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 December 31, 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 February 8, 2001: $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 December 31, 2000 (unaudited) and June 30, 2000 1
Consolidated Statements of Income for the Three
and Six Months Ended December 31, 2000 and
December 31, 1999 (unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended December 31, 2000
and December 31, 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2000 and
December 31, 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 10
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SWVA BANCSHARES, INC & SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands)
Assets
Dec 31 June 30
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2000 2000
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(Unaudited)
Cash and cash equivalents $ 2,323 $ 2,060
Interest-bearing deposits 298 1,685
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 223 254
Available for Sale, at fair value 21,546 21,517
Restricted at cost 585 585
Loans held for sale 90 857
Loans receivable, net 55,903 53,610
Foreclosed property 118 186
Property and equipment, net 1,742 1,681
Accrued interest receivable 691 607
Prepaid expenses and other assets 668 919
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Total assets $ 84,187 $ 83,961
======== ========
Liabilities and Stockholders' Equity
Deposits $ 66,852 $ 64,748
Advances from Federal Home Loan Bank 9,200 11,700
Advances from borrowers
for taxes and insurance 174 208
Other liabilities and deferred income 476 563
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Total liabilities 76,702 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 December 31, 2000 and as of June 30, 2000 42 42
Additional paid-in capital 2,842 2,824
Less unearned ESOP shares (18,258 shares) (182) (182)
Less unearned MSBP shares (9,289 shares) (157) (199)
Dividends declared and paid (81) (152)
Retained earnings
(substantially restricted) 5,249 5,304
Valuation allowance
marketable equity securities (228) (895)
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Total Stockholders' Equity 7,485 6,742
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Total Liabilities
and Stockholders' Equity $ 84,187 $ 83,961
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Book Value Per Share (not in thousands) $ 17.67 $ 15.91
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1
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
Three Months Six Months
Ended
Dec 31
-----------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
Interest Income
Loans $1,214 $1,004 $2,388 $1,934
Mortgage-backed and related securities 143 158 289 320
U.S. Government obligations including agencies 205 207 411 413
Municipal Bonds 30 29 60 59
Other investments, including overnight deposits 37 108 83 231
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Total interest income 1,629 1,506 3,231 2,957
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Interest expense
Deposits 806 693 1,594 1,326
Borrowed funds 141 126 287 282
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Total interest expense 947 819 1,881 1,608
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Net interest income 682 687 1,350 1,349
Provision for credit losses 19 3 33 6
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Net interest income after
provision for credit losses 663 684 1,317 1,343
------ ------ ------ ------
Noninterest income
Loan and other customer service fees 58 84 121 142
Gain on sale of mortgage loans 49 18 72 68
Gross rental income 25 26 51 50
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Total noninterest income 132 128 244 260
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Noninterest expenses
Personnel 377 373 745 722
Office occupancy and equipment 93 85 178 172
Data processing 71 59 139 117
Federal insurance of accounts 3 9 6 18
Cost associated with pending merger 29 - 153 -
Other 104 121 195 227
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Total noninterest expenses 677 647 1,416 1,256
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Income before income taxes 118 165 145 347
Provision for income taxes 42 58 49 116
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Net Income $ 76 $ 107 $ 96 $ 231
====== ====== ====== ======
Basic earnings per share $ .19 $ .26 $ .24 $ .57
====== ====== ====== ======
Diluted earnings per share $ .19 $ .26 $ .24 $ .57
====== ====== ====== ======
Cash dividends per share $ .00 $ .00 $ .20 $ .20
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2
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
Three Months Six Months
Ended
Dec 31
---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
Net Income $ 76 $ 107 $ 96 $ 231
Other comprehensive income, net of tax
Unrealized gains (losses) on securities 502 (257) 668 (410)
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Comprehensive Income $ 578 $(150) $ 764 $(179)
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3
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended
Dec 31
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2000 1999
---- ----
(Unaudited)
Operating Activities
Net Income $ 96 $ 231
Adjustments to Reconcile Net Income to Net Cash
Provided by (used in) operating activities
MSBP Shares Allocated 42 13
Provision for credit losses 23 6
Provision for depreciation and amortization 59 58
Loans Originated for Sale (5,040) (5,127)
Proceeds from sale of loans originated for sale 5,878 5,062
Gain on Sale of Loans, from fees (71) (67)
Net (increase) decrease in Other Assets (172) 17
Net increase (decrease) in Other Liabilities (102) 176
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Net cash provided by operating activities 713 369
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Investing activities
Proceeds from maturity of investments
and interest-bearing deposits 1,387 2,746
Proceeds from sale of FHLB Stock - 109
Proceeds from sale of available for sale investments 500 (1,487)
Purchase of investments and interest-bearing deposits - -
Purchase of available for sale investments - -
Purchase of property and equipment (120) (29)
Purchase of FHLB Stock - (59)
Net (increase) decrease in loans (2,249) (2,012)
Purchase of loans - (1,900)
Principal repayments on Mortgage Backed Securities 509 477
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Net cash provided by (used in) investing activities 27 (2,155)
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Financing activities
Curtailment of advances and other borrowings (6,000) (4,500)
Proceeds from advances and other borrowings 3,500 3,500
Net increase (decrease) in savings deposits 2,104 3,405
Repurchase of stock - -
Dividends paid (81) (76)
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Net cash provided by (used in) financing activities (477) 2,329
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Increase in cash and cash equivalents 263 543
Cash and cash equivalents at beginning of period 2,060 2,454
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Cash and cash equivalents at end of period $ 2,323 $ 2,997
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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 six months ended December 31, 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 Six Months
Ended
Dec 31,
--------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
Numerator:
(a) Net income available to shareholders $ 76 $ 107 $ 96 $ 231
======== ======== ========== ========
Denominator:
Weighed-average shares outstanding 423,612 426,612 423,612 425,112
Less: ESOP weighed-average shares outstanding (18,258) (22,819) (18,258) (22,819)
-------- -------- ---------- --------
(b) Basic EPS weighed-average shares outstanding 405,354 403,793 405,354 402,293
Effect of dilutive securities:
Incremental shares attributable to the Stock Option - - - -
Plan and Management Stock Bonus Plan - - - -
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(c) Diluted EPS weighed-average shares outstanding 405,354 403,793 405,354 402,293
======== ======== ========== ========
Basic earnings per share (a/b) $ .19 $ .26 $ .24 $ .57
======== ======== ========== ========
Diluted earnings per share (a/c) $ .19 $ .26 $ .24 $ .57
======== ======== ========== ========
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 unrealized gain on securities held as available for sale, for
the three months ended December 31, 2000 of $502,000 after tax versus an
unrealized loss of $257,000 after tax for the three months ended December 31,
1999. The Company had unrealized gains on securities held as available for sale,
for the six months ended December 31, 2000 of $668,000 after tax versus an
unrealized loss of $410,000 after tax for the six months ended December 31,
1999. The before tax and after tax amount, as well as the tax benefit is
summarized below.
Tax
Before (Expense) After
Tax Benefit Tax
--- ------- ---
Three months ended December 31, 2000:
Unrealized gains (losses) on securities $ 761 ($ 259) $ 502
Three months ended December 31, 1999:
Unrealized gains (losses) on securities ($ 389) $ 132 ($ 257)
Six months ended December 31, 2000:
Unrealized gains (losses) on securities $ 1,011 ($ 343) $ 668
Six months ended December 31, 1999:
Unrealized gains (losses) on securities ($ 621) $ 211 ($ 410)
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 December 31, 2000 and June 30, 2000
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Total assets increased $226,000 or 0.27% from $83.9 million at June 30, 2000 to
$84.2 million at December 31, 2000. Net loans receivable increased $2.3 million
or 4.28% to $55.9 million at December 31, 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 December 31, 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 increased
$263,000 or 12.77% from $2.1 million at June 30, 2000 to $2.3 million at
December 31, 2000. Held to Maturity Investments decreased $31,000 from $254,000
at June 30, 2000 to $223,000 at December 31, 2000.
At June 30, 2000, three loans totaling $186,000 were added to foreclosed
property due to their delinquency status. During the quarter ended December 31,
2000, one of the loans was paid in full, therefore the balance at December 31,
2000 was $118,000. The foreclosed properties consist of two loans, each of which
is secured by single family real estate. No loss is anticipated.
Classified assets totaled $492,000, of which $365,000 was classified as
substandard and $127,000 as doubtful. Of the $365,000 classified as substandard,
$333,000 were on single family mortgage loans, $25,000 were on single family
real estate and $7,000 was on a consumer loan.
Deposits increased $2.1 million, or 3.25% from $64.7 million at June 30, 2000 to
$66.8 million at December 31, 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
$19.5 million or 29.09% of total savings.
At December 31, 2000, there was $9.2 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 decreased $34,000 or 16.35% due
to payment of escrow for real estate taxes paid during the quarter ending
December 31, 2000. Other liabilities and deferred income decreased $87,000 or
15.45%.
Results of Operations for the Three Months ended December 31, 2000
- ------------------------------------------------------------------
and December 31, 1999
- ---------------------
Net Income decreased $31,000 or 28.97%, from $107,000 for the three
months ended December 31, 1999 to $76,000 for the three months ended December
31, 2000. The decrease was due mainly to costs associated with the Company's
proposed merger with FNB Corporation.
Interest Income increased $123,000, or 8.17%, from $1.5 million for the
three months ended December 31, 1999 to $1.6 million for the three months ended
December 31, 2000. The increase was a result of an increase in small business
loans and increased retention of mortgage loans in the portfolio.
Interest Expense increased $128,000 or 15.63% from $819,000 for the
three months ended December 31, 1999 to $947,000 for the three months ended
December 31, 2000. The increase was due mainly to an increase in deposits due to
special certificates of deposit promotions and an increase in funds borrowed.
Net Interest Income decreased by $5,000 or 0.73% from $687,000 for the
three months ended December 31, 1999 to $682,000 for the three months ended
December 31, 2000.
Provision for Credit Losses. The Bank made an addition of $19,000 to
the provision for credit losses for the quarter ended December 31, 2000, an
increase of $16,000 over the quarter ending December 31, 1999. The allowance for
credit losses was $241,000 as of December 31, 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.
7
Results of Operations for the Three Months ended December 31, 2000
- ------------------------------------------------------------------
and December 31, 1999, cont.
- ----------------------------
Non-interest Income increased by $4,000, or 3.13% from $128,000 for the
three months ended December 31, 1999 to $132,000 for the three months ended
December 31, 2000. The increase was due to gains on sale of mortgage loans
during the quarter ended December 31, 2000 and a tax refund recorded in the
quarter ended December 31, 1999.
Non-interest Expense increased by $30,000, or 4.64% from $647,000 for
the three months ended December 31, 1999 to $677,000 for the three months ended
December 31, 2000. The increase was due mainly to costs associated with the
Company's proposed merger with FNB Corporation.
Provision for income taxes The provision for income taxes for the three
months ended December 31, 2000 was $42,000 compared to $58,000 for the three
months ended December 31, 1999. The decrease was due to decreased income for the
quarter ended December 31, 2000.
Results of Operations for the Six Months ended December 31, 2000
- ----------------------------------------------------------------
and December 31, 1999
- ---------------------
Net Income decreased $135,000 or 58.44%, from $231,000 for the six
months ended December 31, 1999 to $96,000 for the six months ended December 31,
2000. The decrease was due mainly to costs associated with the Company'sproposed
merger with FNB Corporation.
Interest Income increased $274,000, or 9.27%, from $3.0 million for the
six months ended December 31, 1999 to $3.2 million for the six months ended
December 31, 2000. The increase was mainly due to increased income resulting
from an increase in small business loans and increased retention of mortgage
loans in the portfolio.
Interest Expense increased $273,000 or 16.98% from $1.6 million for the
six months ended December 31, 1999 to $1.9 million for the six months ended
December 31, 2000. The increase was due mainly to an increase in deposits due to
special certificates of deposit promotions and an increase in funds borrowed.
Net Interest Income remained basically level at $1.3 million for the
six months ended December 31, 1999 and the six months ended December 31, 2000.
Provision for Credit Losses. The Bank made an addition of $33,000 to
the provision for credit losses for the six months ended December 31, 2000, an
increase of $27,000 over the same period ending December 31, 1999. The allowance
for credit losses was $241,000 at December 31, 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.
Non-interest Income decreased by $16,000, or 6.15% from $260,000 for
the six months ended December 31, 1999 to $244,000 for the six months ended
December 31, 2000. The decrease was mainly due to a refund on prior year taxes
recorded in the quarter ending December 31, 1999.
Non-interest Expense increased by $160,000, or 12.74% from $1.3 million
for the six months ended December 31, 1999 to $1.4 million for the six months
ended December 31, 2000. The increase was mainly due to costs associated with
the Company's proposed merger with FNB Corporation.
Provision for income taxes The provision for income taxes for the six
months ended December 31, 2000 was $49,000 compared to $116,000 for the six
months ended December 31, 1999. The decrease was due to decreased income for the
six months ended December 31, 2000.
8
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 December 31,
2000:
Percent of
----------
Amount Assets
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GAAP Capital.................... $7,510 8.85%
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Tangible Capital................ $7,510 8.85%
Tangible Capital Requirement.... 1,273 1.50%
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Excess.......................... $6,237 7.35%
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Core Capital.................... $7,510 8.85%
Core Capital Requirement........ 2,546 3.00%
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Excess.......................... $4,964 5.85%
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Total Risk-Based Capital........ $7,750 15.53%
Risk-Based Capital Requirement.. 3,758 8.00%
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Excess.......................... $3,992 7.53%
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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 loans 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 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 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 25.23% at December 31, 2000 and 22.94% 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. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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: February 12, 2001 By: /s/ D. W. Shilling
------------------------------------
D. W. Shilling
President, Chief Financial Officer, and Director
Date: February 12, 2001 By: /s/ Mary G. Staples
-----------------------------------
Mary G. Staples
Controller/Treasurer
Principal Financial Officer
11