U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 333-00724
VALLEY RIDGE FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
MICHIGAN 38-2888214
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6 NORTH MAIN STREET (616) 678-5911
KENT CITY, MICHIGAN 49330 (Issuer's Telephone Number,
(Address of Principal Executive Offices) Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes_____ No__X__.
There were 373,862 shares of Common Stock ($10 par value) outstanding as of
June 15, 1996.
Transitional Small Business Disclosure Format (check one): Yes_____
No__X__.
VALLEY RIDGE FINANCIAL CORP.
INDEX
___________________________________________________________________________
PART 1. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1996 (Unaudited) and December 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and
March 31, 1995 (Unaudited) . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and
March 31, 1995 (Unaudited) . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis or
Plan of Operation. . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
___________________________________________________________________________
MARCH 31, DECEMBER 31,
1996 1995
(Unaudited)
ASSETS
Cash and due from banks $ 3,715,334 $ 4,311,500
Federal funds sold 3,400,000 300,000
Total cash and cash equivalents 7,115,334 4,611,500
Securities available for sale 14,114,365 15,411,044
Other securities 607,596 513,496
Total loans 60,256,262 62,295,856
Allowance for loan losses (912,164) (883,597)
59,344,098 61,412,259
Premises and equipment - net 1,436,145 1,431,718
Accrued interest receivable 774,492 700,937
Other assets 1,671,862 1,514,762
Total assets $85,063,892 $85,595,716
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 9,578,882 $10,031,283
Interest-bearing 60,792,973 60,910,479
70,371,855 70,941,762
Accrued interest payable 144,360 136,174
Other borrowings 5,000,000 4,000,000
Other liabilities 589,594 1,602,992
Total liabilities 76,105,809 76,680,928
Stockholders' equity
Common stock, $10 par value: 500,000
shares authorized; 373,862 and
372,862 shares outstanding at March
31, 1996 and December 31, 1995,
respectively 3,738,620 3,728,620
Surplus 1,750,804 1,738,254
Retained earnings 3,089,241 2,942,370
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Net unrealized gain on securities
available for sale, net of tax of
($195,458) at March 31, 1996 and
($260,432) at December 31, 1995 379,418 505,544
Total stockholders' equity 8,958,083 8,914,788
Total liabilities and stockholders'
equity $85,063,892 $85,595,716
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
___________________________________________________________________________
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
Interest income
Loans, including fees $1,427,238 $1,336,855
Federal funds sold 20,873 30,503
Investment securities
Taxable 83,927 90,282
Nontaxable 153,123 116,311
1,685,161 1,573,951
Interest expense
Deposits 606,788 619,471
Other 69,907 30,600
676,695 650,071
NET INTEREST INCOME 1,008,466 923,880
Provision for loan losses 30,000 25,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 978,466 898,880
Other income
Service charges 147,305 142,669
Gain (loss) on sales of investment
securities 10,476 (1,878)
Gain on sales of loans 15,836 564
Other 26,070 30,977
199,687 172,332
Other expense
Salaries and benefits 435,384 410,885
Occupancy 51,929 52,749
Furniture and fixtures 47,746 52,686
FDIC insurance premium 500 38,251
Data processing 42,305 41,897
Supplies 30,502 35,678
Other 297,244 201,228
905,610 833,374
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INCOME BEFORE FEDERAL INCOME TAX 272,543 237,838
Federal income tax expense 50,950 43,029
NET INCOME $ 221,593 $ 194,809
Net income per share $ .59 $ .52
Dividends per share $ .20 $ .20
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
___________________________________________________________________________
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 221,593 $ 194,809
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 39,120 37,621
Amortization of:
Premiums and discounts on securities, net 16,681 31,197
Goodwill and core deposit intangibles 7,762 8,746
Provision for loan losses 30,000 25,000
(Gain) loss on sale of securities (10,476) 1,878
Gain on sale of loans (8,873) (564)
Loans originated for sale (1,403,000) (46,500)
Proceeds from loans sold 1,411,873 47,064
Net change in:
Accrued interest receivable (73,555) (71,870)
Other assets (99,888) (50,328)
Accrued expenses and other liabilities (1,005,212) (122,196)
Net cash provided by (used in)
operating activities (873,975) 54,857
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans 2,038,161 1,608,197
Proceeds from:
Sales of securities available for sale 2,926,735 893,452
Repayments and maturities of securities
available for sale 784,562 180,890
Principal paydowns on securities held
to maturity 102,000
Purchase of:
Securities available for sale (2,611,923) (1,150,363)
Federal Home Loan Bank stock (94,100)
Premises and equipment, net (43,547) (8,757)
Net cash provided by investing activities 2,999,888 1,625,419
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
___________________________________________________________________________
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock $ 22,550 $ 20,690
Net increase (decrease) in deposits (569,907) 863,118
Advances from Federal Home Loan Bank 3,000,000
Payment on Federal Home Loan Bank advance (2,000,000)
Dividends paid (74,722) (74,572)
Net cash provided by financing activities 377,921 809,236
Net change in cash and cash equivalents 2,503,834 2,489,512
Cash and cash equivalents at beginning of period 4,611,500 5,087,966
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,115,334 $ 7,577,478
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 668,509 $ 637,578
Income taxes 9,749 80,714
___________________________________________________________________________
See accompanying notes to consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
___________________________________________________________________________
1. BASIS OF PRESENTATION
The unaudited financial statements for the three months ended March 31,
1996 and March 31, 1995 include the consolidated results of operations
of Valley Ridge Financial Corp. ("Corporation") and its wholly-owned
subsidiary, Kent City State Bank ("Bank"). These consolidated
financial statements have been prepared in accordance with the Instruc-
tions for Form 10-QSB and Item 310(b) of Regulation S-B and do not include
all disclosures required by generally accepted accounting principles for
a complete presentation of the Corporation's financial condition and
results of operations. In the opinion of management, the information
reflects all adjustments (consisting only of normal recurring adjustments)
which are necessary in order to make the financial statements not
misleading and for a fair presentation of the results of operations
for such periods. The results for the period ended March 31, 1996
should not be considered as indicative of results for a full year.
2. ACQUISITIONS
In September of 1995, the Corporation announced that it had signed a
definitive agreement to merge with Community Bank Corporation, the
parent company of the Grant State Bank. Community Bank Corporation had
total assets of approximately $28,700,000 at December 31, 1995 and
revenues, net income and earnings per share of $2,475,000, $364,000
and $4.76, respectively, for the year ended December 31, 1995. A
Registration Statement on Form S-4 for this transaction was filed with
the Securities and Exchange Commission (Registration Statement No.
333-00724) and was declared effective by the Securities and Exchange
Commission on May 13, 1996. The shareholders of both the Corporation
and Community Bank Corporation voted to approve the transaction on
June 25, 1996. It is anticipated that the transaction will be
consummated by the end of the second quarter. The transaction will be
structured as a tax-free exchange and will be accounted for under
the pooling-of-interests method of accounting.
3. SECURITIES
The Corporation classifies all securities into an available-for-sale
category. Available-for-sale securities are those the Corporation may
decide to sell if needed for liquidity, asset-liability management or
___________________________________________________________________________
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
___________________________________________________________________________
3. SECURITIES (Continued)
other reasons. Available-for-sale securities are reported at fair
value, with unrealized gains and losses included in a separate
component of equity, net of tax.
The Corporation's portfolio of available-for-sale securities consists
of securities acquired to meet the Corporation's regulatory liquidity
requirement and anticipated near term cash funding requirements.
Investments in this portfolio are primarily U.S. Government and federal
agency debt securities.
The amortized cost and fair values of securities at March 31, 1996 were
as follows:
AVAILABLE FOR SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
Obligations of states and
political subdivisions $ 8,906,715 $547,698 $(18,385) $ 9,436,028
Mortgage-backed securities 4,632,773 55,922 (10,358) 4,678,337
$13,539,488 $603,620 $(28,743) $14,114,365
OTHER SECURITIES
Federal Reserve stock $ 132,000 $ 132,000
Federal Home Loan Bank stock 470,600 470,600
Farmer Mac stock 4,996 4,996
$ 607,596 $ 607,596
The amortized cost and fair values of securities at March 31, 1996, by
contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
___________________________________________________________________________
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
___________________________________________________________________________
3. SECURITIES (Continued)
AMORTIZED FAIR
COST VALUES
Due in one year or less $ 677,055 $ 681,762
Due after one year through five years 1,533,718 1,607,363
Due after five years through ten years 2,981,608 3,292,058
Due after ten years 3,714,334 3,854,845
8,906,715 9,436,028
Mortgage-backed securities 4,632,773 4,678,337
$13,539,488 $14,114,365
Because of their variable payments, mortgage-backed securities are not
reported by a specific maturity grouping.
4. LOANS
Major loan classifications as of March 31, 1996 are as follows:
Commercial $18,492,121
Real estate 30,530,040
Consumer 5,497,076
Agricultural 5,737,025
$60,256,262
5. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan
losses account for the three months ended March 31, 1996:
___________________________________________________________________________
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
___________________________________________________________________________
5. ALLOWANCE FOR LOAN LOSSES (Continued)
Balance at January 1, 1996 $883,597
Provision for loan losses charged
to operating expense 30,000
Recoveries on loans previously charged
to the allowance 5,935
Losses charged off (7,368)
Balance at March 31, 1996 $912,164
6. OTHER BORROWINGS
At March 31, 1996, the Corporation had the following advances from the
Federal Home Loan Bank ("FHLB"):
TYPE INTEREST RATE MATURITY DATE AMOUNT
Fixed 5.730% July 21, 1997 $2,000,000
Fixed 5.260 February 1, 1999 2,000,000
Fixed 5.230 February 1, 1999 1,000,000
$5,000,000
Each advance requires monthly interest payments at fixed rates. These
borrowings are collateralized by nonspecific loans within the mortgage
portfolio up to the principal outstanding. The fixed rate notes carry
a minimum prepayment penalty of $5,000.
7. EARNINGS PER COMMON SHARE
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding. Earnings per share amounts are based on
373,224 and 372,584 shares for the three months ended March 31, 1996
and 1995, respectively. All share amounts have been restated to
reflect stock dividends and splits.
___________________________________________________________________________
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
___________________________________________________________________________
8. STOCK SPLITS
On January 26, 1995, the Board of Directors approved a two-for-one
split of the Corporation's common stock, effected in the form of a
stock dividend. The stated par value of each share was not changed
from $10. All share and per share amounts have been adjusted to
reflect this stock split.
9. LOAN SERVICING RIGHTS
In May of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 122, ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS, to require that a mortgage-banking
enterprise recognize, as separate assets, acquired rights to service
mortgage loans for others. A mortgage banking enterprise that acquires
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing
rights retained should allocate the total cost of the mortgage loans to
the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to
estimate the fair values of the mortgage servicing rights and the
mortgage loans (without the mortgage servicing rights), the entire cost
of purchasing or originating the loans should be allocated to the
mortgage loans (without the mortgage servicing rights) and no cost
should be allocated to the mortgage servicing rights.
This Statement requires that a mortgage-banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair
value of those rights. A mortgage-banking enterprise should stratify
its mortgage servicing rights that are capitalized after the adoption
of this Statement based on one or more of the predominant risk
characteristics of the underlying loans. Impairment should be
recognized through a valuation allowance for each impaired stratum.
The Corporation adopted SFAS No. 122 on January 1, 1996. The impact of
adopting SFAS No. 122 has not been material to the Corporation.
___________________________________________________________________________
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is designed to provide a review of the
consolidated financial condition and results of operations of Valley Ridge
Financial Corporation ("Valley Ridge"). This discussion should be read in
conjunction with the consolidated financial statements and related notes.
RESULTS OF OPERATIONS: Valley Ridge reported net income of $221,593 or
$.59 per share for the first quarter of 1996 compared to $194,809 or $.52
per share for the same period in 1995. The improvement was primarily a
result of improved net interest income, partially offset by increased other
expenses. Net interest income, before the provision for loan losses, of
$1,008,466 for the first quarter of 1996, was 9.1% greater than the first
quarter of 1995.
Net charge-offs were approximately $1,400 for the first quarter of 1996
compared to $1,900 for the same period in 1995. The provision for loan
losses was $30,000 for the first quarter of 1996 compared to $25,000 for
the same period in 1995. The provision for loan losses represents the
adjustment to the allowance for loan losses needed to maintain the
allowance at a level determined by management to cover inherent losses
within Valley Ridge's loan portfolio.
Noninterest income for the three months ended March 31, 1996, was
approximately $200,000 compared to $172,000 for the same period in 1995.
The increase was primarily a result of increased gains on sales of
investment securities and on sales of loans during 1996 compared to 1995.
However, the increase in non-interest income was more than offset by an
increase in non-interest expense to approximately $906,000 for the three
months ended March 31, 1996 compared to $833,000 for the same period in
1995. This was primarily due to an increase in legal and accounting fees
related to the proposed merger with Community Bank Corporation. There was a
significant drop in FDIC insurance premium costs for the first quarter of
1996 compared to 1995.
Management is not aware of any existing trends, events, uncertainties or
current recommendations by regulatory authorities that are expected to have
a material impact on Valley Ridge's future operating results.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES: Total assets
decreased less than 1% or by $532,000 to $85,063,892 at March 31, 1996
compared to $85,595,716 at December 31, 1995. Total liabilities decreased
by a comparable amount of $575,000 to $76,105,809 at March 31, 1996
compared to $76,680,928 at December 31, 1995. Total stockholders' equity
increased by approximately $43,000 to $8,958,083 at March 31, 1996. The
increase in stockholders' equity is primarily related to the retention of
earnings after dividend payouts, largely offset by the decline in
unrealized gain on securities available for sale.
-12-
Total loans declined by approximately $2,040,000 or 3.3% to $60,256,262.
Approximately $500,000 of the decline was because of the sale of the
student loan portfolio and most of the remaining decline was due to
mortgage refinancing activity. Deposits declined by approximately $570,000
or less than 1% to $70,371,855. The overall impact of these two changes was
a decline in the net loan to deposit ratio to 84.3% at March 31, 1996
compared to 86.6% at December 31, 1995. The allowance for loan losses
increased by approximately $29,000 while maintaining a reserve of 1.51% of
outstanding loans.
Valley Ridge paid a dividend of $74,722 in the first quarter of 1996,
virtually the same as the amount paid during the first quarter of 1995.
Cash dividends per share in 1996 have been adjusted for the 2 for 1 stock
split paid in the first quarter of 1995.
Stockholders' equity as a percent of total assets was 10.53% at March 31,
1996 compared to 10.41% at December 31, 1995. Valley Ridge's capital
ratios continue to exceed the minimum regulatory levels prescribed by the
Federal Reserve Board.
Total cash and cash equivalents and investment securities totaled $21.2
million at March 31, 1996 or about 25% of total assets. Management
believes that the current level of liquidity is sufficient to meet the
normal operating needs of the Bank.
The principal source of funding for Valley Ridge continues to come from its
deposit customers, which has historically been a stable source of funds.
Deposits decreased .8% during the first quarter of 1996.
Other sources of funding include normal loan repayments, sales and
maturities of securities, federal funds available from correspondent banks,
and additional advances available from the Federal Home Loan Bank. As of
March 31, 1996, Valley Ridge could borrow an additional $9 million from the
Federal Home Loan Bank.
In September of 1995, the Corporation announced that it had signed a
definitive agreement to merge with Community Bank Corporation, the
parent company of the Grant State Bank. Community Bank Corporation had
total assets of approximately $28,700,000 at December 31, 1995 and
revenues, net income and earnings per share of $2,475,000, $364,000
and $4.76, respectively, for the year ended December 31, 1995. A
Registration Statement on Form S-4 for this transaction was filed with
the Securities and Exchange Commission (Registration Statement No.
333-00724) and was declared effective by the Securities and Exchange
Commission on May 13, 1996. The shareholders of both the Corporation
and Community Bank Corporation voted to approve the transaction on
June 25, 1996. It is anticipated that the transaction will be consummated
by the end of the second quarter. The transaction will be structured
as a tax-free exchange and will be accounted for under the pooling-of-
interests method of accounting.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report:
EXHIBIT NO. DOCUMENT
3.1 Articles of Incorporation. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
3.2 Bylaws. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-4
(Registration Statement No. 333-00724). Here
incorporated by reference.
4.1 Form of Stock Certificate. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
4.2 Excerpts from Articles of Incorporation. Previously
filed as an exhibit to the Registrant's Registration
Statement on Form S-4 (Registration Statement No.
333-00724). Here incorporated by reference.
4.3 Excerpts from Bylaws. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
4.4 Long-Term Debt. Valley Ridge is a party to several
long-term debt agreements which do not exceed 10% of
Valley Ridge's total consolidated assets. Valley Ridge
agrees to furnish copies of the agreements defining
the rights of the other parties thereto to the
Securities and Exchange Commission upon request.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period for which
this report is filed.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VALLEY RIDGE FINANCIAL CORP.
Registrant
Date: June 26, 1996 /S/ RICHARD L. EDGAR
Richard L. Edgar, President/Chief
Executive Officer
Date: June 26, 1996 /S/ MICHAEL MCHUGH
Michael McHugh, Secretary/Treasurer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3.1 Articles of Incorporation. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
3.2 Bylaws. Previously filed as an exhibit to the
Registrant's Registration Statement on Form S-4
(Registration Statement No. 333-00724). Here
incorporated by reference.
4.1 Form of Stock Certificate. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
4.2 Excerpts from Articles of Incorporation. Previously
filed as an exhibit to the Registrant's Registration
Statement on Form S-4 (Registration Statement No.
333-00724). Here incorporated by reference.
4.3 Excerpts from Bylaws. Previously filed as an
exhibit to the Registrant's Registration Statement
on Form S-4 (Registration Statement No. 333-00724).
Here incorporated by reference.
4.4 Long-Term Debt. Valley Ridge is a party to several
long-term debt agreements which do not exceed 10% of
Valley Ridge's total consolidated assets. Valley Ridge
agrees to furnish copies of the agreements defining
the rights of the other parties thereto to the
Securities and Exchange Commission upon request.
27 Financial Data Schedule.
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