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 March 31, 2004

¨	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 REGISTRANT AS SPECIFIED IN ITS CHARTER)


VIRGINIA		54-1838100
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

100 SOUTH MAIN STREET, KILMARNOCK, VA		22482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

(804) 435-1171

(REGISTRANT’S 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ¨ yes x no

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,331,918 shares of common stock on March 31, 2004.

FORM 10-Q

For the interim period ending March 31, 2004.

INDEX


PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

	CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003	3

	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)	4

	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)	5

	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)	6

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION		10

	FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO MARCH 31, 2003 (UNAUDITED)	11

	NET INTEREST INCOME ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO MARCH 31, 2003 (UNAUDITED)	14

	INTEREST RATE SENSITIVITY GAP ANALYSIS AS OF MARCH 31, 2004 (UNAUDITED)	15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		18

ITEM 4. CONTROLS AND PROCEDURES		18

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		18

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS		18

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		18

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		19

ITEM 5. OTHER INFORMATION		19

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K		19

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Bay Banks of Virginia, Inc.

Consolidated Balance Sheets


	March 31, 2004		December 31, 2003
	(unaudited)
ASSETS
Cash and due from banks	$	8,227,757	$	7,762,030
Interest-bearing deposits		116,678		102,868
Federal funds sold		15,386,001		13,907,525
Securities available for sale, at fair value		54,743,881		66,076,937
Securities held to maturity, at amortized cost		420,012		416,794
Loans, net of allowance for loan losses of $1,909,158 and $1,901,576		201,093,550		188,450,953
Premises and equipment, net		8,474,939		8,411,776
Accrued interest receivable		1,249,066		1,261,784
Other real estate owned		139,606		76,514
Core deposit intangible		2,807,842		2,807,842
Other assets		1,940,517		1,435,602

Total Assets	$	294,599,847	$	290,710,625

LIABILITIES
Demand deposits	$	34,614,584	$	34,290,391
Savings and interest-bearing demand deposits		131,233,399		126,127,299
Time deposits		95,707,753		96,665,504
Total Deposits		261,555,736		257,083,194

Securities sold under repurchase agreements		5,218,047		6,478,601
Other liabilities		2,196,231		2,070,426

Total Liabilities	$	268,970,014	$	265,632,221

SHAREHOLDERS’ EQUITY
Common stock - $5 par value;
Authorized - 5,000,000 shares;
Outstanding - 2,331,918 and 2,326,080 shares	$	11,659,588	$	11,630,401
Additional paid-in capital		4,403,835		4,336,929
Retained earnings		8,188,480		8,146,613
Accumulated other comprehensive income, net		1,377,930		964,461

Total Shareholders’ Equity	$	25,629,833	$	25,078,404

Total Liabilities and Shareholders’ Equity	$	294,599,847	$	290,710,625

See Notes to Consolidated Financial Statements.

Bay Banks of Virginia, Inc.

Consolidated Statements of Income (unaudited)


	Quarter Ended March 31, 2004		Quarter Ended March 31, 2003
INTEREST INCOME
Loans, including fees	$	2,819,926	$	2,732,489
Securities:
Taxable		350,884		425,409
Tax-exempt		200,381		179,553
Federal funds sold		29,238		72,806

Total interest income		3,400,429		3,410,257

INTEREST EXPENSE
Deposits		1,057,899		1,258,978
Federal funds purchased and securities sold under repurchase agreements		5,911		9,327

Total interest expense		1,063,810		1,268,305

Net interest income		2,336,619		2,141,952
Provision for loan losses		75,000		78,000

Net interest income after provision for loan losses		2,261,619		2,063,952

NONINTEREST INCOME
Income from fiduciary activities		165,006		138,468
Service charges on deposit accounts		137,536		138,294
Other service charges and fees		182,289		147,996
Secondary market lending fees		21,481		92,288
Securities gains		154,599		20,857
Other real estate gains		7,136		34,911
Other income		23,169		36,878

Total non-interest income		691,216		609,692

NONINTEREST EXPENSES
Salaries and employee benefits		1,405,295		1,044,609
Occupancy expense		358,762		261,496
Bank franchise tax		56,455		52,488
Visa expense		80,414		71,366
Telephone expense		41,196		46,300
Other expenses		445,376		567,232

Total non-interest expenses		2,387,498		2,043,491

Income before income taxes		565,337		630,153
Income tax expense		168,618		191,232

Net Income	$	396,719	$	438,921

Basic Earnings per Share
Average basic shares outstanding		2,325,920		2,305,385
Net income per share of common stock	$	0.17	$	0.19

Diluted Earnings per Share
Average diluted shares outstanding		2,352,716		2,316,288
Net income per share of common stock	$	0.17	$	0.19

See Notes to Consolidated Financial Statements.

Bay Banks of Virginia, Inc.

Consolidated Statements of Cash Flows (unaudited)


	Quarter ended March 31, 2004			Quarter ended March 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	396,719		$	438,921
Adjustments to reconcile net income to net cash (used in) / provided by operating activities:
Depreciation		186,794			183,724
Amortization and accretion of securities		(15,158	)		5,587
Provision for loan losses		74,965			78,000
Gain on sale of securities		(154,599	)		(20,857	)
Gain on sale of other real estate owned		(7,136	)		(34,911	)
(Increase) / Decrease in other assets		(492,197	)		337,914
Decrease in Other Liabilities		(87,194	)		(107,332	)

Net cash (used in) / provided by operating activities		(97,806	)		881,046

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities		2,399,803			3,797,835
Proceeds from sales of available-for-sale securities		18,166,037			2,449,500
Purchases of available-for-sale securities		(8,439,776	)		(2,615,760	)
Increase in interest bearing deposits		(13,810	)		(12,125	)
Increase in Fed Funds Sold		(1,478,476	)		(10,062,834	)
(Increase) / Decrease in loans outstanding		(12,778,010	)		739,152
Purchases of premises and equipment		(249,956	)		(308,818	)
Proceeds from sale of other real estate owned		4,492			119,647

Net cash used in investing activities		(2,389,696	)		(5,893,403	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in demand, savings, & other interest-bearing deposits		5,430,293			7,130,105
Increase / (Decrease) in time deposits		(957,751	)		2,838,273
Decrease in securities sold under repurchase agreements		(1,260,554	)		(606,777	)
Proceeds from issuance of common stock		100,555			102,685
Dividends paid		(348,815	)		(322,680	)
Repurchase of common stock		(10,499	)		(54,145	)

Net cash provided by financing activities		2,953,229			9,087,461

Net increase in cash & due from banks		465,727			4,075,104
Cash & due from banks at beginning of period		7,762,030			9,875,840

Cash & due from banks at end of period	$	8,227,757		$	13,950,944

SUPPLEMENTAL DISCLOSURES
Interest paid	$	1,059,258		$	1,240,402
Income taxes paid	$	0		$	17,129
Unrealized gain on investment securities	$	626,468		$	144,638
Loans transferred to other real estate owned	$	60,180		$	0

See Notes to Financial Statements.

Bay Banks of Virginia, Inc.

Consolidated Statement of Changes in Shareholders’ Equity

(unaudited)


	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total Shareholders Equity
Balance on 1/1/2003	$	11,536,800		$	4,080,693		$	7,514,790		$	1,624,516	$	24,756,799

Comprehensive Income:
Net Income								438,921					438,921
Other comprehensive income:
Changes in unrealized holding gains on securities arising during the period, net of taxes of $42,950											83,373		83,373
Reclassification adjustment for security gains included in net income, net of taxes of $6,227											12,088		12,088

Total Comprehensive Income		—			—			438,921			95,461		534,382
Cash dividends paid — $0.14/share								(322,680	)				(322,680	)
Stock repurchases		(17,500	)		(5,264	)		(31,381	)				(54,145	)
Sale of common stock —

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