-----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, VHQpiRpYE8vmfCLnLpfCuqtVOGPkwPJJkCW/EP35toaFrFbwsjAqKrPGU4CTriSQ 9nxjlZSylOvRPfPXtNRehA== 0000916641-01-500958.txt : 20010815 0000916641-01-500958.hdr.sgml : 20010815 ACCESSION NUMBER: 0000916641-01-500958 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 000-22955 FILM NUMBER: 1709516 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 d10q.txt 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 JUNE 30, 2001 [_] 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 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: 1,156,279 shares of common stock on July 31, 2001. FORM 10-Q For the interim period ending JUNE 30, 2001. INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000....................................................................... CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED).................................................. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED).................................................. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY JUNE 30, 2001 (UNAUDITED), DECEMBER 31, 2000 AND 1999.................................... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. PARENT ONLY BALANCE SHEETS AS OF JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000................................................................... PARENT ONLY STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) AND 2000.................................................. PARENT ONLY STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED).................................................. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................................................... FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000 (UNAUDITED).................................................. NET INTEREST INCOME ANALYSIS FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000 (UNAUDITED)...................................... INTEREST RATE SENSITIVITIY GAP ANALYSIS AS OF JUNE 30, 2001 (UNAUDITED).... ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. RATE SHOCK ANALYSIS OF INTEREST INCOME AND EXPENSE BASED ON JUNE 30, 2001 ANNUALIZED (UNAUDITED)................................................ 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...........................................
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The accompanying notes are an integral part of these financial statements. Bay Banks of Virginia, Inc. Consolidated Balance Sheets (Unaudited)
June 30, 2001 Dec 31, 2000 ASSETS Cash and due from banks 7,609,938 6,638,567 Federal funds sold 3,801,000 4,757,000 Investments Available for Sale 48,839,202 52,582,952 Gross Loans 150,639,041 149,047,718 Allowance for loan losses (1,500,192) (1,369,842) Premises and equipment 7,122,784 6,778,080 Accrued interest receivable 1,608,095 1,778,791 Other real estate owned 773,313 804,507 Other assets 3,935,441 4,151,837 Total assets 222,828,622 225,169,610 LIABILITIES Demand deposits 25,930,120 23,657,690 Savings and NOW deposits 97,591,431 100,481,431 Other time deposits 72,931,644 75,878,971 Total deposits 196,453,195 200,018,092 Fed Funds Purchased 0 0 Securities Sold for Repurchase 3,340,358 2,805,091 Other liabilities 958,093 1,059,635 Total liabilities 200,751,646 203,882,818 SHAREHOLDERS' EQUITY Common stock - $5 par value; Authorized - 5,000,000 shares 5,797,150 5,809,841 Additional paid-in capital 3,931,573 3,887,823 Retained Earnings 11,925,715 11,848,640 Accumulated other comprehensive income/(loss) 422,538 (259,512) Total shareholders' equity 22,076,976 21,286,792 Total liabilities and shareholders' equity 222,828,622 225,169,610
3 The accompanying notes are an integral part of these financial statements. Bay Banks of Virginia, Inc. Consolidated Statements of Earnings (Unaudited)
Qtr Ended Qtr Ended Year-to-date Year-to-date Jun 30, 2001 Jun 30, 2000 Jun 30, 2001 Jun 30, 2000 INTEREST INCOME Loans receivable (incl fees) 3,138,572 3,042,440 6,371,565 5,881,783 Securities 670,943 781,690 1,399,145 1,592,353 Federal funds sold 75,168 22,646 140,921 35,815 Total interest income 3,884,683 3,846,776 7,911,631 7,509,951 INTEREST EXPENSE Deposits 1,847,861 1,852,919 3,903,027 3,630,824 Federal funds purchased 0 41,686 0 51,136 Securities Sold to Repurchase 24,431 32,380 58,003 52,407 Other short Term Borrowings 0 100,871 0 100,871 Total interest expense 1,872,292 2,027,856 3,961,030 3,835,238 Net Interest Income 2,012,391 1,818,920 3,950,601 3,674,713 Provision for loan losses 75,000 60,000 175,000 130,000 Net interest income after provision 1,937,391 1,758,920 3,775,601 3,544,713 NONINTEREST INCOME Income from fiduciary activities 183,045 158,042 429,551 322,288 Service charges on deposit accounts 116,118 92,962 221,356 176,268 Other service charges and fees 185,253 118,598 332,895 192,490 Net securities gains 0 (3,450) 20,422 (4,400) Other income 12,466 89,509 52,523 112,507 Total noninterest income 496,882 455,661 1,056,747 799,153 NONINTEREST EXPENSES Salaries and employee benefits 993,605 829,734 1,978,377 1,629,403 Occupancy expense 240,881 175,731 480,690 345,572 Other expense 678,516 631,218 1,205,126 1,174,831 Total noninterest expenses 1,913,002 1,636,683 3,664,193 3,149,806 Net Income before income taxes 521,271 577,898 1,168,155 1,194,060 Income tax expense 137,000 161,500 324,260 334,000 Net Income after income taxes 384,271 416,398 843,895 860,060 Average shares outstanding 1,162,012 1,158,437 1,162,064 1,160,875 Earnings per share 0.33 0.36 0.73 0.74
4 The accompanying notes are an integral part of these financial statements. Bay Banks of Virginia, Inc. Consolidated Statements of Cash Flows (Unaudited)
Six months ended: 6/30/2001 6/30/2000 CASH FLOWS FROM OPERATING ACTIVITIES Net Income 843,895 860,060 Adjustments to reconcile Net Income to Cash: Depreciation 256,155 204,374 Provision for Loan Losses 175,000 130,000 Net (Gain) / Loss on Sale of Securities 20,422 (4,400) (Increase) / Decrease in Accrued Interest Receivable 170,697 (93,971) (Increase) / Decrease in Other Assets (134,963) (566,970) Increase / (Decrease) in Short Term Borrowings 0 16,135,367 Increase / (Decrease) in Other Liabilities (101,542) 44,730 Net Cash Provided / (Used) by Operating Activities 1,229,663 16,709,190 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of AFS Securities (3,176,690) (2,134,440) Proceeds from sales of AFS Securities 5,978,390 2,115,300 Proceeds from maturities of AFS Securities 1,955,035 1,038,471 (Increase) / Decrease in Loans outstanding (1,635,973) (12,509,309) (Increase) / Decrease in Fed Sunds Sold 956,000 (1,803,163) Purchases of Premises and Equipment (600,859) (754,694) (Increase) / Decrease in Other Real Estate Owned 31,194 112,587 Net Cash Provided / (Used) in Investing Activities 3,507,098 (13,935,248) CASH FLOWS FROM FINANCING ACTIVITIES Increase / (Decrease) in Demand, Savings, & NOW deposits (617,570) (126,247) Increase / (Decrease) in Time Deposits (2,947,327) (242,450) Proceeds from issuance of Common Stock 152,472 189,735 Repurchase of Common Stock (383,074) (189,756) Dividends paid (534,951) (487,238) Other 565,060 (351,136) Net Cash Provided / (Used) in Financing Activities (3,765,390) (1,207,092) Net Increase / (Decrease) in Cash & Due from Banks 971,371 1,566,850 Cash & Due From Banks at Beginning of period 6,638,567 5,360,621 Cash & Due From Banks at End of period 7,609,938 6,927,471
5 The accompanying notes are an integral part of these financial statements. 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 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 1,612,620 1,612,620 Net changes in unrealized appreciation of available- for-sale securities, net of taxes of $602,425 1,169,412 1,169,412 ----------------------------------------------------------------------- Total Comprehensive Income - - 1,612,620 1,169,412 2,782,032 Dividends paid ($0.86/share) (996,885) (996,885) Stock repurchases (84,515) (177,340) (339,687) (601,542) Sale of common stock: Dividends Reinvested 47,739 291,562 - - 339,301 Stock Options exercised 20,000 38,025 - 58,025 ======================================================================= Balance on 12/31/00 5,809,841 3,887,823 11,848,640 (259,512) 21,286,792 Comprehensive Income: Net Income 843,895 843,895 Net changes in unrealized appreciation of available- for-sale securities, net of taxes of $351,359 682,050 682,050 ----------------------------------------------------------------------- Total Comprehensive Income - - 843,895 682,050 1,525,945 Dividends paid ($0.46/share) (534,952) (534,952) Stock repurchases (56,005) (117,516) (209,553) (383,074) Sale of common stock: Dividends Reinvested 22,129 130,343 - - 152,472 Stock Options exercised 21,185 30,923 (22,315) - 29,793 ======================================================================= Balance on 6/30/01 5,797,150 3,931,573 11,925,715 422,538 22,076,976
6 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 2000 Annual Report to Shareholders. Bay Banks of Virginia, Inc. Parent Only Balance Sheets (Unaudited)
Jun 30, 2001 Dec 31, 2000 ASSETS Cash and due from banks 166,862 194,573 Due from Subsidiaries 305,660 569,844 Federal funds sold - - Investments (incl unreal G/L) - - Loans - - Allowance for loan losses - - Premises and equipment 187,931 183,446 Other real estate owned - - Other assets 326,278 316,542 Investment In Subsidiary Bank of Lancaster 19,411,514 18,363,686 Investment in Subsidiary Bay Trust Company 1,915,544 1,904,755 Investment In Subsidiary Chesapeake Holdings 701 701 Organizational Expenses 19,058 23,457 Total assets 22,333,548 21,557,004 LIABILITIES Total deposits - - Fed Funds Purchased - - Other liabilities 327,375 317,254 Total liabilities 327,375 317,254 SHAREHOLDERS' EQUITY Common stock - $5 par value; Authorized - 5,000,000 shares Outstanding - 1,159,430 and 1,161,968 5,797,150 5,809,841 Additional paid-in capital 12,528,400 12,484,650 Retained Earnings 3,258,085 3,204,770 Accumulated other comprehensive income/(loss) 422,538 (259,512) Total shareholders' equity 22,006,173 21,239,749 Total liabilities and shareholders' equity 22,333,548 21,557,004
7 The accompanying notes are an integral part of these financial statements. Bay Banks of Virginia, Inc. Parent Only Statements of Earnings (Unaudited)
Qtr ended Qtr ended Year-to-date Year-to-date Jun 30, 2001 Jun 30, 2000 Jun 30, 2001 Jun 30, 2000 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 - 44,392 - 44,392 Dividend Income from Subsidiary 270,000 230,000 520,000 455,000 Undistributed Earnings of Bank of Lancaster 203,859 163,609 365,778 376,435 Undistributed Earnings of Bay Trust (38,443) 23,489 10,789 22,834 Undistributed Earnings of Chesapeake Hldgs - - - - Total noninterest income 435,416 461,490 896,567 898,661 NONINTEREST EXPENSES Salaries and employee benefits - - - - Occupancy expense - - - - Deposit insurance premium - - - - Other expense 63,026 56,973 76,433 62,361 Total noninterest expenses 63,026 56,973 76,433 62,361 Income before income taxes 372,390 404,517 820,134 836,300 Income tax expense - - - - NET INCOME 372,390 404,517 820,134 836,300
8 The accompanying notes are an integral part of these financial statements. Bay Banks of Virginia, Inc. Parent Only Statements of Cash Flows (Unaudited)
Six months ended: 6/30/2001 6/30/2000 CASH FLOWS FROM OPERATING ACTIVITIES Net Income 820,134 836,300 Adjustments to reconcile Net Income to Cash: Undistributed (earnings)/losses of subsidiaries (376,567) (398,173) (Increase) / Decrease in Other Assets 254,361 (322,283) Increase / (Decrease) in Other Liabilities 10,121 964 --------- ---------- Net Cash Provided / (Used) by Operating Activities 708,049 116,808 CASH FLOWS FROM INVESTING ACTIVITIES Payments for investments in and advances to subsidiaries 0 (900,000) Sale or repayment of investments in and advances to subsidiaries 0 0 --------- ---------- Net Cash Provided / (Used) in Investing Activities 0 (900,000) 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 182,265 189,735 Payments to repurchase Common Stock (383,074) (189,462) Dividends paid (534,951) (487,239) Other 0 (332,455) --------- ---------- Net Cash Provided / (Used) in Financing Activities (735,760) (819,421) Net Increase / (Decrease) in Cash & Due from Banks (27,711) (1,602,613) Cash & Due From Banks at Beginning of period 194,573 2,113,231 Cash & Due From Banks at End of period 166,862 510,618
9 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (Unaudited) 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. Bay Banks of Virginia, Inc. Financial Highlights (Unaudited)
Three months ended (Thousands) 6/30/01 6/30/00 Change FINANCIAL CONDITION Average Assets 220,717 207,303 6.5% Average Interest-earning Assets 204,220 194,672 4.9% Average Earning Assets to Total Average Assets 92.5% 93.9% -1.5% Period-end Interest-bearing Liabilities 170,523 173,531 -1.7% Average Interest-bearing Liabilities 176,018 165,053 6.6% Average Equity, including FAS 115 adjustment 21,860 19,739 10.7% Tier 1 Capital 18,513 19,473 -5.0% Net Risk-weighted Assets 148,354 144,568 2.0% Tier 2 Capital 1,500 1,256 15.8% RESULTS OF OPERATIONS Net Interest Income before Provision 3,951 3,675 7.5% Net Income 844 860 -1.9% Annualized Yield on Average Interest-earning Assets 7.87% 7.95% -1.0% Annualized Cost of Average Interest-bearing Liabilities 4.50% 4.65% -3.2% Annualized Net Yield on Average Interest-earning Assets 3.99% 4.02% -0.7% Annualized Net Interest Rate Spread 3.37% 3.30% 2.1% RATIOS Total Capital to Risk-weighted Assets (10% min) 13.5% 14.3% -5.4% Tier 1 Capital to Risk-weighted Assets (6% min) 12.5% 13.5% -7.1% Leverage Ratio (5% min) 8.4% 9.5% -10.5% Annualized Return on Average Assets (ROA) 0.8% 0.8% -7.8% Annualized Return on Average Equity (ROE) 7.7% 8.7% -11.4% Period-end shares outstanding 1,159,430 1,158,562 0.1% Average shares outstanding 1,162,064 1,160,875 0.1% PER SHARE DATA Basic Earnings per average share (EPS) (six months) 0.73 0.74 -2.0% Cash Dividends per average share (six months) 0.46 0.42 9.7% Book Value per share before Accumulated Comprehensive Income/Loss 18.68 18.35 1.8% after Accumulated Comprehensive Income/Loss 19.04 17.04 11.7%
EARNINGS SUMMATION For the six months ended June 30, 2001, net income was $844 thousand as compared to $860 thousand for the comparable period in 2000, a decrease of 1.9%. Earnings per average share for the first six months of 2001 were $.73 as compared to $.74 for the first six months of 2000. Return on average equity was 7.7% for the first six months of 2001 as compared to 8.7% for the first six months of 2000, a decrease of 11.4%. Return on average assets remained unchanged at 0.8% for the comparable periods. Net interest income for the first six months of 2001 was $3,951 thousand as compared to $3,675 thousand for the first six months of 2000, an increase of 7.5%. Average interest-earning assets totaled $204.2 million for the first six months of 2001 as compared to $194.7 million for the first six months of 2000, an increase of 4.9%. Average interest-bearing liabilities totaled $176.0 million for the first six months of 2001 as compared to $165.1 million for the first six months of 2000, an increase of 6.6%. The annualized yield on average interest-earning assets for the first 10 six months of 2001 was 7.9% as compared to 8.0% for the first six months of 2000. The annualized yield (cost) on interest-bearing liabilities for the first six months of 2001 was 4.5% as compared to 4.7% for the first six months of 2000, a decrease of 3.2%. Average interest-earning assets as a percent of total average assets was 92.5% for the first six months of 2001 as compared to 93.9% for the comparable period of 2000, a decrease of 1.5%. Average total assets for the first six months of 2001 were $220.7 million as compared to $207.3 million for the first three months of 2000, growth of 6.5%. Bay Banks of Virginia, Inc. Net Interest Income Analysis (Unaudited)
(Fully taxable equivalent basis) Six months Six months ended ended 6/30/2001 6/30/2000 -------------------------------------------------------------------------------------- (Thousands) Average Income/ Annualized Average Income/ Annualized Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------------------------------------------------------- INTEREST EARNING ASSETS: - ------------------------ Investments (Book Value): Taxable Investments 37,977 1,144 6.02% 42,668 1,339 6.28% Tax-Exempt Investments (1) 10,363 246 7.21% 13,055 320 7.42% - ---------------------------------------------------------------------------------------------------------------------------------- Total Investments 48,340 1,390 6.28% 55,723 1,659 6.55% Gross Loans (2) 151,120 6,372 8.43% 137,947 5,882 8.53% Interest-bearing Deposits 131 2 3.83% 100 - 0.00% Fed Funds Sold 4,630 141 6.09% 569 36 6.29% ================================================================================================================================== TOTAL INTEREST EARNING ASSETS 204,221 7,905 7.87% 194,339 7,577 7.95% INTEREST-BEARING LIABILITIES: - ---------------------------- Deposits: Savings Deposits 58,317 1,239 4.25% 60,225 1,394 4.63% NOW Deposits 28,645 361 2.52% 25,844 374 2.89% CD's greater than or equal to $100,000 17,358 515 5.93% 14,671 429 5.85% CD's less than $100,000 56,385 1,601 5.68% 47,335 1,247 5.27% Money Market Deposit Accounts 12,393 187 3.02% 10,742 187 3.48% - ---------------------------------------------------------------------------------------------------------------------------------- Total Deposits 173,098 3,903 4.51% 158,817 3,631 4.57% Fed Funds Purchased - - 0.00% 757 51 6.75% Securities Sold to Repurchase 2,921 58 3.97% 2,311 52 4.53% Other Short Term Borrowings - - 0.00% 3,051 101 6.61% ================================================================================================================================== TOTAL INTEREST-BEARING LIABILITIES 176,019 3,961 4.50% 164,936 3,835 4.65% Net Interest Income/Yield on Earning Assets 3,944 3.99% 3,742 4.02% Net Interest Rate Spread 3.37% 3.30%
Notes: - ------ (1)-Yield assumes a federal tax rate of 34% (2)-Includes Visa Program & nonaccrual loans. This table shows net interest yield declining to 3.99% from 4.02% for the first six months of 2001 compared to the first six months of 2000. However, when comparing the first six months of 2001 with year-end 2000, the company is experiencing an increase in net interest yield. This is due mainly to the reduction in interest rates by the Federal Reserve Bank. Interest-earning assets are comprised mainly of the loan portfolio at $150.6 million and the investment portfolio at $48.8 million. For the six month period ended June 30, 2001, compared to year-end 2000, on a fully tax equivalent basis, tax-exempt investment yields declined to 7.21% from 7.30%, taxable investment yields declined to 6.02% from 6.13%, and total investment yields declined slightly to 6.28% from 6.40% at year-end 2000. In the first six months of 2001, gross loans on average volumes yielded 8.43% as compared to 8.56% for year-end 2000. Yields on average interest-bearing deposits comparing the first six months of 2001 to year-end 2000, were as follows. Savings yields were down to 4.25% compared to 4.81%, NOW accounts were down to 2.52% compared to 2.92%, money 11 market demand accounts were down to 3.02% compared 3.56%, certificates of deposit greater than $100 thousand were down to 5.93% compared to 6.20%, and certificates of deposit less than $100 thousand were 5.68% as compared to 5.60% for year-end 2000. The resulting total yields on deposits through June 30, 2001, was down to 4.51% compared to 4.88% at year-end 2000. INTEREST RATE SENSITIVITY Bay Banks of Virginia, Inc. Interest Rate Sensitivity Gap Analysis (Unaudited)
as of 6/30/2001 (Thousands) Within 3 3-12 Over 5 months Months 1-5 Years Years Total Interest-Bearing Due From Banks 8 - - - 8 Fed Funds Sold 3,801 - - - 3,801 Debt Securities (Market Value) 3,799 3,399 21,562 18,826 47,586 Loans 40,889 43,219 45,821 20,710 150,639 ----------------------------------------------------------- TOTAL EARNING ASSETS 48,497 46,618 67,383 39,536 202,034 INTEREST-BEARING LIABILITIES: NOW Accounts 2,742 - 24,674 - 27,416 MMDA's & Savings 25,965 - 44,211 - 70,176 CD's less than $100,000 15,323 30,523 10,537 - 56,383 CD's greater than or equal $100,000 5,423 8,690 2,435 - 16,548 ----------------------------------------------------------- Total Interest-bearing Deposits 49,453 39,213 81,857 - 170,523 Fed Funds Purchased - - - - - Securities Sold to Repurchase 3,340 - - - 3,340 Other Short Term Borrowings - - - - - ----------------------------------------------------------- TOTAL INTEREST-BEARING LIABILITIES 52,793 39,213 81,857 - 173,863 Rate Sensitive Gap (4,296) 7,405 (14,474) 39,536 28,171 Cumulative Gap (4,296) 3,109 (11,365) 28,171 Cumulative Rate Sensitive Assets to Rate Sensitive Liabilities 0.92 1.03 0.93 1.16 Note: Visa Receivables are classified as 'Within 3 Month' Loans.
Rising interest rate trends throughout 2000 and into the first few months of 2001 resulted in a narrowing spread in net interest margins within the Bank. This was due to short-term liability sensitivity which resulted in deposit rates rising more rapidly than loan rates. Recent rate reductions are positively impacting net interest spreads as prime-sensitive savings and short-term certificates of deposit reprice downward. Also, the short-term liability sensitivity has improved to the more neutral position shown above, making the Bank better positioned for interest rate changes. As of June 30, 2001, the Bank had interest-earning assets that mature within 3 months totaling $48.5 million, in 3-12 months totaling $46.6 million, in 1-5 years totaling $67.4 million, and over 5 years totaling $39.5 million. In comparison, interest-bearing liabilities maturing within 3 months totaled $52.8 million, in 3-12 months totaled $39.2 million, in 1-5 years totaled $81.9 million, and over 5 years totaled $0. Management is continually reviewing loan and deposit products to modify or develop offerings that are less subject to interest rate risk. LIQUIDITY The company 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 June 30, 2001, federal funds sold totaled $3.8 million and securities maturing in one year or less totaled $7.2 million, for a total pool of $11.0 million. The liquidity ratio as of June 30, 2001 was 27.7% as compared to 29.0% as of December 31, 2000. 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. 12 CAPITAL RESOURCES From December 31, 2000, to June 30, 2001, total shareholder's equity has grown by 3.7%. It is impacted by net unrealized gains on securities in the amount of $422,538 as of June 30, 2001. There were unrealized losses on December 31, 2000 of $259,912. 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 gains or losses was $21.7 million on June 30, 2001, and $21.5 million on December 31, 2000. This represents an increase of $108 thousand or 0.5% during the six-month period. Book value per share on June 30, 2001, compared to June 30, 2000, grew to $19.04 from $17.04, an increase of 11.7%. Book value per share before accumulated comprehensive income on June 30, 2001, compared to June 30, 2000, grew to $18.68 from $18.35, an increase of 1.8%. Cash dividends paid for the six months ended June 30, 2001, were $535 thousand, or $0.46 per average share, compared to $487 thousand, or $0.42 per average share, for the comparable period ended June 30, 2000, an increase of 9.5%. Total shares outstanding on June 30, 2001, were 1,159,430, compared to 1,158,562 on June 30, 2000. Average shares outstanding for the six months ended June 30, 2001, were 1,162,064, compared to 1,160,875, for the comparable period ended June 30, 2000. The Company began a share repurchase program in August of 2000 and has continued the program into 2001. The current share repurchase plan shall not exceed 40,000 shares. The Company is subject to minimum regulatory capital ratios as defined by FFIEC guidelines. As of June 30, 2001 the Company maintained Tier 1 capital of $18.5 million, net risk weighted assets of $147.5 million, and Tier 2 capital of $1.5 million. The Tier 1 capital to risk weighted assets ratio was 12.5%, the total capital ratio was 13.5%, and the tier 1 leverage ratio was 8.4%. These ratios continue to be well in excess of regulatory minimums. Please refer to the Financial Highlights Table. FINANCIAL CONDITION As of June 30, 2001, total assets have decreased 1.0% since December 31, 2000. Cash and cash equivalents totaled $7.6 million on June 30, 2001, compared to $6.6 million at year-end 2000. During the six months ended June 30, 2001, total loans increased by 1.1%. During the same six-month period, real estate mortgage loans decreased a slight 0.2% to $116.7 million, commercial loans increased 10.6% to $12.5 million, and installment loans increased 0.9% to $11.8 million. Real estate lending has historically been the main area of growth in the loan portfolio, but commercial lending is improving. For the six months ended June 30, 2001, the Company charged off loans totaling $55.6 thousand. For the comparable period in 2000, total loans charged off were $74.0 thousand. The Company maintained $773 thousand of other real estate owned, or "OREO," as of June 30, 2001. As of year-end 2000, the balance was $805 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 $175,000 through the first six months, and the allowance for loan losses as of June 30, 2001, was $1,500,192. The allowance for loan losses, as a percentage of average total loans through the first six months of 2001 was 1.0%. As of June 30, 2001, there were $40.3 thousand of loans on non-accrual status. There were $36.6 thousand of loans on non-accrual status as of June 30, 2000. Loans still accruing interest but delinquent for 90 days or more were $1,386.9 thousand on June 30, 2001, as compared to $750.1 thousand on June 30, 2000. 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 June 30, 2001, management deemed the loan loss reserve reasonable for the loss risk identified in the loan portfolio. As of June 30, 2001, investment securities totaled $48.8 million at market value. This compares with December 2000 market value of $52.6 million. This represents a decrease of 7.1% during the six months ended June 30, 2001. The investment portfolio represents 21.9% of total assets and 24.0% of earning assets. 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. 13 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 adjustment to book value as of June 30, 2001 was an unrealized gain of $640.2 thousand. The corresponding adjustment to shareholders' equity was $422.5 thousand. These gains or 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 net losses on investments during 2001. As of June 30, 2001, total deposits were $196.5 million. Compared to $200.0 at year-end 2000, balances have declined 1.8%. Comparing types of deposit balances on June 30, 2001, to year-end 2000 results in the following, non-interest-bearing demand deposits increased by 9.6% to $25.9 million, savings and NOW accounts decreased by 2.9% to $97.6 million, and other time deposits decreased by 3.9% to $72.9 million. RESULTS OF OPERATIONS NON INTEREST INCOME Non-interest income for the first six months of 2001 totaled $1,057 thousand compared to $799 thousand for the same period in 2000. This is an increase of 32.2%. 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 $429.6 thousand. Service charges on deposit accounts contributed $221.4 thousand. Other service charges and fees contributed $332.9 thousand. For the first six months of 2000, these totals were $322.3 thousand, $176.3 thousand, and $192.5 thousand, respectively. Since January 1, 2000, the trust and fiduciary activities of the Company have been conducted through Bay Trust Company of Virginia, Incorporated, `the Trust Company,' a subsidiary. The Trust Company acquired the assets of the former trust department of the Bank of Lancaster, and formally began operations on that date. 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. NON INTEREST EXPENSE Non-interest expenses totaled $3.664 million during the first six months of 2001 as compared to $3.150 million for the same period in 2000, an increase of 16.3%. 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 six months ended June 30, 2001, salary and benefit expense was $1,978.4 thousand, occupancy expense was $480.7 thousand, and other operating expense was $1205.1 thousand. For 2000, the totals were $1,629.4 thousand, $345.6 thousand, and $1,174.8 thousand, respectively. Much of this increase is due to the Bank's acquisition of two branches in the fourth quarter of 2000. The Bank began the renovation of its existing operations center at 23 West Church Street in Kilmarnock in August of 2000 and completed it during the second quarter of 2001. The renovation has resulted in the addition of approximately 4000 square feet of office space for operations and administration, and additional occupancy expense. 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. 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The accompanying notes are an integral part of these financial statements. Rate Shock Analysis of Interest Income and Expense as of June 30, 2001 (Unauditied) (in thousands)
Rate Change -300 bp -200 bp -100 bp 0 bp +100 bp +200 bp +300 bp Interest Income: Fed Funds Sold 173 194 214 235 255 276 296 Loans 12,047 12,250 12,459 12,632 12,804 12,972 13,141 Securities 2,939 2,959 2,979 2,997 3,005 3,013 3,021 Total Interest Income 15,159 15,403 15,652 15,864 16,064 16,261 16,458 Interest Expense: Deposits 6,553 6,828 7,104 7,379 7,629 7,879 8,129 Fed Funds & Borrowing 100 105 109 114 118 123 128 Total Interest Expense 6,653 6,933 7,213 7,493 7,747 8,002 8,257 Net Interest Income 8,506 8,470 8,439 8,371 8,317 8,259 8,201 Difference from 0 bp 135 99 68 - (54) (112) (170)
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 $68 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 $54 thousand of incremental loss. 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. 15 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 (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) 8/14/2001 /s/ Austin L. Roberts, III -------------------------- President and Chief Executive Officer 8/14/2001 /s/ Richard C. Abbott --------------------- Treasurer 16 -----END PRIVACY-ENHANCED MESSAGE-----