTEREST ON FED FUNDS SOLD 132257 83739 220522 304064
TOTAL INTEREST INCOME 3112686 3010355 9090156 8823179
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 196779 192153 590617 544863
INTEREST ON SAVINGS DEPOSITS 814623 919679 2505832 2830629
INTEREST ON CERTIFICATES 593429 398909 1443377 1243262
INTEREST ON FED FUNDS PURCHASED 0 0 21737 0
TOTAL INTEREST EXPENSE 1604831 1510741 4561563 4618754
NET INTEREST INCOME 1507855 1499614 4528593 4204425
PROVISION FOR LOAN LOSSES 60000 125000 165000 215000
NET INTEREST INCOME AFTER PROV. 1447855 1374614 4363593 3989425
NON-INTEREST INCOME
VISA INCOME 65784 61924 166674 162450
DEPOSIT FEES 59362 57970 173932 170997
TRUST DEPARTMENT FEES 109283 96651 335467 290831
OTHER FEES 34099 42400 103575 123245
SECURITIES GAINS AND LOSSES 0 0 2485 0
TOTAL NON-INTEREST INCOME 268528 258945 782133 747523
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 578856 520163 1682807 1531922
OCCUPANCY 40773 40843 126391 126376
FURNITURE AND EQUIPMENT 157119 125401 427334 345891
OTHER OPERATING 354825 371362 1087108 1020653
TOTAL NON-INTEREST EXPENSE 1131573 1057769 3323640 3024842
INCOME BEFORE TAXES 584810 575790 1822086 1712106
INCOME TAXES 86500 120000 343500 365000
NET INCOME 498310 455790 1478586 1347106
EARNINGS PER SHARE 0.43 0.40 1.30 1.21
</TABLE>
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES Sep-97 Sep-96
<S> <C>
NET INCOME 1478586 1347106
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 306423 275496
PROVISION FOR LOAN LOSS 165000 215000
NET SECURITIES GAINS -2806 -250
GAIN ON SALE OF FORECLOSED REAL ESTATE 6633 -92271
LOSS ON SALE OF EQUIPMENT 0 6003
ACCRUED INCOME AND OTHER ASSETS -313144 -120978
OTHER LIABILITIES 35895 309865
NET CASH PROVIDED BY OPERATING ACTIVITIES 1676587 1939971
CASH FLOWS FROM INVESTING ACTIVITIES
NET CHANGE IN INTEREST BEARING DEPOSITS 0 0
PROCEEDS FROM MATURITIES OF AFS SECURITIES 1757631 6193055
PROCEEDS FROM SALES OF AFS SECURITIES 4449309 1526924
PURCHASES OF AFS SECURITIES -2228155 -8316000
NET CHANGE IN FED FUNDS SOLD -4634000 4728000
NET INCREASE IN LOANS -4202049 -2993946
PROCEEDS FROM SALE OF EQUIPMENT 0 300
PURCHASE OF PREMISES AND EQUIPMENT -386900 -204000
PROCEEDS FROM SALE OF FORECLOSED REAL ESTATE 15502 613035
ADDITIONS TO OTHER REAL ESTATE OWNED -734008 401462
NET CASH USED IN INVESTING ACTIVITIES -5962670 1948830
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE IN DEMAND, SAVINGS, AND NOW -2671394 -901000
NET INCREASE(DECREASE) IN TIME DEPOSITS 12094997 -559000
PROCEEDS FROM ISSUANCE OF COMMON STOCK 194860 18000
DIVIDENDS PAID -528736 -416000
NET CASH PROVIDED BY FINANCING ACTIVITIES 9089727 -1858000
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 4803644 2030801
CASH AND DUE FROM BANKS AT DECEMBER 31, 1996,1995 3972697 3995017
CASH AND DUE FROM BANKS AT SEPTEMBER 30, 1997,1996 8776341 6025818
-4803644 -2030801
0 0
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
(UNAUDITED)
The following discussion is intended to assist in
understanding and evaluating the results of operations and the
financial condition of Bay Banks of Virginia, Incorporated, a single
bank holding company. This discussion should be read in conjunction
with the attached Balance Sheet, Statement of Income and Statement of
Cash Flows.
EARNINGS SUMMATION
For the nine months ended September 1997 net income was
$1,478,586 as compared to $1,347,106 for the comparable period in 1996,
for an increase of 9.80%. Earnings per share through the third quarter
were $1.30 as compared to $1.21 in 1996, which represents an increase
of 7.44%. Return on Average Equity was 12.02% for 1997 and 11.53% for
1996. Return on Average Assets was 1.23% and 1.14% consecutively.
NET INTEREST INCOME
Net Interest Income through the third quarter of 1997 was
$4.53 million and for the same period in 1996 the total was $4.20
million. This is an increase 7.72% over 1996. The Net Interest Margin
for the year to date 1997 was 5.74% up from 5.39% for the comparable
period in 1996. Interest earning assets totaled $155.62 million while
interest -bearing liabilities totaled $138.84 million at quarter end
1997. As a result, interest- bearing assets exceed interest- bearing
liabilities by $16.78 million, or 12.12%.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Increases in the Provision for Loan Losses were $60,000, or
$165,000 through the nine months. The total Allowance for Loan Losses
as of September 30, 1997 was $882,291. The Loan Loss Provision as a
percentage of Average Total Loans through the third quarter of 1997 is
.84%.
As of September 30, 1997, loans on Non-Accrual status totaled
$345,175. This balance was $174,250 through September 1996. Loans still
accruing interest but delinquent 90 days were $208,383 at quarter end
1997.
The Allowance for Loan Losses is analyzed for adequacy on a
quarterly basis to determine the necessary provision. A loan by loan
review is conducted on all loan classes and inherent losses on these
individual loans are determined. This valuation is then compared to
historical data in an effort to determine the prevailing trends. A
third component of the process is the analysis of a tabular
presentation of loss allocation percentages by loan type. Through this
process the Holding Company assesses the appropriate provision for the
coming quarter. As of September 30, 1997, management deemed the loan
loss reserve reasonable for the loss risk identified in the loan
portfolio.
<PAGE>
NON INTEREST INCOME
Other Income through the third quarter of 1997 totaled
$782,133 as compared to $747,523 for 1996. Other Income for the Holding
Company is composed of Visa Merchant Fees, Deposit Fees, Trust
Department Income, Miscellaneous Income, and Gains on the Sale of
Securities. Of these categories, the Visa program, Deposit Fees and the
Trust Department contribute the majority. Through the nine months ended
September 30, 1997 Visa Fees were $166,674, Deposit Fees were $173,932,
and Trust Income was $335,467. Continually improving marketing efforts
from the Visa and Trust Departments are having positive effects on the
earnings performance of these areas.
NON INTEREST EXPENSE
Non Interest Expense totaled $3.32 million through the third
quarter of 1997 as compared to $3.03 million for comparable period in
1996. This represents an increase of 9.88% between periods. Non
Interest Expenses include Salaries and Benefits, Occupancy Expense,
Furniture and Equipment Expense and Other Operating Expense. Of these
categories, Salaries and Benefits are the major expense. Through the
nine months ended September 30, 1997, Salary and Benefit Expense was
$1.68 million, Occupancy was $126,391, Furniture and Equipment was
$427,334 and Other Operating was $1.09 million. During 1997, the
Holding Company began the process of fully integrating the Microsoft
Office Platform throughout the organization. This process requires the
installation of data handling equipment in virtually every department
of the Holding Company. The result has been increased depreciation and
installation expenses during the interim period. Further, the Holding
Company has completed extensive renovation of two branches, which
further increased occupancy costs for the year to date.
FINANCIAL CONDITION
Total Assets at third quarter end of 1997 were $170.44 million
as compared to $159.33 million at December 30, 1996. This represents an
increase of 6.98% for the nine-month period.
Loan demand increased during the third quarter of 1997. Total
Loans through the quarter were $105.52 million as compared to $96.21
million for the comparable period in 1996. Total Loans at year end 1996
were $101.73 million, resulting in a gain of 3.73% through the nine
months ended September 30, 1997. Management continues to focus on new
products and services that will further stimulate lending activity in
our market area.
Management has utilized the earnings potential of 1997 to
improve the quality of the loan portfolio through more efficient
collection efforts. Through the first nine months of 1997, charged off
loans totaled $307,613. This compares to loans charged off for the
comparable period in 1996 which totaled $159,079. While these numbers
have increased during 1997, management of the Bank of Lancaster does
not consider this a sustained trend.
<PAGE>
Further, a commercial examination by the Bank's state
regulatory agency was conducted as of June 30, 1997. Included in the
examination process was a thorough review of the loan portfolio and
lending procedures. Management is not aware of any recommendations by
the Agency which would impact the current funding levels of the
Allowance for Loan Losses or any other facet of the loan portfolio.
As of September 30, 1997, the Holding Company held $40.91
million in investment securities. This compares with September 1996
balances of $48.47 million and year-end 1996 balances of $45.37
million. This represents a reduction of 15.60% of the total portfolio
during the twelve months ended September 30, 1997. The majority of this
reduction resulted from securities sales at year-end 1996 and June 30,
1997. The remaining reduction resulted from maturities and calls.
As of September 30, 1997, total deposits were $151.53 million
as compared to $139.96 million at quarter end 1996 and $142.11 at year
end 1996. This represents a net increase in deposits of $11.57 million
or 8.27% for the twelve months ended September 30, 1997 and an increase
of 6.63% through the nine months ended September 30, 1997. For the
period of September 30, 1996 to 1997, Non Interest-bearing Demand
Deposits increased to $12.73 million, and Interest-bearing Transaction
Accounts increased to $28.69 million. Savings and certificates of
deposit increased to $110.11 million, up from $104.67 million at
September 30, 1996.
The Bank of Lancaster maintained $1.33 million on Other Real
Estate as of September 30, 1997. Several foreclosures occurred during
the third quarter which increased this balance. The Bank of Lancaster
is aggressively marketing all properties on OREO, further, management
expects no loss on any of these properties.
Second and third quarter 1997 resulted in strong deposit
growth for the Bank of Lancaster. In particular, increased marketing
and improved product offerings met with market approval. Certificates
of deposit grew mainly due to the offering of a specific line of
products known as Chart Toppers. This product not only resulted in
increased deposits, but also further filled a maturity interval within
the Asset Liability model for rate and maturity sensitivity.
LIQUIDITY AND CAPITAL RESOURCES
Bay Banks of Virginia maintains adequate short-term assets to
meet liquidity needs that are anticipated by management. Federal Funds
Sold and investments that mature in one year or less provide the major
sources of funding for liquidity needs. At September 30, 1997 Federal
Funds Sold totaled $9.15 million and securities maturing in one year or
less totaled $7.12 million, for a total pool of $16.27 million. This
compares to the comparable period in 1996, which totaled $9.15 million.
The liquidity ratio as of September 30, 1997 was 37.33% as
compared to 36.33%. Bay Banks of Virginia determines this ratio by
dividing net liabilities into the sum of cash and due from, unpledged
investment securities and Federal Funds Sold. Management, through
historical analysis, has deemed 15% an adequate liquidity ratio.
<PAGE>
Total shareholder equity at September 30, 1997 was $18.12
million as compared to $16.03 million for the same period 1996. This
represents an increase of 13.04% over 1996. Shareholder equity at
year-end 1996 was $16.78 million. Shareholder equity was impacted by
unrealized gains on securities in the amount of $167,475 at quarter end
1997, while these unrealized losses at year-end were $48,182.
The Holding Company is required to maintain minimum amounts of
Capital to Total Risk Weighted Assets, as defined by FFIEC guidelines.
As of September 30, 1997, the Holding Company maintained 18.81% and
11.32 % Tier 1 and Total Capital Ratios. The respective minimums are
5.50% and 6.00%. The Holding Company's Leverage Ratio at September 30,
1997 was 10.85% with a regulatory minimum of 3.00%.
Book Value per share of common stock for the 1997 interim
period was $15.83 and for 1996 the book value per share was $15.87.
Cash dividends paid through September 30, 1997 were $582,736. Total
number of shares outstanding at September 30, 1997 was 1,144,309.
Part I Item 1. Financial Information
Bank of Lancaster
Notes to Consolidated Financial Statements
1. Bay Banks of Virginia, Inc. owns 100% of the Bank of
Lancaster. The consolidated financial statements include the
accounts of the Bank of Lancaster and Bay Banks of Virginia,
Incorporated.
2. The accounting and reporting policies of the registrant
conform to generally accepted accounting principals and to the
general practices within the banking industry. This interim
statement has not been audited, however, in management's
opinion, it reflects a fair and accurate presentation of the
consolidated financial statements.
3. These financial statements should be read in conjunction with
the financial statements and notes to financial statements
included in the registrants 1996 Annual Report to
Shareholders.
<PAGE>
PART 2.
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES
See ITEM 4.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Bay Banks of Virginia made no filings on Form 8-K during the period.
<PAGE>
SIGNATURES
BAY BANKS OF VIRGINIA
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
---------------------
(Registrant)
11/6/1997 s/s Paul T. Sciacchitano
-------------------------
Executive Vice President and
Chief Financial Officer
11/6/1997 s/s Richard C. Abbott
----------------------
Controller
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 8,776,341
<INT-BEARING-DEPOSITS> 138,798,980
<FED-FUNDS-SOLD> 9,180,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,606,136
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 105,522,711
<ALLOWANCE> (882,291)
<TOTAL-ASSETS> 170,443,858
<DEPOSITS> 151,533,489
<SHORT-TERM> 0
<LIABILITIES-OTHER> 795,351
<LONG-TERM> 0
0
0
<COMMON> 5,271,545
<OTHER-SE> 12,393,473
<TOTAL-LIABILITIES-AND-EQUITY> 170,443,858
<INTEREST-LOAN> 7,067,821
<INTEREST-INVEST> 1,801,813
<INTEREST-OTHER> 220,522
<INTEREST-TOTAL> 9,090,156
<INTEREST-DEPOSIT> 4,539,826
<INTEREST-EXPENSE> 21,737
<INTEREST-INCOME-NET> 4,528,593
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 2,485
<EXPENSE-OTHER> 3,323,640
<INCOME-PRETAX> 1,822,086
<INCOME-PRE-EXTRAORDINARY> 1,822,086
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,478,586
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 5.74
<LOANS-NON> 345,175
<LOANS-PAST> 208,383
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,185,834
<CHARGE-OFFS> 307,613
<RECOVERIES> 4,799
<ALLOWANCE-CLOSE> 882,291
<ALLOWANCE-DOMESTIC> 882,291
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
