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Section 1: 10-Q (10-Q)

bayk-10q_20190930.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 SEPTEMBER 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: 13,334,506 shares of common stock on November 1, 2019.

 

 

2


 

FORM 10-Q

For the interim period ending September 30, 2019

INDEX

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

4

 

 

 

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

 

4

 

 

 

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

 

5

 

 

 

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

 

6

 

 

 

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

 

7

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 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

 

39

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

39

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

40

 

 

 

ITEM 1A. RISK FACTORS

 

40

 

 

 

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

 

40

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

40

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

40

 

 

 

ITEM 5. OTHER INFORMATION

 

40

 

 

 

ITEM 6. EXHIBITS

 

41

 

3


 

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

(unaudited)

 

 

 

 

 

(Dollars in thousands, except share data)

 

September 30,

2019

 

 

December 31,

2018 (1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

7,419

 

 

$

7,685

 

Interest-earning deposits

 

 

23,894

 

 

 

18,981

 

Federal funds sold

 

 

92

 

 

 

625

 

Certificates of deposit

 

 

3,498

 

 

 

3,746

 

Available-for-sale securities, at fair value

 

 

80,748

 

 

 

82,232

 

Restricted securities

 

 

6,684

 

 

 

7,600

 

Loans receivable, net of allowance for loan losses of $7,495 and

   $7,902, respectively

 

 

924,268

 

 

 

894,191

 

Loans held for sale

 

 

268

 

 

 

368

 

Premises and equipment, net

 

 

20,532

 

 

 

18,169

 

Accrued interest receivable

 

 

3,104

 

 

 

3,172

 

Other real estate owned, net

 

 

2,178

 

 

 

3,597

 

Bank owned life insurance

 

 

19,632

 

 

 

19,270

 

Goodwill

 

 

10,374

 

 

 

10,374

 

Mortgage servicing rights

 

 

910

 

 

 

977

 

Core deposit intangible

 

 

1,675

 

 

 

2,193

 

Deferred tax asset, net

 

 

740

 

 

 

1,510

 

Other assets

 

 

6,203

 

 

 

5,927

 

Total assets

 

$

1,112,219

 

 

$

1,080,617

 

LIABILITIES

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

124,670

 

 

$

114,122

 

Savings and interest-bearing demand deposits

 

 

372,404

 

 

 

359,400

 

Time deposits

 

 

396,614

 

 

 

368,670

 

Total deposits

 

 

893,688

 

 

 

842,192

 

Securities sold under repurchase agreements

 

 

6,323

 

 

 

6,089

 

Federal Home Loan Bank advances

 

 

68,000

 

 

 

100,000

 

Subordinated notes, net of issuance costs

 

 

6,906

 

 

 

6,893

 

Other liabilities

 

 

12,445

 

 

 

7,967

 

Total liabilities

 

 

987,362

 

 

 

963,141

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

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

   outstanding - 13,334,302 and 13,201,682 shares, respectively) (2)

 

 

66,671

 

 

 

66,008

 

Additional paid-in capital

 

 

36,781

 

 

 

36,972

 

Unearned employee stock ownership plan shares

 

 

(1,593

)

 

 

(1,734

)

Retained earnings

 

 

22,658

 

 

 

17,557

 

Accumulated other comprehensive income (loss), net

 

 

340

 

 

 

(1,327

)

Total shareholders’ equity

 

 

124,857

 

 

 

117,476

 

Total liabilities and shareholders’ equity

 

$

1,112,219

 

 

$

1,080,617

 

 

(1)

Derived from audited December 31, 2018 Consolidated Financial Statements.

(2)

Preferred stock is authorized; however, none was outstanding as of September 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 Nine Months Ended

 

(Dollars in thousands, except per share data)

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

11,930

 

 

$

10,124

 

 

$

34,849

 

 

$

29,853

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

553

 

 

 

498

 

 

 

1,725

 

 

 

1,392

 

Tax-exempt

 

 

113

 

 

 

119

 

 

 

327

 

 

 

356

 

Federal funds sold

 

 

6

 

 

 

3

 

 

 

31

 

 

 

14

 

Interest-earning deposit accounts

 

 

145

 

 

 

106

 

 

 

432

 

 

 

399

 

Certificates of deposit

 

 

18

 

 

 

18

 

 

 

57

 

 

 

54

 

Total interest income

 

 

12,765

 

 

 

10,868

 

 

 

37,421

 

 

 

32,068

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,123

 

 

 

2,027

 

 

 

9,019

 

 

 

5,427

 

Securities sold under repurchase agreements

 

 

4

 

 

 

3

 

 

 

11

 

 

 

10

 

Subordinated notes and other borrowings

 

 

142

 

 

 

128

 

 

 

417

 

 

 

384

 

Federal Home Loan Bank advances

 

 

465

 

 

 

441

 

 

 

1,784

 

 

 

1,140

 

Total interest expense

 

 

3,734

 

 

 

2,599

 

 

 

11,231

 

 

 

6,961

 

Net interest income

 

 

9,031

 

 

 

8,269

 

 

 

26,190

 

 

 

25,107

 

Provision for loan losses

 

 

495

 

 

 

509

 

 

 

871

 

 

 

481

 

Net interest income after provision for loan losses

 

 

8,536

 

 

 

7,760

 

 

 

25,319

 

 

 

24,626

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from fiduciary activities

 

 

201

 

 

 

151

 

 

 

621

 

 

 

596

 

Service charges and fees on deposit accounts

 

 

243

 

 

 

251

 

 

 

727

 

 

 

538

 

Wealth management

 

 

185

 

 

 

144

 

 

 

654

 

 

 

558

 

Interchange fees, net

 

 

108

 

 

 

105

 

 

 

330

 

 

 

221

 

Other service charges and fees

 

 

32

 

 

 

30

 

 

 

88

 

 

 

91

 

Secondary market sales and servicing

 

 

293

 

 

 

152

 

 

 

632

 

 

 

528

 

Increase in cash surrender value of bank owned life insurance

 

 

122

 

 

 

123

 

 

 

362

 

 

 

374

 

Net gains (losses) on sale of available-for-sale securities

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

Net gains (losses) on disposition of other assets

 

 

 

 

 

51

 

 

 

(2

)

 

 

(18

)

Gain (loss) on rabbi trust assets

 

 

 

 

 

5

 

 

 

130

 

 

 

(11

)

Gain on curtailment of post-retirement benefit plan

 

 

 

 

 

 

 

 

 

 

 

352

 

Other

 

 

15

 

 

 

(16

)

 

 

44

 

 

 

101

 

Total noninterest income

 

 

1,200

 

 

 

996

 

 

 

3,585

 

 

 

3,330

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,666

 

 

 

4,022

 

 

 

11,532

 

 

 

12,407

 

Occupancy

 

 

805

 

 

 

924

 

 

 

2,510

 

 

 

2,536

 

Data processing

 

 

541

 

 

 

546

 

 

 

1,738

 

 

 

1,852

 

Bank franchise tax

 

 

209

 

 

 

178

 

 

 

655

 

 

 

531

 

Telecommunications and other technology

 

 

258

 

 

 

195

 

 

 

727

 

 

 

603

 

FDIC assessments

 

 

(7

)

 

 

151

 

 

 

371

 

 

 

521

 

Foreclosed property

 

 

48

 

 

 

45

 

 

 

110

 

 

 

110

 

Consulting

 

 

156

 

 

 

214

 

 

 

418

 

 

 

937

 

Advertising and marketing

 

 

124

 

 

 

126

 

 

 

300

 

 

 

347

 

Directors’ fees

 

 

148

 

 

 

146

 

 

 

525

 

 

 

382

 

Audit and accounting

 

 

193

 

 

 

236

 

 

 

586

 

 

 

839

 

Legal

 

 

20

 

 

 

123

 

 

 

130

 

 

 

380

 

Merger-related

 

 

 

 

 

 

 

 

 

 

 

363

 

Core deposit intangible amortization

 

 

164

 

 

 

196

 

 

 

517

 

 

 

610

 

Net other real estate owned losses (gains)

 

 

375

 

 

 

(112

)

 

 

441

 

 

 

(169

)

Other

 

 

747

 

 

 

542

 

 

 

2,108

 

 

 

1,966

 

Total noninterest expense

 

 

7,447

 

 

 

7,532

 

 

 

22,668

 

 

 

24,215

 

Income before income taxes

 

 

2,289

 

 

 

1,224

 

 

 

6,236

 

 

 

3,741

 

Income tax expense

 

 

448

 

 

 

198

 

 

 

1,180

 

 

 

645

 

Net income

 

$

1,841

 

 

$

1,026

 

 

$

5,056

 

 

$

3,096

 

Basic and diluted earnings per share

 

$

0.14

 

 

$

0.08

 

 

$

0.39

 

 

$

0.24

 

 

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 Nine Months Ended

 

(Dollars in thousands)

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Net income

 

$

1,841

 

 

$

1,026

 

 

$

5,056

 

 

$

3,096

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available-for-sale securities arising during the period

 

 

296

 

 

 

(477

)

 

 

2,109

 

 

 

(1,944

)

Deferred income tax (expense) benefit

 

 

(62

)

 

 

100

 

 

 

(443

)

 

 

408

 

Reclassification of net (gains) losses on sale of available-for-sale securities recognized in net income

 

 

(1

)

 

 

 

 

 

1

 

 

 

 

Total other comprehensive income (loss)

 

 

233

 

 

 

(377

)

 

 

1,667

 

 

 

(1,536

)

Comprehensive income

 

$

2,074

 

 

$

649

 

 

$

6,723

 

 

$

1,560

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,056

 

 

 

 

 

 

5,056

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,667

 

 

 

1,667

 

Stock options exercised, net

 

 

5,173

 

 

 

26

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

9

 

Director stock grant

 

 

18,396

 

 

 

92

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

148

 

Restricted stock awards

 

 

109,051

 

 

 

545

 

 

 

(545

)

 

 

 

 

 

 

 

 

 

 

 

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

141

 

 

 

 

 

 

 

 

 

141

 

Share-based compensation expense

 

 

 

 

 

 

 

 

315

 

 

 

 

 

 

 

 

 

 

 

 

315

 

Cumulative effect adjustment of adoption of accounting principle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Balances at September 30, 2019

 

 

13,334,302

 

 

$

66,671

 

 

$

36,781

 

 

$

(1,593

)

 

$

22,658

 

 

$

340

 

 

$

124,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,096

 

 

 

 

 

 

3,096

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,536

)

 

 

(1,536

)

Stock options exercised, net

 

 

22,491

 

 

 

112

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

131

 

Director stock grant

 

 

12,620

 

 

 

64

 

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

126

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

123

 

Share-based compensation expense

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

53

 

Balances at September 30, 2018

 

 

13,238,716

 

 

$

66,194

 

 

$

37,276

 

 

$

(1,006

)

 

$

16,775

 

 

$

(2,692

)

 

$

116,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, net

 

 

Equity

 

Balances at July 1, 2019

 

 

13,332,484

 

 

$

66,662

 

 

$

36,699

 

 

$

(1,668

)

 

$

20,817

 

 

$

107

 

 

$

122,617

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,841

 

 

 

 

 

 

1,841

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

233

 

 

 

233

 

Restricted stock awards

 

 

1,818

 

 

 

9

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

ESOP collateral release

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

75

 

Share-based compensation expense

 

 

 

 

 

 

 

 

91