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Section 1: 10-Q (10-Q)

bayk-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

TRANSITION REPORT PURSUANT TO 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.)

1801 BAYBERRY COURT, SUITE 101

RICHMOND, VIRGINIA 23226

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(804) 325-3775

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

N/A

(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

 

Indicate by check mark 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      no

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      yes      no

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      yes      no

1


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 13,332,484 shares of common stock on August 2, 2019.

 

 

2


 

FORM 10-Q

For the interim period ending June 30, 2019

INDEX

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

4

 

 

 

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2019 (UNAUDITED) AND DECEMBER 31, 2018

 

4

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)

 

5

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)

 

6

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)

 

7

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)

 

9

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

10

 

 

 

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

 

29

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

40

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

41

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

41

 

 

 

ITEM 1A. RISK FACTORS

 

41

 

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

41

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

41

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

41

 

 

 

ITEM 5. OTHER INFORMATION

 

41

 

 

 

ITEM 6. EXHIBITS

 

42

 

3


 

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

(unaudited)

 

 

 

 

 

(Dollars in thousands, except share data)

 

June 30,

2019

 

 

December 31,

2018 (1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

8,139

 

 

$

7,685

 

Interest-earning deposits

 

 

15,869

 

 

 

18,981

 

Federal funds sold

 

 

596

 

 

 

625

 

Certificates of deposit

 

 

3,498

 

 

 

3,746

 

Available-for-sale securities, at fair value

 

 

81,169

 

 

 

82,232

 

Restricted securities

 

 

6,769

 

 

 

7,600

 

Loans receivable, net of allowance for loan losses of $7,479 and

   $7,902, respectively

 

 

909,913

 

 

 

894,191

 

Loans held for sale

 

 

593

 

 

 

368

 

Premises and equipment, net

 

 

21,001

 

 

 

18,169

 

Accrued interest receivable

 

 

3,191

 

 

 

3,172

 

Other real estate owned, net

 

 

3,168

 

 

 

3,597

 

Bank owned life insurance

 

 

19,511

 

 

 

19,270

 

Goodwill

 

 

10,374

 

 

 

10,374

 

Mortgage servicing rights

 

 

916

 

 

 

977

 

Core deposit intangible

 

 

1,840

 

 

 

2,193

 

Deferred tax asset, net

 

 

1,128

 

 

 

1,510

 

Other assets

 

 

6,585

 

 

 

5,927

 

Total assets

 

$

1,094,260

 

 

$

1,080,617

 

LIABILITIES

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

116,229

 

 

$

114,122

 

Savings and interest-bearing demand deposits

 

 

374,175

 

 

 

359,400

 

Time deposits

 

 

385,218

 

 

 

368,670

 

Total deposits

 

 

875,622

 

 

 

842,192

 

Securities sold under repurchase agreements

 

 

6,983

 

 

 

6,089

 

Federal Home Loan Bank advances

 

 

70,000

 

 

 

100,000

 

Subordinated notes, net of issuance costs

 

 

6,902

 

 

 

6,893

 

Other liabilities

 

 

12,136

 

 

 

7,967

 

Total liabilities

 

 

971,643

 

 

 

963,141

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common stock ($5 par value; authorized - 30,000,000 shares;

   outstanding - 13,332,484 and 13,201,682 shares, respectively) (2)

 

 

66,662

 

 

 

66,008

 

Additional paid-in capital

 

 

36,699

 

 

 

36,972

 

Unearned employee stock ownership plan shares

 

 

(1,668

)

 

 

(1,734

)

Retained earnings

 

 

20,817

 

 

 

17,557

 

Accumulated other comprehensive income (loss), net

 

 

107

 

 

 

(1,327

)

Total shareholders’ equity

 

 

122,617

 

 

 

117,476

 

Total liabilities and shareholders’ equity

 

$

1,094,260

 

 

$

1,080,617

 

 

(1)

Derived from audited December 31, 2018 Consolidated Financial Statements.

(2)

Preferred stock is authorized; however, none was outstanding as of June 30, 2019 and December 31, 2018.

See Notes to Consolidated Financial Statements.

4


BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

(Dollars in thousands, except per share data)

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

11,458

 

 

$

9,745

 

 

$

22,919

 

 

$

19,729

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

577

 

 

 

497

 

 

 

1,172

 

 

 

894

 

Tax-exempt

 

 

97

 

 

 

117

 

 

 

214

 

 

 

237

 

Federal funds sold

 

 

18

 

 

 

52

 

 

 

25

 

 

 

126

 

Interest-earning deposit accounts

 

 

152

 

 

 

80

 

 

 

288

 

 

 

178

 

Certificates of deposit

 

 

19

 

 

 

17

 

 

 

39

 

 

 

36

 

Total interest income

 

 

12,321

 

 

 

10,508

 

 

 

24,657

 

 

 

21,200

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,088

 

 

 

1,796

 

 

 

5,896

 

 

 

3,400

 

Securities sold under repurchase agreements

 

 

4

 

 

 

4

 

 

 

7

 

 

 

7

 

Subordinated notes

 

 

138

 

 

 

128

 

 

 

275

 

 

 

256

 

Federal Home Loan Bank advances

 

 

614

 

 

 

386

 

 

 

1,319

 

 

 

699

 

Total interest expense

 

 

3,844

 

 

 

2,314

 

 

 

7,497

 

 

 

4,362

 

Net interest income

 

 

8,477

 

 

 

8,194

 

 

 

17,160

 

 

 

16,838

 

Provision for (recovery of) loan losses

 

 

62

 

 

 

(348

)

 

 

376

 

 

 

(28

)

Net interest income after provision for loan losses

 

 

8,415

 

 

 

8,542

 

 

 

16,784

 

 

 

16,866

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

206

 

 

 

198

 

 

 

420

 

 

 

445

 

Service charges and fees on deposit accounts

 

 

246

 

 

 

152

 

 

 

484

 

 

 

287

 

Wealth management

 

 

262

 

 

 

282

 

 

 

469

 

 

 

414

 

Interchange fees, net

 

 

121

 

 

 

124

 

 

 

222

 

 

 

116

 

Other service charges and fees

 

 

27

 

 

 

30

 

 

 

56

 

 

 

61

 

Secondary market sales and servicing

 

 

267

 

 

 

243

 

 

 

339

 

 

 

376

 

Increase in cash surrender value of bank owned life insurance

 

 

121

 

 

 

124

 

 

 

240

 

 

 

251

 

Net losses on sale of available-for-sale securities

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

Net loss on disposition of other assets

 

 

(1

)

 

 

 

 

 

(1

)

 

 

(69

)

Gain (loss) on rabbi trust assets

 

 

40

 

 

 

(25

)

 

 

130

 

 

 

27

 

Gain on curtailment of post-retirement benefit plan

 

 

 

 

 

 

 

 

 

 

 

352

 

Other

 

 

8

 

 

 

35

 

 

 

28

 

 

 

74

 

Total noninterest income

 

 

1,295

 

 

 

1,163

 

 

 

2,385

 

 

 

2,334

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,892

 

 

 

4,273

 

 

 

7,893

 

 

 

8,379

 

Occupancy

 

 

837

 

 

 

874

 

 

 

1,705

 

 

 

1,659

 

Data processing

 

 

609

 

 

 

834

 

 

 

1,197

 

 

 

1,306

 

Bank franchise tax

 

 

230

 

 

 

177

 

 

 

446

 

 

 

353

 

Telecommunications and other technology

 

 

262

 

 

 

166

 

 

 

469

 

 

 

362

 

FDIC assessments

 

 

162

 

 

 

187

 

 

 

378

 

 

 

370

 

Foreclosed property

 

 

19

 

 

 

53

 

 

 

62

 

 

 

65

 

Consulting

 

 

147

 

 

 

341

 

 

 

262

 

 

 

723

 

Advertising and marketing

 

 

109

 

 

 

153

 

 

 

176

 

 

 

221

 

Directors’ fees

 

 

213

 

 

 

68

 

 

 

377

 

 

 

236

 

Audit and accounting

 

 

189

 

 

 

240

 

 

 

393

 

 

 

603

 

Legal

 

 

27

 

 

 

119

 

 

 

110

 

 

 

249

 

Merger-related

 

 

 

 

 

 

 

 

 

 

 

363

 

Core deposit intangible amortization

 

 

173

 

 

 

203

 

 

 

353

 

 

 

414

 

Net other real estate owned loss (gains)

 

 

72

 

 

 

84

 

 

 

66

 

 

 

(57

)

Other

 

 

651

 

 

 

790

 

 

 

1,335

 

 

 

1,437

 

Total noninterest expense

 

 

7,592

 

 

 

8,562

 

 

 

15,222

 

 

 

16,683

 

Income before income taxes

 

 

2,118

 

 

 

1,143

 

 

 

3,947

 

 

 

2,517

 

Income tax expense

 

 

395

 

 

 

197

 

 

 

732

 

 

 

447

 

Net income

 

$

1,723

 

 

$

946

 

 

$

3,215

 

 

$

2,070

 

Basic and diluted earnings per share

 

$

0.13

 

 

$

0.07

 

 

$

0.25

 

 

$

0.16

 

 

See Notes to Consolidated Financial Statements.

5


 

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

(Dollars in thousands)

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Net income

 

$

1,723

 

 

$

946

 

 

$

3,215

 

 

$

2,070

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on available-for-sale securities arising during the period

 

 

793

 

 

 

(272

)

 

 

1,814

 

 

 

(1,467

)

Deferred tax (expense) benefit

 

 

(167

)

 

 

57

 

 

 

(382

)

 

 

308

 

Reclassification of net available-for-sale securities losses recognized in net income

 

 

2

 

 

 

 

 

 

2

 

 

 

 

Total other comprehensive income (loss)

 

 

628

 

 

 

(215

)

 

 

1,434

 

 

 

(1,159

)

Comprehensive income

 

$

2,351

 

 

$

731

 

 

$

4,649

 

 

$

911

 

 

See Notes to Consolidated Financial Statements.

6


 

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

Ownership

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Plan

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

(Dollars in thousands)

 

Stock

 

 

Stock

 

 

Capital

 

 

Shares

 

 

Earnings

 

 

Income (Loss), net

 

 

Equity

 

Balances at December 31, 2018

 

 

13,201,682

 

 

$

66,008

 

 

$

36,972

 

 

$

(1,734

)

 

$

17,557

 

 

$

(1,327

)

 

$

117,476

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,215

 

 

 

 

 

 

3,215

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,434

 

 

 

1,434

 

Stock options exercised, net

 

 

5,173

 

 

 

26

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

9

 

Director stock grant

 

 

18,396

 

 

 

92

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

148

 

Restricted stock awards

 

 

107,233

 

 

 

536

 

 

 

(536

)

 

 

 

 

 

 

 

 

 

 

 

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

 

 

 

66

 

Share-based compensation expense

 

 

 

 

 

 

 

 

224

 

 

 

 

 

 

 

 

 

 

 

 

224

 

Cumulative effect adjustment of adoption of accounting principle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Balances at June 30, 2019

 

 

13,332,484

 

 

$

66,662

 

 

$

36,699

 

 

$

(1,668

)

 

$

20,817

 

 

$

107

 

 

$

122,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

Ownership

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Plan

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

(Dollars in thousands)

 

Stock

 

 

Stock

 

 

Capital

 

 

Shares

 

 

Earnings

 

 

Loss, net

 

 

Equity

 

Balances at December 31, 2017

 

 

13,203,605

 

 

$

66,018

 

 

$

37,142

 

 

$

(1,129

)

 

$

13,679

 

 

$

(1,156

)

 

$

114,554

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,070

 

 

 

 

 

 

2,070

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,159

)

 

 

(1,159

)

Stock options exercised, net

 

 

22,491

 

 

 

112

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

131

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

82

 

Share-based compensation expense

 

 

 

 

 

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

46

 

Balances at June 30, 2018

 

 

13,226,096

 

 

$

66,130

 

 

$

37,207

 

 

$

(1,047

)

 

$

15,749

 

 

$

(2,315

)

 

$

115,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

Additional

 

 

Ownership

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Plan

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

(Dollars in thousands)

 

Stock

 

 

Stock

 

 

Capital

 

 

Shares

 

 

Earnings

 

 

Income (Loss), net

 

 

Equity

 

Balances at April 1, 2019

 

 

13,313,537

 

 

$

66,568

 

 

$

36,493

 

 

$

(1,697

)

 

$

19,094

 

 

$

(521

)

 

$

119,937

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,723

 

 

 

 

 

 

1,723

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

628

 

 

 

628

 

Director stock grant

 

 

17,634

 

 

 

88

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

142

 

Restricted stock awards

 

 

1,313

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Share-based compensation expense

 

 

 

 

 

 

 

 

158