UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 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: 0-24159
CITIZENS BANCORP OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)
Virginia (State or other jurisdiction of incorporation or organization) | 54-0169450 (I.R.S. Employer Identification No.) |
126 South Main Street Blackstone, VA (Address of principal executive offices) | 23824 (Zip Code) |
434-292-7221
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | X |
| No |
|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes |
|
| No | X |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
2,440,750 shares of common stock, par value of $.50 per share,
outstanding as of May 8, 2005.
CITIZENS BANCORP OF VIRGINIA, INC.
FORM 10-Q
For the Quarter Ended March 31, 2005
INDEX
Part I. Financial Information
Page No.
Item 1.
Financial Statements
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
Consolidated Statements of Changes in Stockholders’ Equity
5
Consolidated Statements of Cash Flows
6
Notes to Interim Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15
Item 4.
Controls and Procedures
15
Part II. Other Information
Item 1.
Legal Proceedings
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 3.
Defaults upon Senior Securities
16
Item 4.
Submission of Matters to a Vote of Security Holders
16
Item 5.
Other Information
16
Item 6.
Exhibits
16
Signatures
17
2
Part I. Financial Information
Item 1. Financial Statements
CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except share data)
March 31, | December 31, | |||
2005 | 2004 | |||
Assets | (Unaudited) |
| ||
Cash and due from banks | $ 7,988 | $ 8,419 | ||
Interest-bearing deposits in banks | 55 | 1,557 | ||
Federal funds sold | 4,713 | 11,604 | ||
Securities available for sale, at fair market value | 46,124 | 46,364 | ||
Restricted securities | 648 | 631 | ||
Loans, net of allowance for loan losses of $1,828 | ||||
and $2,740 | 194,992 | 195,498 | ||
Premises and equipment, net | 7,313 | 7,427 | ||
Accrued interest receivable | 1,580 | 1,509 | ||
Other assets | 8,504 | 7,985 | ||
Total assets | $ 271,917 | $ 280,994 | ||
Liabilities and Stockholders' Equity | ||||
Liabilities | ||||
Deposits: | ||||
Noninterest-bearing | $ 34,484 | $ 35,125 | ||
Interest-bearing | 203,189 | 211,838 | ||
Total deposits | $ 237,673 | $ 246,963 | ||
Accrued interest payable | 700 | 675 | ||
Accrued expenses and other liabilities | 1,189 | 903 | ||
Total liabilities | $ 239,562 | $ 248,541 | ||
Commitments and Contingencies | ||||
Stockholders' Equity | ||||
Preferred stock, $0.50 par value; authorized 1,000,000 shares; | ||||
none outstanding | $ - | $ - | ||
Common stock, $0.50 par value; authorized 2,500,000 shares; | ||||
issued and outstanding, 2,440,750 | 1,220 | 1,220 | ||
Additional paid-in capital | 49 | 49 | ||
Retained earnings | 31,700 | 31,358 | ||
Accumulated other comprehensive income (loss), net | (615) | (174) | ||
Total stockholders' equity | $ 32,355 | $ 32,453 | ||
Total liabilities and stockholders' equity | $ 271,917 | $ 280,994 | ||
See accompanying Notes to Interim Consolidated Financial Statements.
3
CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended March 31, | ||
2005 | 2004 | |
Interest and Dividend Income | ||
Loans, including fees | $ 3,019 | $ 2,628 |
Investment securities: | ||
Taxable | 307 | 366 |
Exempt from federal income taxes | 134 | 153 |
Dividends | 6 | 13 |
Federal Funds sold | 52 | 20 |
Other | 7 | 53 |
Total interest and dividend income | $ 3,525 | $ 3,233 |
Interest Expense | ||
Deposits | $ 964 | $ 897 |
Total interest expense | $ 964 | $ 897 |
Net interest income | $ 2,561 | $ 2,336 |
Provision for loan losses | 145 | - |
Net interest income after provision | ||
for loan losses | $ 2,416 | $ 2,336 |
Noninterest Income | ||
Service charges on deposit accounts | $ 306 | $ 195 |
Net gain on sales and calls of securities | - | 27 |
Net gain on sales of loans | 13 | - |
Net gain (loss) on sale of other real estate owned | (3) | - |
Income from bank owned life insurance | 60 | 71 |
Other | 99 | 65 |
Total noninterest income | $ 475 | $ 358 |
Noninterest Expense | ||
Salaries and employee benefits | $ 1,102 | $ 1,080 |
Net occupancy expense | 105 | 64 |
Equipment expense | 203 | 206 |
Other | 533 | 482 |
Total noninterest expense | $ 1,943 | $ 1,832 |
| ||
Income before income taxes | $ 948 | $ 862 |
Income taxes | 239 | 167 |
Net income | $ 709 | $ 695 |
Earnings per share, basic and diluted | $ 0.29 | $ 0.28 |
See accompanying Notes to Interim Consolidated Financial Statements.
4
CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY | ||||||
Consolidated Statements of Changes in Stockholders' Equity | ||||||
For the Three Months Ended March 31, 2005 and 2004 (Unaudited) | ||||||
Accumulated | ||||||
(Dollars in thousands) | Other | |||||
Additional | Compre- | Compre- | ||||
Common | Paid-In | Retained | hensive | hensive | ||
Stock | Capital | Earnings | (Loss) | Income | Total | |
Balance at December 31, 2003 | $ 1,224 | $ 193 | $ 30,620 | $ 38 | $ 32,075 | |
Comprehensive income: | ||||||
Net income | - | - | 695 | - | $ 695 | 695 |
Other comprehensive loss: | ||||||
Unrealized (losses) on securities available | ||||||
for sale, net of deferred taxes | - | - | - | - | $ (18) | - |
Total comprehensive income | - | - | - | 543 | $ 543 | 543 |
$ 1,238 | ||||||
Cash dividends | - | - | (340) | - | (340) | |
Balance at March 31, 2004 | $ 1,224 | $ 193 | $ 30,975 | $ (581) | $ 32,973 | |
Balance at December 31, 2004 | $ 1,220 | $ 49 | $ 31,358 | $ (174) | $ 32,453 | |
Comprehensive income: | ||||||
Net income | - | - | 709 | - | $ 709 | 709 |
Other comprehensive income: | ||||||
Unrealized (losses) on securities available | ||||||
for sale, net of deferred taxes | - | - | - | (441) | (441) | (441) |
Total comprehensive income | - | - | - | - | $ 268 | - |
Cash dividends | - | - | (366) | - | (366) | |
Balance at March 31, 2005 | $ 1,220 | $ 49 | $ 31,701 | $ (615) | $ 32,355 | |
See accompanying Notes to Interim Consolidated Financial Statements.
5
CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY | |||
| |||
Consolidated Statements of Cash Flows | |||
(Dollars in thousands) | |||
(Unaudited) | |||
Three Months Ended | |||
March 31, | |||
2005 | 2004 | ||
Cash Flows from Operating Activities | |||
Net income | $ 709 | $ 695 | |
Adjustments to reconcile net income to net cash | |||
provided by operating activities: | |||
Depreciation | 174 | 137 | |
Provision for loan losses | 145 | - - | |
Net gain on sales and calls of securities | - - | (27) | |
Net (gain)loss on sales of loans | (13) | - - | |
Origination of loans held for sale | (959) | - - | |
Proceeds from sales of loans | 1,047 | - - | |
Net (gain) loss on sale of OREO | 3 | - - | |
Net amortization of securities | 26 | 35 | |
Changes in assets and liabilities: | |||
(Increase) decrease in accrued interest receivable | (71) | - - | |
(Increase) decrease in other assets | (461) | (47) | |
(Increase) decrease in OREO | (182) | - - | |
(Increase) decrease in accrued interest payable | (25) | - - | |
Increase(decrease) in accrued expenses and other liabilities | 286 | 196 | |
Net cash provided by operating activities | $ 679 | $ 989 | |
Cash Flows from Investing Activities | |||
Activity in available for sale securities: | |||
Sales and calls | $ 0 | $ 9,491 | |
Maturities and prepayments | 545 | 3,385 | |
Purchases | (1,000) | (7,490) | |
(Purchase) redemption of restricted securities | (16) | 173 | |
Net decrease (increase) in loans | 286 | (5,098) | |
Purchases of land, premises and equipment | (60) | (314) | |
Proceeds from sale of other real estate owned | 32 | - - | |
Net cash provided by investing activities | $ (213) | $ 147 | |
Cash Flows from Financing Activities | |||
Net (decrease) in deposits | $ (9,290) | $ (141) | |
Dividends paid | - - | (340) | |
Net cash (used in) financing activities | $ (9,290) | $ (481) | |
Net increase (decrease) in cash and cash equivalents | $ (8,824) | $ 655 | |
Cash and Cash Equivalents | |||
Beginning of period | $ 21,580 | $ 20,228 | |
End of period | $ 12,756 | $ 20,883 | |
Supplemental Disclosures of Cash Flow Information | |||
Cash paid during the year for: | |||
Interest | $ 939 | $ 956 | |
Income taxes | $ - - | $ - - | |
Supplemental Disclosures of Noncash Investing | |||
and Financing Activities | |||
Other real estate acquired in settlement of loans | 182 | - - | |
Unrealized gains (losses) on securities available for sale | $ (668) | $ 823 | |
See accompanying Notes to Interim Consolidated Financial Statements. | |||
6
CITIZENS BANCORP OF VIRGINIA, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
(Unaudited)
Note 1.
General
The Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 and the Consolidated Statements of Income, Changes in Stockholders’ Equity and Cash Flows for the three months ended March 31, 2005 and 2004, prepared in accordance with instructions for Form 10-Q, do not include all of the information and footnotes required by accounting principles (GAAP) generally accepted in the United States of America for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position at March 31, 2005. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Citizens Bancorp of Virginia, Inc. Annual Report on Form 10-K for the year ended December 31, 2004. The results of operations for the three-month period ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year.
Citizens Bancorp of Virginia, Inc. (Company) is a one-bank holding company formed on December 18, 2003. The Company is the sole shareholder of its only subsidiary, Citizens Bank and Trust Company (Bank). The Bank conducts and transacts the general business of a commercial bank as authorized by the banking laws of the Commonwealth of Virginia and the rules and regulations of the Federal Reserve System. The Bank was incorporated in 1873 under the laws of Virginia. Deposits are insured by the Federal Deposit Insurance Corporation. As of March 31, 2005, there were 111 full-time employees on the payroll. The main office of the Bank is located in Blackstone, Virginia, and all branch offices are located in Virginia.
Note 2.
Securities
Securities available for sale are summarized below:
March 31, 2005 | |||||||
(Dollars in thousands) | Gross | Gross | |||||
Amortized | Unrealized | Unrealized | Fair | ||||
Cost | Gains | (Losses) | Value | ||||
U.S. government | |||||||
and federal agency | $19,441 | $ - - | $(620) | $18,821 | |||
State and municipal | 16,131 | 129 | (195) | 16,065 | |||
Mortgage-backed | 7,816 | 12 | (120) | 7,708 | |||
Corporate | 3,668 | - | (138) | 3,530 | |||
$47,056 | $141 | $(1,073) | $46,124 | ||||
7
(Dollars in thousands) | December 31, 2004 | ||||||
Gross | Gross | ||||||
Amortized | Unrealized | Unrealized | Fair | ||||
Cost | Gains | (Losses) | Value | ||||
U.S. government | |||||||
and federal agency | $ 18,434 | $ 6 | $ (299) | $ 18,141 | |||
State and municipal | 16,134 | 246 | (120) | 16,260 | |||
Mortgage-backed | 8,378 | 22 | (57) | 8,343 | |||
Corporate | 3,682 | - - | (62) | 3,620 | |||
$ 46,628 | $ 274 | $ (538) | $ 46,364 | ||||
Information pertaining to securities with gross unrealized losses at March 31, 2005 and December 31, 2004, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is summarized as follows:
Less than 12 Months | 12 Months or More | |||||||
Fair | Unrealized | Fair | Unrealized | |||||
2005 | Value | (Loss) | Value | (Loss) | ||||
(In Thousands) | ||||||||
U.S. government | ||||||||
and federal agency | $ 10,194 | $ (244) | $ 7,620 | $ (376) | ||||
State and municipal | 2,652 | (66) | 4,059 | (129) | ||||
Mortgage-backed | 5,245 | (70) | 2,158 | (50) | ||||
Corporate | 2,266 | (80) | 1,264 | (58) | ||||
Total temporarily | ||||||||
impaired securities | $ 20,357 | $ (460) | $ 15,101 | $ (613) | ||||
Less than 12 Months | 12 Months or More | |||||||
Fair | Unrealized | Fair | Unrealized | |||||
2004 | Value | (Loss) | Value | (Loss) | ||||
(In Thousands) | ||||||||
U.S. government | ||||||||
and federal agency | $ 6,917 | $ (89) | $ 6,790 | $ (210) | ||||
State and municipal | 3,101 | (73) | 2,294 | (47) | ||||
Mortgage-backed | 4,486 | (29) | 1,448 | (28) | ||||
Corporate | 2,322 | (30) | 1,298 | (32) | ||||
Total temporarily | ||||||||
impaired securities | $ 16,826 | $ (221) | $ 11,830 | $ (317) | ||||
8
Note 3.
Loans
The loan portfolio was composed of the following at the dates indicated:
(Dollars in thousands) | March 31, 2005 | December 31, 2004 | |
Mortgage loans on real estate: | |||
Commercial | $ 52,231 | $ 50,624 | |
Residential 1-4 family | 91,732 | 93,002 | |
Construction | 11,533 | 10,767 | |
Total real estate loans | $ 155,496 | $ 154,393 | |
Commercial loans | 23,949 | 26,464 | |
Consumer | 17,375 | 17,381 | |
Total loans | $ 196,820 | $ 198,238 | |
Less: allowance for loan losses | 1,828 | 2,740 | |
Loans, net | $ 194,992 | $ 195,498 |
The Company had $1 million in non-performing loans at March 31, 2005.
Note 4.
Allowance for Loan Losses
The following is a summary of transactions in the allowance for loan losses:
Three Months Ended | Year | ||
(Dollars in thousands) | March 31, 2005 | December 31, 2004 | |
Balance, beginning | $ 2,740 | $ 2,925 | |
Provision for loan losses | 145 | 703 | |
Loans charged off | (1,082) | (468) | |
Recoveries of loans previously charged off | 25 | 134 | |
Balance, ending | $ 1,828 | $ 2,740 |
The following is a summary of impaired loans:
March 31
December 31
(Dollars in Thousands)
2005
2004
Impaired loans with a valuation allowance | $ 723 | $ 1,705 | |
Impaired loans without a valuation allowance | - - | - - | |
Total impaired loans | $ 723 | $ 1,705 | |
Valuation allowance related to impaired loans | $ 260 | $ 1,032 | |
Average investment in impaired loans | $ 1,457 | $ 2,690 | |
Interest income recognized | $ - - | $ - - |
9
Non-accrual loans excluded from the impairment disclosure above under SFAS No. 118 “Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures” (“SFAS No. 118”) totaled $291,512 and $483,534 at March 31, 2005 and December 31, 2004, respectively. Income on non-accrual and impaired loans under the original terms would have been approximately $64,016 and $55,792 for March 31, 2005 and December 31, 2004, respectively.
Note 5.
Earnings Per Share
The weighted average number of shares used in computing earnings per share was 2,440,750 shares for the three months ended March 31, 2005 and 2,448,000 shares for the three months ended March 31, 2004.
Note 6.
Defined Benefit Pension Plan
The components of Net Periodic Benefit Cost for the three months ended March 31, 2005 and 2004 were as follows:
(Dollars in thousands) | Pension Benefits |
| |||
2005 | 2004 | ||||
Service cost | $ 53 | $ 53 | |||
Interest cost | 39 | 39 | |||
Expected return on plan assets | (41) | (41) | |||
Amortization of prior service cost | (24) | (24) | |||
Amortization of net actuarial loss | 24 | 23 | |||
Net periodic benefit cost | $ 51 | $ 50 | |||
The Company made its required 2005 fiscal year contribution to the pension plan in December 2004 in the amount of $252,000 and anticipates making the 2006 contribution in December 2005. The Company estimates this contribution to be approximately $250,000. The pension plan has a fiscal year ending September 30, providing the Company the flexibility as to the calendar year in which it makes pension plan contributions.
Note 7.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board 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 Securities and Exchange Commission (SEC) is for annual periods beginning after June 15, 2005. The provisions of FAS 123R do not have an impact on the Company’s results of operations at the present time.
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.
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital resources of Citizens Bancorp of Virginia, Inc. (the Company). This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to the Interim Consolidated Financial Statements included in this quarterly report.
CRITICAL ACCOUNTING POLICIES
General
The financial condition and results of operations presented in the Consolidated Financial Statements, accompanying Notes to Interim Consolidated Financial Statements and management's discussion and analysis are, to a large degree, dependent upon the accounting policies of the Company. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.
Presented below is a discussion of those accounting policies (Critical Accounting Policies) that management believes are the most important to the portrayal and understanding of the Company’s financial condition and results of operations. The Critical Accounting Policies require management's most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, materially different financial condition or results of operations is a reasonable likelihood.
Allowance for Loan Losses
The Company monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio. The Company maintains policies and procedures that address the systems of controls over the following areas of maintenance of the allowance: the systematic methodology used to determine the appropriate level of the allowance to provide assurance that the systems are maintained in accordance with accounting principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.
The Company evaluates various loans individually for impairment as required by Statement of Financial Accounting Standards (SFAS) No. 114,Accounting by Creditors for Impairment of a Loan, and SFAS No. 118,Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. Loans evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS No. 5,Accounting for Contingencies, with a group of l oans that have similar characteristics.
For loans without individual measures of impairment, the Company makes estimates of losses for groups of loans as required by SFAS No. 5. Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and the general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan. The resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.
11
The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loan losses. This estimate of losses is compared to the allowance for loan losses of the Company as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses. The Company recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high. If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the Consolidated Financial Statements.
OVERVIEW AND FINANCIAL CONDITION
General
Total assets for the Company decreased to $271.9 million at March 31, 2005 compared to $281.0 million at December 31, 2004, representing a decrease of $9.1 million or 3.2%. Total loans at March 31, 2005 were $195.0 million, a decrease of $500,000 from the December 31, 2004 amount of $195.5 million. Net loans as a percent of total assets were 71.7% at March 31, 2005 as compared to 69.6% at December 31, 2004, while the federal funds and overnight funds positions decreased $8.4 million from $13.2 million at December 31, 2004 to $4.8 million at March 31, 2005, a decrease of 63.6%.
Total deposits of $237.7 million at March 31, 2005 represented a decrease of $9.3 million from $247.0 million at December 31, 2004. Total certificates of deposit at March 31, 2005 were $126.1 million, down $7.7 million during the three months ended March 31, 2005 as the result of the repayment of $7.9 million in public funds CDs.
Stockholders’ equity was $32.4 million at March 31, 2005 compared to $32.5 million at December 31, 2004. The book value per common share was $13.26 at March 31, 2005 compared to $13.30 at December 31, 2004.
The Company reported net income for the three months ended March 31, 2005 of $709,000 or $.29 per share compared to $695,000 or $.28 per share for the first three months of 2004. Annualized returns on average assets and equity for the three months ended March 31, 2005 were 1.02% and 8.63%, respectively, compared to 1.03% and 8.61% for the same period in 2004.
Financial Accounting Standards Board Pronouncement No. 115 requires the Company to show the effect of market changes in the value of securities available for sale. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled “Accumulated other comprehensive income (loss), net” in the Stockholders’ Equity section of the Consolidated Balance Sheet and was an unrealized loss of $615,000 at March 31, 2005, an increase of $441 thousand over the net unrealized loss of $174,000 from December 31, 2004.
Net Interest Income
Net interest income is the Company’s primary source of earnings and represents the difference between interest and fees earned on loans and other earning assets and the interest expense paid on deposits and other interest bearing liabilities. Net interest income totaled $2.6 million for the three months ended March 31, 2005 compared to $2.3 million for the same period in 2004. In previous quarters, the Company reported a decrease in net interest income due to continued tightening in its net interest margin. More recent quarterly comparisons indicated that this trend had stopped as is now reflected in the current year versus prior year comparison. This shift is primarily attributed to interest income from loans which were funded with sales of lower yielding investments as well as funds from low cost deposits, increased non-interest bearing and low-cost transactional deposits.
12
Two major components of net interest income are interest income on loans and interest expense on deposits. Interest income on loans increased $391,000 for the three months ended March 31, 2005 compared to the prior year. Interest and dividend income on investment securities and overnight funds declined by $99,000 for the same period, for a total change in interest income of $292,000. Interest expense on deposits increased $67,000 for the three months ended March 31, 2005. Overall, this produces an increase of $225,000 in the total net interest income for the period when compared to the same period in 2004.
Non-interest Income
Non-interest income increased 32.7% to $475,000 for the first three months of 2005 compared to $358,000 for the same period in 2004 as a result of changes in the following components:
(In thousands) | Three months ended | ||
Noninterest Income | March 31, 2005 | March 31, 2004 | % Change |
Service charges on deposit accounts | $ 306 | $ 195 | 56.9% |
Net gain on sales and calls of securities | - - | 27 | -51.9% |
Net gain on sales of loans | 13 | - - | 100.0% |
Net gain (loss) on sale of other real estate owned | (3) | - - | -100.0% |
Income from bank owned life insurance | 60 | 71 | -15.5% |
Other | 99 | 65 | 52.3% |
Total noninterest income | $ 475 | $ 358 | 32.7% |
·
Service charges on deposit accounts income increased 56.9% or $111,000 primarily as the result of an automatic overdraft program implemented by the Company in mid-May 2004.
·
Other operating income increased $34,000 primarily due to an increase in title company dividends, ATM fees and other fees charged.
Non-interest Expense
Non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead. Total non-interest expense was $1.9 million for the first three months of 2005 compared to $1.8 million for the same period in 2004, an increase of $111,000. The following table outlines the changes in its components:
(In thousands) | Three months ended | ||
Noninterest Expense | March 31, 2005 | March 31, 2004 | % Change |
Salaries and employee benefits | $ 1,102 | $ 1,080 | 2.0% |
Net occupancy expense | 105 | 64 | 64.1% |
Equipment expense | 203 | 206 | -1.5% |
Other | 533 | 482 | 10.6% |
Total noninterest expense | $ 1,943 | $ 1,832 | 6.1% |
13
·
Salaries and benefits increased $22,000 as a result of increased salary expense attributed to additional staffing for branch expansion and benefit expense increases from enhanced medical insurance benefits for the employees.
·
Net occupancy expense increased $41,000 as the result of continued branch expansion combined with the Company’s ongoing initiatives to update its technology to improve services to its customers.
·
Other operating expenses increased $51,000 as a result of expenses related to compliance with the Sarbanes-Oxley Act of 2002 and related regulations and other professional services.
Allowance for Loan Losses
The allowance for loan losses at March 31, 2005 was $1.8 million compared to $2.7 million at December 31, 2004. The allowance for loan losses was 0.93% of total loans outstanding at March 31, 2005 compared to 1.38% of total loans outstanding at December 31, 2004, a decrease of 32.6%. Previously, the Company reported that the allowance for loan losses had increased primarily as the result of deterioration in two large commercial credits. During the quarter ended March 31, 2005, both commercial credits continued to deteriorate resulting in foreclosure and partial charge-off for one credit and complete charge-off for the other. These charge-offs totaled $1.0 million, resulting in a decrease in the allowance for loan loss. After considering portfolio and economic conditions, delinquency trends, past loan loss experience, the volume of loans and related factors, management felt that the allowance for loan losses was adequate. Management also believes the allowance for loan losses is adequate to cover credit losses inherent in the loan portfolio at March 31, 2005. Loans classified as loss, doubtful, substandard or special mention are adequately reserved for and are not expected to have a material impact beyond what has been reserved.
The Company had $1.0 million in non-performing loans at March 31, 2005 compared to $ 2.7 million at March 31, 2004, a decrease of $1.7 million or 63.0%.
Liquidity
The Company maintains its liquidity position through cash on hand, correspondent bank balances and investment in federal funds sold, by maintaining its investment portfolio in available for sale status and through the availability of borrowing lines at the Federal Home Loan Bank of Atlanta and at its correspondent banks. The Company monitors its liquidity position on a regular basis and continuously adjusts its assets to maintain adequate liquidity levels. The Company has established satisfactory liquidity targets, monitors its liquidity position daily, and reports its liquidity ratios to the Board of Directors on a monthly basis. We consider our sources of liquidity to be ample to meet our estimated needs.
Capital Resources
Stockholders’ equity at March 31, 2005 and December 31, 2004 was $32.4 million and $32.5 million, respectively. Total common shares outstanding at March 31, 2005 and March 31, 2004 were 2,440,750 and 2,448,000, respectively.
At March 31, 2005, the Company’s Tier 1 and total risk-based capital ratios were 18.4% and 19.5%, respectively, compared to 18.2% and 19.4% at December 31, 2004. The Company’s leverage ratio was 11.8% at March 31, 2005 compared to 11.6% at December 31, 2004. The Bank’s capital structure places it well above the regulatory guidelines, which affords the Company the opportunity to take advantage of business opportunities while ensuring that it has the resources to protect against risk inherent in its business.
14
FORWARD LOOKING STATEMENTS
Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, (the “Exchange Act”) as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:
·
successfully manage the Company’s growth and implement its growth strategies:
·
continue to attract low cost core deposits to fund asset growth;
·
maintain capital levels adequate to support the Company’s growth;
·
maintain cost controls and asset qualities as the Company opens or acquires new branches;
·
rely on the Company’s management team, including its ability to attract and retain key personnel;
·
successfully manage interest rate risk;
·
respond to or anticipate changes in general economic and business conditions in the Company’s market area;
·
manage changes in interest rates and interest rate policies;
·
manage and monitor risks inherent in making loans such as repayment risks and fluctuating collateral values;
·
compete with other banks and financial institutions and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
·
respond to demand, development and acceptance of new products and services;
·
handle problems with technology utilized by the Company;
·
plan for changing trends in customer profiles and behavior; and
·
monitor and manage changes in banking and other laws and regulations applicable to the Company.
Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
In order to more closely measure interest sensitivity, the Company uses earnings simulation models on a quarterly basis. These models utilize the Company’s financial data and various management assumptions as to growth and earnings to forecast a base level of net interest income and earnings over a one-year period. This base level of earnings is then shocked assuming a sudden increase or decrease in interest rates.
There have been no changes that would significantly alter the disclosure previously reported as of December 31, 2004. For more information, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4.
Controls and Procedures
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and principal financial officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the Company has concluded that these controls and procedures are effective. In addition, there was no change in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
15
Part II. Other Information
Item 1. Legal Proceedings
Except as set forth below, there are no material pending legal proceedings, other that ordinary routine litigation incidental to the business, to which the Company or the Bank is a party or of which any of their property is the subject.
As reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, the Company and Mark C. Riley, its former President and Chief Executive Officer, have been parties to two lawsuits filed against each other. In May 2005, the Company and Mr. Riley agreed to settle these lawsuits. The terms of the settlement are confidential, and payments from the Company to Mr. Riley will be covered by insurance held by the Company. As a result, the settlement will have no financial impact on the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not repurchase any of its equity securities during the three months ended March 31, 2005.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
See Exhibit Index.
16
SIGNATURES
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.
CITIZENS BANCORP OF VIRGINIA, INC.
(Registrant)
Date:
May 16, 2005
/s/ William E. Doyle, Jr.
William E. Doyle, Jr.
President and Chief Executive Officer
Date:
May 16, 2005
/s/ Ronald E. Baron
Ronald E. Baron
Vice President and Chief Financial Officer
17
EXHIBIT INDEX
Exhibit Number
31.1
Rule 13a-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a) Certification of Principal Financial Officer
32.1
Statement of Principal Executive Officer Pursuant to 18 U.S.C. ss.1350
32.2
Statement of Principal Financial Officer Pursuant to 18 U.S.C. ss.1350