-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gd1PiOYZO/K+X0czn6AIPZ8DRw4GjlPDj8ve0x2bwNi9JFfTQKe8Zn1PwGYzhv9n EUSv5+PaUNXPbZv5+tMr7w== 0000916641-00-000751.txt : 20000522 0000916641-00-000751.hdr.sgml : 20000522 ACCESSION NUMBER: 0000916641-00-000751 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAY BANKS OF VIRGINIA INC CENTRAL INDEX KEY: 0001034594 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541838100 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22955 FILM NUMBER: 640100 BUSINESS ADDRESS: STREET 1: 100 S MAIN STREET CITY: KILMARNICK STATE: VA ZIP: 22482 BUSINESS PHONE: 8044351171 MAIL ADDRESS: STREET 1: 100 S MAIN STREET CITY: KILMARNOCK STATE: VA ZIP: 22482 10-Q 1 QUARTERLY REPORT 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. 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 Bay Banks of Virginia, Inc. Consolidated Balance Sheets ITEM 1 FINANCIAL STATEMENTS The accompanying notes are an integral part of these financial statements
March 31, 2000 December 31, 1999 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
Bay Banks of Virginia Consolidated Statements of Earnings The accompanying notes are an integral part of these financial statements (Unaudited)
Quarter Ended March 31, 2000 1999 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
Bay Banks of Virginia, Inc. The accompanying notes are an integral part of these financial statements (Unaudited)
Quarter Ended March 31, 2000 1999 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
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
Accumulated Additional Other Total Common Paid-in Retained Comprehensive Shareholders' Stock Capital Earnings Income (Loss) Equity --------------- --------------- ---------------- --------------- --------------- 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 --------------- --------------- ---------------- --------------- ---------------
6 Bay Banks of Virginia, Inc. Parent Only Balance Sheets The accompanying notes are an integral part of these financial statements
Mar 31, 2000 Dec 31, 1999 (Unaudited) 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
Bay Banks of Virginia, Inc. Parent Only Statements of Earnings The accompanying notes are an integral part of these financial statements
Quarter Ended March 31, 2000 1999 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
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) 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
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. 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. 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. 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%. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Bay Banks of Virginia, Inc. Net Interest Income Analysis
(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 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
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. 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 EX-27 2 FINANCIAL DATA SCHEDULE
9 0001034594 BAY BANKS OF VIRGINIA, INC. 1 US 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 3,234,805 158,302,241 398,631 0 54,300,453 56,622,993 54,300,453 138,824,951 (1,230,522) 206,282,639 178,187,195 4,100,000 1,371,075 0 0 0 5,822,317 15,473,042 206,282,639 2,839,343 810,663 13,169 3,663,175 1,777,905 1,807,382 1,855,793 70,000 0 1,514,219 615,066 615,066 0 0 442,566 .38 .38 5.51 0 485,879 0 0 1,197,843 38,092 771 1,230,522 1,230,522 0 0
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