BAY BANKS OF VIRGINIA INC - 10-Q 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 SEPTEMBER 30, 2002

o	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

Yes	x	No	o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,302,325 shares of common stock on October 31, 2002.

FORM 10-Q

For the interim period ending September 30, 2002.

INDEX

PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001

	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)

	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001 (UNAUDITED)

	NET INTEREST INCOME ANALYSIS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001 (UNAUDITED)

	INTEREST RATE SENSITIVITIY GAP ANALYSIS AS OF SEPTEMBER 30, 2002 (UNAUDITED)

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	RATE SHOCK ANALYSIS OF NET INTEREST INCOME ON SEPTEMBER 30, 2002 (UNAUDITED)

ITEM 4.	CONTROLS AND PROCEDURES

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) Sep 30 2002			Dec 31, 2001

ASSETS
Cash and due from banks		$	11,300,119		$	9,467,334
Federal funds sold			19,492,297			25,235,480
Securities available for sale, at fair value			49,569,764			47,993,730
Gross Loans			164,591,912			151,745,619
Allowance for loan losses			(1,538,242	)		(1,493,063	)
Premises and equipment, net			7,501,355			6,943,494
Accrued interest receivable			1,466,202			1,562,917
Other real estate owned			602,743			614,073
Other assets			2,479,117			3,524,609
Total assets		$	255,465,267		$	245,594,193

LIABILITIES
Demand deposits		$	29,998,627		$	26,108,393
Savings and NOW deposits			107,266,842			102,121,408
Other time deposits			89,392,944			90,963,764
Total deposits		$	226,658,413		$	219,193,565
Securities sold for repurchase		$	3,135,308		$	2,860,274
Other liabilities			1,043,920			923,563
Total liabilities		$	230,837,641		$	222,977,402

SHAREHOLDERS’ EQUITY
Common stock - $5 par value;
	Authorized - 5,000,000 shares
	Outstanding – 2,305,325 and 1,153,281	$	11,526,624		$	5,766,405
Additional paid-in capital			4,027,068			3,940,720
Retained earnings			7,178,853			12,363,054
Accumulated other comprehensive income			1,895,081			546,612
Total shareholders’ equity		$	24,627,626		$	22,616,791
Total liabilities and shareholders’ equity		$	255,465,267		$	245,594,193

See notes to consolidated financial statements.

Bay Banks of Virginia, Inc.
Consolidated Statements of Income
(Unaudited)

	Qtr ended Sep 30, 2002		Qtr ended Sep 30, 2001		Year to date Sep 30, 2002		Year to date Sep 30, 2001

INTEREST INCOME
Loans receivable (incl fees)	$	2,966,896	$	3,245,989	$	9,114,589	$	9,617,554
Securities		692,162		663,627		2,039,928		2,062,772
Federal funds sold		49,060		76,855		235,577		217,776
Total interest income	$	3,708,118	$	3,986,471	$	11,390,094	$	11,898,102

INTEREST EXPENSE
Deposits	$	1,313,819	$	1,727,831	$	4,067,659	$	5,630,858
Securities sold to repurchase		9,043		20,042		23,599		78,045
Total interest expense	$	1,322,862	$	1,747,873	$	4,091,258	$	5,708,903
Net Interest Income	$	2,385,256	$	2,238,598	$	7,298,836	$	6,189,199

Provision for loan losses	$	103,000	$	75,000	$	314,000	$	250,000

Net interest income after provision for loan losses	$	2,282,256	$	2,163,598	$	6,984,836	$	5,939,199

NONINTEREST INCOME
Income from fiduciary activities	$	147,722	$	189,524	$	481,708	$	619,075
Service charges & fees on deposit accounts		144,334		106,260		396,690		327,616
Other miscellaneous fees		190,794		154,559		470,047		410,319
Net securities gains		0		1,847		2,800		22,269
Other income		67,723		60,546		186,063		190,204
Total noninterest income	$	550,573	$	512,736	$	1,537,308	$	1,569,483

NONINTEREST EXPENSES
Salaries and employee benefits	$	1,145,392	$	1,034,403	$	3,373,163	$	3,012,780
Occupancy expense		218,292		230,382		630,256		711,072
Deposit insurance premium		9,361		11,999		27,995		30,418
Visa Expense		94,765		81,419		234,557		198,711
Amortization of intangibles		70,391		73,517		216,208		220,959
Other expense		575,341		465,564		1,694,090		1,387,537
Total noninterest expenses	$	2,113,542	$	1,897,284	$	6,176,269	$	5,561,477

Net Income before income taxes	$	719,287	$	779,050	$	2,345,875	$	1,947,205

Income tax expense	$	214,668	$	223,000	$	731,668	$	547,260

Net Income	$	504,619	$	556,050	$	1,614,207	$	1,399,945

Average basic shares outstanding (1)		2,301,241		2,311,182		2,300,905		2,319,782
Earnings per share, basic	$	0.22	$	0.24	$	0.70	$	0.60
Average diluted shares outstanding (1)		2,337,911		2,352,226		2,337,575		2,360,826
Earnings per share, diluted	$	0.22	$	0.24	$	0.69	$	0.59

(1) Average basic and diluted shares outstanding are adjusted for a 2-for-1 stock split on 6/7/02.

See notes to consolidated financial statements.

Bay Banks of Virginia, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Nine months ended:	Sep 30, 2002			Sep 30, 2001

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income	$	1,614,207		$	1,399,945

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		383,188			380,701
Provision for Loan Losses		314,000			250,000
Net (Gain) / Loss on Sale of Securities		(2,800	)		(22,269	)
(Increase) / Decrease in Accrued Interest Receivable		96,715			230,475
(Increase) / Decrease in Other Assets		350,826			118,874
Increase / (Decrease) in Other Liabilities		120,357			(104,219	)
Net Cash Provided by Operating Activities	$	2,876,493		$	2,253,507

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Available-for-Sale Securities		(5,509,233	)		(4,475,531	)
Proceeds from sales of Available-for-Sale Securities		3,768,400			6,475,349
Proceeds from maturities of Available-for-Sale Securities		2,210,733			4,077,223
(Increase) / Decrease in Loans outstanding		(13,115,114	)		(4,645,372	)
(Increase) / Decrease in Fed Funds Sold		5,743,183			(10,900,000	)
Purchases of Premises and Equipment		(941,049	)		(654,871	)
(Increase) / Decrease in Other Real Estate Owned		11,330			21,289
Net Cash (Used in) Investing Activities	$	(7,831,750	)	$	(10,101,913	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase / (Decrease) in Demand, Savings, & NOW deposits		9,035,668			913,542
Increase / (Decrease) in Time Deposits		(1,570,820	)		6,173,040
Proceeds from issua

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