<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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: 1,164,463 shares of common
stock at March 31, 2000.
<PAGE>
FORM 10-Q
For the interim period ending March 31, 2000.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
CONSOLIDATED STATEMENTS OF EARNINGS FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
MARCH 31, 2000 (UNAUDITED) DECEMBER 31, 1999 AND 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT ONLY BALANCE SHEETS AS OF
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
PARENT ONLY STATEMENTS OF EARNINGS FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
PARENT ONLY STATEMENTS OF CASH FLOWS
YEAR TO DATE MARCH 2000 AND 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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>
Bay Banks of Virginia, Inc.
Consolidated Balance Sheets
ITEM 1 FINANCIAL STATEMENTS
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Cash and due from banks 3234805 5360621
Federal funds sold 398631 0
Investments Available for Sale 54300453 53169880
Gross Loans 138824951 131961820
Allowance for loan losses (1230522) (1197843)
Net Loans after Allowance for Loan Losses 137594429 130763977
Premises and equipment 5004198 4953723
Accrued interest receivable 1488943 1598605
Other real estate owned 538515 592702
Other assets 3529708 3333169
Total Assets 206089683 199772677
LIABILITIES
Demand deposits 19884954 20888591
Savings and NOW deposits 96708258 96848391
Other time deposits 61593983 59964985
Total deposits 178187195 177701967
Fed Funds Purchased 4100000 0
Securities Sold for Repurchase 2861885 1283324
Other liabilities 1178119 1081526
Total liabilities 186327199 180066816
SHAREHOLDERS' EQUITY
Common stock - $5 par value; Authorized -
5,000,000 shares
Outstanding - 1,164,463 and 1,165,323 5822317 5826617
Additional paid-in capital 3779895 3735576
Retained Earnings 11693147 11572592
Accumulated other comprehensive income/(loss) (1532876) (1428923)
Total shareholders' equity 19762483 19705861
Total liabilities and shareholders' equity 206089683 199772677
</TABLE>
<PAGE>
Bay Banks of Virginia
Consolidated Statements of Earnings
The accompanying notes are an integral part of these financial
statements
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
<S> <C> <C>
INTEREST INCOME
Loans receivable 2839343 2480109
Securities 810663 865734
Federal funds sold 16915 107605
Total interest income 366921 3453448
INTEREST EXPENSE
Deposits 1777905 1620191
Securities Sold to Repurchase 20027 0
Federal funds purchased 9450 0
Total interest expense 1807382 1620191
Net Interest Income 1859539 1833257
Provision for loan losses 70000 70000
Net interest income after provision for loan losses 1789539 1763257
NONINTEREST INCOME
Income from fiduciary activities 160500 122334
Service charges on deposit accounts 83306 82760
Other service charges and fees 73892 58140
Net securities gains (950) 0
Other income 22,998 0
Total non-interest income 339746 263234
NONINTEREST EXPENSES
Salaries and employee benefits 799669 710524
Occupancy expense 169362 207644
Other expense 544709 440455
Total non-interest expenses 1514219 1358623
Income before income taxes 615066 667868
Income tax expense 172500 164000
Net Income after income taxes 442566 503868
Earnings per share 0.38 0.43
Average shares outstanding 1163120 1166670
</TABLE>
<PAGE>
Bay Banks of Virginia, Inc.
The accompanying notes are an integral part of these financial statements
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
<S> <C> <C>
Quarter ended:
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 442566 503868
Adjustments to reconcile Net Income to Cash:
Depreciation 135508 70121
Provision for Loan Losses 70000 70000
Net (Gain) / Loss on Sale of Securities (950) 0
(Increase) / Decrease in Accrued Interest Receivable 109662 85608
Increase / (Decrease) in Accrued Interest Payable 18187 (122317)
(Increase) / Decrease in Other Assets (196539) (768710)
Increase / (Decrease) in Other Liabilities 5724699 288252
Net Cash Provided / (Used) by Operating Activities 6303133 126822
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of AFS Securities (2134440) (7380822)
Proceeds from sales of AFS Securities 498750 0
Proceeds from maturities of AFS Securities 332828 3196118
(Increase) Decrease in Loans outstanding (6830452) 1255643
(Increase) Decrease in Federal Funds Sold (398631) 6787706
Purchases of Premises and Equipment (50475) (70121)
(Increase) Decrease in Other Real Estate Owned 54186 148218
Net Cash Provided / (Used) in Investing Activities (8528234) 3936742
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings, & NOW deposits (1143770) (273525)
Increase (Decrease) in Time Deposits 1628998 (2203516)
Proceeds from issuance of Common Stock 98530 95426
Repurchase of Common Stock (58511) 0
Dividends paid (244005) (225000)
Other (181957) 0
Net Cash Provided (Used) in Financing Activities 99285 (2606615)
Net Increase (Decrease) in Cash & Due from Banks (2125816) 1456949
Cash & Due From Banks at Beginning of quarter 5360621 5268229
Cash & Due From Banks at End of quarter 3234806 6725178
</TABLE>
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Quarter Ended March
31, 2000 and Year to Date December 31, 1999, 1998 The accompanying notes are an
integral part of these financial statements
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income (Loss) Equity
--------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5754130 3164510 9502341 271137 18692118
--------------- --------------- ---------------- --------------- ---------------
Comprehensive income:
Net income - - 1930900 - 1930900
Net changes in unrealized
appreciation on available-for-
sale securities, net of taxes
of $176,746 - - - 355363 355363
--------------- --------------- ---------------- --------------- ---------------
Total comprehensive income - - 1930900 355363 2286263
Cash dividends paid -
$0.70 per share - - (809825) - (809825)
Sale of common stock--
Dividend reinvestment plan 59420 280124 - - 339544
Stock options exercised 10090 84660 (94710) - 40
--------------- --------------- ---------------- --------------- ---------------
Balance at December 31, 1998 5823640 3529294 10528706 626500 20508140
--------------- --------------- ---------------- --------------- ---------------
Comprehensive income:
Net income - - 2175378 - 2175378
Net changes in unrealized
appreciation on available-for-
sale securities, net of taxes
of $1,058,856 - - - (2055424) (2055424)
--------------- --------------- ---------------- --------------- ---------------
Total comprehensive
income (loss) 2175378 (2055424) 119954
Cash dividends paid -
$0.78 per share (910279) (910279)
Stock repurchase (58385) (122510) (214349) (395244)
Sale of common stock--
Dividend reinvestment plan 56152 310127 366279
Stock options exercised 5210 18665 (6864) - 17011
--------------- --------------- ---------------- --------------- ---------------
Balance at December 31, 1999 $ 5826617 $ 3735576 $ 11572592 $ (1428924) $ 19705861
--------------- --------------- ---------------- ---------------- ---------------
Comprehensive income:
Net income - - 442566 (103952) 338614
Net changes in unrealized
appreciation on available-for-
sale securities, net of taxes
of $103952 - - - - -
--------------- --------------- ---------------- --------------- ---------------
Total comprehensive
income (loss) 442566 (103952) 338614
Cash dividends paid -
$0.78 per share (244005) (244005)
Stock repurchase (18980) (39531) (78006) (136516)
Sale of common stock--
Dividend reinvestment plan 13180 80400 93580
Stock options exercised 1500 3450 - - 4950
--------------- --------------- ---------------- --------------- ---------------
Balance at March 31, 2000 $ 5822317 $ 3779895 $ 11693147 $ (1532876) $ 19762483
--------------- --------------- ---------------- --------------- ---------------
</TABLE>
6
<PAGE>
Bay Banks of Virginia, Inc.
Parent Only Balance Sheets
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Mar 31, 2000 Dec 31, 1999
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks 1534698 2113231
Due from Subsidiaries 192956
Federal funds sold -
Investments (at market value) -
Loans -
Allowance for loan losses -
Premises and equipment -
Other real estate owned -
Other assets -
Investment In Subsidiary Bank of Lancaster 18201662 18751030
Investment in Subsidiary Bay Trust Company 1497824 238479
Investment In Subsidiary Chesapeake Holdings 701 701
Organizational Expenses 30054 32254
Total Assets 21457895 21135695
LIABILITIES
Total deposits - -
Fed Funds Purchased - -
Other liabilities 175035 432
Total Liabilities 175035 432
SHAREHOLDERS' EQUITY
Common stock - $5 par value; Authorized - 5,000,000 shares
Outstanding - 1,164,463 and 1,165,323 5822317 5826617
Additional paid-in capital 12376721 12332403
Retained Earnings 3083822 2976243
Total Shareholders' Equity 21282860 21135263
Total Liabilities and Shareholders' Equity 21457895 21135695
</TABLE>
<PAGE>
Bay Banks of Virginia, Inc.
Parent Only Statements of Earnings
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
<S> <C> <C>
INTEREST INCOME
Loans receivable - -
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 -
Dividend Income from Subsidiary 225000 850000
Undistributed Earnings of Bank of Lancaster 211729 1377522
Undistributed Earnings of Bay Trust (655) (1521)
Undistributed Earnings of Chesapeake Holdings - (19686)
Total non-interest income 436074 2206315
NONINTEREST EXPENSES
Salaries and employee benefits - -
Occupancy expense - -
Deposit insurance premium - -
Other expense 5388 30937
Total non-interest expenses 5388 30937
Income before income taxes 430685 2175378
Income tax expense - -
NET INCOME 430685 2175378
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bay Banks of Virginia, Inc.
Parent Only Statements of Cash Flows
The accompanying notes are an integral part of these financial statements
Quarter Ended March 31,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 430686 502968
Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in undistributed (earnings) losses of subsidiaries (211074) (278868)
(Increase) / Decrease in other assets (86805) (251711)
Increase / (Decrease) in other liabilities 174602 (0.06)
Other
Net Cash Provided (used) by Operating Activities 307409 (27611)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in and advances to subsidiaries (500000) 0
Sale or repayment of investments in and advances to subsidiaries
Other
Net Cash Provided (used) by Investing Activities (500000) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances from subsidiaries 0 0
Repayment of advances from subsidiaries 0 0
Proceeds from issuance of common stock 98530 107644
Payments to repurchase common stock (58511) 0
Dividends paid (244005) (221488)
Other (181957) 251761
Net Cash Provided (used) by Financing Activities (385943) 137916
Net increase (decrease) in Cash & Cash Equivalents (578534) 110305
Cash & Cash Equivalents at beginning of quarter 2113231 2470587
Cash & Cash Equivalents at end of quarter 1534697 2580893
</TABLE>
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion is intended to assist in understanding and 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 attached consolidated financial statements and
the notes thereto.
EARNINGS SUMMATION
For the three months ended March 2000 net income was $443 thousand as
compared to $504 thousand for the comparable period in 1999, for a decrease of
12.10%. Earnings per average share through the first quarter were $.38 as
compared to $.43 in 1999, which represents a decrease of 11.61%. Return on
average equity was 9.70% for 2000 and 10.49% for 1999 for a decrease of 7.53%.
Return on average assets was .88% and 1.01% respectively for a decrease of
12.87%. Net interest income for the first quarter of 2000 was $1.86 million and
for the same period in 1999 the total was $1.83 million. This is an increase of
1.68% over 1999. Average interest earning assets totaled $191.79 million for the
quarter ended March 31, 2000 and $183.84 million for the comparable period in
1999. Interest-bearing liabilities totaled $161.30 million at March 31,2000 and
$158.65 million at March 31, 1999, for an increase of 1.67%. The annualized
yield on average earning assets was 7.76% at quarter end 2000 and 7.68% at
quarter end 1999. The annualized yield (cost) on interest bearing deposits was
4.49% at first quarter end 2000 as compared to 4.09% at quarter end 1999.
Earning assets as a percentage of total average assets at quarter end 2000 was
94.49% and for 1999, was 92.13%. Average total assets as of March 31, 2000
equaled $203.03 million and for the comparable period in 1999 was $199.54
million.
Yields on interest earning assets improved mainly due to increases in
volume during the interim period. For the periods of March 31, 2000 as compared
to March 31, 1999, taxable investment yields improved to 6.25% from 6.01%. Tax
exempt investments declined to 7.42% from 7.81% on a fully tax equivalent basis,
and total investment yield fell to 6.52% from 6.53%. In the first quarter 2000,
gross loans on average volumes yielded 8.30% as compared to 8.52% in the same
quarter 1999. Yield on total average earning assets at quarter end 2000 was
7.76% as compared to 7.68% for quarter end 1999.
Yield on average interest bearing deposits comparing March 31, 2000 to
March 31, 1999 was as follows: Savings yields were 4.49% as compared to 4.06%;
NOW account yields were 2.89% as compared to 2.77%; money market accounts 3.35%
as compared 2.92%; and certificate of deposit yields were 5.31% as compared to
4.97%. The resulting yields on total deposits at first quarter end 2000 were
4.47% as compared to 4.08% for the same period in 1999.
Current interest rate trends have resulted in a narrowing spread in
net interest margins within the Bank of Lancaster, ("the Bank.") At March 31,
2000 the Bank had interest earning assets that mature in 3 months or less
totaling $18.24 million, for 3-12 months the total was $16.94 million, for 1-5
years $95.43 million, and over 5 years the total was $64.12. In comparison,
interest bearing liabilities that mature in 3 months or less totaled $91.34
million, 3-12 months the total was $25.63 million, for 1-5 years the total was
$48.28 million, and over 5 years the total was $15 thousand. The resulting
short-term liability sensitivity has resulted in deposit rates increasing more
rapidly than loan rates. Subsequently, the gross interest spread between
interest earning assets and interest-bearing liabilities continues to narrow.
Management is currently reviewing loan and deposit products to develop offerings
that will be less subject to interest rate risk.
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. At March 31, 2000 Federal Funds Sold totaled $399 thousand and
securities maturing in one year or less totaled $1.86 million, for a total pool
of $2.26 million. The liquidity ratio as of March 31, 2000 was 32.31% 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 cash equivalents, 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.
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 $15.8
million. As of March 31, 2000, $8.5 million was borrowed against that line. As
of quarter end, the Bank maintained additional available credit of $23.3
million.
<PAGE>
CAPITAL RESOURCES
Total shareholder's equity at March 31, 2000 was $19.76 million as compared
to $19.71 million at year-end 1999. This represents an increase of 0.29% over
year-end 1999. Shareholder's equity at year-end 1999 was $20.51 million.
Shareholder equity was impacted by unrealized losses on securities in the amount
of $1,532,876 at quarter end 2000.
While these unrealized losses at year-end were $1,428,923. Unrealized
gains or losses, net of taxes, are recognized as accumulated comprehensive
income or losses on the balance sheet and statement of changes in shareholder's
equity, therefore, total accumulated comprehensive losses were $1.53 million as
of March 31, 2000, as compared to $1.43 million at year-end 1999. Shareholder's
equity before unrealized losses was $21.26 million at quarter-end 2000 and at
year-end 1999 shareholder equity was $21.13 million. This represents an increase
of $161 thousand or 0.8% during the three month period.
The Company began a share repurchase program during August of 1999 and
has continued the program into 2000. The company has implemented a share
repurchase not to exceed 40,000 shares. The Company has repurchased 15,473
shares since inception, for a reduction in common stock of $77,365, a reduction
in paid in capital of $162,041, and a reduction in retained earnings of
$292,355. The average number of shares repurchased on a monthly basis since
inception was 1,934 shares. During 2000, management does not expect the program
to greatly exceed this level of monthly shares repurchased.
The Company is subject to minimum regulatory capital ratios as defined
by FFIEC guidelines. As of quarter end 2000, the Company maintained Tier 1
capital of $17.87 million, net risk weighted assets of $136.40 million, and Tier
2 capital of $1.23 million. Tier 1 capital to risk weighted assets were 13.10%
and the total capital ratio was 14.00%. The tier 1 leverage ratio was 8.88%.
These ratios continue to be well in excess of regulatory minimums. Tier 1
capital to risk weighted assets minimum ratio is 6.00%, the total capital to
risk weighted asset minimum ratio is 10.00%, and the minimum Tier 1 leverage
ratio is 5.00%.
Book Value per average share of common stock for the 2000 interim
period was $16.99 and for year-end 1999 the book value per average share was
$16.91. Book value per average share of common stock before accumulated
comprehensive income was $18.31 as of March 31, 2000 and $18.14 at year-end
1999. Cash dividends paid through March 31, 2000 were $244,005. Total number of
shares outstanding at March 31, 2000 was 1,164,463 as compared to 1,165,323 at
year-end 1999. Average shares outstanding at March 31, 2000 were 1,163,120 and
1,166,670 at year-end 1999.
FINANCIAL CONDITION
Total assets at first quarter end of 2000 were $206.09 million as
compared to $199.77 million at December 30, 1999. This represents an increase of
3.17% during the three-month period.
<PAGE>
Cash and cash equivalents totaled $3.2 million at quarter-end 2000 as
compared to $5.4 million at year-end 1999. Federal Funds sold were $398 thousand
at quarter-end 2000 as compared to none sold at year-end 1999. The Bank has
aggressively managed cash on a continuing basis, and has reduced "Year 2000
Contingency Cash" down to historical levels.
Total loans at quarter end increased to $138.83 million as compared to
$131.96 million for at year-end, resulting in an increase of 5.20% through the
three months ended March 31, 2000. Real estate mortgage loans increased $6.57
million to $102.49 for an increase of 6.8%. Real estate construction loans
increased $75 thousand to $5.51 million or 1.4%. During the first quarter of
2000, commercial loans decreased $773 thousand to $10.31 million or 7.00% and
installment loans increased $803 thousand to $19.48 million or 4.30%. 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 $8.1 million in first mortgage
construction loans committed and not yet fully funded. In addition, home equity
lines committed and not yet fully funded total $5.6 million at March 31,2000.
At March 31, 2000, charged off loans totaled $38,092. For the
comparable period in 1999 total loans charged off were $41,744. The Company
maintained $539 thousand on other real estate owned, "OREO," as of March 31,
2000. As of year-end 1999, the balance was $593 thousand. The Company is
aggressively marketing all properties on OREO, and further, management expects
no loss on any of these properties. All properties maintained on other real
estate owned are carried at the lesser of book or market value.
Increases in the provision for loan losses amounted to $70,000 through the
first three months, and the allowance for loan losses as of March 31 was
$1,230,522. The allowance for loan losses, as a percentage of average total
loans through the first quarter of 2000 was .91%.
As of March 31, 2000, there were no loans on non-accrual status. Loans on
non-accrual status as of March 31, 1999 were $51,123. Loans still accruing
interest but delinquent for 90 days or more were $485,879 at quarter end 2000 as
compared to $487,056 for quarter end 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
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 Company assesses the appropriate provision for the
coming quarter. As of March 31, 2000, management deemed the loan loss reserve
reasonable for the loss risk identified in the loan portfolio.
As of March 31, 2000, investment securities totaled $56.45 million at
book value. This compares with December 1999 book value of $55.33 million. This
represents an increase of 2.02% of the total portfolio during the three months
ended March 31, 2000. U.S. Treasury securities were $1.54 million, US Government
Agencies were $9.14 million, state and municipal securities were $22.98 million,
mortgage backed securities were $4.23 million, and other securities were $18.57
million. The investment portfolio is maintained entirely at market value under
Financial Accounting Standard 115 rules, "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
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 held 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
also classified as comprehensive income on the statement of changes in
shareholder's equity. Management has elected to mark the entire investment
portfolio to market. The resulting adjustment to book value as of March 31, 2000
was an unrealized loss of $2.18 million. 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 bonds are sold. Management does not
anticipate the realization of losses on investments during 2000.
As of March 31, 2000, total deposits were $178.19 million as compared
to $177.70 at year- end 1999. This represents a net increase of $485 thousand or
0.29% for the three months ended March 31, 2000. For the period of March 31,
2000 to year-end 1999, non Interest-bearing demand deposits decreased 4.8% to
$19.88 million, and savings and NOW accounts decreased .14% to $96.71 million.
Other time deposits increased 27.2% to $61.59 million.
<PAGE>
RESULTS OF OPERATIONS
NON INTEREST INCOME
Non-interest income through the first quarter of 2000 totaled $339,746
as compared to $263,234 for 1999 for an increase of 30.49%. Non-interest income
includes income from fiduciary activities, service charges on deposit accounts,
other income, and gains on the sale of securities. Of these categories, income
from fiduciary activities and service charges on deposit accounts contribute the
majority. Through the three months ended March 31, 2000, income from fiduciary
activities was $160,500 and service charges on deposit accounts amounted to
$83,306. Other service charges and fees were $73,892 through the first three
months of 2000. For 1999, these totals were $122,334, $82,760, and $58,140
respectively.
As of January 1, 2000, the trust and fiduciary activities of the
Company and the Bank are being conducted through a newly organized subsidiary,
Bay Trust Company of Virginia, Incorporated, "Bay Trust Company." Bay Trust
Company acquired the assets of the former trust department of the Bank of
Lancaster, and Bay Trust Company formally began operations on January 1, 2000.
The restructuring of Bay Trust into a separate holding company, organized as a
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.
Organizational costs for Bay Trust Company were partially recognized during
1999. Non-interest expenses related to the subsidiary are expected to increase
during 2000 as Bay Trust will renovate and occupy office space in Kilmarnock,
Virginia. In addition, Bay Trust Company is expected to hire additional staff
throughout 2000.
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.
NON INTEREST EXPENSE
Non interest expenses totaled $1.51 million through the first quarter
of 2000 as compared to $1.36 million for comparable period in 1999, resulting in
an increase of 11.45%. 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 three months ended March 31,
2000, salary and benefit expense was $799,699, occupancy was $169,362, and other
operating was $544,709. For 1999, the totals were $710,524, $207,644 and
$440,455 respectively. For 2000 as compared to 1999, salary and benefits expense
increased 12.6%, occupancy expense decreased 18.4%, and other operating
increased 23.7%.
<PAGE>
Management continues to review and analyze non-interest expenses for
greater efficiency. During the first quarter of 2000, non-interest expenses were
impacted by the formation of Bay Trust Company, as mentioned above. Further,
during the twelve months from March 1999 to March 2000, the Bank of Lancaster
committed significant resources to employee training, continuing computer
systems upgrades, facilities renovation and management, and management and
consulting services. These expenses are expected to return to historical levels
as 2000 continues.
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>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Bay Banks of Virginia, Inc.
Net Interest Income Analysis
<TABLE>
<CAPTION>
(Fully taxable equivalent basis) Quarter ended March 31, 2000 Annualized Quarter ended March 31, Annualized
2000 Yield/Rate
(in thousands) Average Balance Income/Expense Yield/Rate Average Income/
Balance Expense
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investments (Book Value):
Taxable Investments 42821 669 6.25% 43108 648 6.01%
Tax-Exempt Investments 12815 157 7.42% 17175 221 7.81%
Total Investments 55636 826 6.52% 60283 869 6.53%
Gross Loans 134772 2796 8.30% 114528 2438 8.52%
Interest-bearing Deposits 100 0 0% 0 0 0%
Fed Funds Sold 1278 17 5.29% 9028 108 4.77%
TOTAL INTEREST EARNING ASSETS 191786 3635 7.76% 183840 3415 7.68%
INTEREST-BEARING LIABILITIES:
Deposits:
Savings Deposits 60634 681 4.49% 69733 708 4.06%
NOW Deposits 25550 182 2.89% 24688 171 2.77%
CD's more than = $100,000 14341 213 5.95% 12107 161 5.30%
CD's less than $100,000 47967 614 5.12% 40847 497 4.87%
Money Market Deposit Accounts 10607 89 3.35% 10871 79 2.92%
Total Deposits 159098 1780 4.47% 158247 1616 4.08%
Fed Funds Purchased 298 9 5.45% 0 0 0%
Securities Sold to Repurchase 1906 20 4.20% 400 6 5.96%
TOTAL INTEREST-BEARING LIABILITIES 161302 1809 4.49% 158647 1622 4.09%
Net Interest Income/Yield 1826 3.98% 1793 4.15%
Bay Banks of Virginia, Inc
Interest Sensitivity Analysis
as of March 31, 2000
(in thousands) Within 3 months 3-12 Months 1-5 Years Over 5 Total
Years
INTEREST EARNING ASSETS:
Interest-Bearing Due From Banks 100 0 0 0 100
Fed Funds Sold 399 0 0 0 399
Investments (Book Value) 643 1634 26626 27550 56454
Loans 17098 15302 68809 36569 137778
TOTAL EARNING ASSETS 18240 16936 95435 64120 194731
INTEREST-BEARING LIABILITIES:
NOW Accounts 8457 0 17169 0 25626
MMDA's 7183 0 3700 0 10883
Savings 41537 0 18662 0 60199
CD's more than $100,000 20841 18543 6991 15 46389
CD's less than = $100,000 6360 7091 1754 0 15205
Total Deposits 84378 25634 48275 15 158302
Fed Funds Purchased 4100 0 0 0 4100
Securities Sold to Repurchase 2862 0 0 0 2862
TOTAL INTEREST-BEARING LIABILITIES 91340 25634 48275 15 165264
Rate Sensitive Gap -73100 -8698 47160 64105 29467
Cumulative Gap -73100 -81798 -34638 29467 0
</TABLE>
<PAGE>
Bay Banks of Virginia, Inc.
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 consolidated financial statements should be read in conjunction with the
financial statements and notes to financial statements included in the
registrants 1999 Annual Report to Shareholders.
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 13: 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) Report on Form 8
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, Inc.
---------------------------
(Registrant)
5/18/2000 /s/ Austin L. Roberts, III
--------------------------
President and
Chief Executive Officer
5/18/2000 /s/ Richard C. Abbott
---------------------
Assistant Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<CIK> 0001034594
<NAME> BAY BANKS OF VIRGINIA, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,234,805
<INT-BEARING-DEPOSITS> 158,302,241
<FED-FUNDS-SOLD> 398,631
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,300,453
<INVESTMENTS-CARRYING> 56,622,993
<INVESTMENTS-MARKET> 54,300,453
<LOANS> 138,824,951
<ALLOWANCE> (1,230,522)
<TOTAL-ASSETS> 206,282,639
<DEPOSITS> 178,187,195
<SHORT-TERM> 4,100,000
<LIABILITIES-OTHER> 1,371,075
<LONG-TERM> 0
0
0
<COMMON> 5,822,317
<OTHER-SE> 15,473,042
<TOTAL-LIABILITIES-AND-EQUITY> 206,282,639
<INTEREST-LOAN> 2,839,343
<INTEREST-INVEST> 810,663
<INTEREST-OTHER> 13,169
<INTEREST-TOTAL> 3,663,175
<INTEREST-DEPOSIT> 1,777,905
<INTEREST-EXPENSE> 1,807,382
<INTEREST-INCOME-NET> 1,855,793
<LOAN-LOSSES> 70,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,514,219
<INCOME-PRETAX> 615,066
<INCOME-PRE-EXTRAORDINARY> 615,066
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,566
<EPS-BASIC> .38
<EPS-DILUTED> .38
<YIELD-ACTUAL> 5.51
<LOANS-NON> 0
<LOANS-PAST> 485,879
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,197,843
<CHARGE-OFFS> 38,092
<RECOVERIES> 771
<ALLOWANCE-CLOSE> 1,230,522
<ALLOWANCE-DOMESTIC> 1,230,522
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
