<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER..........0-22955
BAY BANKS OF VIRGINIA, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1838100
(STATE OF INCORPORATION) (IRS EMP. ID NO.)
100 SOUTH MAIN STREET, KILMARNOCK, VA 22482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(ZIP CODE)
(804)435-1171
(REGISTRANTS TELEPHONE NUMBER INCLUDING AREA CODE)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during of
1934 during the preceding 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 stock, as of the latest practicable date: 1,159,312 shares of common
stock at September 30, 2000.
<PAGE>
FORM 10-Q
For the interim period ending September 30, 2000.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMTER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
SEPTMEBER 30, 2000 (UNAUDITED), DECEMBER 31, 1999 AND 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT ONLY BALANCE SHEETS AS OF
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
PARENT ONLY STATEMENTS OF EARNINGS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 1999
PARENT ONLY STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 2000 AND 1999 (UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FINANCIAL HIGHLIGHTS FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2000
COMPARED TO SEPTEMBER 30, 1999 (UNAUDITED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 ON FORM 8-K
Page 2 of 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Consolidated Balance Sheets
(Unaudited) September 30, 2000 Dec 31, 1999
ASSETS
<S> <C> <C>
Cash and due from banks 4,606,369 5,360,620
Federal funds sold 162,397 0
Investments Available for Sale 52,858,961 53,169,880
Gross Loans 146,148,395 131,629,479
Allowance for loan losses (1,286,684) (1,197,843)
Premises and equipment 5,718,406 4,953,723
Accrued interest receivable 1,573,285 1,598,605
Other real estate owned 757,060 925,044
Other assets 3,613,758 3,333,170
Total assets 214,151,947 199,772,678
LIABILITIES
Demand deposits 21,529,724 20,888,591
Savings and NOW deposits 91,713,756 96,848,391
Other time deposits 65,134,111 59,964,985
Total deposits 178,377,591 177,701,967
Fed Funds Purchased 2,144,000 0
Securities Sold for Repurchase 2,670,248 1,283,324
Other Short Term Borrowings 9,500,000 0
Other liabilities 1,017,985 1,081,526
Total liabilities 193,709,824 180,066,817
SHAREHOLDERS' EQUITY
Common stock - $5 par value;
Authorized - 5,000,000 shares 5,795,308 5,826,617
Additional paid-in capital 3,817,719 3,735,576
Retained Earnings 11,793,499 11,572,592
Accumulated other comprehensive income/(loss) (964,403) (1,428,924)
Total shareholders' equity 20,442,123 19,705,861
Total liabilities and shareholders' equity 214,151,947 199,772,678
</TABLE>
Page 3 of 16
<PAGE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Consolidated Statements of Earnings
(Unaudited)
Qtr Ended Qtr Ended Year-to-date Year-to-date
Sep 30, 2000 Sep 30, 1999 Sep 30, 2000 Sep 30, 1999
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans receivable (incl fees) 3,111,657 2,640,873 8,993,440 7,550,488
Securities 806,737 903,982 2,399,090 2,713,138
Federal funds sold 33,281 28,779 69,096 190,941
Total interest income 3,951,675 3,573,634 11,461,626 10,454,567
INTEREST EXPENSE
Deposits 1,940,761 1,584,625 5,571,585 4,794,249
Federal funds purchased 7,888 418 59,024 418
Securities Sold to Repurchase 30,391 32,308 82,798 32,308
Other Short Term Borrowings 223,046 0 323,917 0
Total interest expense 2,202,086 1,617,351 6,037,324 4,826,975
Net Interest Income 1,749,589 1,956,283 5,424,302 5,627,592
Provision for loan losses 60,000 75,000 190,000 275,000
Net interest income after provision 1,689,589 1,881,283 5,234,302 5,352,592
NONINTEREST INCOME
Income from fiduciary activities 176,750 129,423 499,038 388,269
Service charges on deposit accounts 87,936 86,923 264,204 262,630
Other service charges and fees 155,735 82,356 348,225 279,776
Net securities gains (475) 186 (4,875) 186
Other income 14,869 26,745 127,376 148,840
Total noninterest income 434,815 325,633 1,233,968 1,079,701
NONINTEREST EXPENSES
Salaries and employee benefits 865,339 745,836 2,494,742 2,189,834
Occupancy expense 188,034 493,827 533,606 647,460
Other expense 593,693 260,101 1,768,523 1,517,826
Total noninterest expenses 1,647,066 1,499,764 4,796,871 4,355,120
Net Income before income taxes 477,338 707,152 1,671,399 2,077,173
Income tax expense 107,000 165,000 441,000 503,000
Net Income after income taxes 370,338 542,152 1,230,399 1,574,173
Average shares outstanding 1,157,811 1,171,731 1,159,846 1,169,157
Earnings per share 0.32 0.46 1.06 1.35
</TABLE>
Page 4 of 16
<PAGE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended: Sept 30, 2000 Sept 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income 1,230,399 1,574,173
Adjustments to reconcile Net Income to Cash:
Depreciation 298,985 328,477
Provision for Loan Losses 190,000 225,000
Net (Gain) / Loss on Sale of Securities 4,875 (186)
(Increase) / Decrease in Accrued Interest Receivable 25,320 8,015
Increase / (Decrease) in Accrued Interest Payable 37,545 (57,861)
Increase / (Decrease) in Short Term Borrowings 13,030,924 2,563,978
(Increase) / Decrease in Other Assets (319,519) (1,955,738)
Increase / (Decrease) in Other Liabilities (101,086) (2,406,000)
Net Cash Provided / (Used) by Operating Activities 14,397,443 279,858
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of AFS Securities (2,882,392) (3,172,318)
Proceeds from sales of AFS Securities 2,364,825 509,300
Principal returns & maturities of AFS Securities 1,625,153 5,337,395
(Increase) / Decrease in Loans outstanding (14,471,470) (9,000,054)
(Increase) / Decrease in Fed Funds Sold (162,397) 8,737,000
Purchases of Premises and Equipment (1,024,740) (20,760)
(Increase) / Decrease in Other Real Estate Owned 120,537 532,736
Net Cash Provided / (Used) in Investing Activities (14,430,484) 2,923,299
CASH FLOWS FROM FINANCING ACTIVITIES
Increase / (Decrease) in Demand, Savings, & NOW deposits (4,493,502) 2,176,651
Increase / (Decrease) in Time Deposits 5,169,126 (6,451,446)
Proceeds from issuance of Common Stock 264,122 295,637
Repurchase of Common Stock (213,288) (99,564)
Dividends paid (730,217) (647,070)
Other (717,451) 8,847
Net Cash Provided / (Used) in Financing Activities (721,210) (4,716,945)
Net Increase / (Decrease) in Cash & Due from Banks (754,251) (1,513,788)
Cash & Due From Banks beginning of period 5,360,620 5,268,229
Cash & Due From Banks end of period 4,606,369 3,754,441
</TABLE>
Page 5 of 16
<PAGE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Consolidated Statement of Changes in
Shareholders' Equity
(Unaudited)
Accumulated
Other Other
Common Paid-in Retained Comprehensive Total
Stock Capital Earnings Income/(Loss) Equity
<S> <C> <C> <C> <C> <C>
Balance on 12/31/97 5,754,130 3,164,510 9,502,341 271,137 18,692,118
Comprehensive Income:
Net Income 1,930,900 1,930,900
Net changes in unrealized
appreciation of available-
for-sale securities, net of
taxes of $176,746 355,363 355,363
-----------------------------------------------------------------
Total Comprehensive Income - - 1,930,900 355,363 2,286,263
Dividends paid ($0.70/share) (809,825) (809,825)
Sale of common stock:
Dividends Reinvested 59,420 280,124 - - 339,544
Stock Options exercised 10,090 84,660 (94,710) - 40
=================================================================
Balance on 12/31/98 5,823,640 3,529,294 10,528,706 626,500 20,508,140
Comprehensive Income:
Net Income 2,175,378 2,175,378
Net changes in unrealized
appreciation of available-
for-sale securities, net of
taxes of $1,058,856 (2,055,424) (2,055,424)
-----------------------------------------------------------------
Total Comprehensive Income - - 2,175,378 (2,055,424) 119,954
Dividends paid ($0.78/share) (910,279) (910,279)
Stock repurchases (58,385) (122,510) (214,349) (395,244)
Sale of common stock:
Dividends Reinvested 56,152 310,127 - - 366,279
Stock Options exercised 5,210 18,665 (6,864) - 17,011
=================================================================
Balance on 12/31/99 5,826,617 3,735,576 11,572,592 (1,428,924) 19,705,861
Comprehensive Income:
Net Income 1,230,399 1,230,399
Net changes in unrealized
appreciation of available-
for-sale securities, net of
taxes of $239,299 464,521 464,521
-----------------------------------------------------------------
Total Comprehensive Income - - 1,230,399 464,521 1,694,920
Dividends paid ($0.63/share) (730,217) (730,217)
Stock repurchases (68,935) (144,353) (279,275) (492,563)
Sale of common stock:
Dividends Reinvested 36,126 223,046 - - 259,172
Stock Options exercised 1,500 3,450 - 4,950
=================================================================
Balance on 9/30/00 5,795,308 3,817,719 11,793,499 (964,403) 20,442,123
</TABLE>
Page 6 of 16
<PAGE>
Notes to Consolidated Financial Statements
Bay Banks of Virginia, Inc. owns 100% of the Bank of Lancaster, `the Bank,' and
100% of Bay Trust Company of Virginia, Inc, `the Trust Company.' The
consolidated financial statements include the accounts of the Bank, the Trust
Company, and Bay Banks of Virginia.
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, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the consolidated financial
statements have been included.
These consolidated financial statements should be read in conjunction with the
financial statements and notes to financial statements included in the
registrant's 1999 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Parent Only Balance Sheets
(Unaudited)
Sep 30, 2000 Dec 31, 1999
<S> <C> <C>
ASSETS
Cash and due from banks 266,993 2,113,231
Due from Subsidiaries - -
Federal funds sold - -
Investments (incl unreal G/L) - -
Loans - -
Allowance for loan losses - -
Premises and equipment 96,747 -
Other real estate owned - -
Other assets 374,664 -
Investment In Subsidiary Bank of Lancaster 18,502,455 18,751,030
Investment in Subsidiary Bay Trust Company 1,909,417 238,479
Investment In Subsidiary Chesapeake Holdings 701 701
Organizational Expenses 25,656 32,254
Total assets 21,176,633 21,135,695
LIABILITIES
Total deposits - -
Fed Funds Purchased - -
Other liabilities (194,730) 432
Total liabilities (194,730) 432
SHAREHOLDERS' EQUITY
Common stock - $5 par value; Authorized - 5,000,000 shares
Outstanding - 1,158,562 and 1,165,323 5,795,308 5,826,617
Additional paid-in capital 12,414,546 12,332,403
Retained Earnings 3,161,509 2,976,243
Total shareholders' equity 21,371,363 21,135,263
Total liabilities and shareholders' equity 21,176,633 21,135,695
</TABLE>
Page 7 of 16
<PAGE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Parent Only Statements of Earnings
(Unaudited)
Qtr ended Qtr ended Qtr Qtr Year-to-date Year-to-date
ended ended
9/30/00 9/30/99 6/30/00 6/30/99 9/30/00 9/30/99
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable (incl fees) - - - - - -
Securities - - - - - -
Federal funds sold - - - - - -
Total interest income - - - - - -
INTEREST EXPENSE
Deposits - - - - - -
Total interest expense - - - - - -
NET INTEREST INCOME - - - - - -
Provision for loan losses - - - - - -
Net interest income after provision - - - - - -
NONINTEREST INCOME
Income from fiduciary activities - - - - - -
Other service charges and fees - - - - - -
Net securities gains - - - - - -
Other income 4,673 57 44,392 - 49,065 57
Dividend Income from Subsidiary 250,000 200,000 230,000 200,000 705,000 625,000
Undistributed Earnings of Bank of Lancaster 134,990 360,276 163,609 338,128 511,425 977,272
Undistributed Earnings of Bay Trust (11,896) - 23,489 - 10,938 -
Undistributed Earnings of Chesapeake Hldgs - - - - - (50)
Total noninterest income 377,767 560,333 461,490 538,128 1,276,428 1,602,279
NONINTEREST EXPENSES
Salaries and employee benefits - - - - - -
Occupancy expense - - - - - -
Deposit insurance premium - - - - - -
Other expense 19,308 17,838 56,973 850 81,669 28,106
Total noninterest expenses 19,308 17,838 56,973 850 81,669 28,106
Income before income taxes 358,459 542,495 404,518 537,278 1,194,759 1,574,173
Income tax expense - - - -
NET INCOME 358,459 542,495 404,518 537,278 1,194,759 1,574,173
</TABLE>
Page 8 of 16
<PAGE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Parent Only Statements of Cash Flows
(Unaudited)
Year-to-date Year-to-date
Sept 30, 2000 Sept 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income 1,194,759 1,574,173
Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in undistributed (earnings) losses of subsidiaries (522,364) (977,223)
(Increase) / Decrease in other assets (464,813) 8,739
Increase / (Decrease) in other liabilities (195,163) -
Other - -
Net Cash Provided (used) by Operating Activities 12,419 605,689
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in and advances to subsidiaries (900,000) -
Sale or repayment of investments in and advances to subsidiaries - -
Other - -
Net Cash Provided (used) by Investing Activities (900,000) -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances from subsidiaries - -
Repayment of advances from subsidiaries - -
Proceeds from issuance of common stock 264,122 295,637
Payments to repurchase common stock (213,288) (99,564)
Dividends paid (730,218) (669,617)
Other (279,273) (122,943)
Net Cash Provided (used) by Financing Activities (958,657) (596,487)
Net increase (decrease) in Cash & Cash Equivalents (1,846,238) 9,202
Cash & Cash Equivalents at beginning of period 2,113,231 2,470,587
Cash & Cash Equivalents at end of period 266,993 2,479,789
</TABLE>
Page 9 of 16
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion is intended to assist in understanding the results of
operations and the financial condition of Bay Banks of Virginia, Incorporated,
"the Company," a two bank holding company. This discussion should be read in
conjunction with the following Financial Highlights Table, the above
consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Financial Highlights
(Unaudited)
<S> <C> <C> <C>
Nine months ended (Thousands) 9/30/00 9/30/99 Change
FINANCIAL CONDITION
Average Assets 209,748 199,538 5.12%
Average Interest-earning Assets 196,432 183,983 6.77%
Average Earning Assets to Total Average Assets 93.7% 92.2% 1.57%
Period-end Interest-bearing Liabilities 171,162 158,097 8.26%
Average Interest-bearing Liabilities 167,424 157,797 6.10%
Average Equity, including FAS 115 adjustment 19,862 19,725 0.69%
Tier 1 Capital 19,460 18,916 2.94%
Net Risk-weighted Assets 140,134 127,956 12.98%
Tier 2 Capital 1,287 1,187 5.84%
RESULTS OF OPERATIONS
Net Interest Income before Provision 5,424 5,628 -3.61%
Net Income 1,230 1,574 -21.84%
Annualized Yield on Average Interest-earning Assets 8.00% 7.84% 2.04%
Annualized Cost on Average Interest-bearing Liabilities 4.80% 4.08% 17.65%
Annualized Net Yield on Average Interest-earning Assets 3.91% 4.34% -9.91%
Annualized Net Interest Rate Spread 3.19% 3.76% -15.16%
RATIOS
Total Capital to Risk-weighted Assets (10% min) 14.8% 15.7% -8.73%
Tier 1 Capital to Risk-weighted Assets (6% min) 13.9% 14.8% -8.87%
Leverage Ratio (5% min) 9.1% 9.6% -2.16%
Annualized Return on Average Assets 0.8% 1.1% -25.64%
Annualized Return on Average Equity 8.3% 10.6% -22.38%
Period-end shares outstanding 1,159,312 1,167,707 -0.72%
Average shares outstanding 1,159,846 1,169,157 -0.80%
PER SHARE DATA
Basic Earnings per average share (EPS) (nine months) 1.06 1.35 -21.21%
Cash Dividends per average share (nine months) 0.63 0.57 9.93%
Book Value per share
before Accumulated Comprehensive Income/Loss 18.46 17.86 3.37%
after Accumulated Comprehensive Income/Loss 17.63 17.07 3.31%
</TABLE>
EARNINGS SUMMATION
For the nine months ended September 30, 2000, net income was $1,230 thousand
as compared to $1,574 thousand for the comparable period in 1999, a decrease of
21.8%. Earnings per average share for the first nine months of 2000 were $1.06
as compared to $1.35 for the first nine months of 1999, a decrease of 21.2%.
Return on average equity was 8.3% for the first nine months of 2000 as compared
to 10.6% for the first nine months of 1999, a decrease of 22.4%. Return on
average assets was 0.8% for the first nine months of 2000 as compared to 1.1%
for the first nine months of 1999, a decrease of 25.6%. Net interest income for
the first nine months of 2000 was $5,424 thousand as compared to $5,628 thousand
for the first nine months of 1999, a decrease of 3.6%. Average interest-earning
assets totaled $196.4 million for the first nine months of 2000 as compared to
$184.0 million for the comparable period of 1999, an increase of 6.8%. Average
interest-bearing liabilities totaled $167.4 million for the first nine months of
2000 as compared to $157.8 million for the comparable period of 1999, an
increase of 6.1%. The annualized yield on average interest-earning assets for
the first nine months of 2000 was 8.0% as compared to 7.8% for the comparable
period of 1999, an increase of 2.0%. The annualized yield (cost) on interest-
Page 10 of 16
<PAGE>
bearing liabilities for the first nine months of 2000 was 4.8% as compared to
4.1% for the comparable period of 1999, an increase of 17.6%. Average interest-
earning assets as a percent of total average assets was 93.7% for the first nine
months of 2000 as compared to 92.2% for the comparable period of 1999, an
increase of 1.6%. Average total assets for the first nine months of 2000 was
$209.8 million as compared to $199.5 million for the first nine months of 1999,
growth of 5.1%.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Net Interest Income Analysis
(Unaudited)
(Fully taxable equivalent basis) Nine months Nine months
ended 9/30/2000 Income/ Annualized ended 9/30/1999 Income/ Annualized
(Thousands) Average Balance Expense Yield/Rate Average Balance Expense Yield/Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investments (Book Value):
Taxable Investments 42,271 2,002 6.31% 45,179 2,106 6.21%
Tax-Exempt Investments (1) 13,052 480 7.44% 17,113 639 7.55%
Total Investments 55,323 2,482 6.58% 62,292 2,745 6.58%
Gross Loans (2) 139,848 8,993 8.57% 117,146 7,548 8.59%
Interest-bearing Deposits 100 - 0.00% - - 0.00%
Fed Funds Sold 1,073 69 6.44% 4,545 191 5.60%
TOTAL INTEREST EARNING ASSETS 196,344 11,545 8.00% 183,983 10,483 7.84%
INTEREST-BEARING LIABILITIES:
Deposits:
Savings Deposits 59,542 2,121 4.75% 69,148 2,155 4.15%
NOW Deposits 25,987 570 2.93% 26,154 554 2.83%
CD's (greater than or
equal to) $100,000 14,851 674 6.05% 11,295 427 5.04%
CD's (less than) $100,000 46,913 1,917 5.45% 39,054 1,416 4.83%
Money Market Deposit Accounts 10,827 289 3.56% 10,830 243 2.99%
Total Deposits 158,120 5,572 4.70% 156,481 4,794 4.09%
Fed Funds Purchased 868 59 6.80% 3 0 5.80%
Securities Sold to Repurchase 2,304 83 4.79% 1,232 32 3.50%
Other Short Term Borrowings 6,331 324 6.82% - - 0.00%
TOTAL INTEREST-BEARING LIABILITIES 167,623 6,037 4.80% 157,716 4,827 4.08%
Net Interest Income/Yield on
Earning Assets 5,507 3.91% 5,657 4.34%
Net Interest Rate Spread 3.19% 3.76%
</TABLE>
Notes:
------
(1)-Yield assumes a federal tax rate of 34%
(2)-Includes Visa Program & nonaccrual loans.
For the nine months ended September 30, 2000, yields on interest-earning
assets have improved mainly due to increases in volume. Interest-earning assets
are comprised mainly of the loan portfolio at $146.1 million and the investment
portfolio at $52.9 million. For the nine month periods ended September 30,
2000, compared to September 30, 1999, on a fully tax equivalent basis, taxable
investment yields improved from 6.21% to 6.31%, tax-exempt investment yields
declined from 7.55% to 7.44%, and total investment yields remained flat at
6.58%. In the first nine months of 2000, gross loans on average volumes yielded
8.57% as compared to 8.59% for the comparable period of 1999. Yield on total
average earning assets improved from 7.84% to 8.00% for the first nine months of
2000 compared to the first nine months of 1999.
Yields on average interest-bearing deposits comparing the months of
September, 2000, to September, 1999, were as follows. Savings yields were 4.99%
compared to 4.31%, NOW accounts were 3.00% compared to 2.85%, money market
demand accounts were 3.71% compared 3.25%, and certificates of deposit were
6.07% compared to 4.74%. The resulting total yields on deposits in September,
2000, were 4.40% compared to 3.58% in September, 1999.
INTEREST RATE SENSITIVITY
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Interest Rate Sensitivity Gap Analysis
(Unaudited)
as of 9/30/2000
(Thousands) Within 3 months 3-12 Months 1-5 Years Over 5 Years Total
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest-Bearing Due From Banks 100 - - - 100
Fed Funds Sold 162 - - - 162
Debt Securities (Market Value) 955 3,185 25,493 22,151 51,784
Loans 16,461 19,681 66,746 43,260 146,148
TOTAL EARNING ASSETS 17,678 22,866 92,239 65,411 198,194
INTEREST-BEARING LIABILITIES:
NOW Accounts 7,783 - 17,325 - 25,108
MMDA's 3,594 - 6,675 - 10,269
Savings 32,675 - 23,661 - 56,336
CD's (less than) $100,000 11,019 30,489 4,313 1,012 46,833
CD's (greater than or equal to) $100,000 5,844 10,497 1,455 505 18,301
Total Interest-bearing Deposits 60,915 40,986 53,429 1,517 156,847
Fed Funds Purchased 2,144 - - - 2,144
Securities Sold to Repurchase 2,670 - - - 2,670
Other Short Term Borrowings - 9,500 - - 9,500
TOTAL INTEREST-BEARING LIABILITIES 65,729 50,486 53,429 1,517 171,161
Rate Sensitive Gap (48,051) (27,620) 38,810 63,894 27,033
Cumulative Gap (48,051) (75,671) (36,861) 27,033
Note: Visa Receivables are classified as 'Within 3 Month'
Loans.
</TABLE>
Management is currently developing plans to improve the Company's liability-
sensitive position.
Rising interest rate trends have resulted in a narrowing spread in net
interest margins within the Bank. As of September 30, 2000, the Bank had
interest-earning assets that mature within 3 months totaling $17.7 million, in
3-12 months totaling $22.9 million, in 1-5 years totaling $92.2 million, and
over 5 years totaling $65.4 million. In comparison, interest-bearing
liabilities maturing within 3 months totaled $65.7 million, in 3-12 months
totaled $50.5 million, in 1-5 years totaled $53.4 million, and over 5 years
totaled $1.5 million. The resulting short-term liability sensitivity has
resulted in deposit rates increasing more rapidly than loan rates. Management
is continually reviewing loan and deposit products to modify or develop
offerings that are less subject to interest rate risk.
In the short term, The Bank will continue to be liability-sensitive.
Simply stated, deposit rates are increasing faster than loan rates. This trend
is evidenced by the following analysis. For the nine months ended September 30,
2000, compared to the nine months ended September 30, 1999, the annualized yield
paid on interest-bearing liabilities is greater by 17.65%, but the annualized
yield on average earning assets is greater by only 2.04%. Although, comparing
those same periods, average interest-earning assets are greater by 6.77%, and
average interest-bearing liabilities are greater by 6.10%, net interest income
before provision for loan losses is down by 3.1%.
Another factor causing the liability sensitivity is the Bank's recent draws
on its Federal Home Loan Bank (FHLB) line of credit. This can be seen in Other
Short Term Borrowings. This source of funds demands a higher rate than
traditional deposits. Traditional average interest-bearing deposits have grown
only 1.05% for the nine months ended September 30, 2000, compared to the same
period in 1999.
LIQUIDITY
Bay Banks maintains adequate short-term assets to meet the company's
liquidity needs as anticipated by management. Federal funds sold and
investments that mature in one year or less provide the major sources of funding
for liquidity needs. On September 30, 2000, federal funds sold totaled $162.4
thousand and securities maturing in one year or less totaled $4.1 million, for a
total pool of $4.3 million. The liquidity ratio as of September 30, 2000 was
27.49% as compared to 30.40% as of December 31, 1999. Bay Banks of Virginia
determines this ratio by dividing net liabilities into the sum of cash and cash
equivalents, unpledged investment securities and Federal Funds Sold.
Management, through historical analysis, has deemed 15% an adequate liquidity
ratio.
Steady loan demand and nominal deposit growth have resulted in the
utilization of Federal Home Loan Bank lines during the first quarter of 2000.
The Bank has a total available line with the Federal Home Loan Bank of $19.95
million. As of September 30, 2000, $9.5 million was borrowed against that line.
In addition, the Bank maintained additional available credit of $13.2 million.
The Bank completed its acquisition of two First Virginia Bank branches on
October 27, 2000. These additional deposits will allow the Bank to reduce the
short term FHLB borrowings. This will also reduce the average rate paid on
interest-bearing liabilities by replacing the higher FHLB rate with a lower
deposit rate.
Page 11 of 16
<PAGE>
CAPITAL RESOURCES
From December 31, 1999, to September 30, 2000, total shareholder's equity
has grown by 3.74%. It is impacted by unrealized losses on securities in the
amount of $964,403 as of September 30, 2000. These unrealized losses on December
31, 1999 were $1,428,924. Unrealized gains or losses, net of taxes, are
recognized as accumulated comprehensive income or loss on the balance sheet and
statement of changes in shareholder's equity. Shareholder's equity before
unrealized losses was $21.4 million on September 30, 2000, and $21.1 million on
December 31, 1999. This represents an increase of $272 thousand or 1.3% during
the nine-month period.
Book value per average share for the first nine months of 2000, compared to
the same period in 1999, grew from $17.07 to $17.63, an increase of 3.3%. Book
value per average share before accumulated comprehensive income for the first
nine months of 2000, compared to the same period in 1999, grew from $17.86 to
$18.46, an increase of 3.4%. Cash dividends paid for the nine months ended
September 30, 2000, were $730 thousand, or $0.63 per average share, compared to
$670 thousand, or $0.57 per average share, for the comparable period ended
September 30, 1999, an increase of 9.9%. Total shares outstanding on September
30, 2000, were 1,159,312, compared to 1,167,707 on September 30, 1999. Average
shares outstanding for the nine months ended September 30, 2000 were 1,159,846,
compared to 1,169,157, for the comparable period ended September 30, 1999.
The Company began a share repurchase program in August of 1999 and has
continued the program into 2000. The company has implemented a share repurchase
plan not to exceed 40,000 shares. Through September 30, 2000, the company has
repurchased 25,464 shares since inception, for a total reduction in
shareholders' equity of $887,807. The average number of shares repurchased
since inception has been 1819 per month. During 2000, management does not
expect the program to significantly exceed this level of monthly share
repurchases.
The Company is subject to minimum regulatory capital ratios as defined by
FFIEC guidelines. As of September 30, 2000, the Company maintained Tier 1
capital of $19.5 million, net risk weighted assets of $140.1 million, and Tier 2
capital of $1.3 million. The Tier 1 capital to risk weighted assets ratio was
13.9%, the total capital ratio was 14.8%, and the tier 1 leverage ratio was
9.4%. These ratios continue to be well in excess of regulatory minimums. Please
refer to the Financial Highlights Table.
FINANCIAL CONDITION
Total assets on September 30, 2000, compared to December 31, 1999, have
grown 7.2% during the first nine months of 2000. Cash and cash equivalents
totaled $4.6 million on September 30, 2000, compared to $5.4 million at year-end
1999.
During the nine months ended September 30, 2000, total loans increased by
11.0%. During the same nine-month period, real estate mortgage loans increased
14.9% to $110.2 million, real estate construction loans decreased 24.6% to $4.1
million, commercial loans decreased 2.4% to $10.8 million, and installment loans
increased 9.2% to $20.4 million. Real estate lending continues to be the main
area of growth in the loan portfolio. Current local market conditions are
favorable for a continued trend through 2000. The Bank of Lancaster currently
maintains $10.8 million in first mortgage construction loans committed but not
yet fully funded. In addition, home equity lines committed and but not fully
funded total $5.4 million.
For the nine months ended September 30, 2000, the Company charged off loans
totaling $115.2 thousand. For the comparable period in 1999, total loans charged
off were $112.9 thousand. The Company maintained $757 thousand of other real
estate owned, or "OREO," as of September 30, 2000. As of year-end 1999, the
balance was $925 thousand. The Company actively markets all OREO properties, and
expects no loss on any of these properties. All properties maintained as other
real estate owned are carried at the lesser of book or market value.
Increases in the provision for loan losses amounted to $190,000 through the
first nine months, and the allowance for loan losses as of September 30, 2000,
was $1,286,684. The allowance for loan losses, as a percentage of average total
loans through the first nine months of 2000 was .92%.
As of September 30, 2000, there were $19,365 of loans on non-accrual
status. Loans on non-accrual status as of September 30, 1999 were $38,961. Loans
still accruing interest but delinquent for 90 days or more were $466,918 on
September 30, 2000, as compared to $540,923 on September 30, 1999.
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 of 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 Company assesses the appropriate provision for the coming quarter.
As of September 30, 2000, management deemed the loan loss reserve reasonable for
the loss risk identified in the loan portfolio.
Page 12 of 16
<PAGE>
As of September 30, 2000, investment securities totaled $54.3 million at
book value. This compares with December 1999 book value of $55.3 million. This
represents a decrease of 1.8% during the nine months ended September 30, 2000.
The investment portfolio is comprised of the following, at book value. U.S.
Treasury securities are 0.9% of the portfolio at $0.5 million, U.S. Government
agencies represent 15.9% at $8.6 million, state and municipal securities
represent 41.3% at $22.4 million, mortgage-backed securities represent 7.0% at
$3.8 million, and other securities represent 34.9% at $19.0 million. The
investment portfolio is maintained entirely at market value under Financial
Accounting Standard rule 115, "FAS 115." FAS 115 requires that the Company
classify its investment portfolio in any combination of held-for-trading, held-
to-maturity, or available-for-sale. Investments classified as held-for-trading
must recognize gains or losses at market value in the current period's statement
of earnings. Investments held-for-trading are considered short term investments
and are not intended to be held to call or maturity. Investments classified as
held-to-maturity require no recognition of change in market value, however, the
investments must be held to call or maturity, and therefore cannot be sold prior
to such time. Investments that are classified as available-for-sale, are valued
each accounting period. This valuation is known as `marking to market' the
investment portfolio. The market value adjustment is then applied to the
individual investment types, and the tax-effected adjustment is applied to
shareholder's equity. This tax-effected adjustment to shareholder's equity is
classified as Comprehensive Income on the Statement of Changes in Shareholder's
Equity. The Company's Investment Portfolio is classified as available-for-sale,
and therefore management has elected to mark the entire investment portfolio to
market. The resulting accumulated adjustment to book value as of September 30,
2000, was an unrealized loss of $1.5 million. The corresponding accumulated
adjustment to shareholders' equity was $964 thousand. These losses are booked
monthly as an adjustment to book value based upon market conditions, and are not
realized as an adjustment to earnings until the securities are actually sold.
Management does not anticipate the realization of losses on investments during
2000.
As of September 30, 2000, total deposits were $178.4 million. Compared to
$177.7 at year-end 1999, growth is 0.4%. Comparing types of deposit balances on
September 30, 2000, to year-end 1999, results in the following. Non-Interest-
bearing demand deposits increased by 4.4% to $21.5 million, NOW accounts
increased by 0.9% to $25.1 million, money market demand accounts decreased by
1.9% to $10.3 million, savings accounts decreased by 8.4% to $56.3 million, and
time deposits increased by 8.6% to $65.1 million.
RESULTS OF OPERATIONS
NON INTEREST INCOME
Non-interest income for the first nine months of 2000 totaled $1,233,968
compared to $1,079,701 for the same period in 1999. This is an increase of
14.3%. Non-interest income includes income from fiduciary activities, service
charges on deposit accounts, other service charges and fees, gains on the sale
of securities, and other income. Of these categories, fiduciary activities
contributed the majority at $499,038. Service charges on deposit accounts
contributed $264,204. Other service charges and fees contributed $348,225. For
the first nine months of 1999, these totals were $388,269, $262,630, and
$279,776, respectively.
As of January 1, 2000, the trust and fiduciary activities of the Company
are being conducted through a newly organized subsidiary, Bay Trust Company of
Virginia, Incorporated, `the Trust Company.' The Trust Company acquired the
assets of the former trust department of the Bank of Lancaster, and formally
began operations on January 1, 2000. The restructuring of the Trust Company into
a separate holding company, organized as a non-deposit gathering state member
bank, is expected to result in an expanded market area and expanded services
within the market area. Over time, management expects the income from fiduciary
activities to improve at a rate greater than historically realized.
Management continues to explore methods of improving fee based services to
its' customers. Continued expansion of fiduciary services, diversification of
business lines, and expansion of fee based services provided to bank customers
are among the areas under regular review. Results are beginning to show in Other
Service Charges and Fee Income, which is up 24.5% from $279,776 to $348,225, for
the nine months ended September 30, 2000, compared to the same period in 1999.
Page 13 of 16
<PAGE>
NON INTEREST EXPENSE
Non-interest expenses totaled $4.797 million during the first nine months
of 2000 as compared to $4.355 million for the same period in 1999, an increase
of 10.1%. Non-interest expenses include salaries and benefits, occupancy
expense, and other operating expense. Of these categories, salaries and benefits
are the major expense. Through the nine months ended September 30, 2000, salary
and benefit expense was $2,494,742, occupancy expense was $533,606, and other
operating expense was $1,768,523. For 1999, the totals were $2,189,834,
$647,460, and $1,517,826, respectively.
Throughout the nine months of 2000, certain events resulted in recognition
of non-recurring expenses. Bay Trust Company was organized as a non-deposit
gathering state member bank in January , 2000. Further, Bay Trust Company
relocated to office space located at 1 North Main Street in Kilmarnock.
Renovation of existing office space and addition of new office space resulted in
an approximate investment of $2 million. This space was occupied in July, 2000,
and the depreciation expense and other non-amortizable expenses have been
recognized since.
Bay Banks of Virginia, Inc., constructed a board room facility adjacent to
the renovated Bay Trust building. The completion date of this facility was
September, 2000.
Bank of Lancaster began the renovation of its existing operations center at
23 West Church Street in Kilmarnock in August of 2000. The renovation will
result in the addition of approximately 4000 square feet of office space for
operations and administration.
As mentioned earlier, on October 27, 2000, the Bank completed the purchase
of two First Virginia Bank branch offices and their related deposit accounts.
Non-interest expense related to the conversion of these accounts began accruing
in the third quarter. Salaries, benefit, and occupancy expenses related to the
operation of these branches will become apparent in the fourth quarter.
Non-recurring costs associated with these renovation and acquisition
expenses are being recorded on an ongoing basis. It is expected that these non-
recurring expenses will be approximately $100 thousand as of year-end 2000.
FORWARD LOOKING STATEMENT
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 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
Banks' market area, and competition. Any of these factors could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected.
Page 14 of 16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Rate Shock Analysis of Interest
Income and Expense
(Unauditied)
(in thousands)
Rate Change -300 bp -200 bp -100 bp 0 bp +100 bp +200 bp +300 bp
Interest Income:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans 11,985 12,227 12,468 12,670 12,853 13,032 13,213
Securities 3,406 3,419 3,431 3,441 3,449 3,458 3,467
Total Interest Income 15,391 15,646 15,899 16,111 16,302 16,490 16,680
Interest Expense:
Deposits 7,115 7,357 7,600 7,842 8,139 8,435 8,732
Fed Funds & Borrowing 854 880 906 933 959 985 1,011
Total Interest Expense 7,969 8,237 8,506 8,775 9,098 9,420 9,743
Net Interest Income 7,422 7,409 7,393 7,336 7,204 7,070 6,937
Difference from 0 bp 86 73 57 - (132) (266) (399)
</TABLE>
Rate shock is a method for stress testing the Bank's Net Interest Margin
over the next four quarters under several rate change levels. These levels span
three 100 bp (basis point, or 1.00%) increments up and down from the current
prime rate of interest. In order to simulate activity, maturing balances are
replaced with new balances at the new rate level and repricing balances are
adjusted to the new rate shock level. The interest is recalculated for each
level along with the new average yield. Net Interest Margin is then calculated
and a margin risk profile is developed. The results of these calculations are
summarized in the table above.
As shown, the company estimates that a 100 bp reduction in the current
prime rate would result in $57 thousand of incremental net interest income to
the Bank over twelve months. Similarly, an increase in the current prime rate
by 100 bp results in an estimated $132 thousand of incremental loss.
Page of 15 of 16
<PAGE>
PART II.
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES
None to report
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 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index:
(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) Reports on Form 8-K:
None to report
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, Inc.
---------------------------
(Registrant)
11/14/2000 /s/ Austin L. Roberts, III
--------------------------
President and
Chief Executive Officer
11/14/2000 /s/ Richard C. Abbott
---------------------
Assistant Treasurer
Page 16 of 16
