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 JUNE 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: 1,158,160 shares of common stock at
August 11, 1998.
Transitional Small Business Disclosure Format ____yes __X__no
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Bay Banks of Virginia, Inc.
FORM 10-QSB
For the interim period ending June 30, 1998.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1-3
CONSOLIDATED BALANCE SHEETS
JUNE 1998 AND DECEMBER 1997 1
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED JUNE 1998 AND 1997 2
YEAR TO DATE JUNE 1998 AND 1997
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE JUNE 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
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BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE DECEMBER
BALANCE SHEET CATEGORIES 1998 1997
ASSETS:
CASH DUE FROM BANKS 4715261 3302389
U. S. TREASURY SECURITIES 6564394 8589407
U. S. GOVERNMENT SECURITIES 14596981 12475984
STATE AND MUNICIPAL SECURITIES 27401455 18459599
OTHER SECURITIES 10705662 4541452
FED FUNDS SOLD 11882714 11556000
TOTAL LOANS,NET UNEARNED 106911600 105063637
LESS: LOAN LOSS RESERVE (954823) (860709)
NET LOANS 105956777 104202928
NET PREM., FURN., FIXT. 4369037 2840140
ACCRUED INTEREST RECEIVABLE 1518594 1247958
OTHER REAL ESTATE OWNED 1234280 1378795
OTHER ASSETS 4743501 130832
TOTAL ASSETS 193688656 168725484
LIABILITIES
DEMAND DEPOSITS 29255361 11717193
SAVINGS AND NOW 88896478 90891939
CERTIFICATES OF DEPOSIT 54983712 46995674
TOTAL DEPOSITS 173135551 149604806
FED FUNDS PURCHASED - -
OTHER LIABILITIES 1398810 428560
TOTAL LIABILITIES 174534361 150033366
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,158,160 AND 1,133,218 5790800 5754130
PAID IN CAPITAL 3015954 3164510
RETAINED EARNINGS 10100292 9502341
MKT.ADJ.-SEC.-UNREALIZED 247249 271137
TOTAL SHAREHOLDERS EQUITY 19154295 18692118
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 193688656 168725484
</TABLE>
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BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
QUARTER END QUARTER END YTD
JUNE 1998 JUNE 1997 JUNE 1998 JUNE 1997
INTEREST INCOME
INTEREST AND FEES ON LOANS 2417811 2363389 4770152 4658574
INTEREST ON US TREASURY SECURITIES 102574 151702 217687 302174
INTEREST ON US GOVERNMENT SECURITIES 227649 219003 438935 436241
INTEREST ON MUNICIPAL SECURITIES 339281 223258 597972 435644
INTEREST ON OTHER SECURITIES 173756 29860 289317 66069
INTEREST ON FED FUNDS SOLD 179302 24766 423866 88265
TOTAL INTEREST INCOME 3440373 3011978 6737929 5986967
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 259780 198252 487057 393838
INTEREST ON SAVINGS DEPOSITS 779152 837936 1556263 1691209
INTEREST ON CERTIFICATES 745390 428797 1478102 849948
INTEREST ON FED FUNDS PURCHASED 0 21737 0 21737
OTHER SHORT TERM BORROWINGS 1747 0 1747
TOTAL INTEREST EXPENSE 1786069 1486722 3523169 2956732
NET INTEREST INCOME 1654304 1525256 3214760 3030235
PROVISION FOR LOAN LOSSES 45000 60000 90000 105000
NET INTEREST INCOME AFTER PROV. 1609304 1465256 3124760 2925235
NON-INTEREST INCOME
VISA INCOME 62714 54869 101468 100890
DEPOSIT FEES 83316 56912 147851 114570
TRUST DEPARTMENT FEES 122334 117754 243004 226184
OTHER FEES 114618 40108 181568 69501
SECURITIES GAINS AND LOSSES 65506 2485 65506 2806
0
TOTAL NON-INTEREST INCOME 448488 272128 739397 513951
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 681754 556224 1314039 1103951
OCCUPANCY 72327 41572 130430 85618
FURNITURE AND EQUIPMENT 165217 129089 340760 270216
OTHER OPERATING 568790 375536 1066921 742865
0
TOTAL NON-INTEREST EXPENSE 1488088 1102421 2852150 2202650
INCOME BEFORE TAXES 569704 634963 1012007 1236536
INCOME TAXES 70000 135500 150000 256500
NET INCOME 499704 499463 862007 980036
EARNINGS PER SHARE .43 .44 .74 .86
</TABLE>
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BAY BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES JUNE 1998 JUNE 1997
NET INCOME 862007 891316
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 250317 179575
PROVISION FOR LOAN LOSS 94115 90000
NET (GAIN) LOSS ON SALE OF SECURITIES (65506) (2806)
DECREASE IN ACCRUED INTEREST RECEIVABLE (270996) (119249)
(DECREASE) IN ACCRUED INTEREST PAYABLE 44463 (67143)
DECREASE IN OTHER ASSETS (2213322) (23256)
(DECREASE) IN OTHER LIABILITIES (122646) (38255)
NET CASH PROVIDED BY OPERATING ACTIVITIES (2283375) 18866
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF AFS SECURITIES (22229942) (1497012)
PROCEEDS FROM SALES OF AFS SECURITIES 3187740 0
PROCEEDS FROM MATURITIES OF AFS SECURITIES 5387961 1064814
NET (INCREASE) IN LOANS OUTSTANDING (2678735) (1436631)
NET (INCREASE) DECREASE IN FED FUNDS SOLD (326714) 3058000
PURCHASE OF PREMISES AND EQUIPMENT (1779216) (84017)
DECREASE IN OTHER REAL ESTATE OWNED 144515 (360928)
NET CASH USED IN INVESTING ACTIVITIES (18294391) 744226
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW 13499597 750748
NET INCREASE(DECREASE) IN TIME DEPOSITS 7988038 (1123851)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 36637 53349
DIVIDENDS PAID (395640) (311447)
NET CASH PROVIDED BY FINANCING ACTIVITIES 21128632 (631201)
NET INCREASE (DECREASE) IN CASH 1412873 1023207
CASH AND DUE FROM AT BEGINNING OF PERIOD 3302389
CASH AND DUE FROM AT END OF PERIOD 4715262
</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 six months ended June 1998 net income was $862,007 as compared to
$980,036 for the comparable period in 1997, for a decrease of 12.04%. Earnings
per share through the second quarter were $.43 as compared to $.44 in 1997,
which represents a decrease of 13.95%. Return on Average Equity was 9.85% for
1998 and 11.49% for 1997. Return on Average Assets was .92% and 1.24%
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 second quarter of 1998 was $3.21 million
and for the same period in 1997 the total was $3.03 million. This is an increase
6.09% over 1997. The Net Interest Margin on a fully tax equivalent basis for the
year to date 1998 was 5.21%, down from 5.81% for the comparable period in 1997.
Average interest earning assets totaled $187.00 million while average interest
bearing liabilities totaled $159.50 million at quarter end 1998. As a result,
interest-bearing assets exceeded interest- bearing liabilities by $27.52
million, or 17.24%.
Net interest income continues to be impacted by a flat 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 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 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 $90,000 through the six
months. The total Allowance for Loan Losses as of June 30, 1998 was $954,823.
The Loan Loss Provision as a percentage of Average Total Loans through the
second quarter of 1998 is .89%.
As of June 30, 1998, loans on Non-Accrual status totaled $286,683. Loans on
Non-Accrual status as of June 30, 1997 were $345,175. Loans still accruing
interest but delinquent 90 days were $328,000 at quarter end 1998 as compared to
$960,505 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 June 30, 1998, management deemed the loan loss reserve reasonable for the
loss risk identified in the loan portfolio.
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NON INTEREST INCOME
Other Income through the second quarter of 1998 totaled $739,397 as
compared to $513,951 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 six months ended June 30, 1998 Visa Fees were $101,468, Deposit Fees were
$147,851, and Trust Income was $243,004. 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 $2.85 million through the second quarter of
1998 as compared to $2.20 million for comparable period in 1997. This represents
an increase of 34.98% 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, 1998, Salary and Benefit Expense
was $1.31 million, Occupancy was $130,430, Furniture and Equipment was $340,760
and Other Operating was $1.07 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 second quarter end of 1998 were $193.69 million as compared
to $168.73 million at December 30, 1997. This represents an increase of 15.25%
for the six-month period.
Total Loans through the second quarter were $106.91 million as compared to
$105.05 million for the comparable period in 1997. Total Loans at year end 1997
were $105.06 million, resulting in an increase of 1.76% through the six months
ended June 30, 1998. Management continues to focus on new products and services
that will further stimulate lending activity in our market area.
Through the first six months of 1998, charged off loans totaled $12,005.
For the comparable period in 1997 total loans charged off were $152,097.
As of June 30, 1998, the Holding Company held $59.27 million in investment
securities. This compares with June 1997 balances of $40.79 million and year-end
1997 balances of $44.06 million. This represents an increase of 34.52% of the
total portfolio during the six months ended June 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 June 30, 1998, total deposits were $173.14 million as compared to
$140.86 million at quarter end 1997 and $149.60 at year end 1997. This
represents a net increase of $23.53 million or 15.73% for the six months ended
June 30, 1998. For the period of June 30, 1997 to 1998, Non Interest-bearing
Demand Deposits increased to $18.48 million, and Interest-bearing Transaction
Accounts increased to $32.08 million. Savings and certificates of deposit
increased to $122.58 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.
<PAGE>
The Bank of Lancaster maintained $1.23 million on Other Real Estate Owned
as of June 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 June 30, 1998 Federal Funds Sold totaled $11.88 million
and securities maturing in one year or less totaled $5.38 million, for a total
pool of $17.26 million. This compares to the comparable period in 1997, which
totaled $10.84 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 June 30, 1998 was 41.46% 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 June 30, 1998 was $19.15 million as compared to
$17.57 million for the same period 1997. This represents an increase of 8.99%
over June 1997. Shareholder equity at year-end 1997 was $18.69 million.
Shareholder equity was impacted by unrealized gains on securities in the amount
of $247,249 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 June 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 June 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 $15.14
and for 1997 the book value per share was $14.94. Cash dividends paid through
June 30, 1998 were $295,823. Total number of shares outstanding at June 30, 1998
was 1,158,160.
<PAGE>
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.
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)
8/14/1998 s/s Austin L. Roberts, III
---------------------------
President and
CEO
8/14/1998 s/s Paul T. Sciacchitano
---------------------------
Treasurer
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