UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------- -------------------
Commission file number 0-24668
FFVA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
Virginia 74-2712490
- --------------------------------------------------------------------------------
(state or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
925 Main Street, Lynchburg, Virginia 24504
- --------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
(804) 845-2371
---------------------------------------------------
(Registrant's telephone number including area code)
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 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 $.10 par value common stock 5,022,552 shares outstanding
as of November 1, 1996
----------------------
Page 1 of 16 Pages
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
-----
Part I Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition as of
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the Three and Nine
Month Periods ended September 30, 1996 and 1995 4
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
- ------- -----------------
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signature Page 16
2
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 8,964 $ 7,683
Investment securities, held to maturity (Estimated market of $37,189
at September 30, 1996 and $34,045 at December 31, 1995) 37,313 33,314
Investment securities, available for sale, at market 29,574 34,724
Investment securities, restricted, at cost 3,268 3,075
Mortgage-backed securities, held to maturity (Estimated market of $42,915
at September 30, 1996 and $36,471 at December 31, 1995) 43,100 35,946
Mortgage-backed securities, available for sale, at market 79,049 78,844
Loans receivable, net 314,259 291,215
Foreclosed real estate 38 -
Property and equipment, net 6,341 5,665
Accrued interest receivable 4,140 4,092
Deferred income taxes 450 -
Prepaid expenses and other assets 1,961 1,004
Goodwill 1,638 1,728
-------- -------
Total assets $530,095 $497,290
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $391,236 $377,975
Advances from Federal Home Loan Bank and other borrowed funds 54,828 29,250
Advances from borrowers for taxes and insurance 1,612 1,071
Other liabilities 3,679 935
-------- --------
Total liabilities 451,355 409,231
-------- --------
Stockholders' equity
Preferred stock, $.10 par value, 500,000 shares authorized, none issued - -
Common stock, $.10 par value, 11,500,000 shares authorized,
5,022,552 and 2,851,832 outstanding, respectively 502 285
Additional paid-in capital 48,150 55,057
Less unearned ESOP and MSBP shares (4,065) (4,615)
Retained earnings, substantially restricted 33,477 35,824
Unrealized gain (loss) on assets available for sale, net of taxes 676 1,508
-------- --------
Total stockholders' equity 78,740 88,059
-------- --------
Total liabilities and stockholders' equity $530,095 $497,290
======== ========
See Notes to Consolidated Financial Statements
3
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
INTEREST INCOME
Loans $ 6,935 $ 6,490 $ 20,217 $ 18,609
Mortgage-backed securities 2,172 1,825 6,428 4,886
U. S. Government obligations, agencies, and
other investments including overnight deposits 1,300 1,409 3,903 4,258
-------- -------- -------- --------
Total interest income 10,407 9,724 30,548 27,753
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 4,585 4,525 13,758 12,555
Borrowed money 776 560 2,017 1,441
-------- -------- -------- --------
Total interest expense 5,361 5,085 15,775 13,996
-------- -------- -------- --------
Net interest income 5,046 4,639 14,773 13,757
PROVISION FOR CREDIT LOSSES -- 75 60 225
-------- -------- -------- --------
Net interest income after provision for credit losses 5,046 4,564 14,713 13,532
-------- -------- -------- --------
NONINTEREST INCOME
Service charges and fees on loans 124 125 349 293
Net gain (loss) on sale of investments 9 100 100 198
Net gain (loss) on sale of equipment -- (9) 1 (9)
Other income 138 124 444 313
-------- -------- -------- --------
Total noninterest income 271 340 894 795
-------- -------- -------- --------
NONINTEREST EXPENSES
Compensation and other personnel costs 1,488 1,385 4,437 3,805
Office occupancy and equipment 243 216 728 656
Federal insurance of accounts 2,436 199 2,843 580
Data processing 239 195 703 560
Advertising 73 82 250 240
Net loss on foreclosed real estate -- 9 2 9
Other 274 305 990 854
-------- -------- -------- --------
Total noninterest expense 4,753 2,391 9,953 6,704
-------- -------- -------- --------
Income before income tax expense 564 2,513 5,654 7,623
Income tax expense 206 923 1,977 2,798
-------- -------- -------- --------
Net Income $ 358 $ 1,590 $ 3,677 $ 4,825
======== ======== ======== ========
Primary earnings per share $ .07 * $ .28 $ .70 * $ .82
Fully diluted earnings per share $ .07 * $ .28 $ .69 * $ .82
Cash dividends paid per common share $ .10 * $ .075 $ .275 * $ .225
* Restated for two-for-one stock split paid June 5, 1996.
See Notes to Consolidated Financial Statements
4
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
unaudited
Unrealized
Gain (Loss)
Additional on Assets Unearned Unearned
Common Paid-In Retained Available ESOP MSBP
Stock Capital Earnings For Sale, Net Shares Shares Total
------------------------------------------------------------------------------
Nine Months Ended September 30,
1995:
Balance at December 31, 1994 $ 315 $ 60,714 $ 33,822 $ (1,320) $ (2,672) $ - $90,859
Net Income - - 4,825 - - - 4,825
Change in unrealized gain (loss) on
assets available for sale, net - - - 1,634 - - 1,634
Purchase of unearned MSBP shares - - - - - (2,277) (2,277)
Repurchase of common stock (15) (2,892) (1,266) - - - (4,173)
Cash dividends paid - - (1,336) - - - (1,336)
--------------------------------------------------------------------------
Balance at September 30, 1995 $ 300 $ 57,822 $ 36,045 $ 314 $ (2,672) $ (2,277) $89,532
==========================================================================
Nine months ended September 30, 1996:
Balance at December 31, 1995 $ 285 $ 55,057 $ 35,824 $ 1,508 $ (2,339) $ (2,276) $88,059
Net Income - - 3,677 - - - 3,677
Change in unrealized gain (loss) on
assets available for sale, net - - - (832) - - (832)
Allocation of unearned MSBP
shares - (97) - - - 550 453
Exercise of stock options - 32 - - - - 32
Two-for-one stock split 271 (271) - - - - -
Repurchase of common stock (54) (6,571) (4,600) - - - (11,225)
Cash dividends paid - - (1,424) - - - (1,424)
--------------------------------------------------------------------------
Balance at September 30, 1996 $ 502 $ 48,150 $ 33,477 $ 676 $ (2,339) (1,726) $78,740
==========================================================================
See Notes to Consolidated Financial Statements
5
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine months ended September 30,
1996 1995
------ -----
(unaudited)
OPERATING ACTIVITIES
Net income $3,677 $4,825
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit losses 60 225
(Gain) loss on sale of equipment (1) 9
Provision for depreciation and amortization 444 313
Amortization of premium on sale of loans 18 20
Realized investment security gains (100) (198)
Loss on sale of foreclosed real estate 2 9
Increase in interest receivable (48) (522)
(Increase) decrease in other assets (957) (1,029)
Increase in other liabilities 3,323 1,999
------ ------
Net cash provided by operating activities 6,418 5,651
------ ------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 6,074 10,288
Purchases of investment securities held to maturity and FHLB stock (10,266) (22,976)
Proceeds from sales of investment securities available for sale 13,722 16,252
Purchases of investment securities available for sale (8,846) (65)
Proceeds from collections on mortgage-backed securities held to maturity 4,970 4,723
Purchases of mortgage-backed securities held to maturity (12,124) (19,766)
Proceeds from collections on and sales of mortgage-backed securities available for sale 18,632 1,612
Purchases of mortgage-backed securities available for sale (19,783) (37,622)
Net increase in loans receivable (23,122) (21,137)
Purchases of premises and equipment (1,029) (1,097)
Payment of branch acquisition premium - (1,724)
Purchases of foreclosed real estate (87) -
Proceeds from sales of foreclosed real estate 47 76
------ ------
Net cash used by investing activities (31,812) (71,436)
------ ------
(continued)
6
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In Thousands)
Nine months ended September 30,
1996 1995
------ -----
(unaudited)
FINANCING ACTIVITIES
Net increase in deposit accounts $ 13,261 $ 18,821
Acquisition of deposits - 21,651
Proceeds from advances and other borrowed money 60,980 32,880
Repayments of advances and other borrowed money (35,402) (9,880)
Purchase of MSBP shares - (2,277)
Repurchase of common stock (11,225) (4,173)
Proceeds from the exercise of options 32 -
Allocation of MSBP Shares 453 -
Payment of cash dividend (1,424) (1,336)
-------- -------
Net cash provided by financing activities 26,675 55,686
-------- -------
Increase (decrease) in cash and cash equivalents 1,281 (10,099)
Cash and cash equivalents at beginning of period 7,683 16,387
-------- -------
Cash and cash equivalents at end of period $ 8,964 $ 6,288
======== ========
Supplemental disclosures
Gross unrealized gain (loss) on assets available for sale $ 1,056 $ 498
Deferred income tax (380) (184)
-------- --------
Net unrealized gain (loss) on assets available for sale $ 676 $ 314
======== ========
Cash paid for:
Interest on deposits and borrowed funds $ 15,707 $13,997
Income taxes $2,678 $ 2,550
See Notes to Consolidated Financial Statements
7
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 1996 and 1995
(1) Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of FFVA Financial Corporation ("the Company") and its wholly owned
subsidiary, First Federal Savings Bank of Lynchburg ("the Bank"). The Company's
business is conducted principally through the Bank. All material intercompany
balances and transactions have been eliminated in the consolidation.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-Q and do not include information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. These statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1995 of FFVA Financial Corporation. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations and other data for the three and nine month periods
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year ended December 31, 1996.
(3) Conversion to Stock Ownership
On October 12, 1994, the Company issued 3,151,832 (pre-split) shares of $.10 par
value common stock at $20 per share and became the Parent Company of the Bank.
Net proceeds, after deducting conversion expenses of $2.0 million, were $61.1
million and are reflected as common stock and additional paid in capital in the
accompanying consolidated statements of financial condition.
As part of the conversion to stock form, the Bank formed an Employee Stock
Ownership Plan ("ESOP") for eligible employees. The ESOP purchased 157,467
(pre-split) common shares of the company issued in the conversion, which was
funded by a loan from the Company. There are currently 233,852 shares of
unallocated stock securing the loan. The Company accounts for its ESOP in
accordance with Statement of Position 93-6. Accordingly, the shares pledged as
collateral are reported as a reduction of the stockholders' equity in the
consolidated balance sheet.
(4) Stock Split
On June 5, 1996, the Company's stock split two-for-one as the result of the
payment of a 100% stock dividend. References to the number of shares outstanding
and earnings per share for periods presented prior to the stock split have been
adjusted to reflect the effect of the stock split unless otherwise noted.
(5) Stock Repurchase and Retirement
On June 3, 1996, the Company received approval to repurchase up to 10% of the
company's outstanding shares of common stock. During the quarter ending
September 30, 1996, the Company repurchased 159,000 shares of common stock at an
average price of $17.33 per share. In accordance with the Laws of Virginia, this
stock was retired, resulting in a reduction in the number of common shares
reported as issued and outstanding at September 30, 1996 to 5,022,552 shares. As
a result of the repurchase, common stock was reduced $16,000, additional paid-in
capital was reduced $1.5 million and retained earnings were reduced $1.2 million
to reflect the elimination of the shares. For the nine month period ending
September 30, 1996, the Company had repurchased and retired a total of 683,712
shares of stock, reducing stockholders' equity a total of $11.2 million.
8
(6) Management and Stock Option Plans
During 1995, the Company formed a Management and Director Stock Bonus Plan
(MSBP). Under the plan, common stock is available for issuance to directors and
personnel in key positions of responsibility. A total of 49,428 (adjusted for
split) shares were distributed on April 27, 1996. As of September 30, 1996, a
total of 196,000 shares remain allocated to directors and personnel with
distribution scheduled annually until April 27, 2000. The Company currently
holds 121,320 shares at an average purchase price of $14.23 for future
distribution. These undistributed shares have been accounted for as a reduction
of the stockholders' equity in the consolidated balance sheet.
The Company also implemented a stock option plan during 1995. This plan provides
for the granting to directors and personnel in key positions of responsibility
630,366 options to purchase common stock at a price of $12.50 per share (the
closing market price of the stock on the date of approval, adjusted for the
effect of the stock split). The options vest over a five year period, with the
first options having vested on April 27, 1996. There are currently 120,507
vested options outstanding.
(7) Earnings Per Share
Earnings per share of common stock for the three and nine month periods ended
September 30, 1996 and 1995 has been determined by dividing the net income for
the periods by the calculated weighted average number of shares of common stock
and common stock equivalents outstanding. In accordance with Statement of
Position 93-6, shares controlled by the ESOP are not considered in the weighted
average number of shares outstanding until the shares are committed for
allocation to an employee's individual account. Earnings per share amounts for
prior periods have been restated to reflect the two-for-one stock split paid
June 5, 1996.
(8) Commitments and Contingencies
At September 30, 1996, the Company had outstanding commitments to originate
mortgage loans of $4.0 million. Unused consumer, equity and commercial lines of
credit available to customers were $19.5 million at September 30, 1996. The
undisbursed portion of loans in process totaled $4.4 million at September 30,
1996. The Company had outstanding commitments to purchase $5.0 million
fixed-rate mortgage backed securities and $5.0 million adjustable-rate mortgage
backed securities. In addition, the company had outstanding a commitment to sell
$2.2 million fixed rate mortgage backed securities as of September 30, 1996. The
Bank also has entered into interest rate swap agreements with a regional bank
totaling $15.0 million.
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Changes in Financial Condition
- ------------------------------
Total assets of the Company increased by $32.8 million, or 6.60%, from $497.3
million at December 31, 1995 to $530.1 million at September 30, 1996. The
increase in total assets during the first nine months of 1996 was due primarily
to the purchase of mortgage-backed securities and an increase in the balance of
net loans receivable.
Cash and cash equivalents increased by $1.3 million, or 16.88%, to $9.0 million
at September 30, 1996. Investment securities decreased by $1.0 million, or
1.41%, to $70.1 million at September 30, 1996. At September 30, 1996, $40.6
million of the Company's investment securities (which include restricted
securities totalling $3.3 million) were classified as held to maturity and $29.6
million of investment securities were classified as available for sale.
Mortgage-backed securities increased by $7.3 million, or 6.36%, to $122.1
million at September 30, 1996. At September 30, 1996, $43.1 million of the
Company's mortgage-backed securities were classified as held to maturity, and
$79.0 million of mortgage-backed securities were classified as available for
sale. During the nine month period ending September 30, 1996, the bank purchased
$21.8 million fixed rate mortgage-backed securities and $10.1 million of fixed
rate collateralized mortgage obligations (CMO's).
Loans receivable, net, increased by $23.1 million, or 7.93%, to $314.3 million
at September 30, 1996 compared to $291.2 million at December 31, 1995. The
increase is largely due to management's increased emphasis on expanding its loan
portfolio. Mortgage loans outstanding increased by $13.7 million during the nine
month period, while non-mortgage loans increased by $9.4 million.
Deposits increased by $13.2 million, or 3.49%, from $378.0 million at December
31, 1995 to $391.2 million at September 30, 1996.
FHLB Advances and Other Borrowed Money increased by $25.5 million, or 87.03%, to
$54.8 million at September 30, 1996, compared to $29.3 million at December 31,
1995. During the period, the Company increased its net outstanding FHLB Advances
by $6.7 million. The company also entered into reverse repurchase agreements
with a regional bank. The balance outstanding under reverse repurchase
agreements at September 30, 1996 was $18.8 million. Funds from the additional
borrowings were used to fund the purchase of mortgage backed securities and
collateralized mortgage obligations and to fund the growth of the company's loan
portfolio.
Equity decreased by $9.4 million, or 10.67%, from $88.1 million at December 31,
1995 to $78.7 million at September 30, 1996. The decrease was primarily a result
of the company's decision to repurchase and retire 684,000 shares of common
stock, reducing equity by $11.2 million. This was partially offset by net income
of $3.7 million during the nine month period, and an increase resulting from the
first allocation of the MSBP plan shares. The market value of available for sale
securities, net of taxes decreased $832,000 during the nine month period. Equity
decreased $1.4 million as the result of the Company paying a $.075 per share
dividend for the first quarter of 1996 and a $.10 per share dividend for the
second and third quarters of 1996.
Comparison of Results of Operation for the Three Months and Nine Months ended
- --------------------------------------------------------------------------------
September 30, 1996 and 1995.
- ----------------------------
Net Income
The Company reported net income of $358,000 and $1.6 million for the three
months ended September 30, 1996 and 1995, respectively, and $3.7 million and
$4.8 million for the nine months ended September 30, 1996 and 1995 respectively.
The $1.2 million, or 77.49%, decrease in net income for the three months ended
September 30, 1996 compared to the three months ended September 30, 1995 was due
primarily to a $ 2.4 million increase in noninterest expense which was partially
offset by a $407,000 increase in net interest income and a $717,000 decrease in
income tax expense. The $2.4 million increase in noninterest expense can be
almost entirely attributed to a $2.2 million charge by the FDIC to recapitalize
the Savings Association Insurance Fund ("SAIF").
10
Net income for the nine month period ended September 30, 1996 reflected a
decrease of $1.1 million, or 23.79% from the net income reported for the same
period in 1995. The decrease can be attributed to a $3.2 million increase in
noninterest expense, primarily attributable to the $2.2 million charge by the
FDIC to recapitalize the Savings Association Insurance Fund ("SAIF") recorded in
the quarter ending September 30, 1996. This was partially offset by a $1.0
million increase in net interest income, a $165,000 decrease in the provision
for credit losses, and a $99,000 increase in noninterest income. Income tax
expense decreased $821,000 due to the reduction in taxable income and the tax
treatment of certain employee benefit plan expenditures that were funded for the
first time during the nine month period ending September 30, 1996.
Net Interest Income
Net interest income increased by $407,000, or 8.77%, in the three months ended
September 30, 1996 to $5.0 million compared to $4.6 million in the same period
in 1995. Net interest income increased by $1.0 million for the nine month period
ended September 30, 1996 when compared to the nine month period ended September
30, 1995 from $13.8 million to $14.8 million. The Company's interest rate spread
and net interest margin were 3.37% and 3.98%, and 3.28% and 3.94%, respectively,
during the three and nine month periods ended September 30, 1996. This compares
to an interest rate spread and net interest margin of 3.04% and 3.88%, and 3.12%
and 4.00%, respectively, for the three and nine month periods ended September
30, 1995.
Provision for Credit Losses
Based on managements' evaluation of the loan portfolio, the Company recorded a
provision for credit losses of $75,000 for the three month period ending
September 30, 1995. No provision for credit loss was recorded for the three
month period ended September 30, 1996. For the nine month period ended September
30, 1996, the Company recorded a provision for credit losses of $60,000, a
decrease of $165,000 from the $225,000 recorded for the nine month period ending
September 30, 1995. The allowance for credit losses at September 30, 1996
totaled $3.3 million or 1.04% of gross loans receivable.
NonInterest Income
Noninterest income decreased $69,000 for the three month period ended September
30, 1996 to $271,000 from $340,000 for the comparable period in 1995. The
decrease in noninterest income was primarily attributable to a decrease of
$91,000 in the gain on sale of investments category partially offset by a slight
increase in other income. Noninterest income increased $99,000 for the nine
month period ended September 30, 1996 to $894,000 from $795,000 for the
comparable 1995 period. For the nine month period ended September 30, 1996, the
bank recorded an increase of $56,000 in service charges and fees on loans and an
increase of $131,000 in other income over the amounts recorded for the nine
month periods ended September 30, 1995. This was partially offset by a decrease
of $98,000 in the gain on sale of investments category.
Noninterest Expense
Noninterest expense increased $2.4 million, or 98.79%, for the three month
period ending September 30, 1996 compared to the three month period ended
September 30, 1995 from $2.4 million to $4.8 million. Noninterest expense
increased $3.3 million, or 48.46%, for the nine month period ended September 30,
1996 as compared to the nine month period ended September 30, 1995 from $6.7
million to $10.0 million. The increase for both the three and nine month periods
is primarily attributable to a $2.2 million increase in the expense for Federal
Insurance of Accounts resulting from a special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF"). The assessment is 65.7 basis points
of the March 31, 1995 SAIF assessment base of deposits. The entire assessment
was recorded as an expense in the quarter ended September 30, 1996. Noninterest
expense also increased as a result of the company's two new branch offices in
Keysville and Amherst. The two new branch offices resulted in an increase in the
number of employees, as well as higher data processing and office/occupancy
expenses. Data processing costs were also increased as a result of the
installation of additional Automated Teller Machines.
11
For the three month period ending September 30, 1996, compensation and other
personnel costs increased $103,000, or 7.45%, and for the nine month period
ending September 30, 1996 compensation and other personnel costs increased
$632,000, or 16.61%, over the comparable prior periods. For the three and nine
month period ending September 30, 1996, office occupancy and equipment expense
increased $27,000 or 12.50% and $72,000 or 10.98%, respectively, over the
comparable prior periods. Data processing expense increased $44,000 or 22.56%
for the three month period ended September 30, 1996 and $143,000 or 25.54% for
the nine month period ended September 30, 1996 over the comparable prior
periods.
Income Tax Expense
The company recognized income tax expense of $206,000 for the three months ended
September 30, 1996 compared to $923,000 for the comparable period in 1995. For
the nine months ended September 30, 1996 and 1995, the Company recognized income
tax expense of $2.0 million and $2.8 million, respectively. Such decreases in
income tax expenses during the three and nine month periods ended September 30,
1996 primarily reflect the reduction in income due to the special SAIF
assessment and the tax treatment of certain employee benefit plan expenditures
that were funded for the first time during the nine month period ending
September 30, 1996.
Liquidity and Capital Resources
- -------------------------------
The Bank's liquidity is a product of its operating, investing and financing
activities. The Bank's primary sources of funds are deposits, borrowings,
amortization, prepayments and maturities of outstanding loans and
mortgage-backed securities, maturities of investment securities and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-backed securities and maturing investment securities are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Bank invests excess funds in overnight deposits to
fund cash requirements experienced in the normal course of business. The Bank
has been able to generate sufficient cash through its deposits as well as
borrowings (consisting primarily of advances from the FHLB of Atlanta and
reverse repurchase agreements with other banks). At September 30, 1996, the Bank
had $36.0 million of outstanding advances from the FHLB of Atlanta and $18.8
million of reverse repurchase agreements with other banks.
Liquidity management is both a daily and long-term function of business
management. Excess cash is generally invested in overnight deposits. On a
longer-term basis, the Bank maintains a strategy of purchasing investment
securities and mortgage-backed securities. The Bank attempts to ladder the
maturities of its investment portfolio to provide an ongoing source of
liquidity. The Bank uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing savings certificates and savings withdrawals, fund
loan commitments and maintain a portfolio of mortgage-backed and investment
securities. At September 30, 1996, the total approved loan commitments
outstanding amounted to $4.0 million. At the same date, commitments under unused
lines of credit and undisbursed loans in process amounted to $23.9 million. The
Company had also committed to purchase $10.0 million and sell $2.2 million
mortgage backed securities. Certificates of deposit scheduled to mature in one
year or less at September 30, 1996 totaled $154.2 million. Management believes
that a significant portion of maturing deposits will remain with the Bank. The
Bank had an average liquidity ratio of 13.37% during the quarter ended September
30, 1996, which exceeded the required minimum liquid asset ratio of 5.0%.
During fiscal 1995 and the first nine months of 1996, the Bank paid an insurance
premium to the Federal Deposit Insurance Corporation ("FDIC") equal to .23% of
its total deposits. On September 30, 1996, legislation was enacted that requires
all SAIF member institutions, including the Bank, to pay a one time fee of 65.7
basis points on the amount of deposits held by the member institution as of
March 31, 1995 to recapitalize the SAIF. The Bank recorded the expense of
approximately $1.4 million after taxes in its September 30, 1996 quarterly
earnings.
Management of the Bank expects that 1997 SAIF premiums will be reduced by
approximately $650,000 due to the recapitalization of the SAIF Insurance Fund.
12
At September 30, 1996, the Bank had regulatory capital which was well in excess
of applicable limits. At September 30, 1996, the Bank was required to maintain
tangible capital of 1.5% of adjusted total assets, core capital of 3.0% of
adjusted total assets, and risk-based capital of 8.0% of adjusted risk-weighted
assets. At September 30, 1996, the Bank's tangible capital was $71.2 million, or
13.47% of adjusted total assets, core capital was $71.2 million, or 13.47% of
adjusted total assets and risk-based capital was $74.5 million, or 27.11% of
adjusted risk-weighted assets, exceeding the requirements by $63.3 million,
$55.4 million, and $52.5 million, respectively.
13
Average Balance Sheet
The following table sets forth certain information relating to the Savings
Bank's statements of financial condition and the statements of income for the
three and nine month periods ended September 30, 1996 and 1995 and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets and liabilities, respectively, for the periods
shown. Average balances are derived from month end balances. Management does not
believe that the use of month end balances instead of average daily balances has
caused any material difference in the information presented. The average
balances of loans receivable include loans on which the Savings Bank has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yields. Market value adjustments recorded in
compliance with SFAS 115 are not considered when computing the yields and
average balances of securities.
For the Three Months ended September 30, For the Nine Months ended September 30,
1996 1995 1996 1995
------ ------ ------ -----
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
Assets: (Dollars in Thousands)
Interest-earning
assets:
Mortgage loans,
net................ $280,934 $6,261 8.91% $271,694 $6,044 8.90% $277,309 $18,471 8.88% $264,726 $17,448 8.79%
Consumer and
other loans,
net................ 27,765 674 9.71 17,082 446 10.44 24,295 1,746 9.58 15,162 1,161 10.21
Mortgage-
backed and
related
securities(1)...... 123,011 2,172 7.06 107,983 1,825 6.76 122,720 6,428 6.98 95,191 4,886 6.84
Overnight
and short
term deposits...... 3,885 76 7.82 5,086 112 8.81 3,600 186 6.89 6,822 364 7.11
Investment
securities
(1)(2).............. 71,473 1,224 6.85 75,854 1,297 6.84 71,414 3,717 6.94 76,947 3,894 6.75
------- -------- ------- ------ ------- ------- -------- -------
Total
interest-
earning
assets........... 507,068 10,407 8.21 477,699 9,724 8.14 499,338 30,548 8.16 458,848 27,753 8.06
-------- ------ ------ -------
Noninterest-
earning
assets............... 20,382 15,323 19,091 14,085
------- ------- ------- --------
Total
assets........... $527,450 $493,022 $518,429 $472,933
======== ======== ======== ========
Liabilities
and Equity
Capital:
Interest-
bearing
liabilities:
Deposits:
Transaction
accounts.......... $ 83,154 573 2.76 $ 80,173 634 3.16 $ 82,271 1,747 2.83 $ 79,505 1,926 3.23
Savings and
certificates....... 304,829 4,012 5.26 282,590 3,891 5.51 300,783 12,011 5.32 268,671 10,629 5.27
-------- ----- ------- ----- ------- ------- -------- -------
Total deposits... 387,983 4,585 4.73 362,763 4,525 4.99 383,054 13,758 4.79 348,176 12,555 4.81
FHLB
advances
and other
borrowings........ 55,344 776 5.61 36,000 560 6.22 48,206 2,017 5.58 29,938 1,441 6.42
------- ------ -------- ------ -------- ------- -------- -------
Total
interest-
bearing
liabilities... 443,327 5,361 4.84 398,763 5,085 5.10 431,260 15,775 4.88 378,114 13,996 4.94
----- ----- ------ ------
Other liabilities..... 4,034 3,984 3,680 3,467
-------- -------- -------- --------
Total
liabilities... 447,361 402,747 434,940 381,581
-------- -------- -------- --------
Equity capital........ 80,089 90,275 83,489 91,352
-------- -------- -------- --------
Total
liabilities
and equity
capital....... $527,450 $493,022 $518,429 $472,933
======== ======== ======== ========
Net interest
income/interest
rate spread(3)...... $ 5,046 3.37% $ 4,639 3.04% $14,773 3.28% $13,757 3.12%
====== ====== ====== =======
Net earning
assets/net
interest
margin(4).......... $63,741 3.98% $78,936 3.88% $68,078 3.94% $80,734 4.00%
======== ======== ======== ========
Ratio of
interest-
earning
assets to
interest-
bearing
liabilities......... 114.38% 119.80% 115.79% 121.35%
====== ====== ====== =======
- ----------------------------------------------
(1) Includes assets available for sale.
(2) Includes FHLB-Atlanta stock.
(3) Interest-rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents the net interest income before the provision
for credit losses divided by average interest-earning assets.
14
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
PART II-OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time the Savings Bank is a
party to legal proceedings in the ordinary course of business wherein
it enforces its security interest in loans.
Item 2 Changes in Securities
---------------------
Not Applicable
Item 3 Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
None
Item 6 Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits:
11 Statement regarding computation of per share earnings
27 Financial data schedule
(b) Reports on Form 8-K:
None
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.
FFVA FINANCIAL CORPORATION
Dated: November 1, 1996 /s/James L. Davidson, Jr.
-------------------- -----------------------------------------
James L. Davidson, Jr.
President and Chief Executive Officer
Dated: November 1, 1996 /s/Ronald W. Neblett, CPA
-------------------- -----------------------------------------
Ronald W. Neblett, CPA
Senior Vice-President, Treasurer, and
Chief Financial Officer
16