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, 1998
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from to
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Commission File Number 0-24674
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SWVA BANCSHARES, INC
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VIRGINIA 54-1721629
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 Second Street, SW, Roanoke Virginia 24011-1597
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 343-0135
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 and 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 12, 1999: $0.10 par value - 493,112 common shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
SWVA BANCSHARES, INC. & SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE
===================== ====
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at December 31, 1998 and June 30, 1998
(unaudited) 1
Consolidated Statements of Income for the Three
and Six Months Ended December 31, 1998 and
December 31, 1997 (unaudited) 2
Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended December 31, 1998
and December 31, 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1998 and
December 31, 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 12
=================
SWVA BANCSHARES, INC & SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands)
Assets
Dec 31 June 30
------ -------
1998 1998
---- ----
(Unaudited)
Cash and cash equivalents $ 7,069 $ 3,193
Interest-bearing deposits 5,899 5,897
Investment & Mortgage Backed Securities:
Held to Maturity, at amortized cost 297 318
Available for Sale, at fair value 19,781 21,607
Restricted at cost 961 961
Loans held for sale 1,751 1,608
Loans receivable, net 46,593 48,211
Property and equipment, net 1,637 1,662
Accrued interest receivable 495 565
Prepaid expenses and other assets 323 365
-------- --------
Total assets $ 84,806 $ 84,387
======== ========
Liabilities and Stockholders' Equity
Deposits $ 66,699 $ 68,288
Advances from Federal Home Loan Bank 9,000 7,000
Advances from borrowers
for taxes and insurance 205 243
Other liabilities and deferred income 507 529
-------- --------
Total liabilities 76,411 76,060
-------- --------
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 December 31, 1998 and 496,887
outstanding as of June 30, 1998 49 50
Additional paid-in capital 3,982 4,050
Dividends declared and paid (89) (623)
Less unearned ESOP shares (27,385 shares) (274) (274)
Less unearned MSBP shares (14,895 shares) (254) (299)
Retained earnings
(substantially restricted) 4,938 5,365
Valuation allowance
marketable equity securities 43 58
-------- --------
Total Stockholders' Equity 8,395 8,327
-------- --------
Total Liabilities
and Stockholders' Equity $ 84,806 $ 84,387
======== ========
1
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
Three Months Six Months
Ended
December 31
--------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited)
Interest Income
Loans $ 1,000 $ 1,041 $ 2,001 $ 2,136
Mortgage-backed and related securities 158 43 311 89
U.S. Government obligations including agencies 149 182 314 289
Municipal Bonds 12 1 24 1
Other investments, including overnight deposits 158 157 320 302
------- ------- ------- -------
Total interest income 1,477 1,424 2,970 2,817
------- ------- ------- -------
Interest expense
Deposits 740 719 1,530 1,390
Borrowed funds 124 70 223 117
------- ------- ------- -------
Total interest expense 864 789 1,753 1,507
------- ------- ------- -------
Net interest income 613 635 1,217 1,310
Provision for credit losses 3 3 6 27
------- ------- ------- -------
Net interest income after
provision for credit losses 610 632 1,211 1,283
------- ------- ------- -------
Noninterest income
Loan and other customer service fees 38 31 75 63
Gain on sale of mortgage loans 128 28 207 74
Gross rental income 25 25 51 50
Gain (loss) on Available for Sale Investments 0 0 0 (17)
Other 2 0 9 0
------- ------- ------- -------
Total noninterest income 193 84 342 170
------- ------- ------- -------
Noninterest expenses
Personnel 348 299 700 617
Office occupancy and equipment 82 74 167 148
Data processing 56 42 111 73
Federal insurance of accounts 10 13 20 18
Other 126 103 237 225
------- ------- ------- -------
Total noninterest expenses 622 531 1,235 1,081
------- ------- ------- -------
Income before income taxes 181 185 318 372
Provision for income taxes 70 70 122 141
------- ------- ------- -------
Net Income $ 111 $ 115 $ 196 $ 231
======= ======= ======= =======
Basic earnings per share .24 .24 .42 .48
Diluted earnings per share .24 .24 .42 .48
Cash dividends per share .00 .00 .20 1.15
2
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
Three Months Six Months
Ended
December 31
--------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited)
Net Income $ 111 $ 115 $ 196 $ 231
Other comprehensive income, net of tax
Unrealized gains (losses) on securities (47) 10 (15) 50
----- ----- ----- -----
Comprehensive Income $ 64 $ 125 $ 105 $ 281
===== ===== ===== =====
3
SWVA BANCSHARES, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flow
(In Thousands)
Six Months Ended
Dec 31
---------------------
1998 1997
---- ----
(Unaudited)
Operating Activities
Net Income $ 196 $ 231
Adjustments to Reconcile Net Income to Net Cash
Provided by (used in) operating activities
MSBP Shares Allocated 45 44
Provision for credit losses 6 27
Provision for depreciation and amortization 52 49
Provision for Deferred Income Tax 0 0
Loans Originated for Sale (16,780) (6,527)
Proceeds from sales of loans originated for sale 16,843 6,602
Gain on Sale of Loans, from fees (207) (74)
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 135 (34)
Net increase (decrease) in Other Liabilities (59) (164)
-------- --------
Net cash provided by (used in) operating activities 231 138
-------- --------
Investing activities
Proceeds from sale of property and equipment 0 0
Proceeds from maturity of investments
and interest-bearing deposits 3,160 3,271
Proceeds from sale of available for sale investments 7,250 3,257
Purchase of investments and interest-bearing deposits (3,162) (3,652)
Purchase of available for sale investments (6,996) (9,271)
Proceeds from sale of foreclosed real estate 0 0
Purchase of foreclosed real estate 0 0
Purchase of property and equipment (28) (23)
Net (increase) decrease in loans 2,025 2,335
Purchase of loans (413) 0
Principal repayments on Mortgage Backed Securities 1,556 160
-------- --------
Net cash provided by (used in) investing activities 3,392 (3,923)
-------- --------
Financing activities
Curtailment of advances and other borrowings (1,000) (1,500)
Proceeds from advances and other borrowings 3,000 2,500
Net increase (decrease) in savings deposits (1,589) 6,879
Repurchase of stock (68) 0
Dividends paid (90) (535)
-------- --------
Net cash used in financing activities 253 7,344
-------- --------
Increase (decrease) in cash and cash equivalents 3,876 3,559
Cash and cash equivalents at beginning of period 3,193 1,276
-------- --------
Cash and cash equivalents at end of period $ 7,069 $ 4,835
======== ========
4
SWVA BANCSHARES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The accompanying consolidated financial statements include the accounts of SWVA
Bancshares, Inc. ("Company") and its wholly-owned subsidiary, Southwest Virginia
Savings Bank, FSB ("Bank") and its wholly-owned subsidiary, Southwest Virginia
Service Corporation. All significant intercompany balances and transactions have
been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the six months ended December 31, 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. No shares were
repurchased during the quarter ended December 31, 1998.
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 Six Months
Ended
December 31,
---------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited)
Numerator:
(a) Net income available to shareholders $ 111 $ 115 $ 196 $ 231
======== ======== ======== ========
Denominator:
Weighed-average shares outstanding 493,112 510,984 494,511 510,984
Less: ESOP weighed-average shares outstanding (27,385) (31,951) (27,385) (31,951)
-------- -------- -------- --------
(b) Basic EPS weighed-average shares outstanding 465,727 479,033 467,126 479,033
Effect of dilutive securities:
Incremental shares attributable to the Stock Option 0 6,527 0 5,013
Plan and Management Stock Bonus Plan 0 1,950 0 1,494
-------- -------- -------- --------
(c) Diluted EPS weighed-average shares outstanding 465,727 487,510 467,126 485,540
======== ======== ======== ========
Basic earnings per share (a/b) $ .24 $ .24 $ .42 $ .48
======== ======== ======== ========
Diluted earnings per share (a/c) $ .24 $ .24 $ .42 $ .48
======== ======== ======== ========
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 before tax and after tax amount, as well as the tax (expense) is summarized
below.
Tax
Before (Expense) After
Tax Benefit Tax
--- ------- ---
Three months ended December 31, 1998:
Unrealized gains (losses) on securities ($64) $ 17 ($47)
Three months ended December 31, 1997:
Unrealized gains (losses) on securities $ 17 ($ 7) $ 10
Six months ended December 31, 1998:
Unrealized gains (losses) on securities ($24) $ 9 ($15)
Six months ended December 31, 1997:
Unrealized gains (losses) on securities $ 76 ($26) $ 50
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at December 31, 1998 and June 30, 1998
- ------------------------------------------------------------------------
Total assets increased $419,000 or .49% from $84.4 million at June 30, 1998 to
$84.8 million at December 31, 1998. Net loans receivable decreased $1.6 million
or 3.35% to $46.6 million at December 31, 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.
Cash and cash equivalents increased $3.9 million or 121.39% from $3.2 million at
June 30, 1998 to $7.1 million at December 31, 1998 due to cash flow from loan
payments and payoffs, as well as matured or "called" investments, and management
has elected to utilize overnight investments until the direction of interest
rates can be better determined. Held to Maturity Investments decreased $21,000
from $318,000 at June 30, 1998 to $297,000 at December 31, 1998. Available for
Sale Investments decreased $1.8 million from $21.6 million at June 30, 1998 to
$19.8 million at December 31, 1998 due to principal paybacks on Mortgage Backed
Securities and the exercise of a call feature on several investments.
There were no non-performing assets at December 31, 1998 and June 30, 1998.
Classified assets totaled $328,000. All were classified as substandard and were
on single family mortgage loans.
Deposits decreased $1.6 million, or 2.33% from $68.3 million at June 30, 1998 to
$66.7 million at December 31, 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 $18.7 million or 28.02% of total savings.
At December 31, 1998, there were $9.0 million outstanding in advances from the
Federal Home Loan Bank of Atlanta. The increase in advances of $2.0 million was
due to management taking opportunity to obtain some long-term funding at
reasonable costs.
Advances from borrowers for taxes and insurance decreased $38,000 or 15.63% due
to the payment of real estate taxes paid from escrow during the quarter ending
December 31, 1998. Other liabilities and deferred income decreased $22,000 or
4.15%.
Results of Operations for the three months ended December 31, 1998
- ------------------------------------------------------------------
and December 31, 1997
- ---------------------
Net Income Net income decreased $4,000 or 3.48%, from $115,000 for the
three months ended December 31, 1997 to $111,000 for the three months ended
December 31, 1998. The decrease was mainly due to higher expenses for personnel
including a chief operations officer, data processing and an increase in
interest expense for deposits and borrowings offset by an increase in gain on
sale of mortgage loans.
Interest Income Interest income increased $53,000, or 3.72%, from $1.4
million for the three months ended December 31, 1997 to $1.5 million for the
three months ended December 31, 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 $75,000 or 9.51% from
$789,000 for the three months ended December 31, 1997 to $864,000 for the three
months ended December 31, 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 $22,000 or 3.46%
from $635,000 for the three months ended December 31, 1997 to $613,000 for the
three months ended December 31, 1998. The decrease was mainly due to increased
interest paid on a larger deposit base 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 December 31,1998. The
allowance for credit losses was $213,000 at December 31, 1998. The Bank made an
addition of $3,000 to the provision for credit losses for the quarter ended
December 31, 1997. The allowance for credit losses was $200,000 at December 31,
1997.
7
Results of Operations for the three months ended December 31, 1998
- ------------------------------------------------------------------
and December 31, 1997, cont.
- ----------------------------
Non-interest Income Non-interest income increased by $109,000, or
129.76% from $84,000 for the three months ended December 31, 1997 to $193,000
for the three months ended December 31, 1998. The increase was mainly due to an
increase in gains on the sale of mortgage loans during the quarter ended
December 31, 1998.
Non-interest Expense Non-interest expense increased by $91,000, or
17.14% from $531,000 for the three months ended December 31, 1997 to $622,000
for the three months ended December 31, 1998, mainly due to an increase in
personnel expense, data processing, advertising, audit and office equipment and
supply expenses.
Provision for income taxes The provision for income taxes for the
three months ended December 31,1998 and December 31, 1997 was $70,000.
Results of Operations for the six months ended December 31, 1998
- ----------------------------------------------------------------
and December 31, 1997
- ---------------------
Net Income Net income decreased $35,000 or 15.15%, from $231,000 for
the six months ended December 31, 1997 to $196,000 for the six months ended
December 31, 1998. The decrease was mainly due to higher expenses for personnel
including a chief operations officer, data processing and an increase in
interest expense for deposits and borrowings. These expenses were offset by an
increase in gain on sale of mortgage loans.
Interest Income Interest income increased $153,000, or 5.43%, from $2.8
million for the six months ended December 31, 1997 to $3.0 million for the six
months ended December 31, 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 $246,000 or16.32% from $1.5
million for the six months ended December 31, 1997 to $1.8 million for the six
months ended December 31, 1998. The increase was due mainly to an increase in
deposits and an increase in borrowed funds during the 3 months ended December
31, 1998.
Net Interest Income Net interest income decreased by $93,000 or 7.10%
from $1.3 million for the six months ended December 31, 1997 to $1.2 million for
the six months ended December 31, 1998. The decrease was mainly due to increased
interest paid on a larger deposit base 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 $6,000 to the
provision for credit losses for the six months ended December 31,1998. The
allowance for credit losses was $213,000 at December 31, 1998. The Bank made an
addition of $27,000 to the provision for credit losses for the quarter ended
December 31, 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 $200,000.
Non-interest Income Non-interest income increased by $172,000, or
101.18% from $170,000 for the six months ended December 31, 1997 to $342,000 for
the six months ended December 31, 1998. The increase was mainly due to an
increase in gains on the sale of mortgage loans during the quarter ended
December 31, 1998 offset by a loss on investment securities during the quarter
ended December 31, 1997.
Non-interest Expense Non-interest expense increased by $154,000, or
14.25% from $1.1 million for the six months ended December 31, 1997 to $1.2
million for the six months ended December 31, 1998, mainly due to an increase in
personnel expense and data processing expense.
The goal of management is to increase the profits of the Bank by
expanding its services, forming a Commercial Loan Department and improving its
delivery system for other loans and products. In doing so, management expects
non-interest expense will increase by a material amount over the next few
quarters. These expenses, including expenses for new equipment and personnel,
will likely reduce net income compared to prior periods. Management feels these
expenses are necessary in order to provide the level of financial services that
is required to nurture growth and increase profitability, thereby enhancing
shareholder value. This statement
8
Results of Operations for the six months ended December 31, 1998
- ----------------------------------------------------------------
and December 31, 1997, cont.
- ----------------------------
concerning these changes is a forward looking statement. The Private Securities
Litigation Reform Act of 1995 (the "Act") provides protection to the Company in
making certain forward looking statements that are accompanied by the factors
that could cause actual results to differ materially from the forward looking
statement.
Provision for income taxes The provision for income taxes for the six
months ended December 31, 1998 was $122,000 compared to $141,000 for the six
months ended December 31, 1997. The decrease was due to decreased income for the
six months ended December 31, 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 December 31,
1998:
Percent of
----------
Amount Assets
------ ------
GAAP Capital.................... $7,902 9.28%
===== =====
Tangible Capital................ $7,902 9.28%
Tangible Capital Requirement.... 1,277 1.50%
----- -----
Excess.......................... $6,624 7.78%
===== =====
Core Capital.................... $7,902 9.28%
Core Capital Requirement........ 2,555 3.00%
----- -----
Excess.......................... $5,347 6.28%
===== =====
Total Risk-Based Capital........ $8,115 20.28%
Risk-Based Capital Requirement.. 3,202 8.00%
----- -----
Excess.......................... $4,913 12.28%
===== =====
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.
9
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 28.26% at December 31, 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.
The Year 2000 Issue
The Bank's Board of Directors has adopted an action plan for
addressing the computer-related concerns raised by Year 2000. An internal
committee has been appointed by the Board to manage this effort. The year 2000
committee meets on a regular basis to review and assess the current status of
the Year 2000 project. The committee then prepares a status report o Management
and the Board of Directors.
Equipment
- ---------
A process to identify all equipment that may potentially be impacted has been
completed. All outside servicers and major vendors have been contacted in order
to ascertain their individual degree of readiness for Year 2000. This includes
items such as the vault, heating, ventilation and air conditioning controls and
telephones. All of the vendors have responded to these inquires. We have
received certifications of year 2000 compliance for systems controlled by third
party providers or determined that the systems should not be impacted by the
year 2000. The only upgrade needed will be to our telephone system, at a cost of
approximately $1,000. This upgrade has been completed.
Internal Computers
- ------------------
All internal computers have been tested for the year 2000. At this time, we have
found no problems with the computers and software used on the computers. We are
currently testing with Bisys (our data services provider which processes the
Bank's major loan and deposit applications) and will evaluate if any further
expenditures are necessary upon completion of the testing.
Computers used by our customers
- -------------------------------
Large loan customers have been contacted in order to both instill awareness and
to determine their state of readiness for Year 2000. All customers contacted
have responded. At this point, the Bank has no reason to doubt the ability of
any of these customers to continue to operate effectively in a Year 2000
environment. We believe that most of our residential borrowers are not dependent
on their computers for income and that none of our commercial borrowers are so
large that a year 2000 problem would render them unable to collect revenue or
rent and in turn continue to make loan payments to the Bank. New large loan
customers and commercial customers (both loan and deposit) are asked to complete
a form as to their state of readiness for the Year 2000. We do not expect any
material costs to address this risk area.
10
Year 2000 Issue, cont.
Cost
- ----
The committee has presented to the Board of Directors, and the Board has
approved a Year 2000 budget totaling approximately $30,000. Notification of an
additional meeting by Bisys in February will increase the expenses by
approximately $1,000, and the Board was notified of this at their January, 1999
meeting. At December 31, 1998, total expenses paid were $19,000. The major cost
is an upgrade and testing surcharge paid to Bisys. (Bisys is a data services
provider which processes the Bank's major loan and deposit applications.)
Contingency Plan
- ----------------
Our data services provider has sponsored four meetings on their progress and
test plans for the Year 2000. Starting in November, 1998 and continuing until
April, 1999, a test facility has been set up to provide for formal testing
between the Bank and Bisys. Another meetings is scheduled for February, 1999, to
discuss the first series of testing. At this time, we find no reason to believe
that Bisys will not be able to operate on January 3, 2000.
A Contingency Plan has been prepared by the committee to facilitate the ability
of the Bank to continue providing an acceptable level of service to the Bank's
customers in the event that Bisys encounters problems on January 3, 2000 or we
are unable to communicate with Bisys. Procedures were already in place to
accommodate interruptions of online service for periods of short duration. These
procedures have been re-evaluated for effectiveness over a longer duration.
Appropriate adjustments have been made and additional procedures required for
longer duration "down-time" have been put into place. At the end of December,
1999, we will generate paper backup of all customer accounts and general ledger
accounts. Customer payments will be processed manually, and due to the size of
the Bank, we believe that we would be able to operate in this manner
indefinitely, until our existing data servicer, or a replacement, is able to
again provide data processing services. This procedure could require changing of
schedules and the hiring of temporary staff during this time, which would
increase our cost. Should it be necessary to change data service providers
during the beginning of the Year 2000, the cost could be material.
11
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.
The annual meeting of stockholders was held on October 14, 1998. At that
meeting, stockholders elected two directors and ratified the appointment of
the independent auditors. The stockholders did not approve a stockholder
proposal to recommend that the Company's Board of Directors appoint a
special committee concerning offers to acquire the Company.
1. The following directors were elected:
Nominee Votes For Votes Withheld
------- --------- --------------
F. Courtney Hoge 380,691 81,884
Barbara C. Weddle 380,391 82,184
2. Ratification of appointment of Cherry Bekaert & Holland, L.L.P. as
independent auditors for 1998 fiscal year:
Votes For Votes Against Abstain
--------- ------------- -------
44,731 11,100 6,744
3. Proposal of a stockholder to recommend that the Board of Directors
appoint a special committee concerning offers to acquire the Company.
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
129,808 208,940 8,390 118,437
Item 5. Other Information
On February 10, 1999 the registrant entered into a standstill agreement
with Mr. Richard Nelson and LaSalle Capital Management, Inc. (the "Group").
Under the agreement, the Group has agreed to sell all of the 28,000 shares
of common stock of the registrant that it owns in return for $477,750. The
Group has agreed that, for a 12 year period, it will not (1) purchase or
vote any shares of the registrant's common stock, (2) attempt to influence
any person concerning any proxy solicitation or activity concerning the
registrant and (3) attempt to influence any person concerning an investment
in the common stock of the registrant.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.2 Amended Supplemental Executive Retirement Plan for B. L. Rakes
10.3 Amended Supplemental Executive Retirement Plan for Barbara C. Weddle
99.1 Standstill Agreement dated February 10, 1999
12
SWVA BANCSHARES, INC. & SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
SWVA Bancshares, Inc.
Date: February 12, 1999 By: /s/ B. L. Rakes
-----------------------------------------
B. L. Rakes
President, Chief Executive Officer,
Chief Financial Officer, and Director
Date: February 12, 1999 By: /s/ Mary G. Staples
-----------------------------------------
Mary G. Staples
Controller/Treasurer
Principal Financial Officer
13