UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
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BAY BANKS OF VIRGINIA, INC.
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(Name of Registrant as Specified In Its Charter)
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BAY BANKS OF VIRGINIA, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
LeClair Ryan
Alexandria Office: A Professional Corporation Innsbrook Office:
Telephone: (703) 684-8007 Attorneys at Law Telephone: (804) 270-0070
Eleventh Floor
Blacksburg Office: 707 East Main Street Norfolk Office:
Telephone: (540) 961-2762 Richmond, VA 23219 Telephone: (757) 624-1454
Telephone: (804) 783-2003
Charlottesville Office: Facsimile: (804) 783-2294 Richmond Office:
Telephone: (804) 971-7771 Telephone: (804) 783-2003
April 19, 2002
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of Bay Banks of Virginia, Inc. on May 20, 2002, at 1:00 p.m., at Indian Creek
Yacht & Country Club, Kilmarnock, Virginia. We would be pleased to have you as
our guest for a buffet luncheon starting at 12:00 p.m. If you wish to attend,
please indicate this on the luncheon reservation card that is enclosed. This
will allow us to have an accurate count of those joining us for the luncheon.
The primary business of the meeting will be the election of two
directors of the Company and the ratification of the appointment of independent
auditors, as more fully explained in the accompanying proxy statement.
During the meeting, we also will report to you on the condition and
performance of the Company and its subsidiaries, the Bank of Lancaster and Bay
Trust Company. You will have an opportunity to question management on matters
that affect the interests of all stockholders.
We hope you can join us for the luncheon and attend the Annual Meeting
on May 20. Whether or not you plan to attend, please complete, sign and date the
enclosed proxy and return it promptly in the enclosed envelope. Your vote is
------------
important.
- ---------
Thank you for your interest in the Company's affairs. As always, we are
most grateful for your continuing support of Bay Banks of Virginia.
Sincerely,
Ammon G. Dunton, Jr. Austin L. Roberts, III
Chairman of the Board President and Chief Executive Officer
Bay Banks of Virginia, Inc.
100 South Main Street
Kilmarnock, Virginia 22482
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 20, 2002
To Our Stockholders:
The Annual Meeting of Stockholders of Bay Banks of Virginia, Inc. (the
"Company") will be held at Indian Creek Yacht & Country Club, Kilmarnock,
Virginia, on May 20, 2002 at 1:00 p.m. for the following purposes:
1. To elect two (2) Class I directors, each to serve a three-year
term;
2. To ratify the selection of Yount, Hyde & Barbour P.C., independent
certified public accountants, as auditors of the Company for the
year ending December 31, 2002; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 1, 2002
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
Hazel S. Farmer
Corporate Secretary
April 19, 2002
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING.
Bay Banks of Virginia, Inc.
100 S. Main Street
Kilmarnock, Virginia 22482
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 20, 2002
GENERAL
The enclosed proxy is solicited by the Board of Directors of Bay Banks
of Virginia, Inc. (the "Company") the holding company for the Bank of Lancaster
and Bay Trust Company (together, the "Subsidiaries"), for the Company's Annual
Meeting of Stockholders to be held on Monday, May 20, 2002, at the time and
place and for the purpose set forth in the accompanying Notice of the Annual
Meeting or any adjournment thereof. The approximate mailing date of this Proxy
Statement and accompanying proxy is April 19, 2002.
Revocation and Voting of Proxies
Execution of a proxy will not affect a stockholder's right to attend
the Annual Meeting and to vote in person. Any stockholder who has executed and
returned a proxy may revoke it by attending the Annual Meeting and requesting to
vote in person. A stockholder may also revoke his proxy at any time before it is
exercised by filing a written notice with the Company or by submitting a proxy
bearing a later date. Proxies will extend to, and will be voted at, any
adjourned session of the Annual Meeting.
Voting Rights and Solicitation
Only stockholders of record at the close of business on April 1, 2002
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof. The number of shares of common stock of the Company outstanding and
entitled to vote on April 1, 2002 was 1,152,384. The Company has no other class
of stock outstanding. A 60% majority of the shares entitled to vote, represented
in person or by proxy, will constitute a quorum for the transaction of business.
Each share of common stock entitles the recordholder thereof to one
vote upon each matter to be voted upon at the Annual Meeting. Shares for which
the holder has elected to abstain or to withhold the proxies' authority to vote
(including broker non-votes) on a matter will count toward a quorum, but will
not be included in determining the number of votes cast with respect to such
matter.
The cost of solicitation of proxies will be borne by the Company.
Solicitation is being made by mail, and if necessary may be made in person, by
telephone, or special letter by officers and regular employees of the Company,
acting without compensation other than regular compensation.
Principal Stockholders
The only beneficial owner of 5% or more of the outstanding common stock
of the Company is the Bay Banks of Virginia Employee Stock Ownership Trust (the
"Trust"), which owns 68,635 shares, or 6.0%, of the Company's common stock. The
Trust was established pursuant to the Company's Employee Stock Ownership Plan
("ESOP"). Two members of the Board of Directors of the Company and one director
of Bank of Lancaster (the "Bank") are trustees of the ESOP. As of April 1, 2002,
all shares held in the Trust had been allocated to the accounts of participating
employees. Under the terms of the ESOP, the trustees must vote all allocated
shares held in the ESOP in accordance with the instructions of the participating
employees, and allocated shares for which employees do not give instructions
will be voted in the same ratio on any matter as to those shares for which
instructions are given.
PROPOSAL ONE - ELECTION OF DIRECTORS
The Company's Board is divided into three classes (I, II and III). The
term of office for Class I directors will expire at the Annual Meeting and the
nominees to serve as Class I directors are set forth below. Each of the Class I
nominees currently serves as a director of the Company. If elected, the nominees
will serve until the Annual Meeting of Stockholders held in 2005.
The persons named in the proxy will vote for the election of the
nominees named below unless authority is withheld. If for any reason any of the
persons named as nominees below should become unavailable to serve, an event
that management does not anticipate, proxies will be voted for the remaining
nominees and such other person or persons as the Board of Directors may
designate.
The Board of Directors recommends that stockholders vote for the two
nominees set forth below. The two nominees receiving the greatest number of
affirmative votes cast at the Annual Meeting will be elected.
Bank Company
Director Director Principal Occupation
Name (Age) Since Since During Past Five Years
---------- ----- ----- ----------------------
Class I (Nominees):
Austin L. Roberts, III (55) 1990 1997 President and Chief Executive Officer of the
Company and the Bank
A. Wayne Saunders (65) 1992 2000 Secretary and Treasurer of MDAssociates (medical
billing), Kilmarnock, VA, and
retired Certified Public Accountant
Other Directors Not Standing For Re-election At This Time:
Class II (Directors Serving Until the 2003 Annual Meeting):
Weston F. Conley, Jr. (67) 1979 1997 Chairman of RCV Seafood Corporation (seafood
processor and wholesaler), Morattico, VA
Thomas A. Gosse (55) 1994 1997 President and Chief Executive Officer since
1997 of Northern Neck Insurance Company,
Irvington, VA; formerly a principal in the
accounting firm of Braun, Dehnert, Clarke &
Co., P.C., Irvington, VA
2
Bank Company
Director Director Principal Occupation
Name (Age) Since Since During Past Five Years
---------- ----- ----- ----------------------
Class III (Directors Serving Until the 2004 Annual Meeting):
William A. Creager (69) 1994 1997 Chairman of Bay Trust Company; Former President
and Chairman of Capital Systems Group (a
professional services and information systems
company), Rockville, MD
Ammon G. Dunton, Jr. (66) 1977 1997 Chairman of the Board of the Company and the
Bank; Attorney, Senior Partner of Dunton,
Simmons & Dunton, White Stone, VA
Board Committees and Attendance
During 2001, there were seven meetings of the Board of Directors. Each
director attended at least 75% of all meetings of the Board and applicable
committee meetings. The voting members of the Audit Committee consist of the
non-employee directors of the Company. The Nominating Committee consists of all
directors of the Company.
Directors' Compensation
Non-employee directors of the Company receive an annual retainer of
$3,000 and $200 for each meeting of the Company's Board of Directors. Directors
who are employees of the Company and Bank are not compensated for attendance at
Board or Committee meetings. The Chairman of the Board, Mr. Ammon G. Dunton,
Jr., is a Company and Bank employee. As an employee, he received $35,000 in
compensation in 2001, but received no annual retainer or Board or committee
attendance fees from the Company or the Subsidiaries.
In accordance with the 1998 Non-Employee Directors Stock Option Plan
approved by stockholders at the 1998 annual meeting, each of the thirteen
non-employee directors of the Company and the Subsidiaries were granted in May
2001 stock options for 250 shares of the Company's common stock at its then fair
market value. This plan, which reserves a total of 25,000 shares of common stock
of the Company, provides that each non-employee director of the Company and the
Subsidiaries is eligible to receive a stock option grant for 250 shares in May
of each year during the term of the plan.
3
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth, as of April 1, 2002, certain
information with respect to the beneficial ownership of Company common stock
held by each director and nominee, and by the directors and all executive
officers as a group.
Amount and Nature of Percent
Name Beneficial Ownership (1) of Class
---- ------------------------------- --------
William A. Creager ...................................... 3,600 (2) (3) (4)
Weston F. Conley, Jr. ................................... 29,559 (2) (3) 2.6 %
Ammon G. Dunton, Jr. .................................... 42,408 (2) (5) 3.7 %
Thomas A. Gosse ......................................... 2,860 (3) (2) (4)
Austin L. Roberts, III .................................. 12,696 (2) (5) 1.1 %
A. Wayne Saunders ....................................... 1,534 (3) (4)
All directors and executive officers as a group ......... 160,760 (5) 13.7 %
_________________
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange Act
of 1934 under which, in general, a person is deemed to be the beneficial
owner of a security if he has or shares the power to vote or direct the
voting of the security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial ownership of
the security within sixty days.
(2) Includes shares held by affiliated corporations, close relatives and
children, and shares held jointly with spouses or as custodians or
trustees, as follows: Mr. Creager, 600 shares; Mr. Conley, 6,200 shares;
Mr. Dunton, 20,827 shares; Mr. Roberts, 3,000 shares; and Mr. Gosse, 1,460
shares.
(3) Includes 1,000 shares that may be acquired pursuant to currently
exercisable stock options granted under the 1998 Non-Employee Directors
Stock Option Plan.
(4) Represents less than 1% of Company common stock.
(5) Includes shares that may be acquired pursuant to currently exercisable
stock options, as follows: 1,553 shares by Mr. Dunton; 6,857 shares by Mr.
Roberts; and 20,188 shares that may be acquired by all executive officers
and non-employee directors of the Company as a group.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934,
directors and executive officers of the Company are required to file reports
with the Securities and Exchange Commission indicating their holdings of and
transactions in Company common stock. To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, insiders of the Company
complied with all filing requirements during 2001.
4
EXECUTIVE COMPENSATION
No officer receives compensation from the Company. All compensation is
paid through the Bank or the Trust Company.
The following table presents compensation information on the President
and Chief Executive Officer of the Company and the Bank. No other executive
officer of the Company or the Bank earned over $100,000 in 2001.
Summary Compensation Table
Long-Term
Compensation
---------------------
Securities
Name and Annual Compensation (1) Underlying
--------------------------------- All Other
Principal Position Year Salary Bonus Options (2) Compensation (3)
------------------ ---- ------ ----- ----------- ----------------
Austin L. Roberts, III 2001 $ 145,000 $ 17,145 3,000 $ 8,766
President/Chief 2000 145,000 -- 3,000 7,839
Executive Officer 1999 135,000 -- 563 8,006
________________________
(1) Mr. Roberts did not receive perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of the total of his salary and
bonus.
(2) The Company's stock option plan does not permit the granting of
restricted stock awards or stock appreciation rights, and it is the
Company's only stock-based long-term compensation plan currently in
effect in which employees may participate.
(3) Consists of for 2001: (i) $3,828 accrued on behalf of Mr. Roberts by
the Bank under the 401(k) Plan; and (ii) $4,938 contributed by the
Company to Mr. Roberts under the Company's ESOP.
Stock Option Grants in 2001
The Company's stock option plan provides for the granting of incentive
stock options to executive officers and key employees of the Company and its
subsidiaries. The following table provides certain information concerning stock
options granted during 2001 to Mr. Roberts.
Individual Grants
--------------------------------------------------------------
Percent of
Number of Total
Shares Options
Underlying Granted to Exercise Potential
Options Employees Price per Expiration Realizable Value (2)
--------------------
Name Granted (1) in 2001 Share Date 5% 10%
---- ----------- ------- ----- ---- -- ---
Austin L. Roberts, III 3,000 20% $ 33.50 4/17/2011 $ 63,190 $ 160,171
________________________
(1) The option grant is subject to certain performance criteria being
achieved. As of this date, there has not been a determination whether
the granted options have been earned.
(2) Potential realizable value at the assumed annual rates of stock price
appreciation based on actual option term (10 years) and annual
compounding.
5
Stock Option Exercises in 2001 and Year-End Option Values
The following table shows certain information with respect to the number
and value of unexercised options at year-end held by Mr. Roberts.
Number of Value of
Number of Shares Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Options at Options at
on Value December 31, 2000 December 31, 2000 (2)
----------------- ---------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ ----------- ------------- ----------- -------------
Austin L. Roberts, III 3,000 $ 63,000 8,857 3,000 $ 141,684 $ 1,500
______________________
(1) Calculated by subtracting the exercise price from the fair market value
of the stock as of the exercise date.
(2) Calculated by subtracting the exercise price from the fair market value
of the stock at December 31, 2001.
Benefit Plans
Pension Plan. The Company has a non-contributory defined benefit
pension plan (the "Pension Plan") which covers substantially all salaried
employees who have reached the age of twenty-one and who have completed one year
of service. The normal retirement age is 65, but participants may elect early
retirement at 55 after 10 years of service at reduced levels of benefits and
disability retirement after 10 years of service at full levels of benefits.
Vesting is 100% after 5 years of service.
The following table provides information concerning estimated annual
benefits that are payable to covered employees at normal retirement age under
the terms of the Pension Plan, based on the compensation and years of service
classifications specified below. The plan benefits shown in the table are
computed on the basis of a straight life annuity beginning at age 65.
Average Years of Service
--------------------------------------------------------------
Compensation 15 20 25 30 35
------------ -- -- -- -- --
$ 25,000 $ 3,750 $ 5,000 $ 6,250 $ 6,250 $ 6,250
50,000 8,940 11,190 14,900 14,900 14,900
75,000 15,503 20,670 25,838 25,838 25,838
100,000 22,065 29,420 36,775 36,775 36,775
125,000 28,628 38,170 47,713 47,713 47,713
150,000 35,190 46,920 58,650 58,650 58,650
160,000 40,440 53,920 67,400 67,400 67,400
The remuneration covered by the Pension Plan is an employee's "final
average earnings" which, under the terms of the Pension Plan is defined to be
the average of the highest five consecutive calendar years of base salary
(reported as "Salary" in the Summary Compensation Table above) earned by the
employee during the ten calendar years prior to his or her date of retirement,
termination, disability or death. A participant's monthly retirement benefit (if
they have twenty-five years of credited service at their normal retirement date)
is 25% of their final average pay, plus an additional 18.75% if their pay is in
excess of the participant's Social Security covered pay. The Social Security
covered pay is the average pay of the participant's working lifetime prior to
the year the participant attains his or her Social Security retirement age. Cash
benefits under the plan generally commence on retirement, death or other
termination of employment and are payable in various forms at the election of
the participant.
6
Based on current compensation and assuming retirement at the normal
retirement age of 65, it is estimated that the annual retirement benefit for Mr.
Roberts will be $48,928. The final average earnings and the respective years of
service as of October 1, 2001 for Mr. Roberts were $141,790 and ten years,
respectively.
401(k) Plan. The Subsidiaries have a contributory 401(k) plan. All
salaried employees are eligible to participate after having worked six months
consecutively, and there is no age requirement. Participants may elect to defer
between 1% to 15% of their base compensation, which will be contributed to the
plan, providing the amount deferred does not exceed the dollar maximum election
deferral for each year. The Subsidiaries' match is 100% up to a 2% deferral; the
Subsidiaries will provide a 25% match on employee contributions between 2% and
4% of salary. Under the plan, an employee is vested in a Subsidiary's
contribution by 20% after three years and 20% each year thereafter for the next
four years of service. If an employee leaves prior to the three-year period, he
or she forfeits any accrued match contribution.
Distributions to participants are made at death, retirement or other
termination of employment in a lump sum payment. The plan permits certain
in-service withdrawals. Normal retirement age is considered sixty-five; early
retirement is considered at fifty-five with ten years of vested service;
disability retirement has no age requirements but a service requirement of ten
years of vested service.
Stock Option Plan. The Company has two incentive stock option plans for
employees, the 1985 plan (which has expired, but certain options granted under
the plan are still exercisable) and the 1994 plan. The 1994 plan provides for
the award of incentive stock options to key employees of the Bank and as of
January 1, 2000 to the employees of Bay Trust Company, as selected by the
Compensation Committee. The Compensation Committee of the Company makes awards
under the plan and fixes the terms and conditions of each award pursuant to a
separate agreement entered into with each optionee. The price of shares of stock
to be issued upon the exercise of options is 100% of the fair market value on
the date of the award. The option is not exercisable after the expiration of ten
years from the date such option is granted. An option is not transferable by a
person to whom it is granted other than by will or the laws of descent and
distribution.
Under the 1985 plan, accounting for two 10% stock dividends and a
2-for-1 split, 31,080 shares were reserved and options covering all such shares
have been granted or exercised. Under the 1994 plan, 75,000 shares have been
reserved, and options covering 44,282 shares have been granted.
Employee Stock Ownership Plan (ESOP). The ESOP is a non-contributory
plan supported by annual contributions made at the discretion of the Company's
Board of Directors. The ESOP is a stock bonus plan qualified under Section
401(a) of the Internal Revenue Code and an employee ownership plan under Section
4975(E)(7) of the Internal Revenue Code. Trustees and an administrative
committee as appointed by the Chairman of Company's Board of Directors for the
exclusive benefit of participants administer the ESOP. The ESOP is eligible to
each Bank of Lancaster and Bay Trust Company employee over the age of twenty-one
and credited with at least 1,000 hours of service for the plan year.
7
Report of the Board of Directors on Executive Compensation
The Board of Directors of the Company submits this report, which is
responsible for establishing and administering the Company's compensation
policies and its incentive stock option plan.
General Compensation Policy
---------------------------
The Company's compensation policy for executive management is designed to
achieve the following objectives: (a) to enhance business results of the Company
and increase stockholder value by aligning closely the financial interests of
its officers with those of its stockholders; (b) to reward executive management
consistent with the Company's annual performance goals; (c) to recognize
individual initiative, leadership and achievement; and (d) to provide
competitive compensation that will attract and retain qualified corporate
officers and key employees.
Executive Officer Compensation Programs
---------------------------------------
The compensation program for executive management consists of up to four
elements: (1) base salary, which is set on an annual basis; (2) a cash incentive
based on the achievement of performance goals established by the Compensation
Committee; (3) incentive stock options; and (4) participation in the Company's
ESOP program.
The Board of Directors determines general salary and benefit policies and
procedures. The Board uses market studies and published compensation data to
review competitive rates of pay, to establish salary ranges, and to arrive at
base salary levels. The Board approves base salaries at levels competitive with
amounts paid to executives with comparable qualifications, experience and
responsibilities after comparing salary information of similar sized banks as
provided by the Virginia Bankers Association's Salary Survey of Virginia Banks
and other compensation surveys. In addition, the Board considers the recent
performance of the Company and assesses the executive's past performance and its
expectation as to future contributions in leading the Company.
Compensation for the officers other than the Chairman and the President and
Chief Executive Officer is determined by the Board of Directors based on the
recommendation of the President and Chief Executive Officer, which is reviewed
and affirmed by the Compensation Committee.
The Board uses a subjective approach to the determination of compensation
based on the factors noted above. Except concerning incentive stock options, the
Board does not rely on formulas or weights of specific factors. Neither the
profitability of the Company nor the market value of its stock is directly
utilized in computing an officer's base compensation. The Company's executive
compensation program has substantially relied on base salary as its primary
component.
Incentive stock option grants are earned only if the Compensation Committee
determines that the objectives set forth in the option plan document are
achieved by a specified date. The objective of these options is to create a link
between officer compensation and Company performance. In determining the
appropriate level of stock-based allotments, the Committee considers the
officer's contribution toward the Company's performance. To encourage growth in
stockholder value, incentive stock options are granted to all officers who are
in a position and have a responsibility to make a substantial contribution to
the long-term success of the Company. The Board believes this focuses attention
on managing the Company from the perspective of an owner with an equity stake in
the business.
During 2001, 3000 shares were granted to Mr. Roberts. As of the proxy date,
the number of shares earned has not been determined.
8
Chief Executive Officer Compensation
------------------------------------
The compensation paid for 2001 to the Chief Executive Officer of the
Company and the Bank, Austin L. Roberts, III, reflects the considered judgment
of the Board embracing the policy and process described previously. The Board
reviews and fixes the base salary of the Chief Executive Officer based on
similar competitive compensation data to other community banks' senior
executives and the Board's assessment of his past performance and its
expectation as to his future contribution in leading the Company. No salary
increase was granted for 2001. The Compensation Committee, also, establishes the
criteria that would give rise to a cash incentive payment, and the conditions
under which incentive stock options might be earned.
Board of Directors
Bay Banks of Virginia
Ammon G. Dunton, Jr.
Weston F. Conley, Jr.
William A. Creager
Thomas A. Gosse
Austin L. Roberts, III
A. Wayne Saunders
Compensation Committee Interlocks and Insider Participation
During 2001 and up to the present time, there were transactions between the
Bank and certain members of the Company's Board of Directors, or their
associates, all consisting of extensions of credit by the Bank in the ordinary
course of business. Each transaction was made on substantially the same terms,
including interest rates, collateral and repayment terms, as those prevailing at
the time for comparable transactions with the general public. In the opinion of
management, none of the transactions involve more than the normal risk of
collectibility or present other unfavorable features.
The only members of the Board who served as an officer or employee of the
Company or any of its affiliates during 2001 are: Ammon G. Dunton, Jr., Chairman
of the Board of the Company and the Bank; and Austin L. Roberts, III, President
and Chief Executive Officer of the Company and the Bank, and William A. Creager,
Chairman of Bay Trust Company.
9
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's common stock with the cumulative total return on the Nasdaq Stock
Market Index and the Carson Medlin Independent Bank Index for the five year
period ended December 31, 2001, assuming that an investment of $100 was made on
December 31, 1996 and that dividends were reinvested. The Carson Medlin Company
provides the Independent Bank Index. The comparisons in the graph below are
based upon historical data and are not indicative of, nor intended to forecast,
future performance of the Company's common stock.
[GRAPH]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
BAY BANKS OF VIRGINIA, INC. $ 100 $ 124 $ 155 $ 185 $ 177 $ 175
INDEPENDENT BANK INDEX 100 148 154 140 139 165
NASDAQ INDEX 100 122 173 321 193 153
REPORT OF THE AUDIT COMMITTEE
The Audit Committees of the Bank of Lancaster and Bay Trust Company oversee
the Company's financial reporting process on behalf of the Board of Directors of
the Company, which also acts as the Audit Committee of Bay Banks of Virginia.
Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. In fulfilling its
oversight responsibilities, the Audit Committee of the Bank of Lancaster
reviewed the audited financial statements for the Annual Report with management,
and discussed the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosure in the financial statements. The Audit Committee of the Bank of
Lancaster met four times and the Audit Committee of Bay Trust Company met two
times to report their activities, recommendations, and conclusions to the Board
of Directors of the Company during 2001. The Audit Committee of the Company met
two times during 2001.
10
The Bank's Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards, including
those described in Auditing Standards No. 61 (Communication with Audit/Personnel
Committees). The Bank's Audit Committee has received from the independent
auditors the written disclosures and the letter required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committee),
has discussed with the independent auditors the auditors' independence from
management and the Company, including the matters in the written disclosures
required by the Independence Standards Board Standard No. 1. The Company's
independent auditors did not provide non-audit services during 2001.
The Audit Committee of the Bank of Lancaster discussed with the Company's
independent auditors the overall scope and plans for their audit. The Bank's
Audit Committee meets with the independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. The Bank's Audit Committee held four meetings during the fiscal year
ended December 31, 2001.
In reliance on the reviews and discussions referred to above, the Bank's
Audit Committee recommended to the Board of Directors (and the Board has
approved) that the audited financial statements be included in the Annual Report
on Form 10-K for the year ended December 31, 2001 for filing with the Securities
and Exchange Commission. The Company's Audit Committee has also recommended the
selection of the Company's independent auditors.
Audit Committee
Bay Banks of Virginia
Ammon G. Dunton, Jr.
Weston F. Conley, Jr.
William A. Creager
Thomas A. Gosse
Austin L. Roberts, III
A. Wayne Saunders
Audit Fees
Eggleston Smith, P.C. billed the Company $36,852 for professional services
rendered in connection with the audit of the Company's annual financial
statements for the year ended December 31, 2001, review of the financial
statements included in the Company's Forms 10-Q for that fiscal year, and
preparation of Company's state and Federal income tax returns.
Financial Information System Design and Implementation Fees
Eggleston Smith, P.C. rendered no professional services for the year ended
December 31, 2001 with respect to financial information systems design and
implementation.
All Other Fees
There were no billings by the independent auditors for services rendered
other than those set forth above for the year ended December 31, 2001.
11
PROPOSAL TWO - RATIFICATION OF SELECTION OF ACCOUNTANTS
On the recommendation of the Company's Audit Committee, the Board of
Directors has appointed Yount, Hyde & Barbour, P.C., certified public
accountants ("Yount Hyde"), as the Company's independent auditors for 2002,
subject to ratification of the stockholders. The services that Yount Hyde will
perform will consist primarily of the examination and audit of the institution's
financial statements, tax reporting assistance, and other audit and accounting
matters. A representative of Yount Hyde will be available at the Annual Meeting
to answer any questions from stockholders.
The Board of Directors recommends the approval of the ratification of the
appointment of Yount, Hyde & Barbour, P.C., and proxies solicited by the Board
will be voted in favor thereof unless a stockholder has indicated otherwise on
the proxy.
On March 26, 2002, the Company's Board of Directors voted to engage Yount
Hyde as the independent public accountant to audit the Company's financial
statements for the fiscal year ending December 31, 2002, to replace the firm of
Eggleston Smith, P.C. ("Eggleston Smith"), the independent public accountant
engaged to audit the Company's financial statements as of December 31, 2001 and
2000, and for each of the years in the two year period ended December 31, 2001.
Consistent with the Company's policies, it conducted a bidding process to
select the independent public accountant to audit the Company's fiscal year
ending December 31, 2002. The Company's Audit Committee received bids from
several independent public accounting firms, including Eggleston Smith. After
reviewing the proposals, the Company's Audit Committee selected Yount Hyde,
which the Company's Board of Directors approved.
Eggleston Smith's report on the consolidated financial statements as of
December 31, 2001 and 2000, and for each of the years in the two year period
ended December 31, 2001, contained no adverse opinion or disclaimer of opinion
and was not qualified as to uncertainty, audit scope or accounting principles.
In connection with the audit of the two fiscal years ending December 31, 2001
and the subsequent interim period preceding the engagement of Yount, Hyde, there
were no disagreements with Eggleston Smith on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
RELATED PARTY TRANSACTIONS
Some of the Company directors, executive officers, and members of their
immediate families, and corporations, partnerships and other entities, of which
such persons are officers, directors, partners, trustees, executors or
beneficiaries, are customers of the Bank. All loans and loan commitments to them
were made in the ordinary course of business, upon substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features. It is the policy
of the Bank to provide loans to officers who are not executive officers and to
employees at more favorable rates than those prevailing at the time for
comparable transactions with other persons. These loans do not involve more than
the normal risk of collectibility or present other unfavorable features.
The law firm of Dunton, Simmons & Dunton serves as legal counsel to the
Company, the Bank of Lancaster and Bay Trust Company. Mr. Ammon G. Dunton, Jr.,
is a senior member of the firm.
None of the directors serves as a director of any other publicly held
company.
12
OTHER MATTERS
By-Law Amendment
On February 20, 2002, the Board of Directors, acting pursuant to the
authority granted to it by Article VIII of the Company's By-Laws, approved an
amendment to Article V, Sections 1 through 4 of the By-Laws. Article V was
amended in its entirety as follows:
Section 1. Executive Committee. The Board of Directors by resolution may
-------------------
designate an Executive Committee, which shall include the Chairman of the Board
and the President and such other members of the Board of Directors as they
select. The Executive Committee shall have and may exercise all authority of the
Board of Directors except to fill vacancies on the Board, to amend or repeal
these By-laws and adopt new By-laws, to approve or recommend to stockholders
that they approve an amendment to the Articles of Incorporation, a plan of
merger or exchange, a transaction involving the sale of all or substantially all
of the Corporation's assets other than in regular course of business, or a plan
of dissolution. Further, the Executive Committee shall not be empowered to
authorize or approve a distribution, the issuance or sale of shares, or
designation of preferences for preferred stock of the Corporation. The Executive
Committee shall keep its minutes and provide copies of the same at the next
meeting of the Board of Directors.
Section 2. Nominating and Governance Committee. The Chairman may appoint a
-----------------------------------
Nominating and Governance Committee, who may be selected from the Board of
Directors of the Corporation and the boards of directors of any subsidiary
corporation. Such committee shall recommend to the Board of Directors nominees
for the Board of Directors, shall review By-laws, proxy statements and proxies
to be distributed to stockholders, and shall review policies and practices
regarding shareholder voting. The Chairman of the Board and the President of all
subsidiary banks (as defined in the Virginia Financial Institution Holding
Companies Act) shall be among the nominees for the Board of Directors, and each
shall be subject to removal if he or she ceases to hold such office in a
subsidiary bank. If such committee is not appointed, the Board of Directors
shall perform the duties of the Nominating and Governance Committee.
Section 3. Audit Committee. The Board of Directors shall elect an Audit
---------------
Committee consisting of at least three independent directors, who may be
selected from the Board of Directors of the Corporation and the boards of
directors of any subsidiary corporation. They shall have the responsibility for
seeing that the Corporation is audited regularly. The Committee shall elect its
chairman, who shall be an independent director of the Corporation. The voting
members of the committee shall consist of non-employee directors. Non-employee
members of the committee must be free from any relationship that, in the opinion
of the Board of Directors, would interfere with the exercise of independent
judgment as a Committee member. The Chairman and President of the Corporation as
well as the Bank of Lancaster's Internal Auditor may attend meetings of the
Audit Committee, at the pleasure of the Committee. The Audit Committee shall
make periodic reports to the Board of Directors. Such reports shall state
whether adequate internal audit controls and procedures are being maintained and
shall recommend to the Board of Directors such changes in the matter of audit
controls and procedures as the Committee deems advisable. These responsibilities
may, in part or in whole, and from time to time, be delegated to the audit
committees of subsidiary corporations provided that full reports of such audit
committees' deliberations are made to the Audit Committee of the Corporation and
at least one member of the Audit Committee of the Corporation is in attendance
at each meeting of the audit committee of subsidiary corporations.
Section 4. Compensation Committee. The Chairman may appoint a Compensation
----------------------
Committee, which shall consist of at least three directors of the Corporation
and its subsidiary corporations, together with the Chairman and President of the
Corporation. The Compensation Committee shall have responsibility to recommend
appropriate compensation for all officers of the Corporation and its
subsidiaries. It shall have the responsibility for the administration of the
Corporation's incentive and non-qualified stock option plans for employees and
directors. It shall also make recommendations of contributions, if any, to the
13
Employees' Stock Ownership Plan to the Corporation's Board of Directors. If such
committee is not appointed, the Board of Directors shall perform the duties of
the Compensation Committee.
Section 5. Other Committees. Other committees, consisting of directors,
----------------
officers or employees of the Corporation and subsidiary corporations may be
designated by resolution of the Board of Directors from time to time. Such
committees shall have the duties set forth in the resolutions creating such
committees.
Prior to the amendment, Article V read as follows:
Section 1. Executive Committee. The Board of Directors by resolution may
-------------------
designate an Executive Committee, which shall include the Chairman of the Board
and the President and such other members of the Board of Directors as they
select. The Executive Committee shall have and may exercise all authority of the
Board of Directors except to amend or repeal these By-laws and adopt new
By-laws, to approve an amendment to the Articles of Incorporation, a plan of
merger or exchange, a transaction involving the sale of all or substantially all
of the Corporation's assets other than in regular course of business, or a plan
of dissolution. The Executive Committee shall keep its minutes and provide
copies of the same at the next meeting of the Board of Directors.
Section 2. Nominating and Governance Committee. The Chairman shall appoint
-----------------------------------
a Nominating and Governance Committee which shall recommend to the Board of
Directors nominees for the Board of Directors, shall review By-laws, proxy
statements and proxies to be distributed to stockholders, and shall review
policies and practices regarding shareholder voting. The Chairman of the Board
and President of all subsidiary banks shall be among the nominees for the Board
of Directors, and each shall be subject to removal if he or she ceases to hold
such office in a subsidiary bank.
Section 3. Audit Committee. The Board of Directors shall elect an Audit
---------------
Committee consisting of a least three independent directors, who shall have the
responsibility for seeing that the corporation is audited regularly. The
Committee shall elect its chairman. The voting members of the Committee shall
consist of non-employee directors. Non-employee directors of the committee must
be free from any relationship that, in the opinion of the Board of Directors,
would interfere with the exercise of independent judgment as a Committee member.
The Chairman, President and the Bank of Lancaster's Internal Auditor may attend
meetings of the Audit Committee, at the pleasure of the Committee. The Audit
Committee shall make periodic reports to the Board of Directors. Such reports
shall state whether adequate internal audit controls and procedures are being
maintained for the corporation and its subsidiaries and shall recommend to the
Board of Directors such changes in the matter of audit controls and procedures
as the Committee deems advisable. These responsibilities may, in part or in
whole, and from time to time, be delegated to the Audit Committee of the Bank of
Lancaster provided that full reports of that Committee's deliberations are made
to the Audit Committee of the corporation and at least one member of the Audit
Committee of the corporation is in attendance at each meeting of the Audit
Committee of the Bank of Lancaster.
Section 4. Other Committees. Other committees, consisting of directors,
----------------
officers or employees of the Corporation may be designated by resolution of the
Board of Directors from time to time. Such committees shall have the duties set
forth in the resolutions creating such committees.
General
The Company knows of no other business to be brought before the Annual
Meeting. Should any other business properly be presented for action at the
meeting, the shares represented by the enclosed proxy shall be voted by the
persons named therein in accordance with their best judgment and in the best
interests of the Company.
14
STOCKHOLDER PROPOSALS
The Company's By-Laws provide that, in addition to any other applicable
requirements, for business (including stockholder nominations of Director
candidates) to be properly brought before an annual meeting by a stockholder,
the stockholder must give timely notice in writing to the Secretary of the
Company no later than 120 days before the date of the anniversary of the
immediately preceding annual meeting. As to each matter, the notice must comply
with certain informational requirements set forth in the By-Laws. These
requirements are separate and apart from and in addition to the Securities and
Exchange Commission's requirements that a stockholder must meet to have a
proposal included in the Company's proxy materials. To be considered for
inclusion in the Company's proxy materials relating to the 2002 Annual Meeting
of Stockholders under SEC rules, the Secretary of the Company must receive
stockholder proposals no later than December 20, 2002. Stockholder proposals
should be addressed to Corporate Secretary, Bay Banks of Virginia, Inc., 100 S.
Main Street, P.O. Box 1869, Kilmarnock, Virginia 22482.
The 2003 Annual Meeting of Stockholders is scheduled for Monday May 19,
2003.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for 2001, excluding
exhibits, as filed with the Securities and Exchange Commission can be obtained
without charge by writing to Richard C. Abbott, Treasurer, Bay Banks of
Virginia, Inc., P. O. Box 1869, Kilmarnock, Virginia 22482.
15
BAY BANKS OF VIRGINIA, INC.
This Proxy is solicited on behalf of the Board of Directors
The undersigned, revoking all prior proxies, hereby appoints Ammon G.
Dunton, Jr. and Austin L. Roberts, III, or either of them, as proxies with full
power of substitution to represent the undersigned and vote, as designated
below, all the shares of common stock of Bay Banks of Virginia, Inc. held of
record by the undersigned on April 1, 2002, at the Annual Meeting of
Stockholders to be held on May 20, 2002, at 1:00 p.m. at the Indian Creek Yacht
and Country Club, Kilmarnock, Virginia, or any adjournment thereof, on each of
the following matters:
1. To elect directors to serve for the term which expires at the annual
meetings of stockholders in 2005 (Class I):
[_] FOR all Nominees listed below [_] WITHHOLD AUTHORITY to vote
except as marked to the contrary below for those indicated below
Class I: Austin L. Roberts, III
Class I: A. Wayne Saunders
NOTE: You may line through the name of any individual nominee for
whom you wish to withhold your vote.
2. To ratify the selection by the Board of Directors of Yount Hyde and
Barbour, P.C., independent certified public accountants, as auditors of
the Company for 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting. The Board of Directors
has not been notified of any such matters.
This proxy, when properly executed, will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this proxy will be voted
"FOR" each proposal. All joint owners MUST sign.
Please sign exactly as your name appears below. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
_______________________________
Signature
_______________________________
Signature (if jointly owned)
Dated:____________________, 2002
Please mark, sign, date and return this Proxy promptly in the enclosed
envelope.