FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER 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 0-24674
-----------
SWVA BANCSHARES, INC
--------------------
VIRGINIA 54-1721629
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 Second Street, SW, Roanoke Virginia 24011-1597
- --------------------------------------- ----------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 343-0135
--------------
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
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 7, 1996: $0.10 par value - 520,434 common shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
SWVA BANCSHARES, INC. & SUBSIDIARIES
INDEX
=================================================================
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1996 and June 30, 1996 (unaudited) 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1996 and
September 30, 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and
September 30, 1995 (unaudited) 3
Notes to Unaudited Interim Consolidated
Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION 10
SWVA BANCSHARES, INC & SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
Assets Sept 30 June 30
1996 1996
(Unaudited)
Cash and cash equivalents $ 2,722 $ 5,262
Interest-bearing deposits 4,138 3,841
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 433 443
Available for Sale, at fair value 9,513 7,496
Loans held for sale 444 985
Loans receivable, net 49,783 46,757
Property and equipment, net 1,644 1,662
Accrued interest receivable 373 343
Prepaid expenses and other assets 217 198
-------- -------
Total assets $ 69,267 $ 66,987
======== ========
Liabilities and Stockholders' Equity
Deposits $ 56,476 $ 57,643
Advances Federal Home Loan Bank 3,500 0
Accounts payable 31 42
Accrued interest payable 45 43
Advances from borrowers
for taxes and insurance 369 146
Income taxes payable 15 28
Other accrued expenses 532 133
Other payables and deferred income 201 277
-------- --------
Total liabilities 61,169 58,312
-------- --------
Stockholders' Equity
Preferred Stock, 275,000 shares
authorized, no shares issued or
outstanding
Common stock, $.10 par value, 2,225,000
shares authorized, 520,434 outstanding
as of September 30, 1996 and 543,190
outstanding as of June 30, 1996 52 54
Additional paid-in capital 4,417 4,750
Dividends declared and paid (70) (154)
Less unearned ESOP shares (36,517 shares) (365) (365)
Less unearned MSBP shares (22,812 shares) (388) (388)
Retained earnings
(substantially restricted) 4,442 4,790
Valuation allowance
marketable equity securities 10 (12)
------- --------
Total Stockholders' Equity 8,098 8,675
------- --------
Total Liabilities
and Stockholders' Equity $ 69,267 $ 66,987
======== ========
1
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
Three Months Ended
September 30
-------------------
1996 1995
---- ----
(Unaudited)
Interest income
Loans 1,008 1,034
Mortgage-backed and related securities 120 95
U. S. Government obligations including agencies 18 18
Other investments, including overnight deposits 109 81
------- -------
Total interest income 1,255 1,228
------- -------
Interest expense
Deposits 635 639
Borrowed funds 9 28
------- -------
Total interest expense 644 667
------- -------
Net interest income 611 561
Provision for credit losses 0 0
------- -------
Net interest income after
provision for credit losses 611 561
Noninterest income
Loan and other customer service fees 37 38
Gain on sale of mortgage loans 26 53
Gross rental income 24 23
Other 0 0
------- -------
Total noninterest income 87 114
------- -------
Noninterest expenses
Personnel 305 299
Office occupancy and equipment 68 79
Data processing 32 34
Federal insurance of accounts 389 31
Other 98 116
------- -------
Total noninterest expenses 892 559
------- -------
Income before income taxes (194) 116
Provision for income taxes 0 50
------- -------
Net income $ (194) $ 66
======= =======
Earnings per share $ (0.39) $0.13
2
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flow
(In Thousands)
Three Months Ended
September 30
--------------------
1996 1995
---- ----
Operating Activities (Unaudited)
Net Income $ (194) $ 66
Adjustments to Reconcile Net Income to Net Cash
Provided by (used in) operating activities
Provision for credit losses 0 0
Provision for depreciation and amortization 21 26
Provision for deferred income tax (24) 50
Loans Originated for Sale (1,266) (4,427)
Proceeds from sales of loans originated for sale 1,833 4,726
Gain on Sale of Loans, from fees (26) (53)
Gain on Sale of Real Estate 0 0
Gain on Disposal of Property and Equipment 0 0
Net (increase) decrease in Other Assets (28) 20
Net increase (decrease) in Other Liabilities 522 278
------- ------
Net cash provided by (used in) operating activities 838 686
------- ------
Investing activities
Proceeds from sale of property and equipment 0 0
Proceeds from maturity of investments
and interest-bearing deposits 887 690
Proceeds from sale of available for sale investments 0 0
Purchase of investments and interest-bearing deposits (1 993) (787)
Purchase of available for sale investments (1,184) 0
Proceeds from sale of foreclosed real estate 0 0
Purchase of foreclosed real estate 0 0
Purchase of property and equipment (3) (23)
Net (increase) decrease in loans (3,015) 915
Purchase of loans (11) 0
Principal repayments on Mortgage Backed Securities 19 31
------- -------
Net cash provided by (used in) investing activities (5,300) 826
------- -------
Financing activities
Curtailment of advances and other borrowings 0 0
Proceeds from advances and other borrowings 3,500 0
Net increase (decrease) in savings deposits (1,167) 662
Proceeds from sale of stock 0 0
Purchase of stock by ESOP 0 0
Purchase of stock for MSBP 0 0
Repurchase of stock (341) (466)
Dividends paid (70) (79)
------ -------
Net cash used in financing activities 1,922 117
------ -------
Increase (decrease) in cash and cash equivalents (2,540) 1,629
Cash and cash equivalents at beginning of period 5,262 830
------- -------
Cash and cash equivalents at end of period $ 2,722 $ 2,459
======= ======
3
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 and Rule 10-01 of
Regulation S-X. 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, 1996, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1997.
NOTE 2 - STOCK REPURCHASE
On July 26, 1996, the Company received approval from the Office of Thrift
Supervision ("OTS") to repurchase up to 5% (or 27,160 shares) of the Company's
Common Stock prior to October 5, 1996. The company repurchased 22,756 shares of
its Common Stock in the open market, at an aggregate purchase price of
approximately $341,000. The amount repurchased represented approximately 4.2% of
the Company's total shares outstanding prior to the repurchase.
On the date of the request for permission to repurchase the stock, the Company's
stock was trading at a price significantly below book value. Based upon the
current market price of the Company's stock, the likelihood of increasing the
book value per share and net income per share on the remaining shares, the
general economic conditions affecting the Company and the Bank, and the use of
repurchased shares to mitigate the potentially dilutive effect of the Company's
stock option plan and any other stock based compensation plan or program, the
Board determined that the repurchase program would enhance shareholder value and
be in the best interests of the Company and shareholders.
NOTE 3 -- EARNINGS PER SHARE
Earnings per share have been determined by dividing net income by the weighted
number of shares of common stock and common stock equivalents outstanding during
the period net of ESOP shares.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 1996 and June 30, 1996
- --------------------------------------------------------------------------------
Total assets increased $2.3 million, or 3.43% from $67.0 million at June 30,
1996 to $69.3 million at September 30, 1996. Net loans receivable increased $3.0
million or 6.41% to $49.8 million at September 30, 1996 from $46.8 million at
June 30, 1996 due primarily to an increase in mortgage loans added to the Bank's
portfolio.
Interest-bearing deposits increased $297,000, or 7.82% to $4.1 million at
September 30, 1996 from $3.8 million at June 30, 1996 due mainly to an increase
in cash available to invest in interest-bearing deposits. Available for sale
investments increased $2.0 million, or 26.67% due to the purchase of FNMA
Mortgage Backed Securities. Cash and cash equivalents decreased $2.6 million, or
49.05% from $5.3 million at June 30, 1996 to $2.7 million at September 30, 1996
due mainly to increased cash required to fund mortgage loans. Loans held for
sale decreased $541,000 or 54.92% due to a decrease in loans originated to be
sold.
There were no non-performing assets at September 30, 1996 and June 30, 1996.
Classified assets totaled $894,000. $893,000 were classified as substandard and
included $303,000 in Construction and Development loans, $223,000 in an
apartment building and the remaining were single family loans. $1,000 was
classified as loss and was on a small unsecured consumer loan.
Deposits decreased $1.1 million, or 1.91% from $57.6 million at June 30, 1996 to
$56.5 million at September 30, 1996 due mainly to a decrease in funds in
checking accounts. Core deposits were $16.5 million or 29.17% of total savings.
At September 30, 1996, there were $3.5 million outstanding in advances from the
Federal Home Loan Bank of Atlanta. There were no advances outstanding on June
30, 1996. The advances were used to fund mortgage loan originations during the
quarter.
Other accrued expenses increased $399,000, or 300.00%, from $133,000 at June 30,
1996 to $532,000 at September 30, 1996. This was mainly due to the one time SAIF
special assessment on September 30, 1996.
Advances from borrowers for taxes and insurance increased $223,000, or 152.74%
due to the accumulation of escrow for real estate taxes to be paid during the
quarter ending December 31, 1996. Other payables and deferred income decreased
$76,000, or 27.44% from $277,000 at June 30, 1996 to $201,000 at September 30,
1996 due mainly to a reduction in outstanding cashier's checks and certified
checks.
5
Results of Operations for the three months ended September 30, 1996
- -------------------------------------------------------------------
and September 30, 1995
- ----------------------
Net Income Net income decreased $260,000 or 393.94% from a net gain of $66,000
for the three months ended September 30, 1995 to a net loss of $194,000 for the
three months ended September 30, 1996. The decrease was mainly due to the one
time SAIF Special Assessment offset partially by increased interest earned on
mortgage loans.
Interest Income Interest income increased $27,000, or 2.20% from $1,228,000 for
the three months ended September 30, 1995 to $1,255,000 for the three months
ended September 30, 1996. The increase was mainly a result of additional
mortgage loans put in the Bank's portfolio during the quarter.
Interest Expense Interest expense decreased $23,000 or 3.45% from $667,000 for
the three months ended September 30, 1995 to $644,000 for the three months ended
September 30, 1996. The decrease was due mainly to the reduced borrowings during
the quarter ended September 30, 1996. The average borrowings outstanding for the
quarter ended September 30, 1996 was $617,000 as compared to $1.8 million for
the same quarter last year.
Net Interest Income Net interest income increased by $50,000, or 8.91% from
$561,000 for the three months ended September 30, 1995 to $611,000 for the three
months ended September 30, 1996. This was mainly due to an increase in interest
earned on mortgage loans and a decrease in interest paid on borrowed funds.
Provision for Credit Losses The Bank made no provision for credit losses for the
three months ended September 30, 1996 and there was no provision for credit
losses for the three months ended September 30, 1995. The allowance for credit
losses is $194,000. Management reviews the Bank's loan portfolio and future
additions may become necessary based upon changing economic conditions,
increased loan portfolio or changes in the underlying collateral of the loan
portfolio.
Non-interest Income Non-interest income decreased by $27,000, or 23.68% from
$114,000 for the three months ended September 30, 1995 to $87,000 for the three
months ended September 30, 1996. This was mainly the result of a decrease of
$27,000 on gains on loans sold in the secondary market for the three months
ended September 30, 1996.
Non-interest Expense Non-interest expense increased by $333,000, or 59.57% from
$559,000 for the three months ended September 30, 1995 to $892,000 for the three
months ended September 30, 1996, mainly due to the one time SAIF Special
Assessment offset by a reduction in legal expenses and office occupancy and
equipment expense.
Provision for income taxes The provision for income taxes for the three months
ended September 30, 1995 was $50,000. There was no provision for income taxes
for the three months ended September 30, 1996 due to the net loss for the
quarter.
6
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, 1996:
Percent of
Amount Assets
------ ------
GAAP Capital.................... $7,300 10.45%
===== ======
Tangible Capital................ $7,290 10.44%
Tangible Capital Requirement.... 1,048 1.50%
----- -----
Excess.......................... $6,242 8.94%
===== =====
Core Capital.................... $7,290 10.44%
Core Capital Requirement........ 2,095 3.00%
----- -----
Excess.......................... $5,195 7.44%
===== =====
Total Risk-Based Capital........ $7,485 20.14%
Risk-Based Capital Requirement.. 2,973 8.00%
----- -----
Excess.......................... $4,512 12.14%
===== =====
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, fund maturing time
deposits and savings withdrawals and 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.
7
Liquidity, cont.
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. Regulations require the Bank to
maintain liquid assets of not less than 5% of its net withdrawable accounts plus
short term borrowings. Short term liquid assets must consist of not less than 1%
of such accounts and borrowings, which amount is also included within the 5%
requirements. Those levels may be changed from time to time by the regulators to
reflect current economic conditions. The Bank's regulatory liquidity was 6.78%
at September 30, 1996 and 12.29% as of June 30, 1996.
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.
SAIF Special Assessment
Deposits of the Savings Bank are insured by the SAIF as administered by the
FDIC. As a member of the SAIF, the Savings Bank paid an insurance premium to the
FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insured
commercial bank deposits. Effective September 30, 1995, the FDIC lowered the
insurance premium on BIF insured deposits to a range of between 0.04% and 0.31%
of deposits with the result that most commercial banks would pay the lowest rate
of 0.04%. Effective January 1, 1996, the annual insurance premium for most BIF
members was lowered to $2,000. These reductions in insurance premiums for BIF
members placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a one-time
special assessment on SAIF members such as the Savings Bank of approximately
.657% of deposits held on March 31, 1995. The Savings Bank recorded a $355,000
pre-tax expense for this assessment at September 30, 1996. Beginning January 1,
1997, deposit insurance assessments for SAIF members are expected to be reduced
to approximately .064% of deposits on an annual basis through the end of 1999.
During this same period, BIF members are expected to be assessed approximately
.013% of deposits. Thereafter, assessments for BIF and SAIF members should be
the same. It is expected that these continuing assessments for both SAIF and BIF
members will be used to repay outstanding Financing Corporation bond
obligations. As a result of these changes, beginning January 1, 1997, the rate
of deposit insurance assessed the Savings Bank is expected to decline by
approximately 70%.
8
SAIF Special Assessment, cont.
The disparity in insurance premiums between those required for the Savings Bank
and BIF members could allow BIF members to attract and retain deposits at higher
interest rates and at a lower effective cost than the Savings Bank. This could
put competitive pressure on the Savings Bank to raise its interest rates paid on
deposits, thus increasing its cost of funds and possibly reducing net interest
income. Although the Savings Bank has other sources of funds, these other
sources may have higher costs than those of deposits.
8
SWVA BANCSHARES, INC. & SUBSIDIARIES
PART II
Item 1. Legal Proceedings
Not applicable.
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.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 (financial data schedule).
(b) Reports on Form 8-K: None.
9
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 12, 1996 By: /s/ B. L. Rakes
----------------- -------------------------------------
B. L. Rakes
President, Chief Executive Officer,
Chief Financial Officer, and Director
Date: Novmeber 12, 1996 By: /s/ Mary G. Staples
----------------- -------------------------------------
Mary G. Staples
Controller/Treasurer
Principal Financial Officer
10