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, 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.)
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: 1,164,029 shares of
common stock at September 30, 1999.
Transitional Small Business Disclosure Format ____yes X no
<PAGE>
BAY BANKS OF VIRGINIA, INC.
FORM 10-QSB
For the interim period ending SEPTEMBER 30, 1999.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1-3
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 1999 AND DECEMBER 1998 1
CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED SEPTEMBER 30, 1999 AND 1998
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 2
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR TO DATE SEPTEMBER 1999 AND 1998 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>
SEPTEMBER DECEMBER
BALANCE SHEET CATEGORIES 1999 1998
<S> <C>
ASSETS:
CASH DUE FROM BANKS 3,886,782 5,268,229
U. S. TREASURY SECURITIES 1,515,000 4,566,875
U. S. GOVERNMENT SECURITIES 14,432,634 17,198,694
STATE AND MUNICIPAL SECURITIES 27,411,795 25,354,483
OTHER SECURITIES 17,655,720 11,831,332
FED FUNDS SOLD 120,000 12,007,706
TOTAL LOANS, NET UNEARNED 123,988,599 114,988,545
LESS: LOAN LOSS RESERVE (1,186,961) (1,011,935)
NET LOANS 122,801,638 113,976,610
NET PREM., FURN., FIXT. 4,419,554 4,699,797
ACCRUED INTEREST RECEIVABLE 1,529,730 1,537,745
OTHER REAL ESTATE OWNED 646,830 1,179,556
OTHER ASSETS 4,538,423 2,582,685
TOTAL ASSETS 198,958,106 200,203,712
LIABILITIES
DEMAND DEPOSITS 20,692,699 19,851,650
SAVINGS AND NOW 106,682,979 105,347,377
CERTIFICATES OF DEPOSIT 47,204,604 53,656,050
TOTAL DEPOSITS 176,976,082 178,855,077
FED FUNDS PURCHASED 3,150,000 -
OTHER LIABILITIES 1,321,473 840,495
TOTAL LIABILITIES 178,295,711 179,695,572
SHAREHOLDERS EQUITY:
COMMON STOCK
AUTHORIZED-5,000,000 SHARES
OUTSTANDING-1,164,029 AND 1,164,728 5,820,148 5,823,640
PAID IN CAPITAL 12,298,519 3,529,924
RETAINED EARNINGS 2,716,898 10,528,706
MKT.ADJ.-SEC.-UNREALIZED (929,214) 626,500
TOTAL SHAREHOLDERS EQUITY 19,906,351 20,508,140
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY 198,958,106 200,203,712
</TABLE>
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER END QUARTER END YTD YTD
SEPTEMBER 1999 SEPTEMBER 1998 SEPTEMBER 1999 SEPTEMBER 1998
<S> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS 2548304 2401627 7457919 7092119
INTEREST ON US TREASURY SECURITIES 34314 90531 130526 308217
INTEREST ON US GOVERNMENT SECURITIES 279130 221614 717740 660549
INTEREST ON MUNICIPAL SECURITIES 360584 326569 1054595 924542
INTEREST ON OTHER SECURITIES 229950 168046 810273 457364
INTEREST ON FED FUNDS SOLD 28779 208029 190747 631519
TOTAL INTEREST INCOME 3481061 3416416 10361994 10074310
INTEREST EXPENSE
INTEREST ON INT. BEARING TRANSACTION 268890 263303 797238 750361
INTEREST ON SAVINGS DEPOSITS 741035 796642 2154679 2352906
INTEREST ON CERTIFICATES 574700 745552 1842333 2223654
INTEREST ON FED FUNDS PURCHASED 418 0 418 0
OTHER SHORT TERM BORROWINGS 32308 4578 32308 6325
TOTAL INTEREST EXPENSE 1617351 1810075 4826976 5333246
NET INTEREST INCOME 1863710 1606341 5535018 4741064
PROVISION FOR LOAN LOSSES 75000 58367 275000 148367
NET INTEREST INCOME AFTER PROV. 1788710 1547974 5260018 4592697
NON-INTEREST INCOME
VISA INCOME 84236 97168 206331 204636
DEPOSIT FEES 86925 86728 262362 234579
TRUST DEPARTMENT FEES 129423 122334 388269 365338
OTHER FEES 67419 99576 264838 281864
SECURITIES GAINS AND LOSSES 186 35769 186 101274
TOTAL NON-INTEREST INCOME 368189 441574 1122254 1187690
NON-INTEREST EXPENSE
SALARIES AND BENEFITS 745835 690742 2189833 2004780
OCCUPANCY 59794 67368 213427 197798
FURNITURE AND EQUIPMENT 129632 115108 434032 455869
OTHER OPERATING 468115 460443 1421440 1446185
TOTAL NON-INTEREST EXPENSE 1403376 1333661 4258732 4104632
INCOME BEFORE TAXES 753523 655885 2123540 1675756
INCOME TAXES 155251 116952 568649 267808
NET INCOME 598272 538935 1554891 1407948
EARNINGS PER SHARE .51 0.46 1.34 1.21
</TABLE>
<PAGE>
BANKS OF VIRGINIA, INC.
CONDENSED STATEMENT OF CASHFLOWS
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
SEPTEMBER 1999 SEPTEMBER 1998
<S> <C>
NET INCOME 1554891 1407948
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 328477 455869
PROVISION FOR LOAN LOSS 225000 148367
NET (GAIN) LOSS ON SALE OF SECURITIES (181) (101274)
DECREASE IN ACCRUED INTEREST RECEIVABLE 8015 (440942)
(DECREASE) IN ACCRUED INTEREST PAYABLE (57861) 39731
DECREASE IN OTHER ASSETS (1955738) (2193843)
(DECREASE) IN OTHER LIABILITIES 157978 (173942)
------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 332397 (859086)
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF AFS SECURITIES (3172318) (25605577)
PROCEEDS FROM SALES OF AFS SECURITIES 509300 5520545
PROCEEDS FROM MATURITIES OF AFS SECURITIES 5337395 7980475
NET (INCREASE) IN LOANS OUTSTANDING (9000054) (7642627)
NET (INCREASE) DECREASE IN FED FUNDS SOLD 8737000 (2872137)
PURCHASE OF PREMISES AND EQUIPMENT (20760) (1742850)
DECREASE IN OTHER REAL ESTATE OWNED 532736 218874
------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES 2851483 (24143297)
CASH FLOWS FROM FINANCING ACTIVITIES
NET INCREASE(DECREASE) IN DEMAND, SAVINGS, AND NOW 2176651 15942267
NET INCREASE(DECREASE) IN TIME DEPOSITS (6451446) 8970755
PROCEEDS FROM ISSUANCE OF COMMON STOCK (3492) 50382
DIVIDENDS PAID (647070) (512782)
------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (4925327) 24450622
NET INCREASE (DECREASE) IN CASH (1741447) (550761)
</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 1999 net income was $1.55
million as compared to $1.41 million for the comparable period in 1998,
for an increase of 9.93%. Earnings per share through the third quarter
were $1.34 as compared to $1.21 in 1998, which represents an increase
of 10.74%. Return on Average Equity was 8.23% for 1999 and 8.05% for
1998. Return on Average Assets was 1.07% and .97% consecutively.
Net Interest Income through the third quarter of 1999 was
$5.52 million and for the same period in 1998 the total was $4.74
million. This is an increase 16.46% over 1998. The Net Interest Margin
on a fully tax equivalent basis for the year to date 1999 was 5.74%, up
from 5.17% for the comparable period in 1998. Average interest earning
assets totaled $188.92 million. As a result, interest-earning assets
exceeded interest- bearing liabilities by $28.17 million, or 14.91%.
Earning assets as a percentage of total average assets at quarter end
1999 were 93.24%, and for 1998 were 94.05%.
PROVISION/ALLOWANCE FOR LOAN LOSSES
Increases in the Provision for Loan Losses were $275,000
through the nine months ended September 1999. The total Allowance for
Loan Losses as of September 31 was $1,186,961. The Loan Loss Provision
as a percentage of Average Total Loans through the third quarter of
1999 was .97%.
As of September 30, 1999, loans on Non-Accrual status totaled
$38,961. Loans on Non-Accrual status as of September 31, 1998 were
$96,442. Loan's still accruing interest but delinquent 90 days were
$540,923 at quarter end 1999 as compared to $400,192 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 September 30, 1999, 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 1999 totaled $1.12
million as compared to $1.19 million 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
<PAGE>
Trust Department contribute the majority. Through the nine months ended
September 30, 1999 Visa Fees were $206,331, Deposit Fees were $262,362,
and Trust Income was $388,269.
NON INTEREST EXPENSE
Non Interest Expense totaled $4.26 million through the third
quarter of 1999 as compared to $4.10 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 nine months ended September 30, 1999, Salary and Benefit
Expense was $2.19 million, Occupancy was $213,427, Furniture and
Equipment was $434,032 and Other Operating was $1,421,440.
FINANCIAL CONDITION
Total Assets at third quarter end of 1999 were $198.96 million
as compared to $200.20 million at December 30, 1998. This represents a
nominal decrease of .62% during the nine-month period.
Total Loans through the third quarter were $123.99 million as
compared to $111.86 million for the comparable period in 1998. Total
Loans at year end 1998 were $114.99 million, resulting in an increase
of 7.83% through the nine months ended September 30, 1999. Management
continues to focus on new products and services that will further
stimulate lending activity in our market area.
Through the nine months of 1999, charged off loans totaled
$112,935. For the comparable period in 1998 total loans charged off
were $43,731.
As of September 30, 1999, the Holding Company held $61.02
million in investment securities. This compares with December 1998
balances of $58.95 million. This represents an increase of 3.50% of the
total portfolio during the nine months ended September 30, 1999.
As of September 30, 1999, total deposits were $176.98 million
as compared to $177.90 million at quarter end 1998 and $178.85 at year
end 1998. This represents a net decrease of $1.87 million or 1.05% for
the nine months ended September 30, 1999. For the period of September
30, 1999 to 1998, Non Interest-bearing Demand Deposits increased to
$20.69 million, and Interest-bearing Transaction Accounts and Savings
increased to $106.68 million. Certificates of deposit decreased to
$47.21 million. The Bank of Lancaster maintained $647 thousand on Other
Real Estate Owned as of September 30, 1999. For the comparable period
in 1998 the balance was $1.16 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 or Purchased, Other Borrowings and investments that mature in one
year or less provide the major sources of funding for liquidity needs.
At September 30, 1999 Federal Funds Purchased totaled $3.15 million.
Total available Federal Funds Purchased lines of credit are $14.8
million. The company is developing products and alternative funding
sources to fund loan growth and thereby remove itself from the Federal
<PAGE>
Funds Purchased market. Securities maturing in one year or less totaled
$4.36 million. The liquidity ratio as of September 30, 1999 was 34.98%
as compared to 39.34% 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, 1999 was $19.91
million as compared to $18.97 million for the same period 1998. This
represents an increase of 4.96% over September 1998. Shareholder equity
at year-end 1998 was $20.51 million. Shareholder equity was impacted by
unrealized losses on securities in the amount of $929,214 at quarter
end 1999, while unrealized gains at year-end were $626,500.
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 $18.89
million, Tier 2 Capital of $1.19 million and Total Risk Based Capital
of $20.07 million. Net Risk Weighted Assets totaled $128.03 million. As
of September 30, 1999, the Holding Company maintained 14.76% and 15.68%
Tier 1 and Total Capital Ratios. The respective minimums are 5.50% and
6.00%. The Holding Company's Leverage Ratio at September 30, 1999 was
9.56% with a regulatory minimum of 3.00%.
Book Value per share of common stock for the 1999 interim
period was $17.10 and for 1998 the book value per share was $17.78.
Cash dividends paid through September 30, 1999 were $396,627. Total
number of shares outstanding at September 30, 1999 was 1,164,029.
<PAGE>
Year 2000 Issues
The Year 2000 issue is a significant business issue that relates to the fact
that many computer programs use a two-digit code to recognize and store the
years' date. These programs were written to assume that the century is 1900;
subsequently, some programs will not recognize the date change that occurs with
the new millennium. The Company recognizes Year 2000 planning and compliance as
a major business and operations issue. The Board of Directors is informed on an
ongoing basis of all steps taken to insure a smooth transition into the year
2000. Further, management has developed a plan and timeline to evaluate the
risks and exposures that the Company faces on a technological and operational
level. This plan is a five-part approach, which includes making all necessary
parties aware of the situation, assessing all impacts, renovation of operating
systems, validation of all changes for effectiveness, and implementation of the
necessary policies and procedures to ensure compliance. A Year 2000 team
composed of senior management and key operational officers has been in place for
over one year. Among the tasks accomplished to date are the identification and
cataloging of all software, hardware, maintenance contracts and third-party
vendors. Each identified party has been contacted and a dialogue established to
ensure the necessary compliance with regulatory time constraints. Testing of all
hardware and software were completed by June 30, 1999. Additionally, operating
and capital budgets incorporate anticipated expenditures necessary to ensure
compliance. The Company expects to be in conformity with the FFEIC Y2K Statement
and be fully compliant prior to December 31, 1999.
The company estimates the cost of Y2K to be $262 thousand for the year ended
December 31, 1998. As this process develops, costs of implementation are
estimated to be $75 thousand for 1999 and 2000. Management has developed and
tested a five-part plan to prepare for potential Year 2000 malfunctions. System
testing has been performed in accordance with Federal Reserve Bank regulations
and FFIEC guidelines. Management anticipates little or no disruption in the
delivery of services. However, there can be no guarantee that no disruptions
will occur as a result of Year 2000. Presently management does not expect that
any problems currently anticipated will have a materially adverse impact on
its business.
Forward-Looking Statements
In addition to the historical information contained herein, this discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the operations of the Bank, and the Holding Company's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein, but also include changes in economic
conditions in the Company's (or Bank's) market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market, and competition. Any of these factors could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected.
<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) The Company filed an 8K on August 25, 1999. This filing
announced the implementation of a share repurchase program as
of August 24, 1999. The filing referenced Item 5: Other Events
and read as follows:
On August 24, 1999, the Registrant announced that its Board of
Directors approved on August 19, 1999, a share repurchase program for
its common stock. The Board authorized the registrant to repurchase up
to 15,000 shares of common stock from time to time based on, among
other things, market price and share availability.
<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)
11/15/1999 /s/ Austin L. Roberts, III
-------------------------
President and
Chief Executive Officer
11/15/1999 /s/ Paul T. Sciacchitano
----------------------
Treasurer
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