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 MARCH 31, 1998
[ ] 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: 1,155,087 shares of
common stock at March 31, 1998.
Transitional Small Business Disclosure Format ____yes __X__no
<PAGE>
BAY BANKS OF VIRGINIA, INC.
FORM 10-QSB
For the interim period ending March 31, 1998.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1-3
CONSOLIDATED BALANCE SHEETS
MARCH 1998 AND DECEMBER 1997 1
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 2
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE MARCH 1998 AND 1997 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)
<TABLE>
<CAPTION>
MARCH DECEMBER
BALANCE SHEET CATEGORIES 1998 1997
<S> <C>
ASSETS:
CASH DUE FROM BANKS 5,975,710 3,302,389
U. S. TREASURY SECURITIES 7,853,346 8,589,407
U. S. GOVERNMENT SECURITIES 14,825,468 12,475,984
STATE AND MUNICIPAL SECURITIES 25,032,275 18,459,599
OTHER SECURITIES 10,992,361 4,541,452
FED FUNDS SOLD 16,305,597 11,556,000
TOTAL LOANS,NET UNEARNED 103,961,157 105,063,637
LESS: LOAN LOSS RESERVE (910,493) (860,709)
NET LOANS 103,050,664 104,202,928
NET PREM., FURN., FIXT. 4,420,909 2,840,140
ACCRUED INTEREST RECEIVABLE 1,225,366 1,247,958
OTHER REAL ESTATE OWNED 1,297,483 1,378,795
OTHER ASSETS 4,590,317 130,832
TOTAL ASSETS 195,569,496 168,725,484
LIABILITIES
DEMAND DEPOSITS 30,753,792 11,717,193
SAVINGS AND NOW 88,244,861 90,891,939
CERTIFICATES OF DEPOSIT 56,798,229 46,995,674
TOTAL DEPOSITS 175,796,882 149,604,806
FED FUNDS PURCHASED - -
OTHER LIABILITIES 931,068 428,560
TOTAL LIABILITIES 176,727,950 150,033,366
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,150,826 AND 1,133,218 5,775,435 5,754,130
PAID IN CAPITAL 3,015,954 3,164,510
RETAINED EARNINGS 9,834,373 9,502,341
MKT.ADJ.-SEC.-UNREALIZED 215,784 271,137
TOTAL SHAREHOLDERS EQUITY 18,841,546 18,692,118
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 195,569,496 168,725,484
</TABLE>
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER END QUARTER END
MARCH 31, 1998 MARCH 1997
<S> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS 2352341 2278378
INTEREST ON US TREASURY SECURITIES 115113 150472
INTEREST ON US GOVERNMENT SECURITIES 211286 217237
INTEREST ON MUNICIPAL SECURITIES 258691 212386
INTEREST ON OTHER SECURITIES 115561 36200
INTEREST ON FED FUNDS SOLD 244564 63499
TOTAL INTEREST INCOME 3297556 2958172
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 227277 195586
INTEREST ON SAVINGS DEPOSITS 777111 853274
INTEREST ON CERTIFICATES 732712 421151
INTEREST ON FED FUNDS PURCHASED 0 0
TOTAL INTEREST EXPENSE 1737100 1470011
NET INTEREST INCOME 1560456 1488161
PROVISION FOR LOAN LOSSES 45000 45000
NET INTEREST INCOME AFTER PROV. 1515456 1443161
NON-INTEREST INCOME
VISA INCOME 38754 46021
DEPOSIT FEES 64535 57658
TRUST DEPARTMENT FEES 120670 108430
OTHER FEES 66950 29367
SECURITIES GAINS AND LOSSES 0 400
TOTAL NON-INTEREST INCOME 290909 241876
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 632285 547727
OCCUPANCY 58103 44046
FURNITURE AND EQUIPMENT 175543 141126
OTHER OPERATING 498671 343993
TOTAL NON-INTEREST EXPENSE 1364602 1076892
INCOME BEFORE TAXES 441763 608145
INCOME TAXES 80000 121500
NET INCOME 361763 486645
EARNINGS PER SHARE 0.32 0.43
</TABLE>
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES MARCH 1998 MARCH 1997
<S> <C>
NET INCOME 361,763 486,645
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 121,128 102,822
PROVISION FOR LOAN LOSS 45,000 45,000
NET (GAIN) LOSS ON SALE OF SECURITIES - (400)
DECREASE IN ACCRUED INTEREST RECEIVABLE 22,592 91,283
(DECREASE) IN ACCRUED INTEREST PAYABLE 60,330 (4,989)
DECREASE IN OTHER ASSETS (4,459,485) 80,473
(DECREASE) IN OTHER LIABILITIES 502,508 (22,085)
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (3,707,927) 292,104
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF AFS SECURITIES (15,083,154) (770,000)
PROCEEDS FROM SALES OF AFS SECURITIES 0 750,000
PROCEEDS FROM MATURITIES OF AFS SECURITIES 2,326,564 1,092,105
NET (INCREASE) IN LOANS OUTSTANDING 271,708 (317,258)
NET (INCREASE) DECREASE IN FED FUNDS SOLD (4,749,597) 2,994,000
PURCHASE OF PREMISES AND EQUIPMENT (1,701,798) (127,338)
DECREASE IN OTHER REAL ESTATE OWNED 81,312 (86,235)
-----------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,854,965) 3,535,274
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW 15,246,412 (1,623,874)
NET INCREASE(DECREASE) IN TIME DEPOSITS 9,802,556 (1,555,835)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 21,305 34,373
DIVIDENDS PAID (195,823) (176,245)
-----------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,874,450 (3,321,581)
NET INCREASE (DECREASE) IN CASH 2,673,321 992,442
CASH AND DUE FROM AT BEGINNING OF PERIOD 3,302,389 3,972,697
CASH AND DUE FROM AT END OF PERIOD 5,975,710 4,965,139
</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 three months ended March 1998 net income was $361,763
as compared to $486,645 for the comparable period in 1997, for a
decrease of 25.64%. Earnings per share through the first quarter were
$.32 as compared to $.43 in 1997, which represents a decrease of
34.38%. Return on Average Equity was 10.12% for 1998 and 11.51% for
1997. Return on Average Assets was .91% and 1.23% consecutively.
Earnings have been impacted by non interest expense increases
associated with the acquisition of branches as well as the continuing
process of improving and upgrading the Companies technology that is
related to Year 2000 compliance.
NET INTEREST INCOME
Net Interest Income through the first quarter of 1998 was
$1.56 million and for the same period in 1997 the total was $1.49
million. This is an increase 4.70% over 1997. The Net Interest Margin
on a fully tax equivalent basis for the year to date 1998 was 5.21%,
down from 5.76% for the comparable period in 1997. Average interest
earning assets totaled $169.52 million while average interest bearing
liabilities totaled $146.91 million at quarter end 1998. As a result,
interest-bearing assets exceeded interest- bearing liabilities by
$22.61 million, or 13.34%.
Net interest income has been impacted due to continued
flattening of the yield curve. Higher short term rates and lower long
term rates have resulted in the investment of excess deposits by the
Company at lower than desired rates. Management has addressed this
situation and has begun adjustments in rate structures that could
possibly mitigate a portion of the yield reduction. The Company has
identified deposit and loan products that offer the greatest potential
for improving net interest income.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Increases in the Provision for Loan Losses were $45,000 through the
three months. The total Allowance for Loan Losses as of March 30, 1998
was $910,493. The Loan Loss Provision as a percentage of Average Total
Loans through the first quarter of 1998 is .88%.
As of March 30, 1998, loans on Non-Accrual status totaled $347,224.
There were no loans on Non-Accrual status as of March 31, 1997. Loans
still accruing interest but delinquent 90 days were $1,412,603 at
quarter end 1998 as compared to $996,259 for 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 March 31, 1998, management deemed the loan loss
reserve reasonable for the loss risk identified in the loan portfolio.
NON INTEREST INCOME
Other Income through the first quarter of 1998 totaled
$290,909 as compared to $241,876 for 1997. 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 three months
ended March 31, 1998 Visa Fees were $38,754, Deposit Fees were $64,535,
and Trust Income was $120,670. 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 $1.36 million through the first
quarter of 1998 as compared to $1.08 million for comparable period in
1997. This represents an increase of 25.9% 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
three months ended March 30, 1998, Salary and Benefit Expense was
$632,285, Occupancy was $58,103, Furniture and Equipment was $175,543
and Other Operating was $498,671. Bay Banks of Virginia acquired two
branches from the former Signet Bank of Richmond, Virginia in February
of 1998. Associated with the acquisition were the normal expenses of
purchase, many of which were realized in the first quarter as
non-recurring. In addition, non interest expense is impacted by the
core deposit intangible associated with the acquisition of deposits and
an increase in personnel expense.
FINANCIAL CONDITION
Total Assets at first quarter end of 1998 were $195.57 million
as compared to $168.73 million at December 30, 1997. This represents an
increase of 15.22% for the three-month period.
Total Loans through the first quarter were $103.96 million as
compared to $101.23 million for the comparable period in 1997. Total
Loans at year end 1997 were $105.06 million, resulting in a decrease of
1.05% through the three months ended March 30, 1998. Management
continues to focus on new products and services that will further
stimulate lending activity in our market area.
Through the first three months of 1998, charged off loans totaled
$3,055. For the comparable period in 1997 total loans charged off were
$36,994.
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 March 30, 1998, the Holding Company held $58.70 million
in investment securities. This compares with March 1997 balances of
$43.91 million and year-end 1997 balances of $44.06 million. This
represents an increase of 33.23% of the total portfolio during the
three months ended March 31, 1998. This increase was a direct result of
the acquisition of deposits associated with the previously mentioned
branch purchase from Signet Bank.
As of March 30, 1998, total deposits were $175.79 million as
compared to $138.92 million at quarter end 1997 and $149.60 at year end
1997. This represents a net increase of $26.19 million or 17.51% for
the three months ended March 30, 1998. For the period of March 30, 1997
to 1998, Non Interest-bearing Demand Deposits increased to $18.46
million, and Interest-bearing Transaction Accounts increased to $32.77
million. Savings and certificates of deposit increased to $124.54
million. This increase in deposit balances is mainly attributable to
the acquisition of approximately $22 million in deposits with the
branch acquisition from Signet Bank.
The Bank of Lancaster maintained $1.3 million on Other Real
Estate Owned as of March 31, 1998. For the comparable period in 1997
the balance was $542,343. The Bank of Lancaster is aggressively
marketing all properties on OREO, and further, management expects no
loss on any of these properties.
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 March 30, 1998 Federal Funds
Sold totaled $16.31 million and securities maturing in one year or less
totaled $8.54 million, for a total pool of $24.85 million. This
compares to the comparable period in 1997, which totaled $9.15 million.
Increases in liquidity are due mainly to the acquisition of deposits
that resulted from the previously mentioned branch purchases.
The liquidity ratio as of March 30, 1998 was 44.69% as
compared to 37.33% for the prior period. 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. As excess funds are diverted from Federal Funds to
loans and investments, this ratio will decline to levels more
consistent with prior periods.
Total shareholder equity at March 30, 1998 was $18.84 million as
compared to $16.91 million for the same period 1997. This represents an
increase of 11.39% over 1997. Shareholder equity at year-end 1997 was
$18.69 million. Shareholder equity was impacted by unrealized gains on
securities in the amount of $215,784 at quarter end 1998, while these
unrealized gains at year-end were $271,137.
The Holding Company is required to maintain minimum amounts of
Capital to Total Risk Weighted Assets, as defined by FFIEC guidelines.
As of quarter end 1998, the Company maintained Tier 1 Capital of $15.2
million, Tier 2 Capital of $910,000, and Total Risk Based Capital of
$16.15 million. Net Risk Weighted Assets totaled $110.56 million. As of
March 30, 1998, the Holding Company maintained 13.79% and 8.62 % Tier 1
and Total Capital Ratios. The respective minimums are 5.50% and 6.00%.
The Holding Company's Leverage Ratio at March 31, 1998 was 8.27% with a
regulatory minimum of 3.00%.
Book Value per share of common stock for the 1998 interim
period was $14.98 and for 1997 the book value per share was $14.93.
Cash dividends paid through March 30, 1998 were $195,823. Total number
of shares outstanding at March 30, 1998 was 1,155,087.
Part I Item 1. Financial Information
Bank of Lancaster
Notes to Consolidated Financial Statements
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.
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.
These financial statements should be read in conjunction with the
financial statements and notes to financial statements included in the
registrants 1997 Annual Report to Shareholders.
<PAGE>
<TABLE>
<CAPTION>
PART 2.
<S> <C>
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 13: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
Exhibit Index
( 2) Plan of reorganization. N/A
( 3) (i)(ii)Articles of Incorporation and Bylaws. N/A
( 4) (i)Rights of Holders. N/A
(10) (ii)(A)Material Contracts. N/A
(11) Statement: Computation of Earnings per Share N/A
(15) Letter: Unaudited financial information N/A
(18) Letter: Change in accounting principals N/A
(19) Report furnished to security holders N/A
Published report regarding matters submitted
to a vote of security holders N/A
(23) Consent of council N/A
(24) Power of Attorney N/A
(27) Financial Data Schedule
Attached
(99) Additional Exhibits N/A
(b) No filings were made on Form 8-K for the period.
</TABLE>
<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)
5/14/1998 s/s Austin L. Roberts, III
-------------------------------------
President and
Chief Executive Officer
5/14/1998 s/s Paul T. Sciacchitano
-------------------------------------
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,975,710
<INT-BEARING-DEPOSITS> 157,333,492
<FED-FUNDS-SOLD> 16,305,597
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,703,450
<INVESTMENTS-CARRYING> 58,379,145
<INVESTMENTS-MARKET> 58,703,450
<LOANS> 103,961,157
<ALLOWANCE> (910,493)
<TOTAL-ASSETS> 194,412,160
<DEPOSITS> 175,796,882
<SHORT-TERM> 0
<LIABILITIES-OTHER> 931,068
<LONG-TERM> 0
0
0
<COMMON> 5,775,435
<OTHER-SE> 13,066,111
<TOTAL-LIABILITIES-AND-EQUITY> 18,841,546
<INTEREST-LOAN> 2,352,341
<INTEREST-INVEST> 700,655
<INTEREST-OTHER> 244,564
<INTEREST-TOTAL> 3,297,556
<INTEREST-DEPOSIT> 1,737,100
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,560,456
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,364,602
<INCOME-PRETAX> 441,763
<INCOME-PRE-EXTRAORDINARY> 441,763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,763
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 5.21
<LOANS-NON> 347,224
<LOANS-PAST> 1,412,603
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 860,709
<CHARGE-OFFS> 3,055
<RECOVERIES> 10,637
<ALLOWANCE-CLOSE> 910,493
<ALLOWANCE-DOMESTIC> 910,493
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
