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, 1998
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 Second Street, SW, Roanoke Virginia 24011-1597
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 343-0135
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 and 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares outstanding of each of the issuer's classes of common
stock, as of November 6, 1998: $0.10 par value - 493,112 common shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SWVA BANCSHARES, INC. & SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1998 and June 30, 1998
(unaudited) 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 and
September 30, 1997 (unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended September 30, 1998 and
September 30, 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and
September 30, 1997 (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 & SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
Assets
Sept 30 June 30
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1998 1998
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(Unaudited)
Cash and cash equivalents $ 1,824 $ 3,193
Interest-bearing deposits 6,396 5,897
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 303 318
Available for Sale, at fair value 20,842 21,607
Restricted at cost 961 961
Loans held for sale 1,630 1,608
Loans receivable, net 47,390 48,211
Property and equipment, net 1,641 1,662
Accrued interest receivable 581 565
Prepaid expenses and other assets 315 365
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Total assets $81,883 $84,387
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Liabilities and Stockholders' Equity
Deposits $65,702 $68,288
Advances from Federal Home Loan Bank 7,000 7,000
Advances from borrowers
for taxes and insurance 438 243
Other liabilities and deferred income 457 529
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Total liabilities 73,597 76,060
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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, 493,112 outstanding
as of September 30, 1998 and 496,887
outstanding as of June 30, 1998 49 50
Additional paid-in capital 3,991 4,050
Dividends declared and paid (98) (623)
Less unearned ESOP shares (27,385 shares) (274) (274)
Less unearned MSBP shares (17,537 shares) (299) (299)
Retained earnings
(substantially restricted) 4,827 5,365
Valuation allowance
marketable equity securities 90 58
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Total Stockholders' Equity 8,286 8,327
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Total Liabilities
and Stockholders' Equity $81,883 $84,387
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1
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
Three Months Ended
Sept 30
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1998 1997
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(Unaudited)
Interest income
Loans $1,001 $1,095
Mortgage-backed and related securities 153 46
U. S. Government obligations including agencies 165 107
Municipal Bonds 12 0
Other investments, including overnight deposits 162 145
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Total interest income 1,493 1,393
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Interest expense
Deposits 790 671
Borrowed funds 99 47
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Total interest expense 889 718
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Net interest income 604 675
Provision for credit losses 3 24
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Net interest income after
provision for credit losses 601 651
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Noninterest income
Loan and other customer service fees 37 32
Gain on sale of mortgage loans 79 46
Gross rental income 26 25
Loss (gain) on Available for Sale Investments 0 (17)
Other 7 0
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Total noninterest income 149 86
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Noninterest expenses
Personnel 352 318
Office occupancy and equipment 85 74
Data processing 55 31
Federal insurance of accounts 10 5
Other 111 122
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Total noninterest expenses 613 550
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Income before income taxes 137 187
Provision for income taxes 52 71
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Net income $ 85 $ 116
===== =====
Basic earnings per share .18 .24
Diluted earnings per share .18 .24
Cash dividends per share .20 1.15
2
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands)
Three Months Ended
Sept 30,
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1998 1997
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(Unaudited)
Net Income $ 85 $ 116
Other comprehensive income, net of tax
Unrealized gains on securities 20 25
---- ----
Comprehensive Income $ 105 $ 141
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3
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flow
(In Thousands)
Three Months Ended
Sept 30
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1998 1997
(Unaudited)
Operating Activities
Net Income $ 85 $ 116
Adjustments to Reconcile Net Income to Net Cash
Provided by (used in) operating activities
Provision for credit losses 3 24
Provision for depreciation and amortization 26 22
Provision for Deferred Income Tax 0 0
Loans Originated for Sale (6,710) (3,695)
Proceeds from sales of loans originated for sale 6,766 3,935
Gain on Sale of Loans, from fees (79) (46)
Gain on Sale of Real Estate 0 0
Gain on Disposal of Property and Equipment 0 1
Net gain on sale of investments, available for sale 0 (17)
Net (increase) decrease in Other Assets 50 (12)
Net increase (decrease) in Other Liabilities 132 135
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Net cash provided by (used in) operating activities 273 463
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Investing activities
Proceeds from sale of property and equipment 0 0
Proceeds from maturity of investments
and interest-bearing deposits 1,871 1,089
Proceeds from sale of available for sale investments 3,250 2,757
Purchase of investments and interest-bearing deposits (2,370) (2,250)
Purchase of available for sale investments (3,000) (1,961)
Proceeds from sale of foreclosed real estate 0 0
Purchase of foreclosed real estate 0 0
Purchase of property and equipment (5) (1)
Net (increase) decrease in loans 819 1,967
Purchase of loans 0 0
Principal repayments on Mortgage Backed Securities 546 80
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Net cash provided by (used in) investing activities 1,111 1,681
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Financing activities
Curtailment of advances and other borrowings 0 (1,500)
Proceeds from advances and other borrowings 0 2,500
Net increase (decrease) in savings deposits (2,586) 718
Repurchase of stock (68) 0
Dividends paid (99) (588)
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Net cash used in financing activities (2,753) 1,130
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Increase (decrease) in cash and cash equivalents (1,369) 3,274
Cash and cash equivalents at beginning of period 3,193 1,276
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Cash and cash equivalents at end of period $ 1,824 $ 4,550
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4
SWVA BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The accompanying consolidated financial statements include the accounts of SWVA
Bancshares, Inc. ("Company") and its wholly-owned subsidiary, Southwest Virginia
Savings Bank, FSB ("Bank") and its wholly-owned subsidiary, Southwest Virginia
Service Corporation. All significant intercompany balances and transactions have
been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the three months ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1999.
NOTE 2 -- STOCK REPURCHASE
The Company has adopted a stock repurchase program that allows for the
repurchase, from time to time, of up to 30,000 (5.9%) shares of common stock.
The stock repurchase program that the Company had previously adopted had expired
during 1997. The current plan to repurchase up to 30,000 shares does not state
an expiration date. Any shares repurchased may be used for general and other
corporate purposes, including the issuance of shares upon the exercise of stock
options.
During the quarter ended September 30, 1998, the Company repurchased 3,775
shares of common stock in the open market at an aggregate purchase price of
approximately $68,000. The amount repurchased represented approximately 0.76% of
the Company's total shares outstanding prior to the repurchase.
NOTE 3 -- EARNINGS PER SHARE
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations:
Three Months Ended
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September 30,
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1998 1997
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Numerator:
(a) Net income available to shareholders $ 85 $ 116
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Denominator:
Weighed-average shares outstanding 495,899 540,984
Less: ESOP weighed-average shares outstanding (27,385) (31,951)
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(b) Basic EPS weighed-average shares outstanding 468,514 479,033
Effect of dilutive securities:
Incremental shares attributable to the Stock Option 3,627 3,353
Plan and Management Stock Bonus Plan 1,429 994
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(c) Diluted EPS weighed-average shares outstanding 473,570 483,380
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Basic earnings per share (a/b) $ .18 $ .24
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Diluted earnings per share (a/c) $ .18 $ .24
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5
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
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 gains on securitise held as available for sale, for
the three months ended September 30, 1998 and 1997, of $32,000 and $41,000
respectively. The before tax and after tax amount, as well as the tax (expense)
is summarized below.
Before Tax After
Tax Expense Tax
--- ------- ---
Three months ended September 30, 1998:
Unrealized gains on securities $ 32 ($12) $ 20
Three months ended September 30, 1997:
Unrealized gains on securities $ 41 ($16) $ 25
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 1998 and June 30, 1998
Total assets decreased $2.5 million or 2.97% from $84.4 million at June 30, 1998
to $81.9 million at September 30, 1998. Net loans receivable decreased $800,000
or 1.70% to $47.4 million at September 30, 1998 from $48.2 million at June 30,
1998 due primarily to the existing low interest rate environment in which
management elected to retain fewer new mortgage originations in the loan
portfolio.
.
Interest-bearing deposits increased $500,000 or 8.46% to $6.4 million at
September 30, 1998 from $5.9 million at June 30, 1998 due mainly to an increase
in cash available from growth in Jumbo certificates of deposit. Cash and cash
equivalents decreased $1.4 million or 42.88% from $3.2 million at June 30, 1998
to $1.8 million at September 30, 1998 due mainly to maturing customer deposits
that were not renewed because of lower repricing by management. Held to Maturity
Investments decreased $15,000 from $318,000 at June 30, 1998 to $303,000 at
September 30, 1998. Available for Sale Investments decreased $765,000 from $21.6
million at June 30, 1998 to $20.8 million at September 30, 1998 due to principal
paybacks on Mortgage Backed Securities and the exercise of a call feature on an
investment.
There were no non-performing assets at September 30, 1998 and June 30, 1998.
Classified assets totaled $308,000. All were classified as substandard and were
on single family mortgage loans.
Deposits decreased $2.6 million, or 3.79% from $68.3 million at June 30, 1998 to
$65.7 million at September 30, 1998 due mainly to a decrease in funds in
certificates of deposits. This decrease was the result of lower repricing to
reflect downward movements in interest rates nationally and locally. Core
deposits were $16.2 million or 24.66% of total savings.
At September 30, 1998, there were $7.0 million outstanding in advances from the
Federal Home Loan Bank of Atlanta.
Advances from borrowers for taxes and insurance increased $195,000 or 80.25% due
to the accumulation of escrow for real estate taxes to be paid during the
quarter ending December 31, 1998. Other liabilities and deferred income
decreased $72,000 or 13.61%.
Results of Operations for the three months ended September 30, 1998
- -------------------------------------------------------------------
and September 30, 1997
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Net Income Net income decreased $31,000 or 26.72%, from $116,000 for
the three months ended September 30, 1997 to $85,000 for the three months ended
September 30, 1998. The decrease was mainly due to higher expenses for personnel
including a new chief operations officer, data processing and an increase in
interest expense for deposits and borrowings.
Interest Income Interest income increased $100,000, or 7.18%, from $1.4
million for the three months ended September 30, 1997 to $1.5 million for the
three months ended September 30, 1998. The increase was mainly a result in the
increase in earnings on a larger investment base offset by a reduction in
mortgage loans in the Bank's portfolio.
Interest Expense Interest expense increased $171,000 or 23.82% from
$718,000 for the three months ended September 30, 1997 to $889,000 for the three
months ended September 30, 1998. The increase was due mainly to an increase in
deposits and an increase in borrowed funds.
Net Interest Income Net interest income decreased by $71,000 or 10.52%
from $675,000 for the three months ended September 30, 1997 to $604,000 for the
three months ended September 30, 1998. The decrease was mainly due to increased
interest paid on deposits and borrowed funds and decreased income on mortgage
loans offset by increased income on investment securities.
Provision for Credit Losses The Bank made an addition of $3,000 to the
provision for credit losses for the quarter ended September 30,1998. The
allowance for credit losses was $210,000 at September 30, 1998. The Bank made an
addition of $24,000 to the provision for credit losses for the quarter ended
September 30, 1997. The addition was made due to a loss of $44,000 on a
delinquent real estate loan. After the deduction of the loss, the allowance for
credit losses was $197,000.
7
Results of Operations for the three months ended September 30, 1998
- -------------------------------------------------------------------
and September 30, 1997, cont.
- -----------------------------
Non-interest Income Non-interest income increased by $63,000, or 73.26%
from $86,000 for the three months ended September 30, 1997 to $149,000 for the
three months ended September 30, 1998. The increase was mainly due to an
increase in gains on the sale of mortgage loans during the quarter ended
September 30, 1998 offset by a loss on investment securities during the quarter
ended September 30, 1997.
Non-interest Expense Non-interest expense increased by $63,000, or
11.45% from $550,000 for the three months ended September 30, 1997 to $613,000
for the three months ended September 30, 1998, mainly due to an increase in
personnel expense and data processing expense.
Provision for income taxes The provision for income taxes for the three
months ended September 30, 1998 was $52,000 compared to $71,000 for the three
months ended September 30, 1997. The decrease was due to decreased income for
the quarter ended September 30, 1998.
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, 1998:
Percent of
----------
Amount Assets
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GAAP Capital.................... $7,777 9.45%
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Tangible Capital................ $7,777 9.45%
Tangible Capital Requirement.... 1,234 1.50%
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Excess.......................... $6,543 7.95%
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Core Capital.................... $7,777 9.45%
Core Capital Requirement........ 2,468 3.00%
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Excess.......................... $5,309 6.45%
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Total Risk-Based Capital........ $7,987 21.02%
Risk-Based Capital Requirement.. 3,039 8.00%
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Excess.......................... $4,948 13.02%
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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.
8
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.
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 19.62% at September 30, 1998 and 22.94% as of June 30, 1998.
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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
10
SWVA BANCSHARES, INC. & SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
SWVA Bancshares, Inc.
Date: November 13, 1998 By: /s/ B. L. Rakes
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B. L. Rakes
President, Chief Executive Officer,
Chief Financial Officer,
and Director
Date: November 13, 1998 By: /s/ Mary G. Staples
-----------------------------------
Mary G. Staples
Controller/Treasurer
Principal Financial Officer