UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT
BANK OF LANCASTER, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER)
VIRGINIA 54-0132730
(STATE OF INCORPORATION) (IRS EMP. ID NO.)
100 S. MAIN STREET, KILMARNOCK, VA 22482
(ADDRESS OF PRINCIPAL OFFICE)
(804)435-1171
(ISSUERS 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: 1,140,573 shares of common
stock at JUNE 30, 1997.
Transitional Small Business Disclosure Format ____yes __X__no
<PAGE>
BANK OF LANCASTER
FORM 10-QSB
For the interim period ending June 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS 1-3
CONSOLIDATED BALANCE SHEETS
JUNE 1997 AND DECEMBER 1996 1
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 2
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE JUNE 1997 AND JUNE 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 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>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE DECEMBER
BALANCE SHEET CATEGORIES 1997 1996
<S> <C>
ASSETS:
CASH DUE FROM BANKS $ 3,325,705 $ 3,995,017
INTEREST BEARING DUE FROM - -
TOTAL SECURITIES 40,793,462 45,249,656
FED FUNDS SOLD 4,419,000 4,537,000
TOTAL LOANS,NET UNEARNED 105,053,387 101,731,314
LESS: LOAN LOSS RESERVE (960,505) (1,020,000)
NET LOANS 104,092,882 100,711,314
NET PREM., FURN., FIXT. 2,895,549 2,840,420
OTHER ASSETS 3,600,044 1,999,804
TOTAL ASSETS 159,126,642 159,333,211
LIABILITIES
DEMAND DEPOSITS 12,334,487 11,674,974
SAVINGS AND NOW 93,054,958 98,517,380
CERTIFICATES OF DEPOSIT 35,469,947 31,917,532
TOTAL DEPOSITS 140,859,392 142,109,886
FED FUNDS PURCHASED - -
OTHER LIABILITIES 696,833 438,458
TOTAL LIABILITIES 141,556,225 142,548,344
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,140,573 AND 1,133,218 5,702,868 5,666,088
PAID IN CAPITAL 3,015,955 2,887,618
RETAINED EARNINGS 8,901,176 8,279,343
MKT.ADJ.-SEC.-UNREALIZED (49,582) (48,182)
TOTAL SHAREHOLDERS EQUITY 17,570,417 16,784,867
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 159,126,642 159,333,211
</TABLE>
<PAGE>
BANK OF LANCASTER
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER END QUARTER END YEAR TO DATE YEAR TO DATE
JUNE 1997 JUNE 1996 JUNE 1997 JUNE 1996
<S> <C>
INTEREST INCOME
INTEREST INCOME ON LOANS $2,271,909 $2,070,187 $4,506,314 $4,137,842
FEES ON LOANS 91,480 98,213 148,596 173,726
INTEREST ON TAXABLE SECURITIES 400,566 438,831 804,484 851,516
INTEREST ON MUNICIPALS (TE) 217,425 216,059 429,811 429,415
INTEREST ON FED FUNDS SOLD 24,766 93,202 88,265 220,325
TOTAL INTEREST INCOME 3,006,146 2,916,492 5,977,470 5,812,824
INTEREST EXPENSE
INTEREST ON IBTA 198,252 177,048 393,838 352,710
INTEREST ON SAVINGS DEPOSITS 837,936 929,975 1,691,209 1,910,950
INTEREST ON CERTIFICATES 428,797 407,739 849,948 844,353
INTEREST ON FED FUNDS PURCHASED 21,737 - 21,737 -
TOTAL INTEREST EXPENSE 1,486,722 1,514,762 2,956,732 3,108,013
NET INTEREST INCOME 1,519,424 1,401,730 3,020,738 2,704,811
PROVISION FOR LOAN LOSSES 60,000 60,000 105,000 90,000
NET INTEREST INCOME AFTER PROV. 1,459,424 1,341,730 2,915,738 2,614,811
NON-INTEREST INCOME
VISA INCOME 54,869 55,673 100,890 100,526
DEPOSIT FEES 56,912 55,658 114,570 113,027
TRUST DEPARTMENT FEES 117,754 96,812 226,184 194,180
OTHER FEES 40,108 29,898 69,476 80,845
SECURITIES GAINS AND LOSSES 2,485 (250) 2,485 -
TOTAL NON-INTEREST INCOME 272,128 238,041 513,605 488,578
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 556,224 495,376 1,103,951 1,011,759
OCCUPANCY 41,572 40,021 85,618 85,533
FURNITURE AND EQUIPMENT 129,089 118,226 270,215 220,490
OTHER OPERATING 375,536 346,837 732,283 649,291
TOTAL NON-INTEREST EXPENSE 1,102,421 1,000,460 2,192,067 1,967,073
INCOME BEFORE TAXES 624,161 579,311 1,232,306 1,136,316
INCOME TAXES 135,500 120,000 257,000 245,000
NET INCOME 488,661 459,311 975,306 891,316
EARNINGS PER SHARE .43 .40 .86 .80
</TABLE>
<PAGE>
BANK OF LANCASTER
STATEMENT OF CASHFLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES JUNE 1997 JUNE 1996
<S> <C>
NET INCOME 975,306 891,316
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 209,017 179,575
PROVISION FOR LOAN LOSS 105,000 90,000
NET SECURITIES GAINS (2,485) 250
GAIN ON SALE OF FORECLOSED REAL ESTATE - -
LOSS ON SALE OF EQUIPMENT - -
ACCRUED INCOME AND OTHER ASSETS 52,349 (154,184)
OTHER LIABILITIES (67,143) (96,775)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,272,044 910,182
CASH FLOWS FROM INVESTING ACTIVITIES
NET CHANGE IN INTEREST BEARING DEPOSITS - -
PROCEEDS FROM MATURITIES OF AFS SECURITIES 1,159,422 1,064,814
PROCEEDS FROM SALES OF AFS SECURITIES 4,449,309 -
PURCHASES OF AFS SECURITIES (1,228,225) (1,497,012)
NET CHANGE IN FED FUNDS SOLD (118,000) 3,058,000
NET INCREASE IN LOANS (4,140,166) (1,436,631)
PROCEEDS FROM SALE OF EQUIPMENT - -
PURCHASE OF PREMISES AND EQUIPMENT (264,146) (84,017)
PROCEEDS FROM SALE OF FORECLOSED REAL ESTATE - -
ADDITIONS TO OTHER REAL ESTATE OWNED (285,231) (360,928)
NET CASH USED IN INVESTING ACTIVITIES (427,037) 744,226
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE IN DEMAND, SAVINGS, AND NOW (4,784,908) 750,748
NET INCREASE(DECREASE) IN TIME DEPOSITS 3,552,415 (1,123,851)
PROCEEDS FORM ISSUANCE OF COMMON STOCK 70,620 53,349
DIVIDENDS PAID (352,446) (311,447)
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,514,319) (631,201)
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (669,312) 1,023,207
CASH AND DUE FROM BANKS AT DECEMBER 31, 1996 3,995,017
CASH AND DUE FROM BANKS AT JUNE 30, 1997 3,325,705
</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 the Bank of Lancaster. This discussion should be
read in conjunction with the attached Balance Sheet, Statement of
Earnings and Statement of Cash Flows.
EARNINGS SUMMATION
For the six months ended June 1997 net income was $975,306 as
compared to $891,316 for the comparable period in 1996, for an increase
of 9.42%. Earnings per share through the second quarter were 86 cents
as compared to 80 cents in 1996, which represents an increase of 7.50%.
Return on Average Equity was 11.49% for 1997 and 11.25% for 1996.
Return on Average Assets was 1.24% and 1.22% consecutively.
SIGNIFICANT EVENTS
The Board of Directors approved the formation of a one bank
holding company during the fourth quarter of 1996. The appropriate
applications were made to the Board of Governors of the Federal Reserve
Bank, the Bureau of Financial Institutions of the Virginia State
Corporation Commission, and the Securities and Exchange Commission. As
of July 1, 1997, subsequent to these financial statements, Bay Banks of
Virginia purchased all outstanding shares of the Bank of Lancaster.
Readers are referred to filings by Bay Banks of Virginia, Inc. to the
Securities and Exchange Commission as follows; Form S-4EF of the 1933
Act filed February 28, 1997, Form 424B3 of the 1933 Act filed March 24,
1997, and Form 8-K of the 1934 Act filed July 1, 1997.
NET INTEREST INCOME
Net Interest Income through the second quarter of 1997 was
$2.9 million and for the same period in 1996 the total was $2.6
million. This is an increase 11.51% over 1996. For the quarter ended
June 30, 1997 Net Interest Income was $1.5 million and for the
comparable period in 1996 the total was $1.3 million. This represents
an increase of 8.30%. The Net Interest Margin, or the ratio of Net
Interest Income to Average Total Earning Assets, increased to 5.81% for
June 1997, up from 5.22% in June of 1996.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Improved earnings during the second quarter have allowed the
Bank to increase the Provision for Loan Losses by $105,000, for a total
Allowance of $960,505. Loans charged off through the second quarter
totaled $152,097 with recoveries of $3,308. The Loan Loss Provision as
a percentage of Average Total Loans through the second quarter of 1997
is .95% and Charged Off Loans to Average Total Loans for the period is
.17%. These percentages for the comparable period in 1996 were 1.01%
and .10% respectively.
While improving the overall quality of the loan portfolio,
this approach has resulted in a reduction in the percentage of
Allowance for Loan Losses to Total Average Loans. As of June 30, 1997,
loans on Non-Accrual status totaled $345,175. This balance was $174,250
through June 1996. Non Performing loans in aggregate, which include Non
Accruing loans and foreclosed property totaled $1.26 million at June
30, 1997 and $937,190 at quarter end 1996. This represents an increase
of 34.44%. Loans still accruing interest but delinquent 90 days were
$563,593 at quarter end 1997 as compared to 1996 delinquencies of
$361,285. This represents an increase of 56.00%.
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 Bank assesses the appropriate provision for the coming
quarter. As of June 30, 1997, management deemed the loan loss reserve
reasonable for the loss risk identified in the loan portfolio.
OTHER INCOME
Other Income through the second quarter of 1997 totaled
$511,120 as compared to $488,578 for 1996. Other Income for the Bank 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 six months ended June 30, 1997
Visa Fees were $100,890, Deposit Fees were $114, 570, and Trust Income
was $226,184. Improved marketing efforts from the Visa Department and
the Trust Department are having positive effects on the performance of
these areas.
NON INTEREST EXPENSE
Non Interest Expense totaled $2.19 million through the second
quarter of 1997 as compared to $1.97 million for comparable period in
1996. This represents an increase of 11.17% 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
six months ended June 30, 1997, Salary and Benefit Expense was $1.1
million, Occupancy was $85,618, Furniture and Equipment was $270,215
and Other Operating was $734,768. The Bank 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 Bank. The result has been increased
depreciation and installation expenses during the interim period.
Further, the Bank has completed extensive renovation of two branches
which further increased occupancy costs for the year to date.
FINANCIAL CONDITION
Total Assets at second quarter end of 1997 were $159.13
million as compared to $155.82 million in July 1996. This represents an
increase of 2.12% for the twelve month period. Total Assets at year end
1996 were $159.33 million, resulting in a decrease of .13% through the
six months ended June 30, 1997.
Loan demand through the second quarter of 1997 was strong.
Total Loans through the quarter were $105.05 million as compared to
$94.91 million for the comparable period in 1996. Total Loans at year
end 1996 were $101.73 million, resulting in a gain of 3.26% through the
six months ended June 30, 1997. Loan demand remains seasonal in the
Bank's market area and should continue to improve as the year
progresses. Loan volume has increased $10.14 million, or 10.75% from
June 1996 to June 1997. Management continues to focus on new products
and services that will further stimulate lending activity in our market
area.
As of June 30, 1997, the Bank held $40.79 million in
investment securities. This compares with June 1996 balances of $47.91
million and year end 1996 balances of $45.25 million. This represents a
reduction of 14.82% of the total portfolio during the twelve months
ended June 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 June 30, 1997, total deposits were $140.86 million as
compared to $139.86 million at quarter end 1996 and $142.11 at year end
1996. This represents a net increase in deposits of $1 million or .71%
for the twelve months ended June 30, 1997 and a reduction of .88%
through the six months ended June 30, 1997. For the period of June 30,
1996 to 1997, Non Interest-bearing Demand Deposits increased to $12.31
million, and Interest-bearing Transaction Accounts increased to $24.92
million. Savings and certificates of deposit decreased to $103.52
million, down from $106.53 million at June 30, 1996.
CAPITAL RESOURCES
Total shareholder equity at June 30, 1997 was $17.57 million
as compared to $15.49 million for the same period 1996. This represents
an increase of 15% over 1996. Shareholder equity at year end 1996 was
$16.78 million. Shareholder equity was impacted by unrealized losses on
securities in the amount of $49,582 at quarter end 1997, while these
unrealized losses at June 30, 1996 were $493,345.
The Bank is required to maintain minimum amounts of Capital to
Total Risk Weighted Assets, as defined by FFIEC guidelines. As of June
30, 1997, the Bank maintained 18.64% and 11.68 % Tier 1 and Total
Capital Ratios. The respective minimums are 5.50% and 6.00%. The Bank's
Leverage Ratio at June 30, 1997 was 11.14% with a regulatory minimum of
3.00%.
Book Value per share of common stock for the 1997 interim
period was $14.94 and for 1996 the book value per share was $14.46.
Cash dividends paid through June 30, 1997 were $352,446. Total number
of shares outstanding at June 30, 1997 were 1,140,573.
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
On April 28, 1997 the Bank of Lancaster held its' annual meeting of
stockholders in Kilmarnock, Virginia. A vote was executed to approve an
Agreement and Plan of Reorganization, dated as of February 20, 1997,
between the Bank of Lancaster and Bay Banks of Virginia, Inc., a newly
formed Virginia Corporation established to serve as a holding company
for the Bank, providing for the reorganization of the Bank into a bank
holding company structure. Information regarding this meeting and
supporting exhibits were filed with the Securities and Exchange
Commission on Form 424B3, dated March 24, 1997.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No filings were made by the Bank of Lancaster on Form 8-K during the
period.
SIGNATURES
BANK OF LANCASTER
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.
Bank of Lancaster
(Registrant)
8/12/1997 /s/ Paul T. Sciacchitano
----------------------------
Executive Vice President and
Chief Financial Officer
8/12/1997 /s/ Richard C. Abbott
----------------------------
Controller
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,325,705
<INT-BEARING-DEPOSITS> 128,524,905
<FED-FUNDS-SOLD> 4,419,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,793,462
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 105,053,387
<ALLOWANCE> (960,505)
<TOTAL-ASSETS> 159,126,642
<DEPOSITS> 140,859,392
<SHORT-TERM> 0
<LIABILITIES-OTHER> 696,833
<LONG-TERM> 0
0
0
<COMMON> 5,702,868
<OTHER-SE> 11,917,131
<TOTAL-LIABILITIES-AND-EQUITY> 17,570,417
<INTEREST-LOAN> 4,654,910
<INTEREST-INVEST> 1,234,295
<INTEREST-OTHER> 88,265
<INTEREST-TOTAL> 5,977,470
<INTEREST-DEPOSIT> 2,934,995
<INTEREST-EXPENSE> 2,956,732
<INTEREST-INCOME-NET> 3,020,738
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,194,552
<INCOME-PRETAX> 1,232,306
<INCOME-PRE-EXTRAORDINARY> 1,232,306
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 975,306
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 5.81
<LOANS-NON> 345,175
<LOANS-PAST> 563,593
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,020,000
<CHARGE-OFFS> 152,097
<RECOVERIES> 3,308
<ALLOWANCE-CLOSE> 960,505
<ALLOWANCE-DOMESTIC> 960,505
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
