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, 1999
[ ] 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.)
Indicate by checkmark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during he 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
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,169,945 shares of common
stock at June 30, 1999.
<PAGE>
FORM 10-QSB
For the interim period ending June 30, 1999.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
JUNE 1999 AND DECEMBER 1998
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED JUNE 30, 1999 AND 1998,
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE JUNE 1999 AND 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
SIGNATURES
<PAGE>
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE DECEMBER
BALANCE SHEET CATEGORIES 1999 1998
<S> <C>
ASSETS:
CASH DUE FROM BANKS 5,144,333 5,268,229
U. S. TREASURY SECURITIES 2,522,070 4,566,875
U. S. GOVERNMENT SECURITIES 15,231,680 17,198,694
STATE AND MUNICIPAL SECURITIES 26,503,924 25,354,483
OTHER SECURITIES 18,529,666 11,831,332
FED FUNDS SOLD 2,562,301 12,007,706
TOTAL LOANS,NET UNEARNED 117,453,827 114,988,545
LESS: LOAN LOSS RESERVE (1,145,930) (1,011,935)
NET LOANS 116,307,896 113,976,610
NET PREM., FURN., FIXT. 4,578,436 4,699,797
ACCRUED INTEREST RECEIVABLE 1,693,121 1,537,745
OTHER REAL ESTATE OWNED 635,256 1,179,556
OTHER ASSETS 4,383,959 2,582,685
TOTAL ASSETS 198,092,643 200,203,712
LIABILITIES
DEMAND DEPOSITS 23,781,432 19,851,650
SAVINGS AND NOW 105,686,860 105,347,377
CERTIFICATES OF DEPOSIT 49,260,607 53,656,050
TOTAL DEPOSITS 178,728,899 178,855,077
FED FUNDS PURCHASED - -
OTHER LIABILITIES 467,804 840,495
TOTAL LIABILITIES 179,196,703 179,695,572
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,169,945 AND 1,164,728 5,857,073 5,823,640
ADDITIONAL PAID IN CAPITAL 3,015,954 3,529,294
RETAINED EARNINGS 10,751,855 10,528,706
MKT.ADJ.-SEC.-UNREALIZED (728,942) 626,500
TOTAL SHAREHOLDERS EQUITY 18,895,940 20,508,140
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 198,092,643 200,203,712
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER END QUARTER END YEAR TO DATE YEAR TO DATE
30-Jun-99 Jun-98 1-Jun-99 Jun-98
<S> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS 2,473,030 2,417,811 4,909,615 4,770,152
INTEREST ON US TREASURY SECURITIES 41,593 102,574 96,212 217,687
INTEREST ON US GOVERNMENT SECURITIES 155,893 227,649 438,610 438,935
INTEREST ON MUNICIPAL SECURITIES 365,504 339,281 694,011 597,972
INTEREST ON OTHER SECURITIES 380,432 173,756 580,323 289,317
INTEREST ON FED FUNDS SOLD 54,557 179,302 162,162 423,866
TOTAL INTEREST INCOME 3,471,009 3,440,373 6,880,933 6,737,929
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 272,365 261,527 528,347 488,804
INTEREST ON SAVINGS DEPOSITS 705,719 779,152 1,413,644 1,556,263
INTEREST ON CERTIFICATES 611,349 745,390 1,267,633 1,478,102
INTEREST ON FED FUNDS PURCHASED - - - -
TOTAL INTEREST EXPENSE 1,589,433 1,786,069 3,209,624 3,523,169
NET INTEREST INCOME 1,881,576 1,654,304 3,671,309 3,214,760
PROVISION FOR LOAN LOSSES 130,000 45,000 200,000 90,000
NET INTEREST INCOME AFTER PROV. 1,751,576 1,609,304 3,471,309 3,124,760
NON-INTEREST INCOME
VISA INCOME 78,571 62,714 122,095 101,468
DEPOSIT FEES 92,947 83,316 175,707 147,851
TRUST DEPARTMENT FEES 136,512 122,334 258,846 243,004
OTHER FEES 139,280 114,618 197,420 181,568
SECURITIES GAINS AND LOSSES - 65,506 65,506
TOTAL NON-INTEREST INCOME 447,310 448,488 754,068 739,397
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 733,474 681,754 1,443,998 1,314,039
OCCUPANCY 83,804 72,327 153,633 130,430
FURNITURE AND EQUIPMENT 166,585 165,217 304,400 340,760
OTHER OPERATING 512,870 568,790 953,325 1,066,921
TOTAL NON-INTEREST EXPENSE 1,496,733 1,488,088 2,855,356 2,852,150
INCOME BEFORE TAXES 702,153 569,704 1,370,021 1,012,007
INCOME TAXES 174,000 70,000 338,000 150,000
NET INCOME 528,153 499,704 1,032,021 862,007
EARNINGS PER SHARE 0.45 0.43 0.88 0.74
</TABLE>
<PAGE>
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES JUNE 1999 JUNE 1998
<S> <C>
NET INCOME 1,032,021 862,007
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 220,656 250,317
PROVISION FOR LOAN LOSS 200,000 94,115
NET (GAIN) LOSS ON SALE OF SECURITIES - (65,506)
DECREASE IN ACCRUED INTEREST RECEIVABLE (154,417) (270,996)
(DECREASE) IN ACCRUED INTEREST PAYABLE (30,619) 44,463
DECREASE IN OTHER ASSETS (1,801,274) (2,213,322)
(DECREASE) IN OTHER LIABILITIES (372,691) (122,646)
----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (1,938,345) (2,283,375)
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF AFS SECURITIES (9,855,822) (22,229,942)
PROCEEDS FROM SALES OF AFS SECURITIES 0 3,187,740
PROCEEDS FROM MATURITIES OF AFS SECURITIES 4,587,395 5,387,961
NET (INCREASE) IN LOANS OUTSTANDING (3,480,503) (2,678,735)
NET (INCREASE) DECREASE IN FED FUNDS SOLD 9,445,405 (326,714)
PURCHASE OF PREMISES AND EQUIPMENT 138,509 (1,779,216)
DECREASE IN OTHER REAL ESTATE OWNED 544,300 144,515
----------------------------------------
NET CASH USED IN INVESTING ACTIVITIES 1,379,284 (18,294,391)
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW 4,211,154 13,499,597
NET INCREASE(DECREASE) IN TIME DEPOSITS (4,395,443) 7,988,038
PROCEEDS FROM ISSUANCE OF COMMON STOCK 33,433 36,637
DIVIDENDS PAID (446,000) (395,640)
----------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (596,856) 21,128,632
NET INCREASE (DECREASE) IN CASH (123,896) 1,412,873
CASH AND DUE FROM AT BEGINNING OF PERIOD 5,268,229 3,302,389
CASH AND DUE FROM AT END OF PERIOD 5,144,333 4,715,262
</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 1999 net income was $1,032
million as compared to $862 thousand for the comparable period in 1998,
for an increase of 20.88%. Earnings per share through the second
quarter were $.89 as compared to $.74 in 1998, which represents an
increase of 20.27%. Return on Average Equity was 11.52% for 1999 and
9.85% for 1998. Return on Average Assets was 1.05% and .92%
consecutively.
Net Interest Income through the second quarter of 1999 was
$3.67 million and for the same period in 1998 the total was $3.21
million. This is an increase 14.33% over 1998. The Net Interest Margin
on a fully tax equivalent basis for the year to date 1999 was 5.59%, up
from 5.21% for the comparable period in 1998. Average interest earning
assets totaled $187.08 million through the six months ended June 30,
1999. As a result, interest-bearing assets exceeded interest-bearing
liabilities by $29.65 million, or 15.85%. Earning assets as a
percentage of total average assets at quarter end 1999 was 94.00% and
for 1998 was 93.59%.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Increases in the Provision for Loan Losses were $200,000
through the six months. The total Allowance for Loan Losses as of June
30 was $1,145,930. The Loan Loss Provision as a percentage of Average
Total Loans through the second quarter of 1999 was .98%.
As of June 30, 1999, loans on Non-Accrual status totaled
$44,028. Loans on Non-Accrual status as of June 30, 1998 were $286,683.
Loans still accruing interest but delinquent 90 days were $447,379 at
quarter end 1999 as compared to $328,000 for quarter end 1998.
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, 1999, management deemed the loan loss
reserve reasonable for the loss risk identified in the loan portfolio.
<PAGE>
NON INTEREST INCOME
Other Income through the second quarter of 1999 totaled
$754,068 as compared to $739,397 for 1998. Other Income for the 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, 1999 Visa Fees were $122,095, Deposit Fees were $175,707, and Trust
Income was $258,846.
NON INTEREST EXPENSE
Non Interest Expense totaled $2.85 million through the second
quarter of 1999 as compared to $2.85 million for comparable period in
1998. 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, 1999, Salary and Benefit Expense
was $1,443,998, Occupancy was $153,633, Furniture and Equipment was
$304,400 and Other Operating was $953,325.
FINANCIAL CONDITION
Total Assets at second quarter end of 1999 were $198.09
million as compared to $200.20 million at December 30, 1998. This
represents a decrease of 1.05% during the six-month period ended June
30, 1999.
Total Loans through the second quarter were $117.45 million as
compared to $106.91 million for the comparable period in 1998. Total
Loans at year end 1998 were $114.99 million, resulting in an increase
of 2.14% through the six months ended June 30, 1999 and 9.86% through
the twelve months ended June 30, 1999. The Company has experienced
increased mortgage loan demand during the first six months of 1999, and
continues to develop new products and services that will capitalize on
the current market conditions.
Through the first six months of 1999, loans charged off
totaled $73,865. For the comparable period in 1998 total loans charged
off were $12,005.
As of June 30, 1999, the Holding Company held $62.78 million
in investment securities. This compares with December 1998 balances of
$58.95 million. This represents an increase of 6.50% in the total
portfolio value during the six months ended June 30, 1999.
As of June 30, 1999, total deposits were $178.73 million as
compared to $173.14 million at quarter end 1998 and $178.85 at year end
1998. This represents a net decrease of $18 thousand or .10% for the
six months ended June 30, 1999, and an increase of 5.53% through the
twelve months ended June 30, 1999. For the period of June 30, 1999 to
1998, Demand Deposits decreased to $23.72 million, and Savings and NOW
Accounts increased to $105.68 million. Certificates of Deposit
increased to $49.26 million. These balances were $29.26 million, $88.90
million, $54.98 million respectively.
The Bank of Lancaster maintained $635 thousand on Other Real
Estate Owned as of June 30, 1999. For the comparable period in 1998 the
balance was $1.23 million. The Bank of Lancaster is aggressively
marketing all properties on OREO, and further, management expects no
loss on any of these properties.
<PAGE>
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, 1999 Federal Funds
Sold totaled $2.56 million and securities maturing in one year or less
totaled $4.34 million, for a total pool of $6.90 million. The liquidity
ratio as of June 30, 1999 was 32.72% as compared to 41.46% 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.
Total shareholder equity at June 30, 1999 was $18.89 million
as compared to $19.15 million for the same period 1998. This represents
a decrease of 1.35% as compared to June 1998. Shareholder equity at
year-end 1998 was $20.50 million. Shareholder equity was impacted by
unrealized losses on securities in the amount of $728,942 at quarter
end 1999, while these unrealized gains at year-end were $626,500. The
Company maintains 100% of its' investment portfolio in the Available
for Sale category, therefore, changes in the bond market have a
slightly more pronounced effect on Bay Banks of Virginia than its peer
group. These adjustments to capital are unrealized losses as determined
by FAS-115.
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 1999, the Company maintained Tier 1 Capital of $16.04
million, Tier 2 Capital of $1.15 million and Total Risk Based Capital
of $17.19 million. Net Risk Weighted Assets totaled $129.89 million. As
of June 30, 1999, the Holding Company maintained a Risk Based Capital
Ratio of 13.23%; a Total Capital to Adjusted Total Average Assets Ratio
of 8.58%. The respective minimums are 8.00% and 6.00%. The Holding
Company's Leverage Ratio at June 30, 1999 was 8.13% with a regulatory
minimum of 3.00%. The Tier One Capital Ratio was 12.35% as of June 30,
1999, and the regulatory minimum is 4.00%.
Book Value per share of common stock for the 1999 interim
period was $16.77 before adjusting for unrealized losses on investments
per FAS 115, and $16.15 after FAS 115. For 1998 the book values per
share were $16.33 and $16.54 respectively. Cash dividends paid through
June 30, 1999 were $446,000 or .38 per share. Total number of shares
outstanding at June 30, 1999 was 1,169,945.
<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 1998 Annual Report to Shareholders.
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)
8/15/1999 s/s Austin L. Roberts, III
---------------------------
President and
Chief Executive Officer
8/15/1999 s/s Paul T. Sciacchitano
--------------------------
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,144,333
<INT-BEARING-DEPOSITS> 154,947,467
<FED-FUNDS-SOLD> 2,562,301
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,787,340
<INVESTMENTS-CARRYING> 62,787,340
<INVESTMENTS-MARKET> 62,219,604
<LOANS> 117,453,827
<ALLOWANCE> (1,145,930)
<TOTAL-ASSETS> 198,092,643
<DEPOSITS> 178,728,899
<SHORT-TERM> 0
<LIABILITIES-OTHER> 467,804
<LONG-TERM> 0
0
0
<COMMON> 5,857,073
<OTHER-SE> 13,038,867
<TOTAL-LIABILITIES-AND-EQUITY> 198,092,643
<INTEREST-LOAN> 4,909,615
<INTEREST-INVEST> 1,228,833
<INTEREST-OTHER> 742,485
<INTEREST-TOTAL> 6,880,933
<INTEREST-DEPOSIT> 3,209,624
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 3,671,309
<LOAN-LOSSES> 200,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,855,356
<INCOME-PRETAX> 1,370,021
<INCOME-PRE-EXTRAORDINARY> 1,370,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032,021
<EPS-BASIC> .89
<EPS-DILUTED> .89
<YIELD-ACTUAL> 5.59
<LOANS-NON> 44,028
<LOANS-PAST> 447,379
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,211,934
<CHARGE-OFFS> 73,865
<RECOVERIES> 7,861
<ALLOWANCE-CLOSE> 1,145,931
<ALLOWANCE-DOMESTIC> 1,145,931
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
