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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, 2002
[_] 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: 2,302,177 shares of common
stock on July 31, 2002.
FORM 10-Q
For the interim period ending June 30, 2002.
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001........................
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)....................
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001 (UNAUDITED).....................................
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX
MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)........................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION...............................................
FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2002
COMPARED TO JUNE 30, 2001 (UNAUDITED)..................................
NET INTEREST INCOME ANALYSIS FOR THE SIX MONTHS ENDED JUNE 30, 2002
COMPARED TO JUNE 30, 2001 (UNAUDITED)..................................
INTEREST RATE SENSITIVITIY GAP ANALYSIS AS OF JUNE 30, 2002
(UNAUDITED)............................................................
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............
RATE SHOCK ANALYSIS OF NET INTEREST INCOME ON JUNE 30, 2002 (UNAUDITED)
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................
ITEM 2. CHANGES IN SECURITIES..................................................
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
Bay Banks of Virginia, Inc.
Consolidated Balance Sheets (Unaudited)
Jun 30, 2002 Dec 31, 2001
ASSETS
Cash and due from banks $ 10,624,191 $ 9,467,334
Federal funds sold 16,880,387 25,235,480
Securities Available for Sale 50,081,585 47,993,730
Gross Loans 160,626,389 151,745,619
Allowance for loan losses (1,458,434) (1,493,063)
Premises and equipment, net 7,279,910 6,943,494
Accrued interest receivable 1,548,019 1,562,917
Other real estate owned 137,755 614,073
Other assets 3,077,230 3,524,609
Total assets 248,797,032 245,594,193
LIABILITIES
Demand deposits 29,741,240 26,108,393
Savings and NOW deposits 102,250,456 102,121,408
Other time deposits 89,386,684 90,963,764
Total deposits 221,378,380 219,193,565
Securities Sold for Repurchase 2,848,996 2,860,274
Other liabilities 1,006,835 923,563
Total liabilities 225,234,211 222,977,402
SHAREHOLDERS' EQUITY
Common stock - $5 par value;
Authorized - 5,000,000 shares
Outstanding - 2,302,177 and 1,153,281 11,510,885 5,766,405
Additional paid-in capital 3,982,981 3,940,720
Retained Earnings 6,978,942 12,363,054
Accumulated other comprehensive income 1,090,013 546,612
Total shareholders' equity 23,562,821 22,616,791
Total liabilities and shareholders' equity 248,797,032 245,594,193
See Notes to Consolidated Financial Statements.
Bay Banks of Virginia, Inc.
Consolidated Statements of Income
(Unaudited)
Qtr ended Qtr ended Year to date Year to date
Jun 30, 2002 Jun 30, 2001 Jun 30, 2002 Jun 30, 2001
INTEREST INCOME
Loans receivable (incl fees) $3,092,079 $3,138,572 $6,147,693 $6,371,565
Securities 679,749 670,943 1,347,766 1,399,145
Federal funds sold 84,441 75,168 186,517 140,921
Total interest income 3,856,269 3,884,683 7,681,976 7,911,631
INTEREST EXPENSE
Deposits 1,339,164 1,847,861 2,753,840 3,903,027
Securities Sold to Repurchase 8,901 24,431 14,556 58,003
Total interest expense 1,348,065 1,872,292 2,768,396 3,961,030
Net Interest Income 2,508,204 2,012,391 4,913,580 3,950,601
Provision for loan losses 132,000 75,000 211,000 175,000
Net interest income after provision for loan losses 2,376,204 1,937,391 4,702,580 3,775,601
NONINTEREST INCOME
Income from fiduciary activities 158,405 183,045 333,986 429,551
Service charges & fees on deposit accounts 131,721 116,118 252,356 221,356
Other miscellaneous fees 154,048 108,118 279,253 255,760
Net securities gains 1,200 0 2,800 20,422
Other income 34,584 89,601 118,340 129,658
Total noninterest income 479,958 496,882 986,735 1,056,747
NONINTEREST EXPENSES
Salaries and employee benefits 1,129,908 993,605 2,227,771 1,978,377
Occupancy expense 212,504 240,881 411,964 480,690
Other expense 727,077 678,516 1,422,992 1,205,126
Total noninterest expenses 2,069,489 1,913,002 4,062,727 3,664,193
Net Income before income taxes 786,673 521,271 1,626,588 1,168,155
Income tax expense 261,000 137,000 517,000 324,260
Net Income $ 525,673 $ 384,271 $1,109,588 $ 843,895
Average basic shares outstanding (1) 2,300,726 2,324,024 2,300,733 2,324,128
Earnings per share, basic $ 0.23 $ 0.17 $ 0.48 $ 0.36
Average diluted shares outstanding (1) 2,337,976 2,366,132 2,336,609 2,366,238
Earnings per share, diluted $ 0.22 $ 0.16 $ 0.47 $ 0.36
(1) Average 2001 basic and diluted shares outstanding are adjusted for a 2-for-1
stock split in the form of a 100% stock dividend issued on June 7, 2002.
See Notes to Consolidated Financial Statements.
Bay Banks of Virginia, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended: Jun 30, 2002 Jun 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,109,588 $ 843,895
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 260,325 256,155
Provision for Loan Losses 211,000 175,000
Net (Gain) / Loss on Sale of Securities (2,800) (20,422)
(Increase) / Decrease in Accrued Interest Receivable 14,898 170,697
(Increase) / Decrease in Other Assets 167,445 (134,963)
Increase / (Decrease) in Other Liabilities 83,273 (101,542)
Net Cash Provided by Operating Activities 1,843,729 1,188,820
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Available-for-Sale Securities (5,190,918) (3,176,690)
Proceeds from sales of Available-for-Sale Securities 2,068,400 6,019,234
Proceeds from maturities of Available-for-Sale Securities 1,860,797 1,955,035
(Increase) / Decrease in Loans outstanding (9,126,399) (1,635,973)
(Increase) / Decrease in Fed Sunds Sold 8,355,093 956,000
Purchases of Premises and Equipment (596,741) (600,859)
(Increase) / Decrease in Other Real Estate Owned 476,318 31,194
Net Cash Provided by / (Used in) Investing Activities (2,153,450) 3,547,941
CASH FLOWS FROM FINANCING ACTIVITIES
Increase / (Decrease) in Demand, Savings, & NOW deposits 3,761,895 (617,570)
Increase / (Decrease) in Time Deposits (1,577,080) (2,947,327)
Proceeds from issuance of Common Stock 159,027 152,472
Repurchase of Common Stock (334,670) (383,074)
Dividends paid (551,979) (534,951)
Other 9,385 565,060
Net Cash Provided by / (Used in) Financing Activities 1,466,578 (3,765,390)
Net Increase / (Decrease) in Cash & Due from Banks 1,156,857 971,371
Cash & Due From Banks at Beginning of period 9,467,334 6,638,567
Cash & Due From Banks at End of period 10,624,191 7,609,938
See Notes to Consolidated Financial Statements.
Bay Banks of Virginia, Inc.
Consolidated Statement of Changes in
Shareholders' Equity
(Unaudited)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Shareholders
Stock Capital Earnings Income/(Loss) Equity
==========================================================================================================================
Balance on 1/1/2001 $ 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
gain 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 ($0.23/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
Balance on 1/1/2002 5,766,405 3,940,720 12,363,054 546,612 22,616,791
Comprehensive Income:
Net Income 1,109,588 1,109,588
Net changes in unrealized
gain of available-
for-sale securities, net of
taxes of $279,934 543,401 543,401
---------------------------------------------------------------------------------
Total Comprehensive Income - - 1,109,588 543,401 1,652,989
Dividends paid ($0.24/share) (551,979) (551,979)
Stock repurchases (54,645) (107,289) (172,736) (334,670)
Sale of common stock:
Dividends Reinvested 33,823 125,204 - - 159,027
2-for-1 stock split in the form of a
100% stock dividend 5,750,427 (5,750,427)
Stock Options exercised 14,875 24,346 (18,558) - 20,663
=================================================================================
Balance on 6/30/02 11,510,885 3,982,981 6,978,942 1,090,013 23,562,821
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Note 1:
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
accounting principles generally accepted by the United States of
America 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. The results of operations for
the interim periods are not necessarily indicative of the results to be
expected for the full year.
These consolidated financial statements should be read in conjunction
with the financial statements and notes to financial statements
included in the registrant's 2001 Annual Report to Shareholders.
Note 2: Securities Available for Sale
The carrying amounts of debt and other securities and their approximate
fair values at June 30, 2002, and December 31, 2001, follow:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
June 30, 2002:
U.S. Government agencies $ 5,196,068 $ 116,767 $ 625 $ 5,312,210
State and municipal securities 23,994,465 889,358 - 24,883,823
Other securities 19,239,517 646,035 - 19,885,552
------------------------------------------------------------
48,430,050 1,652,160 625 50,081,585
============================================================
December 31, 2001:
U.S. Government agencies 6,693,947 152,679 19,275 6,827,351
State and municipal securities 20,978,986 436,702 38,745 21,376,943
Other securities 19,492,597 369,727 72,888 19,789,436
------------------------------------------------------------
47,165,530 959,108 130,908 47,993,730
============================================================
Note 3: Loans
The components of loans in the balance sheets were as follows:
Jun 30, 2002 Dec 31, 2001
--------------------------------
Real estate mortgage loans $120,751,690 $115,473,765
Commercial loans 15,071,827 13,465,591
Installment and other loans 23,690,609 21,962,971
Net deferred loan costs and fees 1,112,262 843,292
--------------------------------
160,626,388 151,745,619
Allowance for loan losses (1,458,434) (1,493,063)
$159,167,954 $150,252,556
Loans upon which the accrual of interest has been discontinued totaled
$473,955 at June 30, 2002, and $163,325 at December 31, 2001.
Note 4: Earnings per share
The following shows the weighted average number of shares used in
computing earnings per share and the effect on weighted average number
of shares of diluted potential common stock, as adjusted for a 2-for-1
stock split in the form of a 100% stock dividend issued on June 7,
2002.
----- Jun 30, 2002 ---- ----- Jun 30,2001 -----
Per share Per share
Shares Amount Shares Amount
Basic earnings per share 2,300,733 $0.48 2,324,128 $0.36
Effect of dilutive securities:
Stock options 35,876 42,110
Diluted earnings per share 2,336,609 $0.47 2,366,238 $0.36
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion is intended to assist in understanding the results of
operations and the financial condition of Bay Banks of Virginia, Inc. (the
"Company") a two bank holding company. This discussion should be read in
conjunction with the above consolidated financial statements and the notes
thereto.
CRITICAL ACCOUNTING POLICIES
GENERAL. The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States ("GAAP"). The
financial information contained within our statements is, to a significant
extent, financial information that is based on measures of the financial effects
of transactions and events that have already occurred. A variety of factors
could affect the ultimate value that is obtained either when earning
income,recognizing an expense, recovering an asset or relieving a liability. We
use historical loss factors as one factor in determining the inherent loss that
may be present in our loan portfolio. Actual losses could differ significantly
from the historical factors that we use. In addition, GAAP itself may change
from one previously acceptable method to another method. Although the economics
of our transactions would be the same, the timing of events that would impact
our transactions could change.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is an estimate of the
losses that may be sustained in our loan portfolio. The allowance is based on
two basic principles of accounting: (1) Statement of Financial Accounting
Standards ("SFAS") No. 5 "Accounting for Contingencies," which requires that
losses be accrued when they are probable of occurring and estimable and (2) SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that
losses be accrued based on the differences between the value of collateral,
present value of future cash flows or values that are observable in the
secondary market and the loan balance. The use of these values is inherently
subjective and our actual losses could be greater or less than the estimates.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions.
Bay Banks of Virginia, Inc.
Financial Highlights
(Unaudited)
Quarter ended (Thousands) 6/30/02 6/30/01 Change
FINANCIAL CONDITION
Average Assets $247,553 $222,440 11.3%
Average Interest-earning Assets 225,322 204,221 10.3%
Average Earning Assets to Total Average Assets 91.0% 91.8% -0.9%
Period-end Interest-bearing Liabilities $194,486 $173,863 11.9%
Average Interest-bearing Liabilities 197,309 176,019 12.1%
Average Equity, including FAS 115 adjustment 22,877 21,860 4.7%
Tier 1 Capital 19,782 18,513 6.9%
Net Risk-weighted Assets 163,805 148,354 10.4%
Tier 2 Capital 1,458 1,500 -2.8%
RESULTS OF OPERATIONS
Net Interest Income before Provision $ 4,914 $ 3,951 24.4%
Net Income 1,110 844 31.5%
Annualized Yield on Average Interest-earning Assets 6.92% 7.87% -12.1%
Annualized Cost of Average Interest-bearing Liabilities 2.81% 4.50% -37.6%
Annualized Net Yield on Average Interest-earning Assets 4.47% 3.99% 12.0%
Annualized Net Interest Rate Spread 4.12% 3.37% 22.3%
RATIOS
Total Capital to Risk-weighted Assets (10% min) 13.0% 13.5% -3.9%
Tier 1 Capital to Risk-weighted Assets (6% min) 12.1% 12.5% -3.2%
Leverage Ratio (5% min) 8.1% 8.4% -3.8%
Annualized Return on Average Assets (ROA) 0.9% 0.8% 18.1%
Annualized Return on Average Equity (ROE) 9.7% 7.7% 25.6%
Period-end basic shares outstanding* 2,302,177 2,318,860 -0.7%
Average basic shares outstanding* 2,300,733 2,324,128 -1.0%
Average diluted shares outstanding* 2,336,609 2,366,238 -1.3%
PER SHARE DATA
Diluted earnings per average share (EPS) (six months)* $ 0.47 $ 0.36 30.6%
Cash Dividends per average share (six months)* 0.24 0.23 4.3%
Book Value per share*
before Accumulated Comprehensive Income/Loss 9.76 9.34 4.5%
after Accumulated Comprehensive Income/Loss 10.24 9.52 7.6%
Book Value per average share*
before Accumulated Comprehensive Income/Loss 9.77 9.32 4.8%
after Accumulated Comprehensive Income/Loss 10.24 9.50 7.8%
* - Shares outstanding and Per Share data for 2001 is adjusted for a
2-for-1 split in the form of a 100% stock dividend issued on 6/7/02.
EARNINGS SUMMATION
For the six months ended June 30, 2002, net income was $1.1 million as
compared to $844 thousand for the comparable period in 2001, an increase of
31.5%. Diluted earnings per average share for the first six months of 2002 were
$0.47 as compared to $0.36 for the first six months of 2001. Return on average
equity was 9.7% for the first six months of 2002 as compared to 7.7% for the
first six months of 2001, an increase of 25.6%. Return on average assets was
0.9% for the first six months of 2002, compared to 0.8% for the first six months
of 2001, an increase of 18.1%. Net interest income for the first six months of
2002 was $4.9 million as compared to $3.9 million for the first six months of
2001, an increase of 24.4%. Average interest-earning assets totaled $225.3
million for the first six months of 2002 as compared to $204.2 million for the
first six months of 2001, an increase of 10.3%. Average interest-bearing
liabilities totaled $197.3 million for the first six months of 2002 as compared
to $176.0 million for the first six months of 2001, an increase of 12.1%. The
annualized yield on average interest-earning assets for the first six months of
2002 was 6.92% as compared to 7.87% for the first six months of 2001, a decrease
of 12.1%. The annualized yield (cost) on interest-bearing liabilities for the
first six months of 2002 was 2.81% as compared to 4.50% for the first six months
of 2001, a decrease of 37.6%. Average interest-earning assets as a percent of
total average assets was 91.0% for the first six months of 2002 as compared to
91.8% for the comparable period of 2001, a decrease of 0.9%. Average total
assets for the first six months of 2002 were $247.6 million as compared to
$222.4 million for the first six months of 2001, growth of 11.3%.
Bay Banks of Virginia, Inc.
Net Interest Income Analysis
(Unaudited)
-------------------------------------------------------------------------
(Fully taxable equivalent basis) Six months Six months
ended ended
6/30/2002 6/30/2001
-------------------------------------------------------------------------
(Thousands) Average Income/ Annualized Average Income/ Annualized
Balance Expense Yield/Rate Balance Expense Yield/Rate
-------------------------------------------------------------------------
INTEREST EARNING ASSETS:
- ------------------------
Debt Securities (Book Value):
Taxable Securities $ 33,626 $1,022 6.08% $ 37,977 $1,144 6.02%
Tax-Exempt Securities (1) 13,210 442 6.69% 10,363 246 7.21%
- ---------------------------------------------------------------------------------------------------------------------
Total Debt Securities 46,836 1,464 6.25% 48,340 1,390 6.28%
Gross Loans (2) 155,384 6,148 7.91% 151,120 6,372 8.43%
Interest-bearing Deposits 209 1 0.73% 131 2 3.83%
Fed Funds Sold 22,893 187 1.63% 4,630 141 6.09%
=====================================================================================================================
TOTAL INTEREST EARNING ASSETS 225,322 7,800 6.92% 204,221 7,905 7.87%
INTEREST-BEARING LIABILITIES:
Deposits:
Savings Deposits 59,076 674 2.28% 58,317 1,239 4.25%
NOW Deposits 30,898 197 1.27% 28,645 361 2.52%
CD's greater than or equal to $100,000 23,679 473 4.00% 17,358 515 5.93%
CD's less than $100,000 67,673 1,305 3.86% 56,385 1,601 5.68%
Money Market Deposit Accounts 13,059 105 1.61% 12,393 187 3.02%
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits 194,386 2,754 2.83% 173,098 3,903 4.51%
Securities Sold to Repurchase 2,924 15 1.00% 2,921 58 3.97%
Other Short Term Borrowings - - 0.00% - - 0.00%
=====================================================================================================================
TOTAL INTEREST-BEARING LIABILITIES 197,309 2,769 2.81% 176,019 3,961 4.50%
Net Interest Income/Yield on Earning Assets 5,031 4.47% 3,944 3.99%
Net Interest Rate Spread 4.12% 3.37%
Notes:
- -----
(1)-Yield and income assumes a federal tax rate of 34%
(2)-Includes Visa Program & nonaccrual loans.
This Net Interest Income Analysis table shows net interest margin
increasing to 4.47% from 3.99% for the first six months of 2002 compared to the
first six months of 2001. Reductions of interest rates by the Federal Reserve
Bank throughout 2001 contributed to these improved margins. In addition,
improved asset/liability structure contributed to the higher margins.
Through the six months ended June 30, 2002, average interest-earning
assets were comprised mainly of the loan portfolio with $155.4 million and the
investment portfolio with $46.8 million. For the six month period ended June 30,
2002, compared to the same period in 2001, on a fully tax equivalent basis,
tax-exempt investment yields declined to 6.69% from 7.21%, and taxable
investment yields increased to 6.08% from 6.02%. Total investment yield declined
slightly to 6.25% from 6.28%. In the first six months of 2002, gross loans on
average volumes yielded 7.91% as compared to 8.43% for the same period in 2001.
Yields on average interest-bearing deposits comparing the first six
months of 2002 to the same period in 2001, were as follows. Savings yields were
down to 2.28% compared to 4.25%, NOW accounts were down to 1.27% compared to
2.52%, money market demand accounts were down to 1.61% compared to 3.02%,
certificates of deposit greater than $100 thousand were down to 4.00% compared
to 5.93%, and certificates of deposit less than $100 thousand were down to 3.86%
compared to 5.68%. The resulting total yield on deposits through June 30, 2002,
was down to 2.83% compared to 4.51% for the six months ended June 30, 2001.
Bay Banks of Virginia, Inc.
Interest Rate Sensitivity Gap Analysis
(Unaudited)
as of June 30, 2002
(Thousands) Within 3 3-12 Months 1-5 Years Over 5 Total
months Years
INTEREST EARNING ASSETS:
Interest-Bearing Due From Banks 129 - - - 129
Fed Funds Sold 16,880 - - - 16,880
Debt Securities (Market Value) 925 4,348 21,507 22,050 48,830
Loans 39,596 42,164 75,650 3,216 160,626
------------------------------------------------------------------
TOTAL EARNING ASSETS 57,530 46,512 97,157 25,266 226,465
INTEREST-BEARING LIABILITIES:
NOW Accounts - - 30,708 - 30,708
MMDA's & Savings 51,767 343 3,104 - 55,214
CD's less than $100,000 8,185 21,417 31,930 - 61,532
CD's greater than or equal to $100,000 3,431 5,267 13,869 - 22,567
IRA CD's 249 1,757 3,282 - 5,288
------------------------------------------------------------------
Total Interest-bearing Deposits 63,632 28,784 82,893 - 175,309
Fed Funds Purchased - - - - -
Securities Sold to Repurchase 2,849 - - - 2,849
Other Short Term Borrowings - - - - -
------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 66,481 28,784 82,893 - 178,158
Rate Sensitive Gap (8,951) 17,728 14,264 25,266 48,307
Cumulative Gap (8,951) 8,777 23,041 48,307
Cumulative RSA/RSL 0.87 1.09 1.13 1.27
Rate reductions throughout 2001 contributed to favorably impact net
interest spreads as deposits repriced downward. Also, the ratio of rate
sensitive assets (RSA) to rate sensitive liabilities (RSL) has improved to the
more neutral position shown above. This improvement is partly the result of
increased volume in the Bank's five-year certificates of deposit. As of June 30,
2002,
the Bank had interest-earning assets that mature within 3 months totaling $57.5
million, in 3-12 months totaling $46.5 million, in 1-5 years totaling $97.2
million, and over 5 years totaling $25.3 million. In comparison,
interest-bearing liabilities maturing within 3 months totaled $66.5 million, in
3-12 months totaled $28.8 million, in 1-5 years totaled $82.9 million, and none
over 5 years. 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, 2002, federal funds sold totaled $16.9 million and
securities maturing in one year or less totaled $5.5 million, for a total pool
of $22.4 million. The liquidity ratio as of June 30, 2002 was 31.1% as compared
to 34.7% as of December 31, 2001. Bay Banks of Virginia determines this ratio by
dividing the sum of cash and cash equivalents, unpledged investment securities
and Federal Funds Sold, by net liabilities. Management, through historical
analysis, has deemed 15% an adequate liquidity ratio.
CAPITAL RESOURCES
From December 31, 2001, to June 30, 2002, total shareholder's equity
has grown by 4.2%. It is impacted by net unrealized gains on securities in the
amount of $1.1 million as of June 30, 2002. There were net unrealized gains on
December 31, 2001 of $547 thousand. Unrealized gains or losses, net of taxes,
are recognized as accumulated comprehensive income or loss on the balance sheet
and statement of changes in shareholders' equity. Shareholders' equity before
unrealized gains or losses was $22.5 million on June 30, 2002, and $22.1 million
on December 31, 2001. This represents an increase of $403 thousand or 1.8%
during the six-month period.
The Company issued a 2-for-1 stock split in the form of a 100% stock
dividend on June 7, 2002. All share information has been adjusted to reflect the
split for all periods presented.
Book value per share on June 30, 2002, compared to June 30, 2001, grew
to $10.24 from $9.52, an increase of 7.6%. Book value per share before
accumulated comprehensive income on June 30, 2002, compared to June 30, 2001,
grew to $9.76 from $9.34, an increase of 4.5%. Cash dividends paid for the six
months ended June 30, 2002, were $552 thousand, or $0.24 per average share,
compared to $535 thousand, or $0.23 per average share, for the comparable period
ended June 30, 2001, an increase of 4.2%. Average shares outstanding for the six
months ended June 30, 2002, were 2,300,733 compared to 2,324,128 for the
comparable period ended June 30, 2001. The Company began a share repurchase
program in August of 2000 and has continued the program into 2002. On May 20,
2002, the Board of Directors approved the repurchase of an additional 50,000
shares of common stock. This increases the authorized number of shares in the
repurchase plan to 115,000 shares.
The Company is subject to minimum regulatory capital ratios as defined
by Federal Financial Institutions Examination Council guidelines. As of June 30,
2002 the Company maintained Tier 1 capital of $19.8 million, net risk weighted
assets of $163.8 million, and Tier 2 capital of $1.5 million. On June 30, 2002,
the Tier 1 capital to risk weighted assets ratio was 12.1%, the total capital
ratio was 13.0%, and the tier 1 leverage ratio was 8.1%. These ratios continue
to be well in excess of regulatory minimums.
FINANCIAL CONDITION
As of June 30, 2002, total assets have increased 1.3% since December
31, 2001, from $245.6 million to $248.8 million. Cash and cash equivalents
totaled $10.6 million on June 30, 2002, compared to $9.5 million at year-end
2001.
During the six months ended June 30, 2002, gross loans increased by
5.9%, from $151.7 million to $160.6 million. During the same six-month period,
real estate mortgage loans increased 4.6% to $120.8 million, commercial loans
increased 11.9% to $15.1 million, and installment and other loans increased by
8.7% to $24.7 million.
For the six months ended June 30, 2002, the Company charged off loans
totaling $257.2 thousand. For the comparable period in 2001, total loans charged
off were $55.6 thousand. The Company maintained $138 thousand of other real
estate owned ("OREO") as of June 30, 2002. As of year-end 2001, the balance was
$614 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 $211 thousand
through the first six months, and the allowance for loan losses as of June 30,
2002, was approximately $1.5 million. The allowance for loan losses, as a
percentage of average total loans through the first six months of 2002 was 0.9%.
As of June 30, 2002, $474 thousand of loans were on on non-accrual
status. There were $40.3 thousand of loans on non-accrual status as of June 30,
2001. Loans still accruing interest but delinquent for 90 days or more were $541
thousand on June 30, 2002, as compared to $1,387 thousand on June 30, 2001.
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, 2002, management deemed the loan loss reserve
reasonable for the loss risk identified in the loan portfolio.
As of June 30, 2002, securities available for sale totaled $50.1
million at market value. This compares with December 2001 market value of $48.0
million. This represents an increase of 4.4% during the six months ended June
30, 2002. The investment portfolio represents 20.1% of total assets and 22.0% of
earning assets. The Company's investment portfolio is classified as
available-for-sale, and therefore management has elected to mark the entire
investment portfolio to market. The resulting accumulated adjustment to book
value as of June 30, 2002 was an unrealized gain of $1.7 million. The
corresponding accumulated adjustment to shareholders' equity was $1.1 million.
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 2002.
As of June 30, 2002, total deposits were $221.4 million. Compared to
$219.2 at year-end 2001, balances have increased 1.0%. Comparing types of
deposit balances on June 30, 2002, to year-end 2001 results in the following,
non-interest-bearing demand deposits increased by 13.9% to $29.7 million,
savings and NOW accounts increased slightly to $102.3 million, and other time
deposits decreased by 1.7% to $89.4 million.
RESULTS OF OPERATIONS
NON-INTEREST INCOME
Non-interest income for the first six months of 2002 totaled $987
thousand compared to $1.06 million for the same period in 2001. This is a
decrease of 6.6%. Non-interest income includes income from fiduciary activities,
service charges on deposit accounts, other miscellaneous fees, gains on the sale
of securities, and other income. Of these categories, fiduciary activities
contributed the majority at $334 thousand. Service charges on deposit accounts
contributed $252 thousand. Other miscellaneous fees contributed $279 thousand.
Other income contributed the balance with 121 thousand. For the first six months
of 2001, these totals were $430 thousand, $221 thousand, and $256 thousand, and
150 thousand, respectively.
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 $4.1 million during the first six months
of 2002 as compared to $3.7 million for the same period in 2001, an increase of
10.9%. 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, 2002, salary and benefit
expense was $2.2 million, occupancy expense was $412 thousand, and other
operating expense was $1.4 million. For the same period in 2001, the totals were
$2.0 million, $481 thousand, and $1.2 million, respectively.
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
Rate Shock Analysis of Net
Interest Income
as of June 30, 2002
(Unauditied)
(in thousands)
Rate Change: -200 bp 0 bp +200 bp
======================================
Year 1
- ------
Net Interest Income $9,056 $9,250 $99,475
Net Interest Income Change ($185) $0 $225
Net Interest Income % Change -2.00% 0.00% 2.43%
Year 2
- ------
Net Interest Income $8,145 $9,227 $10,337
Net Interest Income Change ($1,082) $0 $1,110
Net Interest Income % Change -11.73% 0.00% 12.03%
Two Year Summary:
- -----------------
Net Interest Income $17,210 $18,477 $19,812
Net Interest Income Change ($1,267) $0 $1,335
Net Interest Income % Change -6.86% 0.00% 7.23%
Rate shock is a method for stress testing the Bank's future net
interest margin under several rate change levels. These levels span 200 basis
point (2.00%) 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 income is then calculated and a risk profile is developed.
The results of these calculations are summarized in the table above.
As shown, the Company estimates that a 200 bp reduction in the current
prime rate would result in $185 thousand less net interest income to the Company
over twelve months. Similarly, an increase in the current prime rate by 200 bp
would result in an estimated $225 thousand incremental additional net interest
income.
PART II.
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES
None to report.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index:
3.0 Articles of Incorporation and Bylaws of Bay Banks of Virginia,
Inc. (Incorporated by reference to Appendix I to Exhibit A of
previously filed Form 424B3, Commission file number 333-2259
dated March 23, 1997.)
10.1 Incentive Stock option plan (Incorporated by reference to the
previously filed Form S-4EF, Commission file number 333-22579
dated February 28, 1997.)
10.2 1998 Non-Employee Directors Stock Option Plan (Incorporated
by reference to the previously filed Annual Report on Form 10-K
for the year ended December 31, 1999).
11.0 Statement re: Computation of per share earnings. (Incorporated
by reference to Note 1 of the 2001 Annual Report to
Shareholders.)
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
The Company filed an 8K on May 22, 2002 announcing a two-for-one
stock split for shareholders of record as of the close of
business on May 31, 2002. This 8k also announced the Board of
Directors' approval of the repurchase of an additional 50,000
shares of common stock, increasing the number of shares
authorized for repurchase to 115,000.
SIGNATURES
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)
8/14/2002 /s/ Austin L. Roberts, III
--------------------------
Austin L. Roberts, III
President and
Chief Executive Officer (principal executive
officer)
8/14/2002 /s/ Richard C. Abbott
---------------------
Richard C. Abbott
Treasurer (principal financial officer)