SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:333-00724
VALLEY RIDGE FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Michigan | 38-2888214 |
450 W. Muskegon | (616) 678-5911 |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____
There were 946,525 shares of Common Stock (no par value) outstanding as of March 31, 2001.
Transitional Small Business Disclosure Format (check one): Yes No X
VALLEY RIDGE FINANCIAL CORP.
INDEX
PART I. | FINANCIAL INFORMATION | Page No. |
Item 1.Financial Statements | ||
Condensed Consolidated Balance Sheets - | ||
March 31, 2001 (Unaudited) and December 31, 2000 | 3 | |
Condensed Consolidated Statements of Income and Comprehensive | ||
Income - Three Months Ended March 31, 2001 (Unaudited) and | ||
March 31, 2000 (Unaudited) | 4 | |
Condensed Consolidated Statements of Cash Flows - | ||
Three Months Ended March 31, 2001 (Unaudited) and | ||
March 31, 2000 (Unaudited) | 5 | |
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | |
Item 2. Management's Discussion and Analysis or Plan of Operation | 8 | |
PART II. | OTHER INFORMATION | |
Item 6. Exhibits and Reports on Form 8-K | 13 | |
SIGNATURES | 14 | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | ||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ 5,462,673 | $ 7,265,136 | ||||||
Federal funds sold | 8,400,000 | 0 | ||||||
Total cash and cash equivalents | 13,862,673 | 7,265,136 | ||||||
Securities available for sale | 28,102,375 | 31,532,131 | ||||||
Other securities | 1,502,368 | 1,502,368 | ||||||
Total loans | 119,107,540 | 121,345,909 | ||||||
Allowance for loan losses | (1,664,236 | ) | (1,624,820 | ) | ||||
117,443,304 | 119,721,089 | |||||||
Accrued interest receivable | 1,323,811 | 1,241,241 | ||||||
Premises and equipment - net | 5,005,321 | 4,931,871 | ||||||
Cash surrender value of life insurance | 2,452,397 | 2,431,397 | ||||||
Other assets | 909,577 | 970,187 | ||||||
Total assets | $170,601,826 | $169,586,420 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Deposits | ||||||||
Noninterest-bearing | $ 17,480,254 | $ 19,671,065 | ||||||
Interest-bearing | 107,011,949 | 103,212,976 | ||||||
124,492,203 | 122,884,041 | |||||||
Securities sold under agreement to repurchase | 3,335,027 | 2,965,626 | ||||||
Federal funds purchased | 0 | 1,600,000 | ||||||
Other borrowings | 23,750,000 | 23,750,000 | ||||||
Accrued expenses and other liabilities | 2,095,013 | 1,964,791 | ||||||
Total liabilities | 153,672,243 | 153,164,458 | ||||||
Shareholders' equity | ||||||||
Common stock, no par value; 2,000,000 shares | ||||||||
authorized; 946,525 and 944,912 shares outstanding | ||||||||
at March 31, 2001 and December 31, 2000, | ||||||||
respectively | 7,951,352 | 7,917,009 | ||||||
Retained earnings | 8,533,384 | 8,278,923 | ||||||
Unearned restricted stock | (116,760 | ) | (116,760 | ) | ||||
Accumulated other comprehensive income | 561,607 | 342,790 | ||||||
Total shareholders' equity | 16,929,583 | 16,421,962 | ||||||
Total liabilities and shareholders' equity | $170,601,826 | $169,586,420 | ||||||
See accompanying notes to condensed consolidated financial statements.
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended | |||||
March 31, | March 31, | ||||
Interest income | |||||
Loans, including fees | $ | 2,700,423 | $ | 2,564,686 | |
Federal funds sold | 50,317 | 10,162 | |||
Investment securities | 476,372 | 483,408 | |||
3,227,112 | 3,058,256 | ||||
Interest expense | |||||
Deposits | 1,146,165 | 920,231 | |||
Other | 373,798 | 405,670 | |||
1,519,963 | 1,325,901 | ||||
Net interest income | 1,707,149 | 1,732,355 | |||
Provision for loan losses | 45,000 | 45,000 | |||
Net interest income after provision for loan losses | 1,662,149 | 1,687,355 | |||
Other income | |||||
Service charges and other income | 481,818 | 380,482 | |||
Gain (loss) on sales of investment securities | 108,881 | 0 | |||
Gain (loss) on sales of loans | (1,115 | ) | 1,758 | ||
589,584 | 382,240 | ||||
Other expense | |||||
Salaries and benefits | 867,649 | 785,530 | |||
Occupancy | 127,043 | 112,835 | |||
Furniture and fixtures | 129,989 | 122,248 | |||
Other | 585,233 | 554,098 | |||
1,709,914 | 1,574,711 | ||||
Income before federal income tax | 541,819 | 494,884 | |||
Federal income tax expense | 116,902 | 90,813 | |||
Net income | $ | 424,917 | $ | 404,071 | |
Comprehensive income | $ | 643,734 | $ | 239,915 | |
Basic and diluted earnings per share | $ | 0.45 | $ | 0.43 | |
See accompanying notes to condensed consolidated financial statements.
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||
March 31, | March 31, | |||||
Cash flows from operating activities | ||||||
Net income | $ | 424,917 | $ | 404,071 | ||
Adjustments to reconcile net income | ||||||
to net cash from operating activities | ||||||
Depreciation | 131,160 | 121,035 | ||||
Amortization of premiums and discounts on securities, net | 6,339 | 5,775 | ||||
(Gain) loss on sales of investment securities | (108,881 | ) | 0 | |||
Provision for loan losses | 45,000 | 45,000 | ||||
(Gain) loss on sales of loans | 1,115 | (1,775 | ) | |||
Loans originated for sale | (1,438,776 | ) | (270,000 | ) | ||
Proceeds from loans sold | 1,601,861 | 340,400 | ||||
Net change in: | ||||||
Accrued interest receivable and other assets | (42,960 | ) | (62,823 | ) | ||
Accrued expenses and other liabilities | | 17,498 | | 16,561 | ||
Net cash from operating activities | 637,273 | 598,244 | ||||
Cash flows from investing activities | ||||||
Net change in loans | 2,068,585 | (343,333 | ) | |||
Proceeds from: | ||||||
Sales of securities available for sale | 9,083,727 | 30,000 | ||||
Repayments and maturities of securities available for sale | 2,188,242 | 77,891 | ||||
Purchase of: | ||||||
Premises and equipment, net | (204,610 | ) | (68,305 | ) | ||
Securities available for sale | | (7,417,130 | ) | | 0 | |
Net cash from (used in) investing activities | 5,718,814 | (303,747 | ) | |||
Cash flows from financing activities | ||||||
Net increase (decrease) in deposits | 1,608,162 | (852,864 | ) | |||
Net increase (decrease) in securities sold under agreements | ||||||
to repurchase | 369,401 | (3,248,952 | ) | |||
Net decrease in federal funds purchased | (1,600,000 | ) | (800,000 | ) | ||
Advances from Federal Home Loan Bank | 5,000,000 | 10,000,000 | ||||
Payments on Federal Home Loan Bank advances | (5,000,000 | ) | (10,000,000 | ) | ||
Stock options exercised | 34,343 | 8,940 | ||||
Shares repurchased | 0 | (28,960 | ) | |||
Dividends paid | | (170,456 | ) | | (157,063 | ) |
Net cash from (used in) financing activities | | 241,450 | | (5,078,899 | ) | |
Net change in cash and cash equivalents | 6,597,537 | (4,784,402 | ) | |||
Cash and cash equivalents at beginning of period | | 7,265,136 | | 10,657,692 | ||
Cash and cash equivalents at end of period | $ | 13,862,673 | $ | 5,873,290 | ||
Supplemental disclosures of cash flow information | ||||||
Cash paid during the period for | ||||||
Interest | $ | 1,577,609 | $ | 1,308,001 | ||
Income taxes | 105,000 | 65,435 | ||||
See accompanying notes to condensed consolidated financial statements.
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | BASIS OF PRESENTATION: |
The unaudited financial statements as of March 31, 2001 and for the three months ended March 31, 2001 and 2000 include the consolidated results of operations of Valley Ridge Financial Corp. ("Corporation") and its wholly-owned subsidiary, Valley Ridge Bank ("Bank") and its wholly-owned subsidiaries, Valley Ridge Realty, Inc., Valley Ridge Mortgage Company, Inc., and Valley Ridge Financial Services, Inc. These consolidated financial statements have been prepared in accordance with the Instructions for Form 10-QSB and Item 310(b) of Regulation S-B and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Corporation's financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended March 31, 2001 should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2000. | |
2. | ALLOWANCE FOR LOAN LOSSES: |
The following is a summary of the activity in the allowance for loan losses for the three months ended March 31, 2001: |
Balance at January 1, 2001 | $ | 1,624,820 | ||
Provision for loan losses charged | ||||
to operating expense | 45,000 | |||
Recoveries on loans previously charged | ||||
to the allowance | 12,935 | |||
Loans charged off | | (18,519 | ) | |
Balance at March 31, 2001 | $ | 1,664,236 |
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. | OTHER BORROWINGS: |
At March 31, 2001, the Corporation had the following advances from the Federal Home Loan Bank ("FHLB"): |
Type | Interest Rate | Maturity Date | Amount | |||||
Variable | 5.48% | April 30, 2001 | $ | 750,000 | ||||
Variable | 5.48 | June 4, 2001 | 1,000,000 | |||||
Variable | 5.10 | December 2, 2002 | 5,000,000 | |||||
Fixed | 5.12 | October 22, 2003 | 3,000,000 | |||||
Fixed | 5.83 | January 12, 2010 | 2,000,000 | |||||
Fixed | 5.95 | November 3, 2010 | 2,000,000 | |||||
Fixed | 4.98 | December 20, 2010 | 5,000,000 | |||||
Fixed | 3.99 | March 12, 2011 | | 5,000,000 | ||||
$ | 23,750,000 |
Each advance requires monthly interest payments at either fixed or adjustable rates. The variable rate is based on the FHLB overnight rate and adjusts quarterly. These borrowings are collateralized by nonspecific loans within the mortgage portfolio and nonspecific qualifying securities within the securities portfolio up to the principal outstanding. | |
4. | EARNINGS PER COMMON SHARE: |
Basic and diluted earnings per share are calculated on the basis of the weighted average number of shares outstanding. Earnings per share amounts are based on 945,496 and 942,379 shares outstanding for the three months ended March 31, 2001 and 2000, respectively. All share amounts have been restated to reflect stock dividends and splits. |
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion is designed to provide a review of the consolidated financial condition and results of operations of Valley Ridge Financial Corp. (the "Corporation"). This discussion should be read in conjunction with the consolidated financial statements and related notes.
Forward-Looking Statements:
This discussion and analysis of financial condition and results of operations, and other sections of this report, contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation itself. Words such as "anticipates," "believes," "estimates," "judgment," "expects," "forecasts," " intends," "is likely," "plans," "predicts," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements.
Future Factors include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national economy. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Results of Operations:
Net Income: The Corporation reported net income of $424,917 or $0.45 per share for the first quarter of 2001 compared to $404,071 or $0.43 per share for the first quarter of 2000. The improvement was due to an increase in noninterest income, offset by an increase in noninterest expense.
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the related yields, as well as the interest expense on average interest-bearing liabilities.
Three month period ended March 31, | |||||||||||||||||
2001 | 2000 | ||||||||||||||||
Average | Average | Average | Average | ||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||
Total securities | $ | 28,152,706 | $ | 476,372 | 6.77 | % | $ | 30,608,656 | $ | 483,408 | 6.32 | % | |||||
Loans(1) | 118,275,145 | 2,700,423 | 9.13 | 114,845,513 | 2,564,686 | 8.93 | |||||||||||
Federal funds sold | | 4,092,222 | | 50,317 | 4.92 | | 728,571 | | 10,162 | 5.58 | |||||||
Total earning assets | 150,520,073 | 3,227,112 | 8.57 | 146,182,740 | 3,058,256 | 8.37 | |||||||||||
Nonaccrual loans | 1,256,000 | 438,000 | |||||||||||||||
Less allowance for | |||||||||||||||||
loan losses | (1,648,597 | ) | (1,631,173 | ) | |||||||||||||
Cash and due from banks | 5,437,999 | 5,813,838 | |||||||||||||||
Other nonearning assets | | 11,903,927 | | 9,554,696 | |||||||||||||
Total assets | $ | 167,469,402 | $ | 160,358,101 | |||||||||||||
Total interest-bearing | |||||||||||||||||
deposits | $ | 104,725,482 | $ | 1,146,165 | 4.38 | % | $ | 100,010,428 | $ | 920,231 | 3.68 | % | |||||
Other borrowings | | 27,325,923 | | 373,798 | 5.47 | | 28,215,240 | | 405,670 | 5.75 | |||||||
Total interest-bearing | |||||||||||||||||
liabilities | 132,051,405 | | 1,519,963 | 4.60 | 128,225,668 | | 1,325,901 | 4.14 | |||||||||
Demand deposits | 18,685,302 | 17,494,594 | |||||||||||||||
Other liabilities | | 1,157,268 | | 383,746 | |||||||||||||
Total liabilities | 151,893,975 | 146,104,008 | |||||||||||||||
Average equity | | 15,575,427 | | 14,254,093 | |||||||||||||
Total liabilities and | |||||||||||||||||
equity | $ | 167,469,402 | $ | 160,358,101 | |||||||||||||
Net interest income | $ | 1,707,149 | $ | 1,732,355 | |||||||||||||
Rate spread | 3.99 | % | 4.23 | % | |||||||||||||
Net interest margin | 4.54 | % | 4.74 | % | |||||||||||||
(1) | Average outstanding balances exclude non-accruing loans. |
Net Interest Income: Net interest income decreased $25,206 or 1.5% to $1,707,149 for the three-month period ended March 31, 2001 compared to the same period in 2000. The decrease in net interest income is primarily attributable to a decrease in gross loans of $2,238,369, offset by an increase in interest rates from March 31, 2000 to March 31, 2001. Net interest margin has declined 20 basis points in comparison to 2000 due to increased competition for loan and deposit accounts, and an increase in the cost of borrowed money.
Provision for Loan Losses: The provision for loan losses represents the adjustment to the allowance for loan losses needed to maintain the allowance at a level determined by management to cover inherent losses within the Corporation's loan portfolio. The allowance for loan losses is based on the application of projected loss ratios to the risk-ratings of loans, both individually and by category. Projected loss ratios incorporate such factors as recent loss experience, current economic conditions and trends, trends in past due and impaired loans, and risk characteristics of various categories and concentrations of loans. The provision for loan losses was $45,000 for the three months ended March 31, 2001 and 2000. Net charge-offs were approximately $6,000 for the first quarter of 2001 compared to $34,000 for the first quarter of 2000. Management will continue to monitor the allowance for loan losses and make additions to the allowance through the provision for loan losses as economic conditions dictate.
As of and for the three | |||||||
2001 | 2000 | ||||||
Balance at beginning of year | $ | 1,624,820 | $ | 1,619,688 | |||
Provision charged to operating expense | 45,000 | 45,000 | |||||
Recoveries on loans previously charged to the allowance | 12,935 | 11,844 | |||||
Loans charged off | | (18,519 | ) | | (45,999 | ) | |
Net charge offs | | (5,584 | ) | | (34,155 | ) | |
Balance at end of period | $ | 1,664,236 | $ | 1,630,533 | |||
Allowance for loan losses as a percentage of | |||||||
total loans at end of period | 1.40% | 1.39% | |||||
Ratio of net charge-offs to average total loans outstanding | |||||||
during the period | .005 | .030 | |||||
Noninterest Income:Noninterest income for the three months ended March 31, 2001 was approximately $590,000 as compared to $382,000 for the same period in 2000. The increase is attributable in part to an increase in service charges, as well as approximately $109,000 in realized gains on the sale of investment securities during the first quarter.
Noninterest Expense: The increase in noninterest income was offset by an increase in noninterest expense to approximately $1.7 million for the three months ended March 31, 2001 compared to $1.6 million for the same period in 2000. Salaries and benefits, the largest component of noninterest expense, increased 10% to $868,000 for the three months ended March 31, 2001 compared to $786,000 for the same period in 2000. The increase in salaries and benefits reflects annual salary increases and additional employees. The increase in other expenses of $31,000, or 6%, from $554,000 for the three months ended March 31, 2000 to $585,000 for the same period in 2001 is due to increases in professional fees.
Financial Condition, Liquidity, and Capital Resources:
Total assets increased approximately 0.6% or $1.0 million to $170.6 million at March 31, 2001 compared to $169.6 million at December 31, 2000. Total liabilities increased by 0.3% or by $0.5 million to $153.7 at March 31, 2001 compared to $153.2 million at December 31, 2000. Total shareholders' equity increased by approximately $508,000 to $16.9 million at March 31, 2001. The increase in shareholders' equity is primarily related to the retention of earnings after dividend payouts in addition to an increase in the unrealized gain on securities available for sale.
Total loans decreased to $119.1 million at March 31, 2001, compared to $121.3 million at December 31, 2000. Deposits increased by approximately $1.6 million or 1.3% to $124.5 million at March 31, 2001. The overall impact of these changes was a decrease in the net loan to deposit ratio to 94.3% at March 31, 2001, from 97.4% at December 31, 2000.
The Corporation paid dividends of $170,456 during the three months ended March 31, 2001, compared to $157,063 paid during the same period in 2000.
Shareholders' equity as a percent of total assets was 9.9% at March 31, 2001 compared to 9.7% at December 31, 2000. The Corporation's capital ratios continue to exceed the minimum regulatory levels prescribed by the Federal Reserve Board.
Total cash, cash equivalents and investment securities totaled approximately $43.5 million at March 31, 2001 or approximately 25.5% of total assets. The principal source of funding for the Corporation continues to come from its deposit customers, which have historically been a stable source of funds Other sources of funding include normal loan repayments, sales and maturities of securities, federal funds available from correspondent banks, and additional advances available from the Federal Home Loan Bank. Management believes that the current level of liquidity is sufficient to meet the normal operating needs of the Bank.
Securities sold under agreements to repurchase generally mature within one to three days from the transaction date. The Corporation has pledged certain investment securities, which are held in safekeeping, as collateral against these borrowings. Repurchase agreements totaled approximately $3.3 million and $3.0 million at March 31, 2001 and December 31, 2000, respectively.
The Corporation had $23,750,000 in advances from the Federal Home Loan Bank at March 31, 2001 and December 31, 2000. Each advance requires monthly interest payments at either fixed or adjustable rates. These borrowings are collateralized by nonspecific loans within the mortgage portfolio up to the principal outstanding and nonspecific qualifying securities within the securities portfolio.
Impact of Inflation and Changing Prices. Most assets and liabilities of a financial institution are monetary in nature. This differs from most commercial and industrial companies that have significant investments in fixed assets or inventories. The effect of inflation on financial institutions is to a large extent indirect and the measure of such impact is largely subjective.
Noninterest expenses tend to rise during periods of general inflation. Inflation levels are to some degree reflected in interest rates. Changes in interest rates, which are to some extent attributable to changes in inflation rates or uncertainty concerning changes in inflation rates, do affect the earnings of the Corporation. The Corporation seeks to protect net interest income from the adverse effects of interest rate fluctuations through its asset/liability management program.
The Corporation's management believes that increases in financial institution assets and deposits result in part from monetary inflation. As assets increase, the financial institution must increase equity capital proportionately to maintain appropriate relationships between assets and equity.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are filed as exhibits to this report on Form 10-QSB:
Exhibit No. | Document | |
3.1 | Restated Articles of Incorporation. Previously filed as an exhibit to the Corporation's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998. Here incorporated by reference. | |
3.2 | Bylaws. Previously filed as Exhibit 3(b) to the Corporation's Registration Statement on Form S-4 (Registration Statement No. 333-00724) filed January 30, 1996. Here incorporated by reference. |
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter covered by this Form 10-QSB.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VALLEY RIDGE FINANCIAL CORP. |
Date: May 15, 2001 | s/Michael McHugh |
EXHIBIT INDEX
Exhibit No. | Document | |
3.1 | Restated Articles of Incorporation. Previously filed as an exhibit to the Corporation's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998. Here incorporated by reference. | |
3.2 | Bylaws. Previously filed as Exhibit 3(b) to the Corporation's Registration Statement on Form S-4 (Registration Statement No. 333-00724) filed January 30, 1996. Here incorporated by reference. |
