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 June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 333-00724
VALLEY RIDGE FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
MICHIGAN 38-2888214
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 or 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__X__ No______.
There were 496,089 shares of Common Stock, $10 par value, outstanding as of
July 31, 1997.
Transitional Small Business Disclosure Format (check one): Yes____ No__X__.
VALLEY RIDGE FINANCIAL CORP.
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and December 31, 1996 . . . 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 1997
(Unaudited) and June 30, 1996 (Unaudited) . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 (Unaudited) and
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial
Statements (Unaudited). . . . . . . . . . . . . . . . 6
Item 2. MANAGEMENT S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION. . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . 11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
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JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Cash and due from banks $ 7,745,653 $ 4,916,367
Federal funds sold 1,750,000 2,600,000
------------ ------------
Total cash and cash equivalents 9,495,653 7,516,367
Securities 18,864,334 19,912,913
Total loans 90,800,300 84,487,001
Allowance for loan losses (1,210,734) (1,182,154)
------------ ------------
89,589,566 83,304,847
Premises and equipment - net 2,314,033 2,249,164
Other assets 2,735,793 2,663,645
------------ ------------
Total assets $122,999,379 $115,646,936
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 15,391,296 $ 14,889,481
Interest-bearing 85,944,920 80,046,968
------------ ------------
101,336,216 94,936,449
Other borrowings 8,000,000 8,000,000
Accrued expenses and other liabilities 1,107,039 688,119
------------ ------------
Total liabilities 110,443,255 103,624,568
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Shareholders' equity
Common stock, $10 par value: 1,000,000
shares authorized; 496,089 shares
outstanding at June 30, 1997 and
December 31, 1996, respectively 4,960,890 4,960,890
Surplus 1,396,736 1,396,736
Retained earnings 5,701,430 5,196,705
Net unrealized gain on securities
available for sale, net of tax of
$256,065 at June 30, 1997 and
$241,110 at December 31, 1996 497,068 468,037
------------ ------------
Total shareholders equity 12,556,124 12,022,368
------------ ------------
Total liabilities and shareholders equity $122,999,379 $115,646,936
============ ============
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See accompanying notes to condensed consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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----THREE MONTHS ENDED---- ----SIX MONTHS ENDED----
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
Interest income
Loans, including fees $2,134,029 $1,918,028 $4,159,684 $3,853,622
Federal funds sold 40,263 81,455 76,718 120,824
Investment securities 285,543 271,768 563,286 548,784
---------- ---------- ---------- ----------
2,459,835 2,271,251 4,799,688 4,523,230
Interest expense
Deposits 873,420 794,533 1,699,029 1,582,975
Other 114,861 87,581 231,725 169,480
---------- ---------- ---------- ----------
988,281 882,114 1,930,754 1,752,455
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,471,554 1,389,137 2,868,934 2,770,775
Provision for loan losses 30,000 45,600 60,000 91,200
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,441,554 1,343,537 2,808,934 2,679,575
Noninterest income
Service charges and other income 244,881 254,413 490,966 495,339
Gain on sales of investment securities 4,998 18,077 15,474
Gain on sale of loans 5,398 21,206 12,536 21,206
---------- ---------- ---------- ----------
250,279 280,617 521,579 532,019
Noninterest expense
Salaries and benefits 647,115 581,105 1,258,012 1,154,252
Occupancy 78,634 80,596 157,712 154,574
Furniture and fixtures 65,932 83,348 131,545 146,344
FDIC insurance premium 1,000 4,644 2,500
Supplies 54,371 76,776 121,837 119,278
Other 397,273 380,882 784,901 814,027
---------- ---------- ---------- ----------
1,243,325 1,203,707 2,458,651 2,390,975
---------- ---------- ---------- ----------
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INCOME BEFORE FEDERAL INCOME TAX 448,508 420,447 871,862 820,619
Federal income tax expense 94,160 102,571 168,699 206,021
---------- ---------- ---------- ----------
NET INCOME $ 354,348 $ 317,876 $ 703,163 $ 614,598
========== ========== ========== ==========
Net income per share $ .71 $ .64 $ 1.42 $ 1.24
========== ========== ========== ==========
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See accompanying notes to condensed consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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----SIX MONTHS ENDED----
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 703,162 $ 614,598
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 108,047 106,523
Amortization of:
Premiums and discounts on
securities, net 24,439 51,914
Goodwill and core deposit intangibles 17,444 16,509
Provision for loan losses 60,000 91,200
Gain on sale of securities (18,077) (15,474)
Gain on sale of loans (12,536) (21,206)
Loans originated for sale (1,629,650) (2,489,434)
Proceeds from loans sold 1,582,548 2,510,640
Net change in:
Accrued interest receivable (94,281) (26,269)
Other assets 4,689 200,226
Accrued expenses and other liabilities 403,963 (1,395,092)
----------- -----------
Net cash from (used in) operating activities 1,149,748 (355,865)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans (6,285,081) 1,135,157
Proceeds from:
Sales of securities available for sale 2,611,198 3,821,257
Repayments and maturities of securities
available for sale 2,095,374 2,195,000
Principal paydowns on securities held to
maturity 609,560
Purchase of:
Securities available for sale (3,620,368) (5,270,222)
Premises and equipment, net (172,916) (41,919)
----------- -----------
Net cash from (used in) investing activities (5,371,793) 2,448,833
-7-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock $ 22,550
Net increase (decrease) in deposits $ 6,399,767 (1,069,561)
Advances from Federal Home Loan Bank 3,000,000
Payment on Federal Home Loan Bank advances (2,800,000)
Dividends paid (198,436) (176,293)
----------- -----------
Net cash from (used in) financing activities 6,201,331 (1,023,304)
----------- -----------
Net change in cash and cash equivalents 1,979,286 1,069,664
Cash and cash equivalents at beginning of year 7,516,367 10,083,451
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,495,653 $11,153,115
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 1,914,960 $ 1,743,882
Income taxes 78,400 352,818
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See accompanying notes to condensed consolidated financial statements.
-8-
VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. BASIS OF PRESENTATION
The unaudited financial statements for the three and six months ended
June 30, 1997 and June 30, 1996 include the consolidated results of
operations of Valley Ridge Financial Corp. (the "Corporation") and its
wholly-owned subsidiary, Valley Ridge Bank (the "Bank"). These
consolidated financial statements have been prepared in accordance
with the Instructions for Form 10-QSB and Item 310(b) of Regulation
S-B and do not include all disclosures required by generally accepted
accounting principles for a complete presentation of the Corporation's
financial condition and results of operations. In the opinion of
management, the information reflects all adjustments (consisting only
of normal recurring accruals) that 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 June 30, 1997 should not be considered as indicative of
the results for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
included in the Corporation's annual report on Form 10-KSB for the year
ended December 31, 1996.
2. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan
losses for the six months ended June 30, 1997:
Balance at January 1, 1997 $1,182,154
Provision for loan losses charged
to operating expense 60,000
Recoveries on loans previously charged
to the allowance 19,736
Losses charged off (51,156)
----------
Balance at June 30, 1997 $1,210,734
==========
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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3. OTHER BORROWINGS
At June 30, 1997, the Corporation had the following advances from the
Federal Home Loan Bank (the "FHLB"):
TYPE INTEREST RATE MATURITY DATE AMOUNT
---- ------------- ------------- ------
Fixed 5.730% July 21, 1997 $2,000,000
Adjustable 5.533 October 8, 1997 3,000,000
Fixed 5.260 February 1, 1999 1,000,000
Fixed 5.230 February 1, 1999 2,000,000
----------
$8,000,000
==========
Each advance requires monthly interest payments at either fixed or
adjustable rates. The variable rate is based on the FHLB overnight
rate and adjusts quarterly. These borrowings are collateralized by
nonspecific loans within the mortgage portfolio up to the principal
outstanding. The adjustable rate note has no prepayment penalties
while the fixed rate notes carry a minimum prepayment penalty of
$5,000.
4. 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
496,089 shares outstanding for the three and six months ended June 30,
1997, and 496,089 and 495,608 shares for the three and six months ended
June 30, 1996, respectively. All share amounts have been restated to
reflect stock dividends and splits.
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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 Corp. ("Valley Ridge"). This discussion should be read in
conjunction with the consolidated financial statements and related notes.
Valley Ridge merged with Community Bank Corporation in 1996 in a business
combination accounted for in accordance with the pooling-of-interests
method of accounting and, accordingly, Valley Ridge's consolidated
financial statements have been restated for all periods presented.
RESULTS OF OPERATIONS:
NET INCOME: Valley Ridge reported net income of $354,348 or $.71 per share
for the second quarter of 1997 compared to $317,876, or $.64 per share for
the same period in 1996. Year-to-date net income was $703,163 or $1.42 per
share for 1997 compared to $614,598 or $1.24 per share for 1996. The
improvement was primarily a result of improved net interest income,
partially offset by increased noninterest expense. 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.
NET INTEREST INCOME: Net interest income increased $82,417 or 5.9% to
$1,471,554 for the three-month period ended June 30, 1997 and $98,159 or
3.54% to $2,868,934 for the six-month period ended June 30, 1997 compared
to the same periods in 1996. The increases in net interest income are
primarily attributable to increases in net loans of $10,446,888 or 13.2%
from June 30, 1996 to June 30, 1997.
PROVISION FOR LOAN LOSSES: The provision for loan losses represents the
adjustment to the allowance for loan losses needed to maintain the
allowance at a level determined by management to cover inherent losses
within Valley Ridge's loan portfolio. The provision declined to $30,000
for the three months ended June 30, 1997 from $45,600 for the same period
in 1996 and declined to $60,000 for the six months ended June 30, 1997 from
$91,200 for the same period in 1996. This decrease has occurred as a
result of management's assessment of the quality of loans in Valley Ridge's
portfolio and management's assessment of the allowance for loan loss
balance. Net charge-offs were approximately $28,000 for the second quarter
of 1997 compared to net charge-offs of $248 for the same period in 1996.
Net charge-offs year-to-date were $31,420 as of June 30, 1997 compared to
net recoveries of $27,000 for the same period of 1996. Management will
continue to monitor the allowance for loan losses and make additions to the
allowance through the provision for loan losses as economic conditions
dictate.
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NONINTEREST INCOME: Noninterest income for the three months ended June 30,
1997 was approximately $250,000 as compared to $281,000 for the same period
in 1996. Noninterest income for the six months ended June 30, 1997 declined
to $522,000 from $532,000 at June 30, 1996. The decreases in noninterest
income for the three- and six-month periods are primarily attributable to
lower gains on loan sales due to decreases in loan sale volume from 1996 to
1997.
NONINTEREST EXPENSE: The decrease in noninterest income was coupled with
an increase in noninterest expense to approximately $1,243,000 and
2,459,000 for the three and six months ended June 30, 1997, respectively,
compared to $1,204,000 and $2,391,000 for the same periods in 1996,
respectively. Salaries and benefits, including payments to certain employees
for early retirement, increased 11.4% from $581,000 for the three months
ended June 30, 1996 to $647,000 for the same period in 1997 and increased 9%
from $1,154,000 for the six months ended June 30, 1996 to $1,258,000 for the
same period in 1997. Supplies expense increased by $22,405 or 29.2% and
$2,559 or 2.2% for the three- and six-month periods ended June 30, 1997,
respectively, compared to the same periods in 1996. This increase in supplies
expense is primarily attributable to the changing of the Bank's name and logo
in late 1996. The decrease in other expenses from $814,027 for the six
months ended June 30, 1996 to $784,901 for the same period in 1997 is due to
legal and professional fees charged in 1996 related to the acquisition of
Community Bank Corporation.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES:
Total assets increased approximately 6.4% or by $7.4 million to $123 million
at June 30, 1997 compared to $115.6 million at December 31, 1996. Total
liabilities increased by 6.6% or $6.8 million to $110.4 million at June 30,
1997 compared to $103.6 million at December 31, 1996. Total shareholders'
equity increased by approximately $534,000 to approximately $12,556,000 at
June 30, 1997. The increase in shareholders' equity is primarily related
to the retention of earnings after dividend payouts as well as an increase
in the unrealized gain on securities available for sale.
Total loans increased by approximately $6.3 million or 7.5% to $90.8
million from December 31, 1996 to June 30, 1997. A portion of the increase
is due to the purchase of $1,559,000 in loans during the second quarter of
1997. Deposits increased by approximately $6.4 million or 6.7% to $101.3
million from December 31, 1996 to June 30, 1997. The net loan to deposit
ratio has remained constant at approximately 80% for both periods presented.
The allowance for loan losses increased by approximately $29,000 from
December 31, 1996 to June 30, 1997 while maintaining a reserve of 1.3% of
outstanding loans.
Valley Ridge paid dividends of $198,436 during the six months ended June
30, 1997, compared to $176,293 paid during the same period in 1996.
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Shareholders' equity as a percent of total assets was 10.2% at June 30,
1997 compared to 10.4% at December 31, 1996. Valley Ridge's capital ratios
continue to exceed the minimum regulatory levels prescribed by the Federal
Reserve Board and Valley Ridge continues to qualify as a "well-capitalized"
institution for regulatory purposes.
Total cash and cash equivalents and investment securities totaled
approximately $28.4 million at June 30, 1997 or approximately 23% of total
assets. Management believes that the current level of liquidity is
sufficient to meet the normal operating needs of the Corporation.
The principal source of funding for Valley Ridge continues to come from its
deposit customers. As previously noted, deposits increased 6.7% during the
first six months of 1997 and management believes its deposit base will
remain a stable source of funds for the remainder of 1997.
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 (the
"FHLB"). As of June 30, 1997, Valley Ridge had outstanding advances from the
FHLB totaling $8,000,000.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Valley Ridge Financial Corp. was
held on May 13, 1997. The purpose of the meeting was to elect directors and to
transact any other business that properly came before the meeting.
(a) The name of each director elected (along with the number of
votes cast for or authority withheld) and the name of each other director whose
term of office as a director continued after the meeting follows:
VOTES CAST
AUTHORITY BROKER
FOR WITHHELD NON-VOTES
--- --------- ---------
ELECTED DIRECTORS
Jerry Arends 404,708 91,381 0
K. Timothy Bull 404,744 91,345 0
Richard Edgar 404,744 91,345 0
Fred Finkbeiner 404,454 91,635 0
DIRECTORS WHO CONTINUE TO SERVE
Gary Gust Dennis Nelson
Ronald Hanson John Niederer
Robert Humphreys Paul Spoelman
Ben Landheer Donald Swanson
Michael McHugh Donald VanSingel
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.
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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.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
the quarter covered by this report.
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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.
Date: August 13, 1997 /S/MICHAEL MCHUGH
Michael McHugh, Secretary and Treasurer
(Duly Authorized Signatory for the
Registrant and Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
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.
27 Financial Data Schedule.