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, 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: 1,160,909 shares of common stock at
November 14, 1998.
Transitional Small Business Disclosure Format ____yes __X__no
<PAGE>
Bay Banks of Virginia, Inc.
FORM 10-QSB
For the interim period ending September 30, 1998.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1-3
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 1998 AND DECEMBER 1997 1
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED SEPTEMBER 1998 AND 1997 2
YEAR TO DATE SEPTEMBER 1998 AND 1997
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE SEPTEMBER 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>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
SEPTEMBER DECEMBER
BALANCE SHEET CATEGORIES 1998 1997
ASSETS:
<S> <C> <C>
CASH DUE FROM BANKS 3704224 3302389
U. S. TREASURY SECURITIES 5583438 8589407
U. S. GOVERNMENT SECURITIES 15400063 12475984
STATE AND MUNICIPAL SECURITIES 26315629 18459599
OTHER SECURITIES 11367581 4541452
FED FUNDS SOLD 14428137 11556000
TOTAL LOANS,NET UNEARNED 111875492 105063637
LESS: LOAN LOSS RESERVE (983630) (860709)
NET LOANS 110891862 104202928
NET PREM., FURN., FIXT. 4332671 2840140
ACCRUED INTEREST RECEIVABLE 1348648 1247958
OTHER REAL ESTATE OWNED 1159921 1378795
OTHER ASSETS 3634303 130832
TOTAL ASSETS 198166477 168725484
LIABILITIES
DEMAND DEPOSITS 31259386 11717193
SAVINGS AND NOW 90664599 90891939
CERTIFICATES OF DEPOSIT 55979668 46995674
TOTAL DEPOSITS 177903653 149604806
FED FUNDS PURCHASED - -
OTHER LIABILITIES 1294725 428560
TOTAL LIABILITIES 179198378 150033366
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,160,909 AND 1,144,309 5804545 5754130
PAID IN CAPITAL 3015953 3164510
RETAINED EARNINGS 9303723 9502341
MKT.ADJ.-SEC.-UNREALIZED 843878 271137
TOTAL SHAREHOLDERS EQUITY 18968099 18692118
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 198166477 168725484
</TABLE>
<PAGE>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
QUARTER END QUARTER END YTD
SEPT 1998 SEPT 1997 SEPT 1998 SEPT 1997
INTEREST INCOME
<S> <C> <C> <C> <C>
INTEREST AND FEES ON LOANS 2401627 2385386 7092119 6996804
INTEREST ON US TREASURY SECURITIES 90531 118810 308217 419856
INTEREST ON US GOVERNMENT SECURITIES 221614 209235 660549 647918
INTEREST ON MUNICIPAL SECURITIES 326569 202670 924542 636270
INTEREST ON OTHER SECURITIES 168046 30968 457364 96874
INTEREST ON FED FUNDS SOLD 208029 132257 631519 211285
TOTAL INTEREST INCOME 3416416 3079326 10074310 9009007
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 263303 196779 750361 590618
INTEREST ON SAVINGS DEPOSITS 796642 814621 2352906 2505831
INTEREST ON CERTIFICATES 745552 593430 2223654 1443375
INTEREST ON FED FUNDS PURCHASED 0 0 0 19885
OTHER SHORT TERM BORROWINGS 4578 0 6325 0
TOTAL INTEREST EXPENSE 1810075 1604830 5333246 4559709
NET INTEREST INCOME 1606341 1474496 4741064 4449298
PROVISION FOR LOAN LOSSES 58367 61000 148367 201000
NET INTEREST INCOME AFTER PROV. 1547974 1413496 4592697 4248298
NON-INTEREST INCOME
VISA INCOME 97168 65783 204636 166675
DEPOSIT FEES 86728 60993 234579 175567
TRUST DEPARTMENT FEES 122334 109283 365338 332443
OTHER FEES 99576 36559 281864 106037
SECURITIES GAINS AND LOSSES 35768 0 101274 15359
0
TOTAL NON-INTEREST INCOME 441574 272618 1187690 796081
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 690742 568119 2004780 1672072
OCCUPANCY 67368 26149 197798 111769
FURNITURE AND EQUIPMENT 115108 148049 455869 418552
OTHER OPERATING 460443 356833 1446185 1061341
0
TOTAL NON-INTEREST EXPENSE 1333661 1099150 3263734
4104632
INCOME BEFORE TAXES 655885 586964 1675756 1780645
INCOME TAXES 116952 88000 267808 344857
NET INCOME 538935 498964 1407948 1435788
EARNINGS PER SHARE .46 .44 1.21 1.26
</TABLE>
<PAGE>
<TABLE>
BAY BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES SEPT 1998 SEPT 1997
<S> <C> <C>
NET INCOME 1407948 1478586
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 455869 306423
PROVISION FOR LOAN LOSS 148367 165000
NET (GAIN) LOSS ON SALE OF SECURITIES (101274) (2806)
DECREASE IN ACCRUED INTEREST RECEIVABLE (440942) (235006)
(DECREASE) IN ACCRUED INTEREST PAYABLE 38731 35895
DECREASE IN OTHER ASSETS (2193843) (33250)
(DECREASE) IN OTHER LIABILITIES (173942) (38255)
NET CASH PROVIDED BY OPERATING ACTIVITIES (859086) 1676587
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF AFS SECURITIES (25605577) (2228155)
PROCEEDS FROM SALES OF AFS SECURITIES 5520545 4449309
PROCEEDS FROM MATURITIES OF AFS SECURITIES 7980475 1757631
NET (INCREASE) IN LOANS OUTSTANDING (7642627) (4202049)
NET (INCREASE) DECREASE IN FED FUNDS SOLD (2872137) (4634000)
PURCHASE OF PREMISES AND EQUIPMENT (1742850) (386900)
DECREASE IN OTHER REAL ESTATE OWNED 218874 (718506)
NET CASH USED IN INVESTING ACTIVITIES (24143297) (5962670)
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW 15942267 (2671394)
NET INCREASE(DECREASE) IN TIME DEPOSITS 8970755 12094997
PROCEEDS FROM ISSUANCE OF COMMON STOCK 50382 194860
DIVIDENDS PAID (512782) (528736)
NET CASH PROVIDED BY FINANCING ACTIVITIES 24450622 9089727
NET INCREASE (DECREASE) IN CASH (551761) 4803644
</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 1998 net income was $1.41
million as compared to $1.44 million for the comparable period in 1997,
for a decrease of 2.13%. Earnings per share through the third quarter
were $1.21 as compared to $1.26 in 1997, which represents a decrease of
3.97%. Return on Average Equity was 10.42% for 1998 and 12.02% for
1997. Return on Average Assets was .97% 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 third quarter of 1998 was
$4.74 million and for the same period in 1997 the total was $4.45
million. This is an increase 6.52% over 1997. The Net Interest Margin
on a fully tax equivalent basis for the year to date 1998 was 5.17%,
down from 5.74% for the comparable period in 1997. Average interest
earning assets totaled $177.81 million while average interest bearing
liabilities totaled $153.15 million at quarter end 1998. As a result,
interest-bearing assets exceeded interest- bearing liabilities by
$24.66 million, or 13.86%.
Net interest income continues to be impacted by a flat yield
curve. Higher short term rates and lower long term rates through the
third quarter have resulted in the investment of excess deposits by the
Company at lower than desired yields. Management has addressed this
situation and has begun adjustments in rate structures that could
possibly mitigate a portion of the yield reduction. The Company
continues to identify deposit and loan products that offer the greatest
potential for improving net interest income while meeting the needs of
our customers.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Increases in the Provision for Loan Losses were $148,367 through the
nine months. The total Allowance for Loan Losses as of September 30,
1998 was $983,630. The Loan Loss Provision as a percentage of Average
Total Loans through the third quarter of
1998 is .88%.
As of September 30, 1998, loans on Non-Accrual status totaled $96,442.
Loans on Non-Accrual status as of September 30, 1997 were $126,039.
Loans still accruing interest but delinquent 90 days were $400,192 at
quarter end 1998 as compared to $593,524 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 September 30, 1998, management deemed the loan
loss reserve reasonable for the loss risk identified in the loan
portfolio.
NON INTEREST INCOME
Other Income through the third quarter of 1998 totaled $1.19
million as compared to $796,081 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 nine months ended
September 30, 1998 Visa Fees were $204,636, Deposit Fees were $234,579,
and Trust Income was $365,338. 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 $4.10 million through the third
quarter of 1998 as compared to $3.26 million for comparable period in
1997. This represents an increase of 25.77% 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, 1998, Salary and Benefit Expense was
$2.01 million, Occupancy was $197,798, Furniture and Equipment was
$455,869 and Other Operating was $1.45 million. 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 third quarter end of 1998 were $198.12 million
as compared to $168.73 million at December 30, 1997. This represents an
increase of 17.42% for the nine-month period.
Total Loans through the third quarter were $111.86 million as
compared to $102.2 million for the comparable period in 1997. Total
Loans at year end 1997 were $105.06 million, resulting in an increase
of 6.47% through the nine months ended September 30, 1998. Management
continues to focus on new products and services that will further
stimulate lending activity in our market area.
Through the first nine months of 1998, charged off loans totaled
$43,731. For the comparable period in 1997 total loans charged off were
$152,097.
As of September 30, 1998, the Holding Company held $58.67
million in investment securities. This compares with September 1997
balances of $45.04 million and year-end 1997 balances of $44.06
million. This represents an increase of 33.16% of the total portfolio
during the nine months ended September 30, 1998. This increase was a
direct result of the acquisition of deposits associated with the
previously mentioned branch purchase from Signet Bank.
As of September 30, 1998, total deposits were $177.90 million
as compared to $142.53 million at quarter end 1997 and $149.60 at year
end 1997. This represents a net increase of $28.30 million or 18.92%
for the nine months ended September 30, 1998. For the period of
September 30, 1997 to 1998, Non Interest-bearing Demand Deposits
increased to $20.95 million, and Interest-bearing Transaction Accounts
increased to $32.53 million. Savings and certificates of deposit
increased to $124.43 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 $1.16 million on Other Real
Estate Owned as of September 30, 1998. For the comparable period in
1997 the balance was $1.38 million. 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 September 30, 1998 Federal
Funds Sold totaled $14.43 million and securities maturing in one year
or less totaled $9.32 million, for a total pool of $23.75 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 September 30, 1998 was 40.00% as
compared to 44.69% for the prior period. Bay Banks of Virginia
determines this ratio by dividing net liabilities into the sum of cash
and due from, un-pledged 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 September 30, 1998 was $18.97 million as
compared to $17.57 million for the same period 1997. This represents an
increase of 8.99% over September 1997. Shareholder equity at year-end
1997 was $18.69 million. Shareholder equity was impacted by unrealized
gains on securities in the amount of $843,878 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 $15.69
million, Tier 2 Capital of $955,000 and Total Risk Based Capital of
$16.65 million. Net Risk Weighted Assets totaled $116.37 million. As of
September 30, 1998, the Holding Company maintained 13.72% and 8.55%
Tier 1 and Total Capital Ratios. The respective minimums are 5.50% and
6.00%. The Holding Company's Leverage Ratio at September 30, 1998 was
8.19% with a regulatory minimum of 3.00%.
Book Value per share of common stock for the 1998 interim
period was $17.78 and for 1997 the book value per share was $14.44.
Cash dividends paid through September 30, 1998 were $295,823. Total
number of shares outstanding at September 30, 1998 was 1,158,160.
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>
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 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.
<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)
11/14/1998 s/s Austin L. Roberts, III
---------------------------
President and CEO
11/14/1998 s/s Paul T. Sciacchitano
---------------------------
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3704224
<INT-BEARING-DEPOSITS> 156958989
<FED-FUNDS-SOLD> 14428137
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57346425
<INVESTMENTS-CARRYING> 57346425
<INVESTMENTS-MARKET> 58644697
<LOANS> 111875492
<ALLOWANCE> (983630)
<TOTAL-ASSETS> 198166477
<DEPOSITS> 177903652
<SHORT-TERM> 438605
<LIABILITIES-OTHER> 995026
<LONG-TERM> 0
0
0
<COMMON> 5804505
<OTHER-SE> 13163594
<TOTAL-LIABILITIES-AND-EQUITY> 198166477
<INTEREST-LOAN> 7092119
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<INTEREST-TOTAL> 10074311
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<LOAN-LOSSES> 148367
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<EXPENSE-OTHER> 4104632
<INCOME-PRETAX> 1675756
<INCOME-PRE-EXTRAORDINARY> 1675756
<EXTRAORDINARY> 0
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<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
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