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 December 31, 1996
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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 _____________________
Commission File Number 0-24674
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SWVA BANCSHARES, INC
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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
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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 10, 1997: $0.10 par value - 520,434 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, 1996 and June 30, 1996 (unaudited) 1
Consolidated Statements of Income for the
Three and Six Months Ended December 31, 1996 and
December 31, 1995 (unaudited) 2
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1996 and
December 31, 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 II-1
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SWVA BANCSHARES, INC & SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
Assets Dec 31 June 30
1996 1996
-------------------
(Unaudited)
Cash and cash equivalents $ 3,259 $ 5,262
Interest-bearing deposits 4,828 3,841
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 412 443
Available for Sale, at fair value 7,422 7,496
Loans held for sale 230 985
Loans receivable, net 51,247 46,757
Property and equipment, net 1,647 1,662
Accrued interest receivable 359 343
Prepaid expenses and other assets 247 198
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Total assets $69,651 $66,987
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Liabilities and Stockholders' Equity
Deposits $57,274 $57,643
Advances Federal Home Loan Bank 3,500 0
Accounts payable 34 42
Accrued interest payable 23 43
Advances from borrowers
for taxes and insurance 144 146
Income taxes payable 0 28
Other accrued expenses 122 133
Other payables and deferred income 202 277
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Total liabilities 61,299 58,312
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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, 520,434 outstanding
as of December 31, 1996 and 543,190
outstanding as of June 30, 1996 52 54
Additional paid-in capital 4,423 4,750
Dividends declared and paid (70) (154)
Less unearned ESOP shares (36,517 shares) (365) (365)
Less unearned MSBP shares (20,177 shares) (349) (388)
Retained earnings
(substantially restricted) 4,666 4,790
Valuation allowance
marketable equity securities (5) (12)
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Total Stockholders' Equity 8,352 8,675
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Total Liabilities
and Stockholders' Equity $69,651 $66,987
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1
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
Three Months Six Months
Ended
December 31
---------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
Interest income
Loans $1,101 $1,030 $2,109 $2,065
Mortgage-backed and related securities 123 92 243 187
U. S. Government obligations
including agencies 18 18 36 35
Other investments, including
overnight deposits 104 94 213 175
------ ------ ------ ------
Total interest income 1,346 1,234 2,601 2,462
------ ------ ------ ------
Interest expense
Deposits 634 647 1,269 1,286
Borrowed funds 50 18 59 46
------ ------ ------ ------
Total interest expense 684 665 1,328 1,332
------ ------ ------ ------
Net interest income 662 569 1,273 1,130
Provision for credit losses 0 0 0 0
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Net interest income after
provision for credit losses 662 569 1,273 1,130
------ ------ ------ ------
Noninterest income
Loan and other customer service fees 36 37 73 75
Gain on sale of mortgage loans 31 45 57 98
Gross rental income 24 23 48 46
Net gain on sale of investments,
available for sale 39 0 39 0
------ ------ ------ ------
Total noninterest income 130 105 217 219
------ ------ ------ ------
Noninterest expenses
Personnel 308 324 613 624
Office occupancy and equipment 72 80 140 158
Data processing 34 31 66 65
Federal insurance of accounts 23 31 412 62
Other 101 114 199 230
------ ------ ------ ------
Total noninterest expenses 538 580 1,430 1,139
------ ------ ------ ------
Income before income taxes 254 94 60 210
Provision for income taxes 30 32 30 82
------ ------ ------ ------
Net income $ 224 $ 62 $ 30 $ 128
====== ====== ====== ======
Per common share:
Primary and fully diluted earnings .47 .12 .06 .25
2
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flow
(In Thousands)
Six Months Ended
December 31
------------------
1996 1995
Operating Activities (Unaudited)
Net Income $ 30 $ 128
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 42 52
Provision for Deferred Income Tax 2 82
Federal Home Loan Bank Stock Dividend 0 0
Loans Originated for Sale (3,516) (11,271)
Proceeds from sales of loans originated for sale 4,329 10,647
Gain on Sale of Loans, from fees (57) (98)
Gain on Sale of Real Estate 0 0
Gain on Disposal of Property and Equipment 0 0
Net gain on sale of investments, available for sale 39 0
Net (increase) decrease in Other Assets (44) 36
Net increase (decrease) in Other Liabilities (130) 32
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Net cash provided by (used in) operating activities 695 (392)
Investing activities
Proceeds from sale of property and equipment 0 0
Proceeds from maturity of investments
and interest-bearing deposits 1,572 1,580
Proceeds from sale of available for sale investments 2,062 0
Purchase of investments and interest-bearing deposits (2,558) (2,073)
Purchase of available for sale investments (1,992) 0
Proceeds from sale of foreclosed real estate 0 0
Purchase of foreclosed real estate 0 0
Purchase of property and equipment (28) (27)
Net (increase) decrease in loans (4,468) 1,513)
Purchase of loans (22) 0
Principal repayments on Mortgage Backed Securities 46 41
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Net cash provided by (used in) investing activities (5,388) 1,034
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Financing activities
Curtailment of advances and other borrowings 0 (800)
Proceeds from advances and other borrowings 3,500 200
Net increase (decrease) in savings deposits (399) 1,547
Proceeds from sale of stock 0 0
Purchase of stock by ESOP 0 0
Repurchase of stock (341) (466)
Dividends paid (70) (79)
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Net cash used in financing activities 2,690 402
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Increase (decrease) in cash and cash equivalents 2,003 1,044
Cash and cash equivalents at beginning of period 5,262 830
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Cash and cash equivalents at end of period $ 3,259 $ 1,874
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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 and six months ended December 31, 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 the necessary 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.
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 then
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.
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.
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 unallocated ESOP shares.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at December 31, 1996 and June 30, 1996
- ------------------------------------------------------------------------
Total assets increased $2.7 million or 3.98% from $67.0 million at June 30, 1996
to $69.7 million at December 31, 1996. Net loans receivable increased $4.4
million or 9.61% to $51.2 million at December 31, 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 $1.0 million or 25.70% to $4.8 million at
December 31, 1996 from $3.8 million at June 30, 1996 due mainly to an increase
in cash available to invest in interest-bearing deposits. Cash and cash
equivalents decreased $2.0 million or 38.07% from $5.3 million at June 30, 1996
to $3.3 million at December 31, 1996 due mainly to increased cash required to
fund mortgage loans. Loans held for sale decreased $755,000 or 76.65% due to a
decrease in loans originated to be sold.
There were no non-performing assets at December 31, 1996 and June 30, 1996.
Classified assets totaled $1.0 million. All except $1,000 were classified as
substandard, with the $1,000 classified as loss. $325,000 was in Construction
and Development loans, $202,000 was in an apartment building and the remaining
substandard loans were on single family loans. The $1,000 loan classified as
loss was a small unsecured consumer loan.
Deposits decreased $369,000, or .65% from $57.6 million at June 30, 1996 to
$57.3 million at December 31, 1996 due mainly to a decrease in funds in checking
accounts. Core deposits were $16.9 million or 29.38% of total savings.
At December 31, 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
period.
Other payables and deferred income decreased $75,000, or 27.08% from $277,000 at
June 30, 1996 to $202,000 at December 31, 1996 due mainly to a reduction in
outstanding cashier's checks and certified checks.
5
Results of Operations for the three months ended December 31, 1996 and December
- -------------------------------------------------------------------------------
31, 1995
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Net Income Net income increased $162,000 or 261.30%, from $62,000 for the
three months ended December 31, 1995 to $224,000 for the three months ended
December 31, 1996. The increase in net income was due to increased interest
income and a reduction in tax provision due to the loss recorded in the prior
quarter for the one time SAIF Special Assessment.
Interest Income Interest income increased $100,000, or 9.08%, from $1.2
million for the three months ended December 31, 1995 to $1.3 million for the
three months ended December 31, 1996. The increase was mainly a result of
additional mortgage loans put in the Bank's portfolio and an increase in funds
invested.
Interest Expense Interest expense increased $19,000 or 2.86% from $665,000
for the three months ended December 31, 1995 to $684,000 for the three months
ended December 31, 1996. The increase was due mainly to an increase in interest
paid on borrowed funds offset by a decrease in interest paid on deposits.
Net Interest Income Net interest income increased by $93,000 from $569,000
for the three months ended December 31, 1995 to $662,000 for the three months
ended December 31, 1996 due mainly to additional interest earned on mortgage
loans.
Provision for Credit Losses The Bank made no provision for credit losses
for the three months ended December 31, 1996 and there was no provision for
credit losses for the three months ended December 31, 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 increased by $25,000, or 23.81%
from $105,000 for the three months ended December 31, 1995 to $130,000 for the
three months ended December 31, 1996. This was mainly the result of a $39,000
net gain on the sale of investments, offset partially by a reduction on loans
sold in the secondary market for the three months ended December 31, 1996.
Non-interest Expense Non-interest expense decreased by $42,000, or 7.24%
from $580,000 for the three months ended December 31, 1995 to $538,000 for the
three months ended December 31, 1996, mainly due to the accounting treatment of
personnel expenses and loan origination income pursuant to SFAS 91 which reduced
personnel expenses, a reduction in office occupancy and equipment expense, a
refund in Federal Deposit Insurance Premiums and a reduction in legal expenses.
Provision for income taxes The provision for income taxes for the three
months ended December 31, 1996 was $30,000 as compared to $32,000 for the three
months ended December 31, 1995. Tax calculations for the 3 months ended December
31, 1996 were affected by the loss recorded during the first quarter for the one
time SAIF Special Assessment.
6
Results of Operations for the six months ended December 31, 1996 and December
- -------------------------------------------------------------------------------
31, 1995
- --------
Net Income Net income decreased $98,000 or 76.57%, from $128,000 for the
six months ended December 31, 1995 to $30,000 for the six months ended December
31, 1996. The decrease was mainly due to the one time SAIF Special ASSESSMent
offset partially by increased interest earned on mortgage loans and investments.
Interest Income Interest income increased $139,000, or 5.65%, for the six
months ended December 31, 1996. The increase was mainly a result of additional
mortgage loans put in the Bank's portfolio during the period and an increase in
funds invested in mortgage-backed and related securities.
Interest Expense Interest expense decreased $4,000 or .31% for the six
months ended December 31, 1996. The decrease was mainly due to a decrease in the
cost of deposits offset by an increase in funds borrowed.
Net Interest Income Net interest income increased by $143,000 for the six
months ended December 31, 1996. This resulted mainly from an increase in the
interest earned on mortgage loans, Mortgage Backed and related securities and
other investments.
Provision for Credit Losses The Bank made no provision for credit losses
for the six months ended December 31, 1996 and there was no provision for credit
losses for the six months ended December 31, 1995. 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 $2,000 or .92% from
$219,000 for the six months ended December 31, 1995 to $217,000 for the six
months ended December 31, 1996. This resulted from a net gain of $39,000 on the
sale of investments and a reduction of $41,000 in the gains on loans sold in the
secondary market.
Non-interest Expense Non-interest expense increased by $300,000, or 25.55%
from $1.1 million for the six months ended December 31, 1995 to $1.4 million for
the six months ended December 31, 1996, due mainly to a reduction in legal
expenses and office occupancy and equipment expense, offset partially by a
reduction in accounting treatment of personnel expenses and loan origination
income pursuant to SFAS 91.
Provision for income taxes The provision for income taxes for the six
months ended December 31, 1996 was $30,000 as compared to $82,000 for the six
months ended December 31, 1995. The decrease was due to decreased pre-tax
income.
7
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,
1996:
Percent of
Amount Assets
------ ----------
GAAP Capital.................... $7,529 10.72%
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Tangible Capital................ $7,529 10.72%
Tangible Capital Requirement.... 1,053 1.50%
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Excess.......................... $6,476 9.22%
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Core Capital.................... $7,529 10.72%
Core Capital Requirement........ 2,107 3.00%
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Excess.......................... $5,422 7.72%
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Total Risk-Based Capital........ $7,724 20.62%
Risk-Based Capital Requirement.. 2,997 8.00%
----- -----
Excess.......................... $4,727 12.62%
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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 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.
8
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. Current regulations required 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 8.67% at December 31, 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 insures
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 will be reduced to
approximately .065% 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 will decline by approximately
70%.
9
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.
The annual meeting of stockholders was held on October 23, 1996. At
that meeting the following matters were considered and votes were
recorded as shown below:
1. The following directors were elected:
Nominee Votes For Votes Withheld
------- --------- --------------
James H. Brock 412,411 15,100
Glen C. Combs 412,411 15,100
Michael M. Kessler 412,411 15,100
2. The appointment of Cherry Bekaert & Holland, L.L.P. as
independent auditors of the Company for the fiscal year ending
June 30, 1997 was ratified:
Votes For Votes Against Abstain
--------- ------------- -------
426,111 1,400 0
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Not applicable.
(b) During the quarter under report, a Form 8-K (Item 7), dated
October 22, 1996, was filed. The Form 8-K was filed to report
first quarter earnings and the results of the annual meeting.
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 14, 1997 By: /s/ B. L. Rakes
--------------------------------------
B. L. Rakes
President, Chief Executive Officer,
Chief Financial Officer, and Director
Date: February 14, 1997 By: /s/ Mary G. Staples
--------------------------------------
Mary G. Staples
Controller/Treasurer
Principal Financial Officer
11