FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from to
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Commission File Number 0-24674
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SWVA BANCSHARES, INC
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VIRGINIA 54-1721629
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 Second Street, SW, Roanoke Virginia 24011-1597
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 343-0135
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 and 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
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The number of shares outstanding of each of the issuer's classes of common
stock, as of November 10, 2000: $0.10 par value - 423,612 common shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SWVA BANCSHARES, INC. & SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 2000 (unaudited) and June 30, 2000 1
Consolidated Statements of Income for the
Three Months Ended September 30, 2000 and
September 30, 1999 (unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended September 30, 2000 and
September 30, 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2000 and
September 30, 1999 (unaudited) 4
Notes to Unaudited Interim Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 11
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SWVA BANCSHARES, INC & SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands)
Assets
Sept 30 June 30
2000 2000
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(Unaudited)
Cash and cash equivalents $ 1,917 $ 2,060
Interest-bearing deposits 298 1,685
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 230 254
Available for Sale, at fair value 21,489 21,517
Restricted at cost 585 585
Loans held for sale 774 857
Loans receivable, net 55,129 53,610
Foreclosed property 200 186
Property and equipment, net 1,664 1,681
Accrued interest receivable 659 607
Prepaid expenses and other assets 881 919
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Total assets $ 83,826 $ 83,961
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Liabilities and Stockholders' Equity
Deposits $ 66,634 $ 64,748
Advances from Federal Home Loan Bank 9,450 11,700
Advances from borrowers
for taxes and insurance 368 208
Other liabilities and deferred income 520 563
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Total liabilities 76,972 77,219
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Stockholders' Equity
Preferred Stock, 275,000 shares
authorized, no shares issued or
outstanding
Common stock, $.10 par value, 2,225,000
shares authorized, 423,612 outstanding
as of September 30, 2000 and as of June 30, 2000 42 42
Additional paid-in capital 2,832 2,824
Dividends declared and paid (81) (152)
Less unearned ESOP shares (18,258 shares) (182) (182)
Less unearned MSBP shares (11,767 shares) (199) (199)
Retained earnings
(substantially restricted) 5,172 5,304
Valuation allowance
marketable equity securities (730) (895)
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Total Stockholders' Equity 6,854 6,742
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Total Liabilities
and Stockholders' Equity $ 83,826 $ 83,961
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Book Value Per Share (not in thousands) $ 16.18 $ 15.91
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1
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands except per share data)
Three Months Ended
Sept 30
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2000 1999
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(Unaudited)
Interest income
Loans $1,174 $ 930
Mortgage-backed and related securities 146 161
U. S. Government obligations including agencies 206 207
Municipal Bonds 30 30
Other investments, including overnight deposits 46 123
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Total interest income 1,602 1,451
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Interest expense
Deposits 788 632
Borrowed funds 146 157
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Total interest expense 934 789
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Net interest income 668 662
Provision for credit losses 14 3
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Net interest income after
provision for credit losses 654 659
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Noninterest income
Loan and other customer service fees 63 57
Gain on sale of mortgage loans 23 49
Gross rental income 26 25
Loss (gain) on Available for Sale Investments - -
Other - -
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Total noninterest income 112 131
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Noninterest expenses
Personnel 368 349
Office occupancy and equipment 85 86
Data processing 68 58
Federal insurance of accounts 3 9
Cost associated with pending merger 124 -
Other 91 106
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Total noninterest expenses 739 608
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Income before income taxes 27 182
Provision for income taxes 7 58
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Net income $ 20 $ 124
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Basic earnings per share $ .05 $ .31
Diluted earnings per share $ .05 $ .31
Cash dividends per share $ .20 $ .20
2
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
Three Months Ended
Sept 30
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2000 1999
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(Unaudited)
Net Income $ 20 $124
Other comprehensive income, net of tax
Unrealized gains (losses) on securities 165 (153)
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Comprehensive Income (Loss) $185 ($ 29)
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3
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flow
(In thousands)
Three Months Ended
Sept 30
2000 1999
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(Unaudited)
Operating Activities
Net Income $ 20 $124
Adjustments to Reconcile Net Income to Net Cash
Provided by operating activities
MSBP Shares Allocated - 13
Provision for credit losses 14 3
Provision for depreciation and amortization 28 29
Provision for Deferred Income Tax - -
Loans Originated for Sale (2,003) (3,998)
Proceeds from sales of loans originated for sale 2,109 3,710
Gain on Sale of Loans, from fees (23) (49)
Gain on Sale of Real Estate - -
Gain on Disposal of Property and Equipment - -
Net gain on sale of investments, available for sale - -
Net (increase) decrease in Other Assets (96) 40
Net increase in Other Liabilities 125 167
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Net cash provided by operating activities 174 39
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Investing activities
Proceeds from sale of property and equipment - -
Proceeds from sale of FHLB Stock - 109
Proceeds from maturity of investments
and interest-bearing deposits 1,387 1,856
Proceeds from sale of available for sale investments - -
Purchase of investments and interest-bearing deposits - (1,487)
Purchase of available for sale investments - -
Proceeds from sale of foreclosed real estate - -
Purchase of FHLB Stock - -
Purchase of foreclosed real estate - -
Purchase of property and equipment (11) (23)
Net increase in loans (1,547) (1,169)
Purchase of loans - (600)
Principal repayments on Mortgage Backed Securities 300 271
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Net cash provided by (used in) investing activities 129 (1,068)
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Financing activities
Curtailment of advances and other borrowings (3,750) (4,000)
Proceeds from advances and other borrowings 1,500 1,000
Net increase in savings deposits 1,886 3,786
Repurchase of stock - -
Dividends paid (81) (76)
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Net cash used in financing activities (445) 710
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Decrease in cash and cash equivalents (142) (319)
Cash and cash equivalents at beginning of period 2,059 2,454
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Cash and cash equivalents at end of period $ 1,917 $ 2,135
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4
SWVA BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The accompanying consolidated financial statements include the accounts of SWVA
Bancshares, Inc. ("Company") and its wholly- owned subsidiary, Southwest
Virginia Savings Bank, FSB ("Bank") and its wholly-owned subsidiary, Southwest
Virginia Service Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2001.
NOTE 2 -- EARNINGS PER SHARE
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations:
Three Months Ended
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September 30,
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2000 1999
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(Unaudited)
(Dollars in thousands except per share data)
Numerator:
(a) Net income available to shareholders $ 20 $ 124
========= =========
Denominator:
Weighted-average shares outstanding 423,612 423,612
Less: ESOP weighted-average shares outstanding (18,258) (22,819)
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(b) Basic EPS weighted-average shares outstanding 405,354 400,793
Effect of dilutive securities:
Incremental shares attributable to the Stock Option - -
Plan and Management Stock Bonus Plan - -
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(c) Diluted EPS weighted-average shares outstanding 405,354 400,793
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Basic earnings per share (a/b) $ .05 $ .31
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Diluted earnings per share (a/c) $ .05 $ .31
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5
NOTE 3 -- FASB Statement on Reporting Comprehensive Income
Effective July 1, 1998, the Company adopted FASB Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes certain disclosure of
certain financial information that has historically not been recognized in the
calculation of net income.
The Company had an unrealized gain on securities held as available for sale for
the three months ended September 30, 2000 of $165,000 after tax versus an
unrealized loss of $153,000 after tax for the three months ended September 30,
1999. The before tax and after tax amount, as well as the tax (expense) benefit
is summarized below.
Tax
Before (Expense) After
Tax Benefit Tax
--- ------- ---
Three months ended September 30, 2000: $250 ($85) $165
Unrealized gains on securities
Three months ended September 30, 1999:
Unrealized gains on securities ($232) $79 ($153)
NOTE 4 - Proposed Merger
On August 8, 2000, the Company announced a proposed merger with FNB Corporation
of Christiansburg, Virginia. Terms of the agreements require the stockholders of
the Company to receive consideration valued at $20.25, consisting of cash and
stock in FNB Corporation, subject to certain restrictions regarding the
allocation of cash and stock consideration. Consummation of the merger is
contingent upon the approval of the Company's stockholders and state and federal
regulators, as well as the conditions under the merger agreement.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 2000 and June 30, 2000
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Total assets decreased $135,000 or 0.16% from $83.9 million at June 30, 2000 to
$83.8 million at September 30, 2000. Net loans receivable increased $1.5 million
or 2.86% to $55.1 million at September 30, 2000 from $53.6 million at June 30,
2000 due to increased activity in small business loans and greater retention of
mortgage production in the loan portfolio.
Interest-bearing deposits representing investment in other Bank' certificates,
decreased $1.4 million or 82.31% from $1.7 million at June 30, 2000 to $298,000
at September 30, 2000. The decrease was mainly due to a decision by management
to use funds to fund mortgage loans instead of placing them in certificates of
deposits with other financial institutions. Cash and cash equivalents decreased
$143,000 or 6.94% from $2.1 million at June 30, 2000 to $1.9 million at
September 30, 2000 due mainly to increased cash needed for funding loans. Held
to Maturity Investments decreased $24,000 from $254,000 at June 30, 2000 to
$230,000 at September 30, 2000. Available for Sale Investments decreased $28,000
from $21.5 million at June 30, 2000 to $21.4 million at September 30, 2000 due
to principal paybacks on Mortgage Backed Securities.
At June 30, 2000, three loans were added to foreclosed property due to their
delinquency status. The delinquent interest due on these loans increased the
balance by $14,000 from $186,000 at June 30, 2000 to $200,000 at September 30,
2000. The foreclosed properties consist of three loans, each of which is secured
by single family real estate. No loss is anticipated.
Classified assets totaled $365,000, of which $354,000 was classified as
substandard, $9,000 as doubtful and $2,000 as loss. Of the $354,000 classified
as substandard, $334,000 single family mortgage loans and $20,000 consumer
loans. The loan classified as doubtful is a secured auto loan and the loan
classified as loss is an unsecured consumer loan.
Deposits increased $1.9 million, or 2.91% from $64.7 million at June 30, 2000 to
$66.6 million at September 30, 2000 due mainly to special rates offered on
certificates of deposits. The funds received on these certificates was used to
fund loans and to decrease the amount of borrowed funds. Core deposits were
$19.9 million or 29.98% of total savings.
At September 30, 2000, there was $9.5 million outstanding in advances from the
Federal Home Loan Bank of Atlanta as compared to $11.7 million outstanding at
June 30, 2000.
Advances from borrowers for taxes and insurance increased $160,000 or 76.92% due
to the accumulation of escrow for real estate taxes to be paid during the
quarter ending December 31, 2000. Other liabilities and deferred income
decreased $43,000 or 7.64%.
Results of Operations for the Three Months ended September 30, 2000
- -------------------------------------------------------------------
and September 30, 1999
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Net Income decreased $104,000 or 83.87%, from $124,000 for the three
months ended September 30, 1999 to $20,000 for the three months ended September
30, 2000. The decrease was due to costs associated with the Company's pending
merger with FNB Corporation.
Interest Income increased $151,000, or 10.41%, from $1.5 million for
the three months ended September 30, 1999 to $1.6 million for the three months
ended September 30, 2000. The increase was mainly due to increased income
resulting from an increase in small business loans and increased retention of
mortgage loans in our portfolio.
Interest Expense increased $145,000 or 18.38% from $789,000 for the
three months ended September 30, 1999 to $934,000 for the three months ended
September 30, 2000. The increase was due mainly to an increase in deposits due
to special certificates of deposit promotions and partially offset by a decrease
in borrowed funds.
Net Interest Income increased by $6,000 or 0.91% from $662,000 for the
three months ended September 30, 1999 to $668,000 for the three months ended
September 30, 2000.
Provision for Credit Losses. The Bank made an addition of $14,000 to
the provision for credit losses for the quarter ended September 30, 2000, an
increase of $11,000 over the quarter ending September 30, 1999. The allowance
for credit losses was $232,000 at September 30, 2000. Attributable to this
increase is the new emphasis on commercial and consumer loans which add credit
risk to the loan portfolio due to the risk inherent nature of these loans.
Policies and procedures and proper monitoring are in
7
Results of Operations for the three months ended September 30, 2000 and
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September 30, 1999, cont.
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place to insure quality extension of credit in order to minimize potential loss.
Non-interest Income decreased by $19,000, or 14.50% from $131,000 for
the three months ended September 30, 1999 to $112,000 for the three months ended
September 30, 2000. The decrease was mainly due to an decrease in gains on the
sale of mortgage loans during the quarter ended September 30, 2000 as more loans
were retained in the Bank's loan portfolio.
Non-interest Expense increased by $131,000, or 21.55% from $608,000 for
the three months ended September 30, 1999 to $739,000 for the three months ended
September 30, 2000. The increase was due to costs associated with the Company's
pending merger with FNB Corporation.
Provision for income taxes The provision for income taxes for the three
months ended September 30, 2000 was $7,000 compared to $58,000 for the three
months ended September 30, 1999. The decrease was due to decreased income for
the quarter ended September 30, 2000.
Regulatory Capital Requirements
OTS capital regulations require savings institutions to meet three capital
standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a
leverage ratio (core capital) equal to at least 3.0% of total adjusted assets
and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted
assets.
As shown below, the Bank's tangible, core and risk-based capital significantly
exceed all applicable regulatory capital requirements of the OTS at September
30, 2000:
Percent of
Amount Assets
GAAP Capital............................. $7,404 8.68%
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Tangible Capital......................... $7,404 8.68%
Tangible Capital Requirement............. 1,280 1.50%
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Excess................................... $6,124 7.18%
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Core Capital............................. $7,404 8.68%
Core Capital Requirement................. 2,559 3.00%
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Excess................................... $4,845 5.68%
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Total Risk-Based Capital................. $7,636 15.27%
Risk-Based Capital Requirement........... 4,001 8.00%
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Excess................................... $3,635 7.27%
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Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future. Events beyond
the control of the Bank, such as increased interest rates or downturn in the
economy in areas in which the Bank operates could adversely affect future
earnings and as a result, the ability of the Bank to meet its future minimum
capital requirements.
Liquidity
The Bank's liquidity is a measure of its ability to fund loans, withdrawals of
deposits and other cash outflows in a cost effective manner. The Bank's primary
sources of funds are deposits and proceeds from principal and interest payments
on loan and mortgage backed securities. The Bank also obtains funds from sales
and maturities of investment securities, short-term investments and borrowings,
namely advances from the FHLB of Atlanta. The Bank uses such funds primarily to
meet commitments on existing and continuing loan commitments, to fund maturing
time deposits and savings withdrawals and to maintain liquidity. While loan
payments, maturing investments and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments
8
are greatly influenced by general interest rates, economic conditions and
competition. The Bank's liquidity is also influenced by the level of demand for
funding loan originations.
The Bank is required under federal regulations to maintain certain specified
levels of "liquid investments," which include certain United States government
obligations and other approved investments. Current regulations require the Bank
to maintain liquid assets of not less than 4% of its net withdrawable accounts
plus short term borrowings. Those levels may be changed from time to time by the
regulators to reflect current economic conditions. The Bank's regulatory
liquidity was 24.38% at September 30, 2000 and 36.58% as of June 30, 2000.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
9
SWVA BANCSHARES, INC. & SUBSIDIARIES
PART II
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Exhibits and Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company filed a
Current Report on Form 8-K dated August 7, 2000 to report that it had entered
into a merger agreement with FNB Corporation. (Items 5 and 7).
10
SWVA BANCSHARES, INC. & SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
SWVA Bancshares, Inc.
Date: November 10, 2000 By: /s/ D. W. Shilling
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D. W. Shilling
President, Chief Executive Officer,
Chief Financial Officer, and Director
Date: November 10, 2000 By: /s/ Mary G. Staples
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Mary G. Staples
Controller/Treasurer
Principal Financial Officer
11