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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 September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-22283
VIRGINIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1829288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
24 South Augusta Street, Staunton, Virginia 24401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 885-1232
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class: Common Stock, $5.00 par value
Outstanding as of November 9, 2001: 3,979,483
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VIRGINIA FINANCIAL CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Changes in Stockholders' Equity 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Item 4. Virginia Financial Corporation and Subsidiaries Average Balances, 14
Income and Expense, Yields and Rates
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit 11. 17
Part 1
Item 1.
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended
SEPT 30 SEPT 30
2001 2000
----------- ----------
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 5,309 $ 5,252
To Finance Agriculture & Farmers 40 60
Commercial & Industrial 867 957
Individuals for Household & Personal 641 771
Obligations of State & Political Tax-Exempt 59 60
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 420 1,329
Collateralized Mortgage Obligations 361 -
Mortgage Backed Securities 159 -
State & Political-Taxable 129 100
State & Political-Tax Exempt 473 425
Other Domestic Debt Securities 7 11
Equity Securities 56 32
Interest on Earning Deposits Due From Banks 1 3
Interest on Federal Funds Sold 133 35
Other Interest Income 24 25
----------- ----------
Total Interest Income 8,679 9,060
----------- ----------
Interest Expense:
Interest on Deposits:
NOW Accounts 240 310
Money Market Accounts 527 572
Other Savings Deposits 329 311
CD's of 100M or More 456 457
All Other Time Deposits 2,356 2,356
Interest on Fed Funds Purch'd
& Repurchase Agreements 136 228
Interest on Other Borrowed Money - 174
----------- ----------
Total Interest Expense 4,044 4,408
----------- ----------
Net Interest Income 4,635 4,652
Provision for Loan Losses 118 155
----------- ----------
Net Interest Income after Provision for Loan Losses 4,517 4,497
----------- ----------
Noninterest Income:
Trust Department Income 480 324
Service Charges on Deposit Accts. 398 382
Other Fee Income 594 383
All Other Non-Interest Income 68 41
----------- ----------
Total Noninterest Income 1,540 1,130
----------- ----------
Gains on securities 46 3
----------- ----------
Noninterest Expense:
Salaries & Employee Benefits 2,135 1,828
Expense of Premises & Fixed Assets 515 469
Computer Services 261 273
Other Non-Interest Expense 1,180 864
----------- ----------
Total Non-Interest Expense 4,091 3,434
----------- ----------
Income Before Income Taxes 2,012 2,196
Provision for Income Taxes 678 604
----------- ----------
Net Income $ 1,334 $ 1,592
=========== ==========
Per Share Data, Net Income, basic and diluted $ 0.34 $ 0.40
Cash Dividends $ 0.17 $ 0.17
The accompanying notes are an integral part of these statements
3
Part 1
Item 1.
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Nine Months Ended
SEPT 30 SEPT 30
2001 2000
----------- ----------
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 16,090 $ 14,794
To Finance Agriculture & Farmers 144 181
Commercial & Industrial 2,846 2,852
Individuals for Household & Personal 1,999 2,312
Obligations of State & Political Tax-Exempt 177 69
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 2,223 4,022
Collateralized Mortgage Obligations 508 -
Mortgage Backed Securities 225 -
State & Political-Taxable 365 288
State & Political-Tax Exempt 1,296 1,311
Other Domestic Debt Securities 27 32
Equity Securities 200 82
Interest on Earning Deposits Due From Banks 3 34
Interest on Federal Funds Sold 373 69
Other Interest Income 70 75
----------- ----------
Total Interest Income 26,546 26,121
----------- ----------
Interest Expense:
Interest on Deposits:
NOW Accounts 771 919
Money Market Accounts 1,451 1,576
Other Savings Deposits 942 927
CD's of 100M or More 1,505 1,135
All Other Time Deposits 7,393 6,557
Interest on Fed Funds Purch'd
& Repurchase Agreements 503 619
Interest on Other Borrowed Money 32 539
----------- ----------
Total Interest Expense 12,597 12,272
----------- ----------
Net Interest Income 13,949 13,849
Provision for Loan Losses 526 561
----------- ----------
Net Interest Income after Provision for Loan Losses 13,423 13,288
----------- ----------
Noninterest Income:
Trust Department Income 1,143 1,177
Service Charges on Deposit Accts. 1,212 1,117
Other Fee Income 1,617 1,084
All Other Non-Interest Income 133 115
----------- ----------
Total Noninterest Income 4,105 3,493
----------- ----------
Gains on securities 148 19
----------- ----------
Noninterest Expense:
Salaries & Employee Benefits 6,561 5,702
Expense of Premises & Fixed Assets 1,511 1,416
Computer Services 829 832
Other Non-Interest Expense 2,820 2,430
----------- ----------
Total Non-Interest Expense 11,721 10,380
----------- ----------
Income Before Income Taxes 5,955 6,420
Provision for Income Taxes 1,746 1,776
----------- ----------
Net Income $ 4,209 $ 4,644
=========== ==========
Per Share Data Net Income, basic and diluted $ 1.06 $ 1.17
Cash Dividends $ 0.51 $ 0.51
The accompanying notes are an integral part of these statements
4
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
SEPT 30 DECEMBER 31
2001 (Unaudited) 2000
----------- -----------
Assets
Cash & Due from Banks $ 21,444 $ 18,146
Interest Earning Deposits Due From Banks 95 53
Federal Funds Sold 6,250 -
Securities (fair value: 2001, $125,127;
2000, $132,107) 124,691 132,345
Loans held for resale 7,566 2,383
Loans, net of allowance for loan losses, 2001, $4,019;
2000, $3,894 341,410 329,625
Bank Premises and Equipment, net 8,862 7,739
Deposit Intangibles 1,905 2,023
Other Assets 6,587 7,488
----------- -----------
Total Assets $ 518,810 $ 499,802
=========== ===========
Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand $ 77,112 $ 71,114
NOW Accounts 55,259 53,900
Money Market Checking 62,861 55,043
Savings 44,926 40,416
Time Deposits 207,739 204,768
----------- -----------
Total Deposits 447,897 425,241
Securities Sold Under
Agmt. to Repurchase 14,380 12,495
Other Borrowed Money - 3,000
Federal Funds Purchased - 6,000
Other Liabilities 2,168 2,140
----------- -----------
Total Liabilities $ 464,445 $ 448,876
----------- -----------
Stockholders' Equity
Common Stock $ 19,897 $ 19,905
Surplus 12,994 13,027
Undivided Profits 20,061 17,882
Accumulated Other Comprehensive Income 1,413 112
----------- -----------
Total Stockholders' Equity $ 54,365 $ 50,926
----------- -----------
Total Liabilities
and Stockholders' Equity $ 518,810 $ 499,802
=========== ===========
The accompanying notes are an integral part of these statements
5
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(Unaudited)
Nine Months Ended
SEPT 30 SEPT 30
2001 2000
----------- ----------
Cash Flows from Operating Activities
Interest received $ 27,241 $ 25,568
Fees and other non-interest income 4,031 3,494
Interest paid (12,727) (12,078)
Origination of loans available for sale (57,096) (21,607)
Proceeds from sale of loans availabe for sale 51,329 21,359
Cash paid to suppliers and employees (10,674) (8,878)
Income taxes paid (1,665) (1,622)
----------- ----------
Net cash provided by operating activities $ 439 $ 6,236
----------- ----------
Cash Flows from Investing Activities
Proceeds from maturities and calls of securities $ 15,655 $ 6,914
Proceeds from sales of securities 56,215 2,639
Purchases of securities (62,205) (3,582)
Net increase in loans (11,828) (35,863)
Capital expenditures (1,870) (572)
Net increase in other assets (404) (233)
Proceeds from sale of other real estate 118 152
----------- ----------
Net cash used in investing activities $ (4,319) $ (30,545)
----------- ----------
Cash Flows from Financing Activities
Net increase in certificates of deposit $ 2,971 $ 12,561
Net increase in demand & savings deposits 19,685 9,136
Net decrease in federal funds purchased (6,000) (2,400)
Net decrease in Federal Home Loan Bank advances (3,000) (10,000)
Net increase in securities sold
under repurchase agreements 1,885 4,435
Payment to repurchase common stock (41) (532)
Dividends paid (2,030) (2,033)
----------- ----------
Net cash provided by financing activities $ 13,470 $ 11,167
----------- ----------
Net increase (decrease) in cash and cash equivalents $ 9,590 $ (13,142)
Cash and cash equivalents at beginning of year 18,199 28,158
----------- ----------
Cash and cash equivalents at end of year $ 27,789 $ 15,016
=========== ==========
6
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(IN THOUSANDS OF DOLLARS)
(Unaudited)
Nine Months Ended
SEPT 30 SEPT 30
2001 2000
----------- ----------
Reconciliation of net income to net cash provided by
operating activities
Net income $ 4,209 $ 4,644
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation $ 703 $ 691
Provision for loan losses 526 561
Loss on sale of assets 27 176
Origination of loans available for sale (57,096) (21,607)
Proceeds from sale of loans availabe for sale 51,329 21,359
Gain on sale of securities (148) (19)
Decrease in taxes payable (8) -
Decrease (increase) in interest receivable 571 (377)
Increase (decrease) in interest payable (130) 194
Decrease (increase) in prepaid expenses (1) 128
Increase in accrued expenses 150 433
Premium amortization 365 62
Increase (decrease) in deferred income 16 (11)
Decrease (increase) in fees receivable (74) 2
----------- ----------
Total Adjustments $ (3,770) $ 1,592
----------- ----------
Net cash provided by operating activities $ 439 $ 6,236
=========== ==========
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans 101 363
=========== ==========
Unrealized gain on securities available for sale 1,970 1,207
=========== ==========
The accompanying notes are an integral part of these statements
7
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
(Unaudited)
Accumulated
Other
Common Capital Retained Comprehensive Comprehensive
Stock Surplus Earnings Income (Loss) Income Total
------ ------- -------- ------------- ------------- ------
Balance, December 31, 1999 19,986 13,478 14,389 (1,733) 46,120
Comprehensive income:
Net income 4,644 4,644 4,644
Other comprehensive income net of tax,
Unrealized holding gains arising during the period
(net of tax, $417) 809
Reclassification adjustment (net of tax, $7) (13)
--------
Other comprehensive income (net of tax, $410) 796 796 796
--------
Total comprehensive income 5,440
========
Cash dividends ($0.51 per share) (2,033) (2,033)
Stock repurchase of 16,190 shares (81) (451) (532)
-------- -------- -------- -------- --------
Balance, September 30, 2000 $ 19,905 $ 13,027 $ 17,000 $ (937) $ 48,995
======== ======== ======== ======== ========
Accumulated
Other
Common Capital Retained Comprehensive Comprehensive
Stock Surplus Earnings Income Income Total
------ ------- -------- ------------- ------------- ------
Balance, December 31, 2000 19,905 13,027 17,882 112 50,926
Comprehensive income:
Net income 4,209 4,209 4,209
Other comprehensive income net of tax:
Unrealized holding gains arising during the period
(net of tax, $721) 1,399
Reclassification adjustment (net of tax, $51) (98)
--------
Other comprehensive income (net of tax, $670) 1,301 1,301 1,301
--------
Total comprehensive income 5,510
========
Cash dividends ($0.51 per share) (2,030) (2,030)
Stock repurchase of 1,525 shares (8) (33) (41)
-------- -------- -------- -------- --------
Balance, September 30, 2001 $ 19,897 $ 12,994 $ 20,061 $ 1,413 $ 54,365
======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements
8
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Virginia Financial
Corporation and its Subsidiary have not been audited by independent accountants
except for the balance sheet at December 31, 2000. In the opinion of the
company's management, the financial statements reflect all adjustments necessary
to present fairly the results of operations for the three and nine month periods
ended September 30, 2001 and 2000, the company's financial position at September
30, 2001 and December 31, 2000, and cash flows for the nine month periods ended
September 30, 2001 and 2000. These adjustments are of a normal recurring nature.
Operating results for the three and nine month periods ended September
30, 2001 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2001, or any other period. The unaudited interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended December 31,
2000.
Note 2. Securities as of September 30, 2001 and December 31, 2000 are
summarized below.
(IN THOUSANDS OF DOLLARS)
September 30, 2001 December 31, 2000
Unrealized Unrealized
Book Market Gain (Loss) Book Market Gain (Loss)
---- ------ ----------- ---- ------ -----------
Securities Available for Sale
U.S. Treasury Securities $ 5,954 $ 6,434 $ 480 $ 5,947 $ 6,159 $ 212
U.S. Agency Securities 11,504 11,851 347 34,069 34,059 (10)
Collateralized Mort. Oblig 35,233 35,584 351 -- -- --
Mortgage Backed 10,951 11,000 49 -- -- --
Obligations of State and
Political Subdivisions 42,272 43,535 1,263 30,520 30,730 210
Other Securities 6,193 5,844 (349) 5,826 5,585 (241)
-------- -------- -------- -------- -------- --------
Total Securities Available for Sale $112,107 $114,248 $ 2,141 $ 76,362 $ 76,533 $ 171
======== ======== ======== ======== ======== ========
Securities Held to Maturity
U.S. Treasury Securities $ 2,496 $ 2,597 $ 101 $ 4,493 $ 4,515 $ 22
U.S. Agency Securities -- -- -- 39,791 39,503 (288)
Obligations of State and
Political Subdivisions 7,947 8,282 335 11,528 11,556 28
Other Securities -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Securities Held to Maturity $ 10,443 $ 10,879 $ 436 $ 55,812 $ 55,574 $ (238)
======== ======== ======== ======== ======== ========
9
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
September 30, 2001 December 31, 2000
------------------ -----------------
Real Estate Loans:
Construction and Land Development $ 34,079 $ 22,633
Secured by Farmland 2,259 3,738
Secured by 1-4 Family residential 151,258 129,510
Other Real Estate Loans 78,802 94,893
Loans to Farmers (Except Those Secured by Real Estate) 1,872 2,534
Commercial and Industrial Loans
(Except Those Secured by Real Estate) 45,686 45,836
Loans to Individuals for Personal Expenditures 25,530 29,916
All Other Loans 6,296 4,783
-------- --------
Total Loans 345,782 333,843
Less, Unearned Income Reflected in Loans 353 324
-------- --------
Loans, Net of Unearned Income $345,429 $333,519
======== ========
The Bank had loans in a Nonaccrual category of $965 on December 31, 2000 and
$1,192 on September 30, 2001.
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
For the Nine Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
Balance at Beginning of Period 3,894 3,470
Charge-Offs (556) (264)
Recoveries 155 74
------- -------
Net Charge-Offs (401) (190)
Provision for Loan Losses 526 561
------- -------
Balance at End of Period $ 4,019 $ 3,841
======= =======
Note 5. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets,which will potentially impact the
accounting for goodwill and other intangible assets. Statement 141
eliminates the pooling method of accounting for business combinations
and requires that intangible assets that meet certain criteria be
reported separately from goodwill. The Statement also requires
negative goodwill arising from a business combination to be recorded
as an extraordinary gain. Statement 142 eliminates the amortization of
goodwill and other intangible assets that are determined to have an
indefinite life. The Statement requires, at a minimum, annual
impairment tests for goodwill and other intangible assets that are
determined to have an indefinite life.
10
Upon adoption of these Statements, an organization is required to
re-evaluate goodwill and other intangible assets that arose from
business combinations entered into before July 1, 2001. If the
recorded other intangible assets do not meet the criteria for
recognition, they should be classified as goodwill. Similarly, if
there are other intangible assets that meet the criteria for
recognition but were not separately recorded from goodwill, they
should be reclassified from goodwill. An organization also must
reassess the useful lives of intangible assets and adjust the
remaining amortization periods accordingly. Any negative goodwill must
be written-off.
The standards generally are required to be implemented by the Bank
in its 2002 financial statements. The adoption of these standards will
not have a material impact on the financial statements.
11
Part 1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net income for the third quarter of 2001 was $1,334,000 compared to
$1,592,000 for the third quarter of 2000. This represents a decrease of
$258,000 or 16.2%. Net income for the first nine months of 2001 amounted to
$4,209,000, a decrease of $435,000 or 9.4% under the $4,644,000 for the
comparable period in 2000. The decline in net income was a result of merger
expenses of $418,000 in the third quarter and $442,000 through the first nine
months of 2001. Interest income increased $425,000 or 1.6% and total average
earning assets increased $20,206,000 or 4.5% comparing the nine months ended
September 30, 2001 and 2000. The yield on average earning assets was 7.8% and
8.0% for the nine-month periods ending September 30, 2001 and 2000 respectively.
Interest expense increased $325,000 or 2.6% and total average interest bearing
liabilities increased $12,498,000 or 3.4%. The cost of funds was 4.4% and 4.5%
for the first nine months ended of 2001 and 2000. The net interest spread was
3.3% and 3.5% for the same nine months ended of 2001 and 2000.
Non-interest income increased $410,000 or 36.3% the third quarter of 2001
compared to 2000. In comparing the nine-month period ending September 30 for
2001 and 2000, non-interest income went from $3,493,000 in 2000 to $4,105,000 in
2001 for an increase of $612,000 or 17.5%. These increases were due to a
decreasing interest rate environment that in turn generated an increase in
business volume by the secondary mortgage department. Non-interest expenses
increased $657,000 or 19.1% the third quarter of 2001 compared to 2000. Non-
interest expenses increased $1,341,000 or 12.9% comparing the nine-month periods
ending September 30, 2001 and 2000. Increases in salaries and employee benefits
coupled with a significant amount of merger-related expenses as mentioned above
led to the overall increases in non-interest expenses.
Financial Condition
- -------------------
Total assets increased $11,505,000 the third quarter of 2001 compared to an
increase of $198,000 the third quarter of 2000. Total assets have increased
$19,008,000 the first nine months of 2001 compared to and increase of
$17,223,000 in 2000.
During the third quarter of 2001, federal funds sold decreased $4,550,000
and deposits increased $12,985,000. Those funds contributed to an overall
increase in the investment portfolio of $11,548,000 and loan growth of
$8,081,000. A decrease of the investment portfolio of $7,654,000 and an
increase in deposits of $22,656,000 over the first nine months of 2001 allowed
for an increase in loans of $16,968,000 and federal funds sold of $6,250,000 in
that time period. It also allowed for the pay-down of $6,000,000 and $3,000,000
in federal funds purchased and other borrowed money.
During the third quarter of 2000, deposits increased $8,735,000; Cash & Due
From Banks decreased $5,976,000; and securities sold under agreement to
repurchase increased $1,000,000. Those sources of funds were used to fund loan
growth of $7,255,000 and pay-down federal funds purchased and other borrowed
money by $1,225,000 and $10,000,0000 respectively. The nine-month period ending
September 30, 2000 consisted of deposit growth of $21,697,000; growth in
securities sold under agreement to repurchase of $4,435,000; a reduction of the
investment portfolio of $4,579,000; and a reduction in cash & due from banks of
$9,996,000. Those sources of funds were used to fund loan growth of
$35,188,000.
Over the first nine months of 2001, the Bank's loan portfolio increased
$11,910,000. During that same time period net charge-offs of $401,000 were
incurred. The Bank considers both the composition of its portfolio's growth, as
well as, net charge-offs in determining the necessary adjustments to be made to
the allowance for loan losses. In factoring in both of these considerations,
the Bank made provisions for loan losses of $526,000 over the nine months ending
September 30, 2001.
Capital and Liquidity
- ---------------------
Total Capital for the company went from $50,926,000 to $54,365,000 for an
increase of $3,439,000 or 6.8% during the first nine months of 2001. This
increase was due to an increase in the company's retained earnings and the
overall market value of the investment portfolio that is classified available
for sale. Due to regulatory guidelines, the company applies different risk
factors to all of its assets and certain off balance sheet items in determining
a total risk-based capital ratio. This ratio is the quantitative measure used
by certain regulatory agencies as a guide to ensure that a company is meeting
their
12
necessary capital requirements. The company's ratio for the nine-month period
ending September 30, 2001 of 14.87% was well over the regulators acceptable
guidelines for capital position.
Liquidity refers to the Company's ability to meet demands on cash. Such
demands can arise from several areas such as withdrawals on deposits, payments
of borrowings or loan growth. Management is constantly assessing the company's
ability to withstand such demands on cash through such methods as interest rate
risk analysis, industry comparisons, and maturity and repricing analysis of all
assets and liabilities. The Company's primary sources of liquidity come from
cash & due from banks, federal funds sold, and securities with the available for
sale classification. The Company also has the ability to borrow funds from its
correspondent banks and the Federal Home Loan Bank of Atlanta on a day-by-day
basis. Overall, management feels the Company is well stabilized in order to
handle not only the normal demands of cash, but also those that may arise above
the normal demands.
Future Operations
- -----------------
On June 12, 2001 Virginia Financial Corporation signed with Virginia
Commonwealth Financial Corporation a definitive agreement to join the two
companies in a merger-of-equals transaction. Upon the approval of the
shareholders of each separate company, a new company, known as Virginia
Financial Group, Inc., will be the holding company for: Planters Bank & Trust
Company of Virginia - in Staunton, Virginia, Second Bank & Trust - in Culpeper,
Virginia, Caroline Savings Bank - in Bowling Green, Virginia, Virginia Heartland
Bank - in Fredericksburg, Virginia, and Virginia Commonwealth Trust Company - in
Culpeper, Virginia. The merger is anticipated to be completed sometime during
the fourth quarter of 2001 pending the approval of the each company's
shareholders.
Part 1
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in information reported as of December
31, 2000, in Form 10-K.
13
VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
(000 Omitted)
Nine Months Ended September 30
2001 2000
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
--------- --------- ------- --------- --------- -------
Securities:
Taxable $ 80,627 $ 3,566 5.90% $ 95,850 $ 4,443 6.18%
Tax-exempt (1) 37,428 1,964 7.00% 37,140 1,987 7.13%
--------- --------- ------- --------- --------- -------
Total Securities $ 118,055 $ 5,530 6.25% $ 132,990 $ 6,430 9.67%
Loans (net of earned income):
Taxable 333,296 21,079 8.43% 310,975 20,138 8.63%
Tax-Exempt (1) 4,339 268 8.24% 1,697 104 8.17%
--------- --------- ------- --------- --------- -------
Total Loans 337,635 21,347 8.43% 312,672 20,242 8.63%
Federal Home Loan Bank Stock 1,361 70 6.86% 1,286 75 7.78%
Interest Earning Deposits Due From Banks 73 3 4.93% 762 34 5.95%
Fed Funds Sold and Repurchase Agreements 12,254 373 4.06% 1,462 69 6.29%
--------- --------- ------- --------- --------- -------
Total Earning Assets 469,378 27,323 7.76% 449,172 26,850 7.97%
--------- ---------
Less Allowance for Loan Losses (3,914) (3,681)
Total Nonearning Assets 39,630 34,708
--------- ---------
Total Assets $ 505,094 $ 480,199
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
NOW Accounts $ 53,301 $ 771 1.93% $ 50,138 $ 919 2.44%
Money Market Savings 57,040 1,451 3.39% 56,567 1,576 3.71%
Regular Savings 42,195 942 2.98% 41,564 927 2.97%
Certificates of Deposit:
Less than $100,000 173,999 7,393 5.67% 164,119 6,557 5.33%
$100,000 and More 34,453 1,505 5.82% 28,429 1,135 5.32%
--------- --------- ------- --------- --------- -------
Total Interest Bearing Deposits 360,988 12,062 4.46% 340,817 11,114 4.35%
Fed Funds Purchased & Repurchase Agreements 16,972 503 3.95% 14,403 619 5.73%
Other Borrowed Money 731 32 5.84% 10,973 539 6.55%
--------- --------- ------- --------- --------- -------
Total Interest Bearing Liabilities 378,691 12,597 4.44% 366,193 12,272 4.47%
--------- ---------
Noninterest Bearing Liabilities
Demand Deposits 72,623 64,767
Other Liabilities 1,971 2,157
--------- ---------
Total Liabilities 453,285 433,117
Stockholders' Equity 51,809 47,082
--------- ---------
Total Liabilities and Stockholders' Equity $ 505,094 $ 480,199
========= =========
Net Interest Income $ 14,726 $ 14,578
========= =========
Interest Rate Spread 3.33% 3.50%
Interest Expense as a Percent of Average
Earning Assets 3.58% 3.64%
Net Interest Margin 4.18% 4.33%
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 2000 and 2001
14
VIRGINIA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 2001 neither the corporation nor the bank was a
party to any legal proceedings.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the Quarter ended September 30, 2001.
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed during the Quarter ended September
30, 2001.
(b) Exhibits
The following exhibits are filed with this Form 10-Q or incorporated
by reference to previous filings.
Number Description
------ -----------
Exhibit 3. (i) Articles of Incorporation incorporated by
reference to Exhibit 3.1 of the Company's
Form 8-B successor registration statement
filed March 24, 1997.
(ii) Bylaws incorporated by reference to Exhibit
3.2 of the Company's Form 8-B successor
registration statement filed March 24, 1997.
Exhibit 11. EPS Computation attached.
15
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.
Virginia Financial Corporation
(Registrant)
Date November 14, 2001 /s/ Fred D. Bowers
------------------------- ---------------------------
Fred D. Bowers, Secretary/Treasurer
(Principal Accounting Officer and Duly
Authorized Officer)
16