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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-22283
Virginia Financial Group, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 54-1829288 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
102 South Main Street, Culpeper, Virginia | 22701 | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code) 540-829-1633
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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b – 2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b – 2 of the Exchange Act). Yes x No ¨
As of November 1, 2005, there were 7,170,951 shares of common stock, $5.00 par value, issued and outstanding.
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VIRGINIA FINANCIAL GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
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PART I – FINANCIAL INFORMATION
VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
SEPTEMBER 30, 2005 | DECEMBER 31, 2004 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Cash and due from banks | $ | 37,800 | $ | 37,532 | |||
Federal funds sold | 14,834 | 502 | |||||
Interest-bearing deposits in banks | 240 | 1,292 | |||||
Securities (market value: 2005, $219,482; 2004, $292,496) | 219,354 | 292,158 | |||||
Loans held for sale | 11,896 | 5,715 | |||||
Loans receivable, net of allowance for loan losses, 2005, $13,128; 2004, $11,706 | 1,151,915 | 1,049,869 | |||||
Bank premises and equipment, net | 33,236 | 27,858 | |||||
Interest receivable | 5,931 | 5,716 | |||||
Core deposit intangibles, net | 4,607 | 5,553 | |||||
Goodwill | 13,896 | 14,033 | |||||
Other real estate owned | 41 | 5 | |||||
Other assets | 11,143 | 9,375 | |||||
Total assets | $ | 1,504,893 | $ | 1,449,608 | |||
LIABILITIES | |||||||
Deposits: | |||||||
Noninterest-bearing | $ | 257,019 | $ | 238,735 | |||
Interest-bearing | 1,011,810 | 1,018,429 | |||||
Total deposits | 1,268,829 | 1,257,164 | |||||
Federal funds purchased and securities sold under agreements to repurchase | 15,650 | 21,155 | |||||
Other short-term borrowings | 21,831 | 815 | |||||
Federal Home Loan Bank advances | 35,000 | 14,060 | |||||
Trust preferred capital notes | 20,619 | 20,619 | |||||
Interest payable | 2,027 | 2,120 | |||||
Other liabilities | 6,828 | 6,586 | |||||
Commitments and contingent liabilities | — | — | |||||
Total liabilities | 1,370,784 | 1,322,519 | |||||
STOCKHOLDERS’ EQUITY | |||||||
Preferred stock; no par value; 5,000,000 shares authorized; no shares issued and outstanding; | — | — | |||||
Common stock, $5 par value; 25,000,000 shares authorized; 2005: 7,170,829 shares issued and outstanding; 2004: 7,161,499 shares issued and outstanding; | 35,854 | 35,807 | |||||
Surplus | 8,108 | 7,774 | |||||
Retained earnings | 90,627 | 81,869 | |||||
Accumulated other comprehensive income (loss), net | (480 | ) | 1,639 | ||||
Total stockholders’ equity | 134,109 | 127,089 | |||||
Total liabilities and stockholders’ equity | $ | 1,504,893 | $ | 1,449,608 | |||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
THREE MONTHS ENDED SEPTEMBER 30, | ||||||
2005 | 2004 | |||||
(unaudited) | ||||||
Interest Income | ||||||
Interest and fees on loans | $ | 18,335 | $ | 14,969 | ||
Interest on deposits in other banks | 4 | 1 | ||||
Interest on investment securities: | ||||||
Taxable | 72 | 92 | ||||
Interest and dividends on securities available for sale: | ||||||
Taxable | 1,460 | 2,023 | ||||
Tax exempt | 641 | 696 | ||||
Dividends | 79 | 132 | ||||
Interest income on federal funds sold | 106 | 23 | ||||
Total interest income | 20,697 | 17,936 | ||||
Interest Expense | ||||||
Interest on deposits | 5,195 | 4,322 | ||||
Interest on federal funds purchased and securities sold under agreements to repurchase | 135 | 47 | ||||
Interest on other short-term borrowings | 69 | 5 | ||||
Interest on FHLB advances | 313 | 181 | ||||
Interest on trust preferred capital notes | 328 | 220 | ||||
Total interest expense | 6,040 | 4,775 | ||||
Net interest income | 14,657 | 13,161 | ||||
Provision for loan losses | 503 | 636 | ||||
Net interest income after provision for loan losses | 14,154 | 12,525 | ||||
Noninterest Income | ||||||
Retail banking fees | 1,745 | 2,011 | ||||
Commissions and fees from fiduciary activities | 696 | 676 | ||||
Brokerage fee income | 158 | 169 | ||||
Other operating income | 249 | 252 | ||||
Gain on sale of mortgage loans | 1,022 | 534 | ||||
Total noninterest income | 3,870 | 3,642 | ||||
Noninterest Expense | ||||||
Compensation and employee benefits | 6,456 | 5,793 | ||||
Net occupancy expense | 787 | 697 | ||||
Supplies and equipment expenses | 919 | 1,085 | ||||
Amortization-intangible assets | 158 | 173 | ||||
Marketing | 296 | 165 | ||||
Franchise tax | 208 | 145 | ||||
Data processing | 315 | 350 | ||||
Telecommunications | 273 | 227 | ||||
Professional fees | 232 | 162 | ||||
Other operating expenses | 1,450 | 1,636 | ||||
Total noninterest expense | 11,094 | 10,433 | ||||
Income before income taxes | 6,930 | 5,734 | ||||
Income tax expense | 2,211 | 1,743 | ||||
Net income | $ | 4,719 | $ | 3,991 | ||
Earnings per share, basic | $ | .66 | $ | .56 | ||
Earnings per share, diluted | $ | .65 | $ | .55 | ||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
NINE MONTHS ENDED SEPTEMBER 30, | ||||||
2005 | 2004 | |||||
(unaudited) | ||||||
Interest Income | ||||||
Interest and fees on loans | $ | 51,501 | $ | 43,263 | ||
Interest on deposits in other banks | 11 | 3 | ||||
Interest on investment securities: | ||||||
Taxable | 241 | 279 | ||||
Interest and dividends on securities available for sale: | ||||||
Taxable | 4,726 | 6,580 | ||||
Tax exempt | 1,937 | 2,158 | ||||
Dividends | 261 | 256 | ||||
Interest income on federal funds sold | 126 | 32 | ||||
Total interest income | 58,803 | 52,571 | ||||
Interest Expense | ||||||
Interest on deposits | 14,815 | 13,093 | ||||
Interest on federal funds purchased and securities sold under agreements to repurchase | 423 | 161 | ||||
Interest on other short-term borrowings | 289 | 141 | ||||
Interest on FHLB advances | 742 | 519 | ||||
Interest on trust preferred capital notes | 904 | 442 | ||||
Total interest expense | 17,173 | 14,356 | ||||
Net interest income | 41,630 | 38,215 | ||||
Provision for loan losses | 1,595 | 1,953 | ||||
Net interest income after provision for loan losses | 40,035 | 36,262 | ||||
Noninterest Income | ||||||
Retail banking fees | 5,219 | 5,610 | ||||
Commissions and fees from fiduciary activities | 2,207 | 2,136 | ||||
Brokerage fee income | 519 | 514 | ||||
Other operating income | 800 | 773 | ||||
Gain on sale of securities available for sale | 296 | — | ||||
Gain on sale of branches | 421 | — | ||||
Gain on sale of mortgage loans | 2,181 | 2,015 | ||||
Total noninterest income | 11,643 | 11,048 | ||||
Noninterest Expense | ||||||
Compensation and employee benefits | 18,552 | 17,601 | ||||
Net occupancy expense | 2,184 | 2,073 | ||||
Supplies and equipment expenses | 3,127 | 3,224 | ||||
Amortization-intangible assets | 485 | 520 | ||||
Marketing | 754 | 467 | ||||
Franchise tax | 662 | 455 | ||||
Data processing | 942 | 1,091 | ||||
Telecommunications | 770 | 794 | ||||
Professional fees | 629 | 653 | ||||
Other operating expense | 4,319 | 4,624 | ||||
Total noninterest expense | 32,424 | 31,502 | ||||
Income before income taxes | 19,254 | 15,808 | ||||
Income tax expense | 6,051 | 4,677 | ||||
Net income | $ | 13,203 | $ | 11,131 | ||
Earnings per share, basic | $ | 1.84 | $ | 1.56 | ||
Earnings per share, diluted | $ | 1.83 | $ | 1.55 | ||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(000 OMITTED)
(unaudited)
Common Stock | Capital Surplus | Retained Earnings | Accumulated Comprehensive | Comprehensive Income | Total | |||||||||||||||||
Balance, January 1, 2004 | $ | 35,764 | $ | 7,578 | $ | 72,255 | $ | 4,233 | $ | 119,830 | ||||||||||||
Net income | — | — | 11,131 | — | $ | 11,131 | 11,131 | |||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||
Unrealized holding losses arising during the period (net of tax of $716) | — | — | — | — | (1,330 | ) | — | |||||||||||||||
Other comprehensive loss | — | — | — | (1,330 | ) | (1,330 | ) | (1,330 | ) | |||||||||||||
Total comprehensive income, net | — | — | — | — | $ | 9,801 | — | |||||||||||||||
Cash dividends ($.58 per share) | — | — | (4,154 | ) | — | (4,154 | ) | |||||||||||||||
Stock-based compensation expense | 24 | 139 | — | — | 163 | |||||||||||||||||
Exercise of stock options | 14 | 25 | — | — | 39 | |||||||||||||||||
Balance, September 30, 2004 | $ | 35,802 | $ | 7,742 | $ | 79,232 | $ | 2,903 | $ | 125,679 | ||||||||||||
Balance, January 1, 2005 | $ | 35,807 | $ | 7,774 | $ | 81,869 | $ | 1,639 | $ | 127,089 | ||||||||||||
Net income | — | — | 13,203 | — | $ | 13,203 | 13,203 | |||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||
Unrealized holding losses arising during the period (net of tax of $1,037) | (1,927 | ) | — | |||||||||||||||||||
Reclassification adjustment (net of tax of $104) | — | — | — | — | (192 | ) | — | |||||||||||||||
Other comprehensive loss | — | — | — | (2,119 | ) | (2,119 | ) | (2,119 | ) | |||||||||||||
Total comprehensive income | — | — | — | — | $ | 11,084 | — | |||||||||||||||
Cash dividends ($.62 per share) | — | — | (4,445 | ) | — | (4,445 | ) | |||||||||||||||
Stock-based compensation expense | 17 | 236 | — | — | 253 | |||||||||||||||||
Exercise of stock options | 30 | 98 | — | — | 128 | |||||||||||||||||
Balance, September 30, 2005 | $ | 35,854 | $ | 8,108 | $ | 90,627 | $ | (480 | ) | $ | 134,109 | |||||||||||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
NINE MONTHS ENDED SEPTEMBER 30, | ||||||||
2005 | 2004 | |||||||
(unaudited) | ||||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 13,203 | $ | 11,131 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2,267 | 2,783 | ||||||
Amortization of intangible assets | 485 | 520 | ||||||
Provision for loan losses | 1,595 | 1,953 | ||||||
Write-downs of other real estate | 15 | — | ||||||
Deferred tax benefit | (556 | ) | (729 | ) | ||||
Employee benefit plan payments | (65 | ) | — | |||||
Stock-based compensation expense | 253 | 163 | ||||||
Gain on sale of premises and equipment | (427 | ) | (5 | ) | ||||
Gain on sale of securities available for sale | (296 | ) | — | |||||
Gain on sale of branches | (421 | ) | — | |||||
Gain on sale of mortgage loans | (2,181 | ) | (2,015 | ) | ||||
Proceeds from sale of mortgage loans | 117,744 | 121,809 | ||||||
Origination of mortgage loans for sale | (121,744 | ) | (120,544 | ) | ||||
Amortization of security premiums and accretion of discounts, net | 427 | 609 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in interest receivable | (247 | ) | 245 | |||||
(Increase) decrease in other assets | 607 | (1,330 | ) | |||||
Decrease in interest payable | (54 | ) | (87 | ) | ||||
Increase in other liabilities | 317 | 567 | ||||||
Net cash provided by operating activities | $ | 10,922 | $ | 15,070 | ||||
INVESTING ACTIVITIES | ||||||||
Proceeds from maturities and principal payments of securities available for sale | 71,828 | 87,342 | ||||||
Proceeds from sales and calls of securities available for sale | 3,965 | 38 | ||||||
Purchase of securities available for sale | (7,058 | ) | (23,679 | ) | ||||
Net increase in loans | (112,699 | ) | (111,214 | ) | ||||
Proceeds from sale of premises and equipment | 442 | 48 | ||||||
Purchase of premises and equipment | (7,971 | ) | (1,743 | ) | ||||
Proceeds from sale of other real estate | 50 | 131 | ||||||
Sale of branches, net of cash | (11,731 | ) | — | |||||
Net cash used in investing activities | $ | (63,174 | ) | $ | (49,077 | ) | ||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
NINE MONTHS ENDED SEPTEMBER 30, | ||||||||
2005 | 2004 | |||||||
(unaudited) | ||||||||
FINANCING ACTIVITIES | ||||||||
Net increase in demand, money market and savings deposits | $ | 22,546 | $ | 25,290 | ||||
Net increase in certificates of deposit | 11,120 | 14,657 | ||||||
Net decrease in federal funds purchased and securities sold under agreement to repurchase | (5,505 | ) | (12,995 | ) | ||||
Net increase (decrease) in short-term borrowings | 21,016 | (6,286 | ) | |||||
Issuance of trust preferred capital notes | — | 20,000 | ||||||
Proceeds from Federal Home Loan Bank advances | 30,000 | 4,940 | ||||||
Principal payments on Federal Home Loan Bank advances | (9,060 | ) | — | |||||
Proceeds from exercise of stock options | 128 | 39 | ||||||
Cash dividends paid | (4,445 | ) | (4,154 | ) | ||||
Net cash provided by financing activities | $ | 65,800 | $ | 41,491 | ||||
Increase in cash and cash equivalents | $ | 13,548 | $ | 7,484 | ||||
CASH AND CASH EQUIVALENTS | ||||||||
Beginning of the period | 39,326 | 45,178 | ||||||
End of the period | $ | 52,874 | $ | 52,662 | ||||
Supplemental Schedule of Noncash Investing/Financing Activities | ||||||||
Unrealized (losses) gain on securities available for sale | $ | (3,260 | ) | $ | 2,046 | |||
Other real estate acquired in settlement of loans | $ | 101 | $ | — | ||||
Stock-based compensation expense | $ | 253 | $ | 163 | ||||
See notes to consolidated financial statements.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Virginia Financial Group, Inc. (the “Company” or “VFG”) is a Virginia multi-bank holding company headquartered in Culpeper, Virginia. The Company owns Second Bank & Trust and its subsidiary, Second Service Company; Virginia Heartland Bank and its subsidiary, Virginia Heartland Service Corporation; Planters Bank & Trust Company of Virginia and its subsidiary, Planters Insurance Agency, Inc.; Virginia Commonwealth Trust Company, and VFG Limited Liability Trust. The consolidated statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2005 and December 31, 2004, the results of operations for the three and nine months ended September 30, 2005 and 2004, and cash flows for the nine months ended September 30, 2005 and 2004. The statements should be read in conjunction with the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
2. | The results of operations for the nine month period ended September 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior period balances to conform to the current presentation. |
3. | The Company’s securities portfolio is composed of the following (000 omitted): |
Securities Held to Maturity:
Amortized Cost | Fair Value | |||||
September 30, 2005 | ||||||
(unaudited) | ||||||
Obligations of States and Political Subdivisions | $ | 4,284 | $ | 4,412 | ||
December 31, 2004 | ||||||
Obligations of States and Political Subdivisions | $ | 5,849 | $ | 6,187 | ||
Securities Available for Sale: | ||||||
September 30, 2005 | ||||||
(unaudited) | ||||||
U.S. Treasury securities | $ | 7,001 | $ | 7,030 | ||
U.S. Government securities | 65,079 | 63,821 | ||||
State and municipals | 68,270 | 70,129 | ||||
Corporate bonds | 6,028 | 6,112 | ||||
Collateralized mortgage obligations | 3,585 | 3,562 | ||||
Mortgage-backed securities | 56,750 | 55,574 | ||||
Equity securities | 1,367 | 1,623 | ||||
Restricted stock | 6,618 | 6,618 | ||||
Other securities | 601 | 601 | ||||
$ | 215,299 | $ | 215,070 | |||
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 | ||||||
U.S. Treasury securities | $ | 7,019 | $ | 7,196 | ||
U.S. Government securities | 117,279 | 116,938 | ||||
State and municipals | 68,903 | 71,816 | ||||
Corporate bonds | 9,052 | 9,317 | ||||
Collateralized mortgage obligations | 4,433 | 4,459 | ||||
Mortgage-backed securities | 69,184 | 68,880 | ||||
Equity securities | 1,270 | 1,565 | ||||
Restricted stock | 5,406 | 5,406 | ||||
Other securities | 732 | 732 | ||||
$ | 283,278 | $ | 286,309 | |||
The following tables show information pertaining to securities with gross unrealized losses at September 30, 2005 and December 31, 2004. The aggregate unrealized loss is determined by summation of all the related securities that have a continuous loss as of those dates, and the length of time that the loss has been unrealized is shown by terms of “less than 12 months” and “12 months or more”. The fair value shown is the estimated market value as of those dates (Amounts in 000):
Less than 12 months | 12 Months or more | Total | ||||||||||||||||
Description of Securities September 30, 2005 | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||
U.S. Treasury securities and | ||||||||||||||||||
U.S. Government securities | $ | 15,935 | $ | 155 | $ | 37,825 | $ | 1,181 | $ | 53,760 | $ | 1,336 | ||||||
Mortgage backed securities | 24,750 | 505 | 26,488 | 767 | 51,238 | 1,272 | ||||||||||||
State and municipals | 9,806 | 83 | 3,027 | 88 | 12,833 | 171 | ||||||||||||
Collateralized mortgage obligations | 1,597 | 22 | — | — | 1,597 | 22 | ||||||||||||
Subtotal debt securities | 52,088 | 765 | 67,340 | 2,036 | 119,428 | 2,801 | ||||||||||||
Preferred stock | $ | — | — | 505 | 88 | 505 | 88 | |||||||||||
Total temporarily impaired securities | $ | 52,088 | $ | 765 | $ | 67,845 | $ | 2,124 | $ | 119,933 | $ | 2,889 | ||||||
There are a total of 88 securities that have unrealized losses as of September 30, 2005, 24 U.S. Treasuries or agency securities, 32 U.S. Agency MBS securities, 30 municipal securities, one CMO, and one preferred stock security.
The debt securities are obligations of entities that are excellent credit risks. The impairment as noted is the result of interest rate market conditions and does not reflect on the ability of the issuers to repay the debt obligations. VFG has the ability to hold these securities until maturity.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The preferred stock category has one issue that is showing a loss. The issuer is the Federal Home Loan Mortgage Corporation (Freddie Mac). The impairment is the result of interest rate market conditions and there is a high probability of full recovery of investment. The fixed income nature of this investment causes significant movement in value in relation to the fixed income market. However, there is no change in the dividend stream or credit quality of the issue as a result.
Description of Securities December 31, 2004 | Less than 12 months | 12 months or more | Total | |||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | |||||||||||||
U.S. Treasury obligations and direct obligations of U.S. government agencies | $ | 37,512 | $ | 600 | $ | 9,834 | $ | 166 | $ | 47,346 | $ | 766 | ||||||
Federal Agency mortgage backed securities | 10,523 | 101 | 32,845 | 517 | 43,368 | 618 | ||||||||||||
Obligations of State, County and municipal entities | 6,307 | 60 | 777 | 16 | 7,084 | 76 | ||||||||||||
Collaterallized mortgage obligations | 1,793 | 4 | — | — | 1,793 | 4 | ||||||||||||
Subtotal debt securities | 56,135 | 765 | 43,456 | 699 | 99,591 | 1,464 | ||||||||||||
Preferred stock | — | — | 516 | 77 | 516 | 77 | ||||||||||||
Total temporarily impaired securities | $ | 56,135 | $ | 765 | $ | 43,972 | $ | 776 | $ | 100,107 | $ | 1,541 | ||||||
4. | The Company’s loan portfolio is composed of the following (000 omitted): |
September 30, 2005 | December 31, 2004 | |||||||
(unaudited) | ||||||||
Real estate loans: | ||||||||
Construction | $ | 132,073 | $ | 116,888 | ||||
Secured by 1 – 4 family residential | 325,860 | 315,648 | ||||||
Commercial and multifamily | 577,243 | 495,549 | ||||||
Commercial, financial and agricultural loans | 84,951 | 85,256 | ||||||
Consumer loans | 41,943 | 44,379 | ||||||
All other loans | 2,496 | 3,448 | ||||||
1,164,566 | 1,061,168 | |||||||
Deferred loan costs | 477 | 407 | ||||||
Allowance for loan losses | (13,128 | ) | (11,706 | ) | ||||
$ | 1,151,915 | $ | 1,049,869 | |||||
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. | Activity in the allowance for loan losses is as follows (000 omitted): |
September 30, 2005 | December 31, 2004 | September 30, 2004 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
Balance, January 1 | $ | 11,706 | $ | 9,743 | $ | 9,743 | ||||||
Recoveries | 230 | 231 | 142 | |||||||||
Loan charged off | (403 | ) | (802 | ) | (538 | ) | ||||||
Provision for loan losses | 1,595 | 2,534 | 1,953 | |||||||||
Balance, ending | $ | 13,128 | $ | 11,706 | $ | 11,300 | ||||||
Information about impaired loans as of the periods indicated is as follows (000’s omitted):
September 30, 2005 | December 31, 2004 | |||||
(unaudited) | ||||||
Impaired loans for which an allowance has been provided | $ | 1,774 | $ | 3,410 | ||
Impaired loans for which an allowance has not been provided | 3,895 | 4,905 | ||||
Total impaired loans | 5,669 | 8,315 | ||||
Allowance provided for impaired loans, included in the allowance for loan losses | $ | 728 | $ | 1,166 | ||
6. | Short-term Borrowings: |
Outstanding short-term borrowings consisted of (000’s omitted):
September 30, 2005 | December 31, 2004 | |||||
(unaudited) | ||||||
Federal Home Loan Bank overnight advances | $ | 5,000 | $ | — | ||
Federal Reserve borrowings | 866 | 815 | ||||
Commercial paper | 15,965 | — | ||||
$ | 21,831 | $ | 815 | |||
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company utilizes overnight advances from the Federal Home Loan Bank of Atlanta for short term funding needs. The banking subsidiaries have available a combined $240 million line of credit with the Federal Home Loan Bank of Atlanta. Advances on the line are secured by a blanket lien on loan portfolios of Second Bank & Trust, Virginia Heartland Bank and Planters Bank & Trust Company of Virginia. The blanket lien covers the 1 to 4 family dwelling loans, home equity loans, and commercial loans. As of September 30, 2005 the 1 to 4 family and home equity loans were pledged as collateral totaling $145 million. At December 31, 2004 only 1 to 4 family loans were pledged totaling $109 million.
The Company has an unused line of credit agreement with a correspondent bank for general working capital needs. The $15 million line is unsecured, calls for variable interest payments and is payable on demand.
One of the Company’s affiliates has an agreement with the Federal Reserve where it can borrow funds deposited by its customers. This agreement calls for variable interest and is payable on demand. U. S. Government securities and U. S. Treasury notes are pledged as collateral. The targeted threshold maximum amount available under this agreement is $6.0 million.
Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction.
The Company has initiated a commercial paper program whereby customers of the affiliate banks can invest in unrated commercial paper of VFG. Terms include a daily maturity and floating rate of interest.
The average balance of short-term borrowings outstanding did not exceed 30 percent of stockholders’ equity for the nine months ended September 30, 2005 or the year ended December 31, 2004.
7. | Long-term Debt: |
The Company has outstanding fixed-rate, long-term debt with the Federal Home Loan Bank of Atlanta of $35.0 million at September 30, 2005 that matures through 2010. At September 30, 2005, the interest rates on the fixed-rate, long-term advances ranged from 1.96% to 6.69%. The advances require either monthly or quarterly interest payments with principal due upon maturity. The average interest rate was 3.51% at September 30, 2005 with an average balance outstanding of $31.1 million for the third quarter 2005.
The contractual maturities of long-term debt are as follows:
2006 | $ | 15,000 | |
2008 | 10,000 | ||
2010 | 10,000 | ||
$ | 35,000 | ||
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. | Trust Preferred Capital Notes: |
During the first quarter of 2004, VFG Limited Liability Trust, a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable Capital Securities (commonly referred to as Trust Preferred Capital Notes). On March 18, 2004, $20 million of Trust Preferred Capital Notes were issued through a private transaction. The Trust issued $619 thousand in common equity to the Company. The securities have a LIBOR-indexed floating rate of interest which adjusts, and is payable, quarterly. The interest rate at September 30, 2005 was 6.75%. The securities may be redeemed at par beginning in June, 2009 and each quarterly anniversary of such date until the securities mature on June 17, 2034. The principal asset of the Trust is $20.6 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the Capital Securities.
The Trust Preferred Capital Notes may be included in Tier I capital for regulatory capital adequacy determination purposes up to 25% of Tier I capital after its inclusion. The portion of the Trust Preferred not considered as Tier I capital may be included in Tier II capital. All of VFG’s trust preferred capital notes are included in Tier 1 capital.
The obligations of the Company with respect to the issuance of the capital securities constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the capital securities.
Subject to certain exceptions and limitations, the Company may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution payments on the related capital securities.
9. | Earnings Per Share: |
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock for the three month periods ended September 30, 2005 and 2004. Potential dilutive stock had no effect on income available to common stockholders.
2005 | 2004 | |||||||||
Shares | Per Share Amount | Shares | Per Share Amount | |||||||
Basic earnings per share | 7,170,525 | $ | 0.66 | 7,160,417 | $ | 0.56 | ||||
Effect of dilutive securities: | ||||||||||
Restricted shares | 18,915 | 13,223 | ||||||||
Stock options | 29,806 | 28,001 | ||||||||
Diluted earnings per share | 7,219,246 | $ | 0.65 | 7,201,641 | $ | 0.55 | ||||
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of diluted potential common stock for the nine month periods ended September 30, 2005 and 2004. Potential dilutive stock had no effect on income available to common stockholders.
2005 | 2004 | |||||||||
Shares | Per Share Amount | Shares | Per Share Amount | |||||||
Basic earnings per share | 7,166,947 | $ | 1.84 | 7,157,833 | $ | 1.56 | ||||
Effect of dilutive securities: | ||||||||||
Restricted shares | 19,221 | 14,766 | ||||||||
Stock options | 28,637 | 29,216 | ||||||||
Diluted earnings per share | 7,214,805 | $ | 1.83 | 7,201,815 | $ | 1.55 | ||||
In 2005 and 2004, stock options representing 8,260 and 17,383 shares, respectively, were not included in the calculation of earnings per share as their effect would have been anti-dilutive.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. | Stock Compensation Plan: |
At September 30, 2005, the Company has a stock-based employee compensation plan which is accounted for under the recognition and measurement principles of APB Opinion 25,Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share for the nine months ended September 30, 2005 and 2004 if the Company had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation, to stock-based compensation (000’s omitted).
2005 | 2004 | |||||||
Net income, as reported | $ | 13,203 | $ | 11,131 | ||||
Deduct: total stock-based employee compensation expense determined based on fair value method for all awards | (62 | ) | (53 | ) | ||||
Pro forma net income | $ | 13,141 | $ | 11,078 | ||||
Earnings per share: | ||||||||
Basic – as reported | $ | 1.84 | $ | 1.56 | ||||
Basic – pro forma | $ | 1.83 | $ | 1.55 | ||||
Diluted – as reported | $ | 1.83 | $ | 1.55 | ||||
Diluted – pro forma | $ | 1.82 | $ | 1.54 | ||||
11. | Employee Benefit Plan: |
The Company has a noncontributory pension plan which conforms to the Employee Retirement Income Security Act of 1974 (ERISA). The amount of benefits payable under the plan is determined by an employee’s period of credited service. The amount of normal retirement benefit will be determined based on a Pension Equity Credit formula. The employee receives credits based on their age and years of service. The plan provides for early retirement for participants with five years of service and the attainment of age 55. The benefits are payable in single or joint/survivor annuities as well as a lump sum payment upon retirement or separation of service. The Company froze participation in this plan during 2003, and has approximately one hundred thirty-six participants remaining in the plan. The components of net periodic benefit cost are as follows:
Nine Months Ended September 30, | ||||||||
2005 | 2004 | |||||||
Service cost | $ | 150 | $ | 147 | ||||
Interest cost | 192 | 203 | ||||||
Expected return on plan assets | (195 | ) | (228 | ) | ||||
Amortization of prior service cost | 24 | 24 | ||||||
Amortization of net (gain) loss | 45 | 13 | ||||||
Net periodic benefit cost | $ | 216 | $ | 159 | ||||
The Company made cash contributions of $65 thousand to the plan during the first nine months of 2005, and anticipates paying another $65 thousand during the fourth quarter.
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VIRGINIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. | Sale of Branches: |
On February 16, 2005, the Company through its subsidiary, Planters Bank & Trust Company of Virginia, sold two branches located in Tazewell County, Virginia to the Bank of Tazewell County, an affiliate of National Bankshares, Inc. headquartered in Blacksburg, Virginia.
The sale included the assumption of certain deposit accounts and purchase of selected loans, fixed assets and real estate as follows:
Premium received on deposits transferred | $ | 1,304 | |
Liabilities transfered (at fair value): | |||
Deposit accounts | $ | 22,001 | |
Other liabilities | 39 | ||
Total liabilities transferred | $ | 22,040 | |
Assets sold (at fair value): | |||
Cash | $ | 228 | |
Loans | 8,844 | ||
Real estate and personal property | 311 | ||
Other assets | 32 | ||
Total assets sold | 9,415 | ||
Net liabilities transferred | $ | 11,321 | |
Premium received on deposits transferred | $ | 1,304 | |
Less: Write-off of core deposit intangibles | 465 | ||
Write-off of goodwill | 138 | ||
Write-off of loan premium | 115 | ||
Transaction costs | 165 | ||
Net Gain on Sale | $ | 421 | |
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VIRGINIA FINANCIAL GROUP, INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides management’s analysis of the consolidated financial results of operations, financial condition, liquidity and capital resources of Virginia Financial Group, Inc. (VFG) and its affiliates. This discussion and analysis should be read in conjunction with the financial statements and footnotes appearing elsewhere in this report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, Management’s Discussion and Analysis contains forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, or those anticipated. When we use words such as “believes”, “expects”, “anticipates” or similar expressions, we are making forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. VFG wishes to caution the reader that factors, such as those listed below, in some cases have affected and could affect VFG’s actual results, causing actual results to differ materially from those in any forward looking statement. These factors include:
• | Expected cost savings from VFG’s acquisitions and dispositions, |
• | Competitive pressure in the banking industry or in VFG’s markets may increase significantly, |
• | Changes in the interest rate environment may reduce margins, |
• | General economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, credit quality deterioration, |
• | Changes may occur in banking legislation and regulation, |
• | Changes may occur in general business conditions, and |
• | Changes may occur in the securities markets. |
OVERVIEW
Virginia Financial Group, Inc. (VFG) is a bank holding company incorporated under the laws of the Commonwealth of Virginia. Currently, VFG is one of the largest independent bank holding companies headquartered in the Commonwealth of Virginia. VFG’s trust affiliate, Virginia Commonwealth Trust Company, is currently one of the largest independent trust companies headquartered in the Commonwealth of Virginia. Affiliates of VFG include: Planters Bank & Trust Company of Virginia - in Staunton, Second Bank & Trust - in Culpeper, Virginia Heartland Bank - in Fredericksburg and Virginia Commonwealth Trust Company - in Culpeper. The organization has a network of thirty-five branches serving a contiguous market throughout central, south central and southwest Virginia. Virginia Commonwealth Trust Company has offices in Culpeper, Charlottesville, Fredericksburg, Harrisonburg and Staunton.
VFG’s affiliate banks are community-oriented and offer services customarily provided by full-service banks, including individual and commercial demand and time deposit accounts, commercial and consumer loans, residential mortgages, credit card services and deposit services. VFG’s affiliate banks offer internet banking access for banking services, and online bill payment for both consumers and commercial customers. Lending is focused on individuals and small and middle-market businesses in the local market of VFG’s affiliate banks. VFG’s trust company provides a variety of wealth management and personal trust services including estate
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
administration, employee benefit plan administration and planning specifically addressing the investment and financial management needs of its customers. Each affiliate is run autonomously, with the holding company providing common services such as corporate finance, marketing, human resources, deposit operations, information technology, compliance, audit and loan review.
Critical Accounting Policies
General
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The Company’s affiliate Banks conduct an analysis of the loan portfolio on a regular basis. This analysis is used in assessing the sufficiency of the allowance for loan losses and in the determination of the necessary provision for loan losses. The review process generally begins with lenders identifying problem loans to be reviewed on an individual basis for impairment. When a loan has been identified as impaired, a specific reserve may be established based on management’s calculation of the loss embedded in the individual loan. In addition to impairment testing, the Banks have an eight point grading system for each non-homogeneous loan in the portfolio. Loans meeting the criteria for impairment are segregated for analysis from performing loans within the portfolio. Loans are then grouped by loan type and, in the case of commercial loans, by risk rating. Each loan type is assigned an allowance factor based on historical loss experience, economic conditions, and overall portfolio quality including delinquency rates. The total of specific reserves required for impaired classified loans and the calculated reserves by loan category are then compared to the recorded allowance for loan losses. This is the methodology used to determine the sufficiency of the allowance for loan losses and the amount of the provision for loan losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are subject to a restructuring agreement.
Goodwill
The Company adopted Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets(“SFAS 142”), effective January 1, 2002. Accordingly, goodwill is no longer subject to amortization over its estimated useful life, but is subject to at least an annual assessment for impairment by applying a fair value based test. Additionally, under SFAS 142, acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful life. Branch acquisition transactions were outside the scope of SFAS 142 and, accordingly, intangible assets related to such transactions continued to amortize upon the adoption of SFAS 142. The cost of purchased deposit relationships and other intangible assets, based on independent valuation, are being amortized over their estimated lives not to exceed fifteen years. Amortization expense charged to operations was $485 thousand and $520 thousand for the nine months ended September 30, 2005 and 2004, respectively.
Non-GAAP Financial Measures
This report refers to the efficiency ratio, which is computed by dividing noninterest expense (excluding foreclosed property expense) by the sum of net interest income on a tax equivalent basis and noninterest income (excluding gain of sale of securities). This is a non-GAAP financial measure that we believe provides investors with important information regarding our operational efficiency. Such information is not in accordance with generally accepted accounting principles (GAAP) and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. VFG, in referring to its net income, is referring to income under generally accepted accounting principles, or “GAAP”.
Results of Operations
VFG’s consolidated net income for the quarter ended September 30, 2005 amounted to $4.7 million or $.65 per diluted share, compared to earnings of $4.0 million or $.55 per diluted share for the quarter ended September 30, 2004. Net income increased 18.2% and diluted earnings per share increased 18.2% compared to third quarter 2004 results. The Company’s earnings for the third quarter produced an annualized return on average assets (ROA) of 1.26% and return on average equity (ROE) of 14.03%, compared to prior year ratios of 1.11% and 12.99%, respectively.
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the first nine months of 2005, net income was $13.2 million, up 18.6% from $11.1 million for the same period in 2004. Net income per diluted share was $1.83, up 18.1% from $1.55 for the first nine months of 2004. ROA and ROE for the nine month period was 1.20% and 13.60%, respectively, compared to 1.05% and 12.24% for the same period in 2004.
Net Interest Income
Total revenue, comprised of net interest income and noninterest income, was $18.5 million for the third quarter of 2005, an increase of $1.7 million or 10.3% over $16.8 million in 2004. The largest component, net interest income, amounted to $14.7 million for the third quarter, up $1.5 million or 11.4% compared with $13.2 million for the same quarter in 2004. For the nine months ended September 30, 2005, net interest income was $41.6 million, an increase of $3.4 million or 8.9% from $38.2 million for the same period in 2004. Improvements in the growth and mix of average earning assets, coupled with net interest margin expansion, were the primary contributors to this growth. The net interest margin for the third quarter of 2005 was 4.36%, up thirteen basis points sequentially compared to 4.23% for the second quarter of 2005, and up twenty-two basis points when compared to 4.14% for the third quarter of 2004. The net interest margin for the nine month period ended September 30, 2005 was 4.25%, compared to 4.09% for the same period in 2004.
The following tables provide information on average earning assets and interest-bearing liabilities for the three and nine months ended September 30, 2005 and 2004 as well as amounts and rates of tax equivalent interest earned and interest paid. The tax equivalent adjustment, utilizing a federal statutory rate of 35%, amounted to $394 thousand and $436 thousand for the three months ended September 30, 2005 and 2004 and $1.2 million and $1.3 million for the nine months ended September 30, 2005 and 2004, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three months ended September 30, | ||||||||||||||||||
2005 | 2004 | |||||||||||||||||
Dollars in thousands | Average Balance | Interest Inc/Exp | Average Rates | Average Balance | Interest Inc/Exp | Average Rates | ||||||||||||
Assets | ||||||||||||||||||
Loans receivable, net | $ | 1,130,355 | $ | 18,383 | 6.45 | % | $ | 1,009,099 | $ | 15,028 | 5.92 | % | ||||||
Investment securities | ||||||||||||||||||
Taxable | 164,792 | 1,610 | 3.88 | % | 226,491 | 2,249 | 3.95 | % | ||||||||||
Tax exempt | 61,207 | 988 | 6.40 | % | 65,268 | 1,072 | 6.53 | % | ||||||||||
Total investments | 225,999 | 2,598 | 4.56 | % | 291,759 | 3,321 | 4.53 | % | ||||||||||
Interest bearing deposits | 823 | 4 | 1.93 | % | 323 | 1 | 1.03 | % | ||||||||||
Federal funds sold | 12,422 | 106 | 3.39 | % | 5,962 | 22 | 0.92 | % | ||||||||||
239,244 | 2,708 | 4.49 | % | 298,044 | 3,344 | 4.46 | % | |||||||||||
Total earning assets | 1,369,599 | 21,091 | 6.11 | % | 1,307,143 | 18,372 | 5.59 | % | ||||||||||
Total nonearning assets | 110,549 | 118,198 | ||||||||||||||||
Total assets | $ | 1,480,148 | $ | 1,425,341 | ||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||
Interest checking | $ | 189,899 | $ | 202 | 0.42 | % | $ | 196,015 | $ | 185 | 0.38 | % | ||||||
Money market | 176,364 | 601 | 1.35 | % | 181,754 | 414 | 0.91 | % | ||||||||||
Savings | 130,959 | 222 | 0.67 | % | 144,072 | 233 | 0.64 | % | ||||||||||
Time deposits: | ||||||||||||||||||
Less than $100,000 | 363,943 | 2,883 | 3.14 | % | 369,101 | 2,470 | 2.66 | % | ||||||||||
$100,000 and more | 138,015 | 1,287 | 3.70 | % | 122,270 | 1,020 | 3.32 | % | ||||||||||
Total interest-bearing deposits | 999,180 | 5,195 | 2.06 | % | 1,013,212 | 4,322 | 1.70 | % | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 17,607 | 135 | 3.04 | % | 21,755 | 46 | 0.84 | % | ||||||||||
Trust preferred capital notes | 20,619 | 328 | 6.31 | % | 20,000 | 221 | 4.40 | % | ||||||||||
Other short term borrowings | 11,702 | 69 | 2.34 | % | 1,293 | 5 | 1.54 | % | ||||||||||
Federal Home Loan Bank advances | 31,105 | 313 | 3.99 | % | 13,505 | 181 | 5.33 | % | ||||||||||
81,033 | 845 | 4.14 | % | 56,553 | 453 | 3.19 | % | |||||||||||
Total interest-bearing liabilities | 1,080,213 | 6,040 | 2.22 | % | 1,069,765 | 4,775 | 1.78 | % | ||||||||||
Total noninterest-bearing liabilities | 266,491 | 233,346 | ||||||||||||||||
Total liabilities | 1,346,704 | 1,303,111 | ||||||||||||||||
Stockholders’ equity | 133,444 | 122,230 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,480,148 | $ | 1,425,341 | ||||||||||||||
Net interest income (tax equivalent) | $ | 15,051 | $ | 13,597 | ||||||||||||||
Average interest rate spread | 3.89 | % | 3.81 | % | ||||||||||||||
Interest expense as percentage of average earning assets | 1.75 | % | 1.45 | % | ||||||||||||||
Net interest margin | 4.36 | % | 4.14 | % |
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Nine months ended September 30, | ||||||||||||||||||
2005 | 2004 | |||||||||||||||||
Dollars in thousands | Average Balance | Interest Inc/Exp | Average Rates | Average Balance | Interest Inc/Exp | Average Rates | ||||||||||||
Assets | ||||||||||||||||||
Loans receivable, net | $ | 1,102,011 | $ | 51,650 | 6.27 | % | $ | 976,363 | $ | 43,439 | 5.94 | % | ||||||
Investment securities | ||||||||||||||||||
Taxable | 178,407 | 5,216 | 3.91 | % | 242,746 | 7,115 | 3.92 | % | ||||||||||
Tax exempt | 61,645 | 2,999 | 6.50 | % | 67,586 | 3,328 | 6.58 | % | ||||||||||
Total investments | 240,052 | 8,215 | 4.58 | % | 310,332 | 10,443 | 4.49 | % | ||||||||||
Interest bearing deposits | 524 | 11 | 2.81 | % | 458 | 3 | 0.78 | % | ||||||||||
Federal funds sold | 6,417 | 126 | 2.63 | % | 3,357 | 32 | 0.93 | % | ||||||||||
246,993 | 8,352 | 4.53 | % | 314,147 | 10,478 | 4.46 | % | |||||||||||
Total earning assets | 1,349,004 | 60,002 | 5.95 | % | 1,290,510 | 53,917 | 5.58 | % | ||||||||||
Total nonearning assets | 116,140 | 121,418 | ||||||||||||||||
Total assets | $ | 1,465,144 | $ | 1,411,928 | ||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||
Interest checking | $ | 194,863 | $ | 601 | 0.41 | % | $ | 193,991 | $ | 754 | 0.52 | % | ||||||
Money market | 172,382 | 1,544 | 1.20 | % | 173,922 | 1,195 | 0.92 | % | ||||||||||
Savings | 132,972 | 665 | 0.67 | % | 140,716 | 718 | 0.68 | % | ||||||||||
Time deposits: | ||||||||||||||||||
Less than $100,000 | 365,460 | 8,454 | 3.09 | % | 370,700 | 7,426 | 2.68 | % | ||||||||||
$100,000 and more | 133,570 | 3,551 | 3.55 | % | 119,364 | 3,000 | 3.36 | % | ||||||||||
Total interest-bearing deposits | 999,247 | 14,815 | 1.98 | % | 998,693 | 13,093 | 1.75 | % | ||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 22,868 | 423 | 2.47 | % | 25,919 | 161 | 0.83 | % | ||||||||||
Trust preferred capital notes | 20,619 | 904 | 5.86 | % | 14,380 | 442 | 4.11 | % | ||||||||||
Other short term borrowings | 13,503 | 289 | 2.86 | % | 12,798 | 141 | 1.47 | % | ||||||||||
Federal Home Loan Bank advances | 21,913 | 742 | 4.53 | % | 12,585 | 519 | 5.51 | % | ||||||||||
78,903 | 2,358 | 4.00 | % | 65,682 | 1,263 | 2.57 | % | |||||||||||
Total interest-bearing liabilities | 1,078,150 | 17,173 | 2.13 | % | 1,064,375 | 14,356 | 1.80 | % | ||||||||||
Total noninterest-bearing liabilities | 257,195 | 226,081 | ||||||||||||||||
Total liabilities | 1,335,345 | 1,290,456 | ||||||||||||||||
Stockholders’ equity | 129,799 | 121,472 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,465,144 | $ | 1,411,928 | ||||||||||||||
Net interest income (tax equivalent) | $ | 42,829 | $ | 39,561 | ||||||||||||||
Average interest rate spread | 3.82 | % | 3.78 | % | ||||||||||||||
Interest expense as percentage of average earning assets | 1.70 | % | 1.49 | % | ||||||||||||||
Net interest margin | 4.25 | % | 4.09 | % |
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Noninterest Income
Total noninterest income was $3.9 million for the third quarter of 2005, an increase of $228 thousand or 6.3% compared to $3.6 million for the third quarter of 2004. By far the largest contributor to this increase was a $488 thousand or 91% increase in mortgage banking fees, up to $1.0 million in the third quarter of 2005 from $534 thousand for the same quarter a year ago. The addition of new lenders in a continuing favorable interest rate environment account for the growth in the mortgage banking business. Retail banking fees decreased $266 thousand or 13.2% to $1.7 million, compared to $2.0 million in the third quarter of 2004. VFG continues to experience a decline in the volume of NSF items, which can be attributed to trends noted with respect to a corresponding decrease in paper items processed and increase in pre-authorized electronic banking transactions such as ATM and debit card transactions. Trust and brokerage revenues for the third quarter were $696 thousand, up $20 thousand or 2.9% compared to $676 thousand in the third quarter of 2004.
Total noninterest income was $11.6 million for the nine months ended September 30, 2005, an increase of $595 thousand or 5.4% compared to $11.0 million for the same period in 2004. Included in the 2005 results is a gain of $318 thousand in connection with the sale of a community bank stock investment, and a gain of $421 thousand realized on the sale of two branches in Tazewell County, Virginia during the first quarter. The aforementioned decrease in retail banking fees was similar for the nine month period, and mortgage banking fees were up $166 thousand or 8.2% for the first nine months of 2005 over the same period a year ago.
Noninterest Expense
Noninterest expense for the third quarter of 2005 totaled $11.1 million, up $661 thousand or 6.3% from $10.4 million for the same period in 2004, and up sequentially $293 thousand or 2.7% from the second quarter of 2005. For the nine month period ended September 30, 2005, noninterest expense was $32.4 million, an increase of $922 thousand or 2.9% over $31.5 million the same period a year ago. The relatively modest increases are attributable to a fairly stable full-time equivalent employee count and related costs associated with health and welfare benefits, a decrease in operating expenses associated with the Tazewell branch divesture, and general improvements in overall efficiency. VFG anticipates the rate of increase in overhead to be at a more normalized level as it accelerates its expansion efforts and implements several sales and credit training initiatives in the remainder of 2005 and into 2006. VFG’s efficiency ratio was 58.3% for the quarter, compared to 60.2% for the same quarter in 2004. For the nine month period ended September 30, 2005, the efficiency ratio was 59.6%, compared to 62.1% for the first nine months of 2004.
Income Taxes
Income tax expense for the third quarter of 2005 was $2.2 million resulting in an effective tax rate of 31.9% compared to $1.7 million, or 30.4%, for the third quarter of 2004. For the nine month period ended September 30, 2005, income tax expense amounted to $6.1 million, resulting in an effective tax rate of 31.4% compared to $4.7 million, or 29.6% for the same period in 2004. The increase in the effective tax rate for the quarter and nine month period is a result of a decrease in earnings from tax-exempt assets as a percentage of total income. The rate of loan growth has resulted in a decrease in the securities component of the Company’s balance sheet, resulting in less municipal security holdings and related tax exempt interest.
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Asset Quality
Asset quality remains strong, with VFG’s ratio of non-performing assets as a percentage of total assets amounting to .11% at September 30, 2005, compared to .28% at September 30, 2004 and .28% at December 31, 2004. Net charge-offs as a percentage of average loans receivable amounted to .004% for the quarter and .02% for the nine month period ended September 30, 2005, compared to .01% and .04% for the same periods in 2004. At September 30, 2005, the allowance for loan losses was approximately eight times the level of non-performing assets, while the allowance as a percentage of total loans amounted to 1.13%, up slightly from 1.10% at December 31, 2004. This increase is consistent with additional perceived credit risk due to pressure on borrower cash flows associated with higher interest and energy costs as well as growth in the commercial real estate component of the portfolio during the period. The Company decreased its provision for loan losses by $133 thousand or 20.9%, from $636 thousand for the three months ended September 30, 2004 compared to $503 thousand for the three months ended September 30, 2005. For the nine month period ended September 30, 2005, the provision for loan losses was $1.6 million, a decrease of $358 thousand or 18.3% compared to the same period in 2004. These decreases are consistent with a slightly decreased rate of growth in 2005 and general improvement in asset quality during the periods.
The following table provides information on asset quality statistics for the periods presented (000 omitted):
September 30, 2005 | December 31, 2004 | September 30, 2004 | ||||||||||
Non accrual loans | $ | 1,422 | $ | 2,552 | $ | 2,116 | ||||||
Troubled debt restructurings | 173 | 1,451 | 1,937 | |||||||||
Other real estate owned | 41 | 5 | 5 | |||||||||
Loans past due as to principal or interest for 90 days or more accruing interest | — | — | 1 | |||||||||
Total nonperforming assets | $ | 1,636 | $ | 4,008 | $ | 4,059 | ||||||
Nonperforming assets to total assets | .11 | % | .28 | % | .28 | % | ||||||
Nonperforming assets to loans and other property | .14 | % | .38 | % | .39 | % | ||||||
Allowance for loan losses as a percentage of loans receivable | 1.13 | % | 1.10 | % | 1.09 | % | ||||||
Allowance for loan losses as a percentage of nonperforming assets | 802.44 | % | 292.07 | % | 278.39 | % | ||||||
Net charge-offs as a percentage of average loans receivable | .02 | % | .06 | % | .04 | % | ||||||
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Capital Resources
The management of capital in a regulated financial services industry must properly balance return on equity to stockholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Additionally, capital management must also consider acquisition opportunities that may exist, and the resulting accounting treatment. The Company’s capital management strategies have been developed to provide attractive rates of returns to stockholders, while maintaining its “well-capitalized” position at each of the banking subsidiaries.
The primary source of additional capital to the Company is earnings retention, which represents net income less dividends declared. During the nine months ended September 30, 2005, the Company retained $8.8 million, or 66.3% of its net income. Stockholders’ equity increased by $7.0 million, reflecting the earnings retention and a decrease of $2.1 million in accumulated comprehensive income net of tax, which relates primarily to a universal decline in bond market valuations, resulting in a decrease in unrealized gains on securities available-for-sale during the period.
The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the subsidiary banks’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiaries to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. Management believes, as of September 30, 2005, that the Company and the subsidiary banks met all minimum capital adequacy requirements to which they are subject and are categorized as “well capitalized.” There are no conditions or events that management believes have changed the subsidiary banks’ well capitalized position.
The following table includes information with respect to the Company’s risk-based capital as of September 30, 2005 (000 omitted):
Tier 1 capital | $ | 135,921 | ||
Tier 2 capital | 13,243 | |||
Total risk-based capital | 149,164 | |||
Total risk-weighted assets | 1,247,005 | |||
Average adjusted total assets | 1,481,991 | |||
Capital ratios: | ||||
Tier 1 risk-based capital ratio | 10.90 | % | ||
Total risk-based capital ratio | 11.96 | % | ||
Leverage ratio (Tier 1 capital to average adjusted total assets) | 9.17 | % | ||
Equity to assets ratio | 8.91 | % | ||
Tangible equity to assets ratio | 7.78 | % |
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity
Liquidity is identified as the ability to generate or acquire sufficient amounts of cash when needed and at a reasonable cost to accommodate withdrawals, payments of debt, and increased loan demand. These events may occur daily or other short-term intervals in the normal operation of the business. Experience helps management predict time cycles in the amount of cash required. In assessing liquidity, management gives consideration to relevant factors including stability of deposits, quality of assets, economy of markets served, concentrations of business and industry, competition, and the Company’s overall financial condition. The Company’s primary sources of liquidity are cash, securities in our available for sale portfolio and a $15 million line of credit with a correspondent bank. In addition, the Banks have substantial lines of credit from their correspondent banks and access to the Federal Reserve discount window and Federal Home Loan Bank of Atlanta to support liquidity as conditions dictate.
The liquidity of the Parent Company also represents an important aspect of liquidity management. The Parent Company’s cash outflows consist of overhead associated with corporate expenses, executive management, finance, marketing, human resources, deposit operations, information technology, audit, compliance and loan review functions. It also includes outflows associated with dividends to shareholders. The main sources of funding for the Parent Company are the management fees and dividends it receives from its banking and trust subsidiaries, a working line of credit with a correspondent bank, and availability of the trust preferred security market as deemed necessary. The Company’s capital base provides the resource and ability to support the assets of the Company and provide capital for future expansion.
In the judgment of management, the Company maintains the ability to generate sufficient amounts of cash to cover normal requirements and any additional funds as needs may arise.
Off Balance Sheet Items
There have been no material changes to the off balance sheet items disclosed in “Management’s Discussion and Analysis” in VFG’s annual report on Form 10-K for the fiscal year ended December 31, 2004.
Contractual Obligations
There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in VFG’s annual report on Form 10-K for the fiscal year ended December 31, 2004.
Effects of Inflation
The effect of changing prices on financial institutions is typically different from other industries as the Company’s assets and liabilities are monetary in nature. Interest rates and thus the Company’s asset liability management is impacted by changes in inflation, but there is not a direct correlation between the two measures. Management monitors the impact of inflation on the financial markets.
Supervisory Agreement Regarding Bank Secrecy Act Compliance
On October 28, 2005, VFG was notified that Planters Bank & Trust Company and Virginia Heartland Bank, wholly owned subsidiaries, successfully resolved the deficiencies cited in March 2004 written agreements with
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
the Federal Reserve Bank of Richmond concerning compliance with anti-money laundering policies and the requirements of the Bank Secrecy Act. Receipt of letters dated October 28, 2005 from the Federal Reserve Bank of Richmond formally communicated the termination of the Written Agreements.
Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement No. 154, (“SFAS No. 154”) “Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” The new standard changes the requirements for the accounting for and reporting of a change in accounting principle. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement. “ The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.
On December 16, 2004, FASB issued Statement No. 123R (revised 2004), “Share-Based Payment,” (FAS 123R) that addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the consolidated statement of income. The effective date of FAS 123R (as amended by the SEC) is for annual periods beginning after June 15, 2005. The provisions of FAS 123R do not impact the Company’s consolidated financial position and results of operations currently and the Company anticipates that the application of this statement will not have a material effect on its financial statements in 2006.
In March 2005, the SEC issued Staff Accounting Bulleting No. 107 (SAB 107). SAB 107 expresses the views of the SEC staff regarding the interaction of FAS 123R and certain SEC rules and regulations and provides the SEC staff’s view regarding the valuation of share-based payment arrangements for public companies. SAB 107 does not impact the Company’s results of operations at the present time.
In November 2004, the Emerging Issues Task Force (“EITF”) published Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The Task Force discussed the meaning of other-than-temporary impairment and its application to certain investments carried at cost. The Task Force requested that the FASB staff consider other impairment models within U.S. Generally Accepted Accounting Principles (“GAAP”) when developing its views. The Task Force also requested that the scope of the impairment issue be expanded to include equity investments and investments subject to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and that the issue be addressed by the Task Force as a separate EITF issue. At the EITF meeting, the Task Force reached a consensus on one issue that certain quantitative and qualitative disclosures should be required for securities accounted for under
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VIRGINIA FINANCIAL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statement 115 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The Board ratified the consensus on that one issue at its November 25, 2004 meeting. In September 2004, the Financial Accounting Standards Board (“FASB”) directed the FASB staff to issue two proposed FASB Staff Positions (“FSP”): Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interest rate and/or sector spread increases. In June 2005, the FASB reach a decision whereby they declined to provide additional guidance on the meaning of other-than-temporary impairment. The Board directed the FASB staff to issue EITF 03-1a as final and to draft a new FSP that will replace EITF 03-01. The final FSP (retitled FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”) would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.
Access to Filings
The Company provides access to their SEC filings through the corporate Website at www.vfgi.net. After accessing the Website, the filings are available upon selecting the SEC Filings & Other Documents icon. Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.
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VIRGINIA FINANCIAL GROUP, INC.
PART I – FINANCIAL INFORMATION
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the quantitative and qualitative market risk disclosures in the Company’s Form 10-K for the year ended December 31, 2004.
ITEM 4 – CONTROLS AND PROCEDURES
We are required to include in our periodic reports information regarding our controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We have established disclosure controls and procedures to ensure that material information related to the Company is made known to our principal executive officer and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. Our principal executive officer and principal financial officer evaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report and, based on their evaluation, concluded that our disclosure controls and procedures are operating effectively.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that our disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the organization to disclose material information otherwise required to be set forth in our period reports.
Our management is also responsible for establishing and maintaining adequate internal controls over financial reporting and control of our assets to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in our internal control over financial reporting or control of assets during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting or control of assets.
There are no material legal proceedings to which the Company or any of its subsidiaries, directors, or officers is a party or by which they, or any of them, are threatened. Any legal proceeding presently pending or threatened against Virginia Financial Group, Inc. and its subsidiaries are either not material in respect to the amount in controversy or fully covered by insurance.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company has a stock repurchase program authorized that is not currently active, with 210,000 shares remaining available for repurchase.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Not applicable.
(a) The following exhibits either are filed as part of this Report or are incorporated herein by reference:
Exhibit No. 2 | Agreement and Plan of Reorganization incorporated by reference to Agreement and Plan of Reorganization filed as Exhibit A to Form S-4 Amendment No. 2 filed on November 20, 2001 (File No. 333-69216). | |
Exhibit No. 3.1 | Articles of Incorporation incorporated by reference to Exhibit 3.1 to Form 8-K filed on January 30, 2002. | |
Exhibit No. 3.2 | Bylaws incorporated by reference to Exhibit 3. | |
Exhibit No. 4 | Stock Option Agreement is incorporated by reference to Exhibit B to Form S-4 Amendment No. 2 filed on November 20, 2001 (File No. 333-69216). | |
Exhibit No. 4.1 | Stock Incentive Plan is incorporated by reference to Form S-8 filed on February 26, 2002 (File No. 333-83410). | |
Exhibit No. 10 | Employment contracts of certain officers incorporated by reference to Form 10-K filed on March 15, 2005. | |
Exhibit No. 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
Exhibit No. 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
Exhibit No. 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIRGINIA FINANCIAL GROUP, INC. |
/s/ O. R. Barham, Jr. |
O.R. Barham, Jr. |
President and Chief Executive Officer |
November 9, 2005 |
/s/ Jeffrey W. Farrar |
Jeffrey W. Farrar, CPA |
Executive Vice President and Chief Financial Officer |
November 9, 2005 |
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