Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended: Commission File
September 30, 1997 Number: 33-67746
Virginia First Financial Corporation
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1678497
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Franklin and Adams Streets, Petersburg, Virginia 23804-2009
(Address of Principal Executive Office) (Zip Code)
804-733-0333 or 804-748-5847
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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
At October 1, 1997, 5,813,552 shares of common stock of the Registrant were
outstanding.
Virginia First Financial Corporation
Quarterly Report on Form 10-Q
September 30, 1997
Index
Part I. Financial Information Page No.
Item 1 Consolidated Statements of Earnings for the
three-month periods ended September 30, 1997
and September 30, 1996 3
Consolidated Statements of Financial Condition
as of September 30, 1997, June 30, 1997, and
September 30, 1996 4
Consolidated Statements of Cash Flows for the
three-month periods ended September 30, 1997
and September 30, 1996 5
Selected Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
2
Part I. Financial Information
Virginia First Financial Corporation and Subsidiaries
Consolidated Statements of Earnings
Three Months Ended
September 30,
----------------------------------------
(In thousands, except share data) 1997 1996
------------------ ------------------
(Unaudited) (Unaudited)
Interest Income
Interest and fees on loans 17,146 $ 14,757
Interest on securities 524 703
Other interest income 262 224
---------------- ---------------
Total interest income 17,932 15,684
Interest Expense
Deposits 7,567 6,797
Borrowings 2,234 1,711
---------------- ---------------
Total interest expense 9,801 8,508
---------------- ---------------
Net interest income 8,131 7,176
Provision for loan losses 695 562
---------------- ---------------
Net interest income after provsion for loan losses 7,436 6,614
Noninterest Income
Loan servicing and fee income 238 343
Financial service fees 784 642
Gain on the sale of loans 2,062 748
Loss on sale of other real estate owned (36) 48
Other income 72 132
---------------- ---------------
Total noninterest income 3,120 1,913
Noninterest Expense
Personnel costs 2,960 2,655
Occupancy, net 462 407
Equipment 437 333
Advertising 297 81
SAIF deposit insurance premiums 93 3,474
Data processing 522 465
Amortization of intangibles 72 62
Other 1,105 943
---------------- ---------------
Total noninterest expense 5,948 8,420
---------------- ---------------
Earnings before income tax expense 4,608 107
Income tax expense (benefit) 1,852 (89)
---------------- ---------------
Net Earnings $ 2,756 $ 196
================ ===============
Net Earnings Per Share $ 0.46 $ 0.03
================ ===============
3
Part I. Financial Information
Virginia First Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
September 30 June 30, September 30
(In thousands, except share data) 1997 1997 1996
------------------ ------------------ -----------------
(Unaudited) (Note) (Unaudited)
Assets
Cash and cash equivalents $ 36,961 $ 26,738 $ 25,580
Investments held to maturity 6,557 6,543 6,626
Investements available for sale 18,463 27,706 40,724
Loans, net of unearned income and discounts 672,379 685,366 641,667
Less: allowance for loan losses (9,840) (9,295) (8,087)
--------------- ---------------- ---------------
Net loans 662,539 676,071 633,580
Loans held for sale 99,859 92,495 48,753
Real estate owned, net 6,658 7,647 5,884
Office properties and equipment, net 9,538 9,644 8,916
Accrued interest receivable, net 5,386 5,781 5,300
Other assets 7,596 5,778 5,995
--
================== ================ =================
Total assets $ 853,557 $ 858,403 $ 781,358
================== ================== =================
Liabilities and Stockholders' Equity
Deposits $ 645,921 $ 600,205 $ 572,391
Notes payable and other borrowings 604 611 10,141
Advances from Federal Home Loan Bank 124,552 181,552 126,552
Advance payments by borrowers for taxes and insurance 3,190 3,397 2,775
Accrued expenses and other liabilities 10,154 6,146 8,386
------------------ ---------------- -----------------
Total liabilities 784,421 791,911 720,245
------------------ ------------------ -----------------
Stockholders' equity:
Preferred stock of $1 par value. Authorized 5,000,000 shares;
none issued - - -
Common stock of $1 par value. Authorized 20,000,000 shares;
issued and outstanding 5,813,762 shares at September 30, 1997,
5,810,462 at June 30, 1996 and 5,5743372 at September 30, 1996 5,814 5,810 5,743
Additional paid-in capital 9,069 9,115 8,471
Retained earnings - substantially restricted 54,390 51,478 46,996
Net unrealized gain (loss) on securities available for sale,
net of taxes (137) 89 (97)
------------------ ---------------- -----------------
Total stockholders' equity 69,136 66,492 61,113
------------------ ------------------ -----------------
Total liabilities and stockholders' equity $ 853,557 $ 858,403 $ 781,358
================== ================== =================
NOTE: The Consolidated Statements of Condition for June 30, 1997, has been
taken from the Audited Financial Statements.
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
4
Part I. Financial Information
Virginia First Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
September 30,
----------------------------------------
(In thousands, except share data) 1997 1996
------------------ -----------------
(Unaudited) (Unaudited)
Operating Activities:
Net earnings $ 2,756 $ 196
Adjustment to reconcile net earnings to net cash
provided by operating activities:
Deprecation and amortization 372 303
Provision for loan losses 695 574
Loans held for sale:
Originations and purchases (213,646) (109,247)
Gain on sales (2,062) (748)
Proceeds from sales 208,344 106,709
(Increases) in other assets (1,423) (593)
Increase in accrued expense and other liabilities 4,008 911
Other-net 0 0
---------------- ---------------
Net cash (used)provided by operating activities (956) (1,895)
---------------- ---------------
Investing Activities:
Net decrease (increase) in loans 12,633 (18,585)
Securities held to maturity:
Purchases 0 (12,745)
Principal collected 27 26
Securities available for sale:
Principal collected 2,733 755
Proceeds from sale 6,455
Decrease(increase) in real estate owned 989 472
Decrease(increase) in fixed assets (106) (377)
---------------- ---------------
Net cash provided by (used in) investing activities 22,731 (30,454)
---------------- ---------------
Financing Activities:
Net increase (decrease) in savings, checking and
money market deposit accounts (8,937) (5,318)
Net increase in certificates of deposit 54,653 4,173
Borrowings resulting from:
Securities sold under repurchase agreements 0 18,544
Advances from Federal Home Loan Bank 12,000 130,400
Other 4,515 4,295
Repayments of borrowings attributable to:
Securities sold under repurchase agreements 0 (9,030)
Advances from Federal Home Loan Bank (69,000) (105,900)
Other (4,522) (4,307)
Net increase in mortgage escrow funds (207) 607
Proceeds from issuance of common stock 115 33
Cash dividends paid (169) (143)
---------------- ---------------
Net cash provided by financing activities (11,552) 33,354
---------------- ---------------
Net increase in cash and due from banks 10,223 1,005
Cash and due from banks at beginning of period 26,738 24,575
================ ===============
Cash and due from bank at end of period $ 36,961 $ 25,580
================ ===============
Supplemental Disclosures of Cash Flow Information:
Cash payments of interest $ 9,728 $ 8,454
================ ===============
Cash payments of income taxes $ 1,510 $ 2,895
================ ===============
5
Virginia First Financial Corporation and Subsidiaries
Selected Notes to Consolidated Financial Statements
Note 1: The interim condensed consolidated financial statements are
unaudited but, in the opinion of management, reflect all
adjustments necessary for a fair presentation of results for
such periods. All such adjustments are of a normal, recurring
nature. The results of operations for any interim period are
not necessarily indicative of results for the full year. These
consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report for the
year ended June 30, 1997 ("fiscal year 1997"). The
accompanying consolidated financial statements for prior
periods reflect certain reclassifications in order to conform
to the fiscal year 1997 presentation.
Note 2: For purposes of computing net earnings per share, the
weighted average number of shares outstanding for the quarters
ended September 30, 1997 and 1996 were 5,996,924 and 5,842,856
respectively.
Note 3: Regulatory Capital of Virginia First Savings Bank:
Excess
Over
Actual Required Requirement
------ -------- -----------
Amount Percent Amount Percent Amount Percent
------ ------- -------------- ------ -------
(In thousands)
September 30, 1997
- ------------------
Tangible capital $66,033 7.76% $12,766 1.50% $53,267 6.26%
Core capital 66,127 7.77 34,046 4.00 32,081 3.77
Risk-based capital 73,730 12.16 48,505 8.00 25,225 4.16
September 30, 1996
- ------------------
Tangible capital $58,543 7.52% $ 11,681 1.50% $46,862 6.02%
Core capital 58,758 7.54 31,158 4.00 27,600 3.54
Risk-based capital 65,668 11.88 44,226 8.00 21,442 3.88
6
Part I. Financial Information
Virginia First Financial Corporation and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Virginia First Financial Corporation (the "Company") was incorporated
in Virginia in 1993 to serve as the holding company of Virginia First Savings
Bank, F.S.B. (the "Savings Bank"). The Savings Bank is a federally chartered
capital stock savings bank with its principal offices in Petersburg, Virginia.
The Savings Bank, incorporated in 1888, is one of the oldest financial
institutions in the Commonwealth of Virginia.
The Company's principal business activities, which are conducted
through the Savings Bank, are attracting checking and savings deposits from the
general public through its retail banking offices and originating, servicing,
investing in and selling loans secured by first mortgage liens on single-family
dwellings, including condominium units. The Company also lends funds to retail
banking customers by means of home equity and installment loans, and originates
residential construction loans and loans secured by commercial property,
multi-family dwellings and manufactured housing units. The Company invests in
certain U.S. Government and agency obligations and other investments permitted
by applicable laws and regulations. The operating results of the Company are
highly dependent on net interest income, the difference between interest income
earned on loans and investments and the cost of checking and savings deposits
and borrowed funds.
Deposit accounts up to $100,000 are insured by the Savings Association
Insurance Fund and administered by the Federal Deposit Insurance Corporation
(the "FDIC"). The Savings Bank is a member of the Federal Home Loan Bank (the
"FHLB") of Atlanta. The Company and the Savings Bank are subject to the
supervision, regulation and examination of the Office of Thrift Supervision (the
"OTS") and the FDIC. The Savings Bank is also subject to the regulations of the
Board of Governors of the Federal Reserve System governing reserves required to
be maintained against deposits.
The Company's only direct subsidiary is the Savings Bank and the
Company has no material assets or liabilities, except for the stock of the
Savings Bank. The Savings Bank has three active subsidiaries; one is engaged in
real estate development and another is a title insurance agency. The third,
American Finance and Investment, Inc. is a mortgage banking company originating
mortgages on an automated basis through a computer network presently available
to potential customers in forty-four states and through tele-marketing.
7
The following commentary discusses major components of the Company's
business and presents an overview of the Company's consolidated results of
operations during the three-month periods ended September 30, 1997 and 1996, and
its consolidated financial position at September 30, 1997 and 1996, and June 30,
1997. The Company operates on a June 30 fiscal year. This discussion should be
reviewed in conjunction with the consolidated financial statements and
accompanying notes and other statistical information presented in the Company's
Annual Report for the fiscal year ended June 30, 1997.
Results of Operations
Virginia First recorded net earnings for the first quarter of fiscal
year 1998 ending September 30, 1997, of $2,756,000 or $.46 per share. Earnings
for the comparable quarter of first quarter fiscal year 1997 were $196,000 or
$.03 per share. The fiscal first quarter earnings annualized represent a return
on assets of 1.50% and a return on equity of 18.59%.
The earnings for the first quarter of last fiscal year were negatively
impacted by a one-time charge of $3,149,000, pre-tax, for the recapitalization
of the SAIF deposit insurance fund. On an after tax basis the impact of this
charge on earnings was $1,954,000 or $.34 pr share. Normalizing the first
quarter 1997 earnings for this charge would have resulted in net earnings of
$2,150,000. The net earnings for the current quarter of $2,756,000 then
represents an increase of $606,000 or 28.2%.
Financial Condition
Total assets were $853,557,000 at September 30, 1997, compared with
$858,403,000 at June 30, 1997, and $781,358,000 at September 30, 1996. Deposits
were $645,921,000 at September 30, 1997, compared with $600,205,000 at June 30,
1997, and $572,391,000 at September 30, 1996.
At September 30, 1997, stockholders' equity was $69,136,000
representing a book value of $11.89 per share, compared with $66,492,000 or a
book value of $11.44 per share at June 30,1997. Virginia First exceeded all
regulatory capital requirements at September 30, 1997 and was classified as a
"well capitalized" institution by regulators.
Net Interest Income
Net interest income for the first quarter of fiscal year 1998 ending
September 30, 1997, was $8,131,000, an increase of $955,000, or 13.3%, compared
with the first quarter of the last year's fiscal year. The net interest income
for the first quarter of the current fiscal year represents a net interest
margin of 3.92% compared with a 3.89% net interest margin for the first quarter
of last year.
8
The net interest margin improvement came as a result of a 14 basis
point improvement in the overall yield on earning assets with only a 7 basis
point increase in the overall cost of deposits and borrowings. An analysis of
the components of this improvement between the effect of changing volume of
earning assets and interest-bearing liabilities and the actual rates earned or
paid follows in this section. The following table reflect the average yields
earned and rates paid by the Company during the three-month periods ended
September 30, 1997 and September 30, 1996.
(In thousands)
Three-Month Periods
Ended September 30 1997 1996
- ------------------ ------------------------------------- ----------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Interest-earning assets;
Loans $ 773,564 $ 17,096 8.77% $671,075 $14,757 8.72%
Mortgage-backed securities and
collateralized mortgage obligations 10,115 173 6.79 23,132 6.45
Investments 19,559 377 7.65 20,608 327 6.30
Other interest-earning assets 18,444 262 5.64 16,434 224 5.41
------- ------ ---- ------- ------ ----
Total interest-earning assets 821,682 17,908 8.65 731,249 15,684 8.51
------- ------ ---- ------- ------ ----
Noninterest-earning assets:
Cash and cash equivalents 11,711 7,841
Office properties and equipment, net 9,629 8,781
Other assets 18,553 16,190
Allowance for loan losses (9,487) (7,690
------ ------
Total assets $ 852,088 $756,371
========= ========
Interest-bearing liabilities:
Checking and money market
deposit accounts $ 105,563 984 3.70 $ 98,267 922 3.72
Savings deposits 66,925 572 3.39 69,114 592 3.40
Certificates 418,347 5,997 5.69 367,609 5,283 5.70
Federal Home Loan Bank advances 152,432 2,229 5.80 113,906 1,601 5.58
Other borrowings 383 4 4.14 8,048 110 5.42
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 743,650 9,786 5.22 656,944 8,508 5.14
------- ------ ---- ------- ------ ----
Noninterest-bearing liabilities:
Deposits 25,966 24,650
Other 13,889 12,145
------- -------
Total liabilities 783,505 693,739
Stockholders' equity 68,583 62,632
------- -------
Total liabilities and
stockholders' equity $ 852,088 $756,371
========= ========
Net interest income $ 8,122 $ 7,176
========= ========
Interest rate spread 3.43% 3.37%
==== ====
Net interest margin 3.92% 3.89%
==== ====
9
The Company's net interest income is affected by changes in both average
interest rates and the average volumes of interest-earning assets and
interest-bearing liabilities. Total interest income increased by $2,224,000 in
the first quarter of fiscal year 1998 compared with the first quarter of 1977.
Total interest expense increased by $1,258,000 in the first quarter of fiscal
year 1998 compared with a year ago. Thus net interest income was $946,000 higher
this year compared to a year ago.
The following tables show the amounts of the changes in interest income
and expense which can be attributed to rate (change in rate multiplied by old
volume) and volume (change in volume multiplied by old rate) for the three-month
periods ended September 30, 1997 versus September 30, 1976.. The changes in net
interest income due to both volume and rate changes have been allocated to
volume and rate in proportion to the relationship of absolute dollar amounts of
the change of each. The table demonstrates that nearly all the increase in net
interest income in the comparative quarters is a result of the increase in the
volume of earning assets and that the same holds true for the increase in
interest expense--coming from an increase in the volume of interest-bearing
liabilities. The impact of the interest rate environment and changes in deposit
interest rates had virtually no effect on net interest income in the comparative
quarters.
(In thousands)
Three-Month Periods
Ended September 30 Fiscal Year 1998 Versus 1997
Increase (Decrease) Due to
--------------------------
Volume Rate Total
------ ---- -----
Loans and loans held for sale $ 2,242 $ 83 $ 2,325
Mortgage-backed securities and
collateralized mortgage obligations (211) 20 (191)
Investments (17) 70 53
Other interest-earning assets 27 10 37
------- ----- -------
Total interest-earning assets 2,041 183 2,224
Checking and money market
deposit accounts 68 (5) 63
Savings deposits (18) (2) (20)
Certificates 751 (10) 741
Federal Home Loan Bank advances 562 63 625
Other borrowings (105) (26) (131)
------ ----- -------
Total interest-bearing liabilities 1,258 20 1,278
------- ----- -------
Net interest income $ 783 $ 163 $ 946
======= ===== =======
10
Asset/Liability Management. Management strives to manage the maturity
or repricing match between assets and liabilities. The degree to which the
Company is "mismatched" in its maturities is a primary measure of interest rate
risk. In periods of stable interest rates, net interest income can be increased
by financing higher yielding long-term mortgage loan assets with lower cost
short-term deposits and borrowings. Although such a strategy may increase
profits in the short run, it increases the risk of exposure to rising interest
rates and can result in funding costs rising faster than asset yields. The
Company attempts to limit its interest rate risk by selling a majority of the
fixed rate mortgage loans that it originates.
Management has traditionally utilized the GAP analysis in evaluating
and monitoring its interest rate risk position. In 1997, this approach was
enhanced by also utilizing such interest rate risk evaluation tools as
simulation modeling, rate shock analysis, and market value of equity analysis.
The Company's interest rate risk profile is asset sensitive indicating that net
interest income would increase in a rising rate environment and decrease in a
declining rate environment. In a rising rate environment it is estimated that
the net interest margin would improve by 4-5% assuming continued asset growth
and consistent deposit mix. Concurrently, in a declining rate environment, it is
estimated that net interest income could decline by 3-5% given similar
assumptions with respect to asset growth/mix and deposit mix. In a rapid rising
or declining rate environment, the impact on net interest income is about 1- 2%
greater than the above exposure.
The rate shock analysis and market value of equity analysis also
indicates that the Company's exposure to changing interest rates are manageable
and are within acceptable limits as determined by management.
The following table is a matix depicting the Company gap position as of
September 30, 1997. The matrix shows the assets that reprice in various periods
along the top line with the longest assets to the left and the shortest, or the
earliest amount of assets repricing to the right. The liabilities and equity are
on the left vertical line with the non-maturity and longest liabilities at the
top and declining to the most frequent repricing liabilities. By matching the
assets that reprice in each time period shown against the liabilities for the
same period, if the assets equal the liabilities in the same repricing period
the amount will fall in the horizontal line. To the extent that the Company is
asset sensitive, the amount of mis-match falls above the line and to the extent
that the Company is liability sensitive the amount of such mis-match falls below
the line.
As can be seen from the matrix the Company is asset sensitive
indicating net interest income will be greater in a rising rate environment and
less in a declining rate environment. The simulation results noted above confirm
and quantify this rate sensitivity.
11
Match Funding Matrix
Virginia First Savings Bank
September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Assets 60+ Months 36 - 59 Months 24 - 35 Months 12 - 23 Months 10 - 11 Months 7 - 9 Months
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities &
Equity 120,552 43,135 53,649 50,329 69,770 68,667
- ---------------------------------------------------------------------------------------------------------------------------
60+ Months 110,413 110,413
- ---------------------------------------------------------------------------------------------------------------------------
36 - 59 Months 63,502 10,139 43,135 10,228
- ---------------------------------------------------------------------------------------------------------------------------
24 - 35 Months 78,787 43,421 35,366
- ---------------------------------------------------------------------------------------------------------------------------
12 - 23 Months 76,118 14,963 61,155
- ---------------------------------------------------------------------------------------------------------------------------
10 - 11 Months 110,171 8,615 68,667
- ---------------------------------------------------------------------------------------------------------------------------
7 - 9 Months 72,201
- ---------------------------------------------------------------------------------------------------------------------------
4 - 6 Months 84,749
- ---------------------------------------------------------------------------------------------------------------------------
2 - 3 Months 105,392
- ---------------------------------------------------------------------------------------------------------------------------
1 Month 44,697
- ---------------------------------------------------------------------------------------------------------------------------
O/N 107,500
===========================================================================================================================
Total 853,530 120,552 43,135 53,649 50,329 69,770 68,667
===========================================================================================================================
- ----------------------------------------------------------------------------------
4 - 6 Months 2 - 3 Months 1 Month O/N Total
- ----------------------------------------------------------------------------------
Liabilities &
Equity 71,609 95,609 217,651 62,559 853,530
- ----------------------------------------------------------------------------------
60+ Months 110,413
- ----------------------------------------------------------------------------------
36 - 59 Months 63,502
- ----------------------------------------------------------------------------------
24 - 35 Months 78,787
- ----------------------------------------------------------------------------------
12 - 23 Months 76,118
- ----------------------------------------------------------------------------------
10 - 11 Months 32,889 110,171
- ----------------------------------------------------------------------------------
7 - 9 Months 38,720 33,481 72,201
- ----------------------------------------------------------------------------------
4 - 6 Months 62,128 22,621 84,749
- ----------------------------------------------------------------------------------
2 - 3 Months 105,392 105,392
- ----------------------------------------------------------------------------------
1 Month 44,697 44,697
- ----------------------------------------------------------------------------------
O/N 44,941 62,559 107,500
==================================================================================
Total 71,609 95,609 217,651 62,559 853,530
==================================================================================
12
Loan Portfolio. The Company's portfolio of loans held for investment
totaled $672,379,000 at September 30, 1997, representing 80.4% of total assets.
The following table sets forth information at the dates indicated concerning the
composition of the Company's loan portfolio, by type:
September 30, 1997 June 30, 1997 September 30, 1996
------------------------- ------------------------ -------------------------
Percent Percent Percent
of of of
Gross Gross Gross
(In thousands) Amount Loans Amount Loans Amount Loans
--------- ----- --------- ----- --------- -----
First mortgage loans:
Residential - fixed rate $ 65,992 9.8% $ 67,489 9.8% $ 71,344 11.1%
Residential - adjustable rate 285,502 42.2 292,943 42.6 282,792 43.9
------- ---- ------- ---- ------- ----
Total residential 351,494 52.0 360,432 52.4 354,136 55.0
------- ---- ------- ---- ------- ----
Commercial - fixed rate 16,730 2.5 16,248 2.4 16,407 2.6
Commercial - adjustable rate 29,063 4.3 30,548 4.4 31,214 4.8
------- ---- ------- ---- ------- ----
Total commercial 45,793 6.8 46,796 6.8 47,621 7.4
------- ---- ------- ---- ------- ----
Construction - fixed rate 20,123 3.0 15,877 2.3 14,104 2.2
Construction - adjustable rate 115,839 17.1 126,105 18.3 106,452 16.5
------- ---- ------- ---- ------- ----
Total construction 135,962 20.1 141,982 20.6 120,556 18.7
------- ---- ------- ---- ------- ----
Total first mortgage loans 533,249 78.9 549,210 79.8 522,313 81.1
------- ---- ------- ---- ------- ----
Second mortgage loans:
Fixed rate 22,343 3.3 22,159 3.2 19,609 3.0
Adjustable rate 31,687 4.7 31,668 4.6 30,125 4.7
------- ---- ------- ---- ------- ----
Total second mortgage loans 54,030 8.0 53,827 7.8 49,734 7.7
------- ---- ------- ---- ------- ----
Loans on savings accounts 2,011 .3 2,190 0.3 1,832 0.3
------- ---- ------- ---- ------- ----
Installment loans:
Fixed rate 83,594 12.1 80,442 11.7 67,012 10.4
Adjustable rate 2,783 .4 2,890 0.4 3,173 0.5
------- ---- ------- ---- ------- ----
Total installment loans 75,531 12.8 83,332 12.1 70,185 10.9
------- ---- ------- ---- ------- ----
Gross Loans 675,667 100.0% 668,559 100.0% 644,064 100.0%
===== ===== =====
Less:
Unearned discount 1,586 581 167
Deferred income 1,702 2,612 2,230
------- -------- --------
3,288 3,193 2.397
------- -------- --------
Total net loans $672,379 $685,366 $641,667
======== ======== ========
13
Provision for Loan Losses. The Company provided $695,000 during the
first quarter of fiscal year 1998 as additions to the allowance for loan losses,
compared with $562,000 in the first quarter of fiscal year 1997. In establishing
the level of the allowance for loan losses, the Company considers many factors,
including general economic conditions, loan loss experience, historical trends
and other circumstances, both internal and external. The amount of the provision
for loan losses is established based on evaluations of the adequacy of the
allowance for loan losses. The Company considers the size and risk exposure of
each segment of the loan portfolio. For secured loans, management considers
estimates of the fair value of the collateral, considering the current and
currently anticipated future operating or sales conditions. Such estimates are
particularly susceptible to changes that could result in a material adjustment
to future results of operations. Factors such as independent appraisals, current
economic conditions and the financial condition of borrowers are continuously
evaluated to determine whether the Company's investment in such assets does not
exceed their estimated values. The Company's policy is to establish both general
and specific allowances for loan losses.
The following table presents the activity in the Company's allowance
for loan losses and selected loan loss data for the first six months of fiscal
years 1997 and 1996:
(In thousands)
Three-Month Period
Ended September 30 1997 1996
- ------------------ --------- ---------
Balance at beginning of period $ 9,295 $ 7,527
Provision charged to expense 695 562
Loans charged off:
Residential real estate - -
Commercial real estate - -
Construction - -
Consumer and other loans 175 15
---------- ------------
Total charge-offs 175 15
---------- ------------
Recoveries of loans previously charged off:
Residential real estate - -
Construction - -
Consumer and other loans 25 13
---------- -----------
Total recoveries 25 13
---------- -----------
Net charge-offs 150 2
---------- -----------
Balance at end of period $ 9,840 $ 8,087
========== =========
Average loans held for investment $ 665,744 $ 631,275
Loans held for investment at period end 672,380 641,667
Ratio of provision for loan losses to
average loans held for investment 0.40% 0.09%
Ratio of net charge-offs to average
loans held for investment 0.07% 0.00%
Ratio of allowance for loan losses to loans
held for investment at period end 1.46% 1.26%
14
While the Company's management believes that its present allowance for
loan losses is adequate, future adjustments may be necessary.
The allowance for loan losses is a general allowance applicable to all
loan categories; however, management has allocated the allowance to the various
portfolios to provide an indication of the relative risk characteristics of the
total loan portfolio. The allocation is based on the same judgmental criteria
discussed earlier in determining the level of the allowance and should not be
interpreted as an indication that charge offs for the balance of fiscal year
1997 will occur in these amounts, or proportions, or that the allocation
indicates future trends. The allocation of the allowance at September 30, 1997,
June 30, 1997 and September 30, 1996 and the ratio of the related outstanding
loan balances to total loans held for investment are as follows:
(In thousands) September 30, 1997 June 30, 1997 September 30, 1996
---------------------- -------------------- ----------------------
Ratio of Ratio of Ratio of
Loans to Loans to Loans to
Total Loans Total Loans Total Loan
Held for Held for Held for
Allowance Investment Allowance Investment Allowance Investment
--------- ---------- --------- ---------- --------- ----------
Residential real estate $ 1,700 60.0% $ 1,640 63.1% $ 1,485 62.7%
Commercial real estate 3,000 6.8 2,880 7.8 2,672 7.4
Construction 3,700 20.1 3,400 19.4 2,500 18.7
Consumer and other loans 1,440 13.1 1,375 9.7 1,430 11.2
------- ----- ------- ------ ------- ------
$ 9,840 100.0% $ 9,295 100.0% $ 8,087 100.0%
======= ====== ======= ====== ======= ======
15
Investments. The Company classifies a large portion of its investment
securities and mortgage-backed securities as available for sale. Such
secutitites are reported on a fair value basis, with unrealized gains and losses
excluded from earnings but reported as a separate component of stockholders'
equity, net of deferred tax provision. Management believes the available for
sale classification allows the most flexibility in meeting liquidity needs,
adjusting interest rate risk and controlling balance sheet trends. The Company
could experience volatility in its capital account in future periods because of
market price fluctuation in its investment securities and mortgage-backed
securities holdings.
The amortized cost and fair value of the Company's investment
securities and mortgage-backed securities (including collateralized mortgage
obligations, or "CMOs") are as follows:
(In thousands) September 30, 1997 June 30, 1997 September 30, 1996
------------------ ------------------ ------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
Investment Securities(1)
Held to maturity:
FHLB notes $ - $ - $ - $ - $ - $ -
Municipal bonds 6,148 6,148 6,174 6,226 6,253 6,253
------- ------- ------- ------- -------- -------
6,148 6,148 6,174 6,226 6,253 6,253
------- ------- ------- ------- -------- -------
Available for sale:
FHLB notes 3,956 3,998 6,453 6,461 8,943 8,932
FNMA bonds - - - - - -
------- ------- ------- ------- -------- -------
8,943 8,932
Net unrealized gain(loss) 42 - 8 - (11) -
------- ------- ------- ------- -------- -------
3,998 3,998 6,461 6,461 8,932 8,932
------- ------- ------- ------- -------- -------
$10,146 $10,146 $12,635 $12,687 $ 15,185 $15,185
======= ======= ======= ======= ======== =======
(1) Excludes investment in the Federal Home Loan Bank stock.
16
Mortgage-Backed Securities
Held to maturity:
FHLMC $ 367 $ 379 $ 369 $ 383 $ 373 $ 381
Other - - - - - -
-------- ------- -------- ------- ------- -------
367 379 369 383 373 381
-------- ------- -------- ------- ------- -------
Available for sale:
FHLMC 6,710 6,680 - - - -
FHLB - - - - 2,834 12,836
Agency MBS - - 12,032 12,167 12,105 11,958
-------- ------- -------- ------- ------- -------
6,710 6,680 12,032 12,167 24,939 24,794
Net unrealized
Losses (30) - 135 - (145) -
-------- ------- -------- ------- ------- -------
6,680 6,680 12,167 12,167 24,794 24,794
-------- ------- -------- ------- ------- -------
Total MBS Securities $ 7,047 $ 7,059 $ 12,536 $12,550 $25,167 $25,175
======== ======= ======== ======= ======= =======
Noninterest Income. Financial service fees increased by $142,000,
or 22.1% in the first quarter of fiscal 1998 compared to the same quarter in the
previous year. The increase is primarily attributed to and increase in the
number of accounts and revenue from implementation of an ATM surcharge fee.
Sales of real estate owned yielded a loss of $36,000 compared to a
net gain of $48,000 in the same quarter of the previous fiscal year.
Loan servicing and fee income declined from $343,000 in the first
quarter of fiscal 1977 compared with $238,000 for the first quarter of this
fiscal year. The sale of loan servicing in fiscal 1996 with only residual
balances of loans remaining has resulted in a declining source of revenue.
The gain on the sale of loans represents the largest source of
noninterest income to the Company. Gains on sale of loans in the first quarter
of fiscal 1998 amounted to $2,062,000, an increase of $1,314,000, or 275.5%
increase. The increase is due to substantially higher volume of loans being
originated and then sold servicing released.
Noninterest Expenses. Total noninterest expense for the first
quarter of fiscal 1998 was $5,948,000 compared with $8,420,000 for the first
quarter of last fiscal year. However, in the first quarter of last year the
Company paid the on-time assessment to recapitalize the SAIF fund in the amount
of $3,149,000. Excluding this one-time charge,
17
expenses would have been up over last year by $677,000 or 12.8%. The increase is
primarily attributable to American Finance and Investments which was acquired in
December of 1996. AFI for the quarter has salary expense of $536,000, Occupancy
and equipment expense of $90,000 and Advertising expense of $224,000. These
expense in the first quarter of the current fiscal year are greater than the
overall increase in expenses.
By individual expense categories, personnel costs increased
$305,000, Advertising increased $216,000, Occupancy expense increased $54,000,
equipment expense by $158,000, and other expenses by $73,000. Excluding the
increases in expenses due to the acquisition of AFI, the Company generally
operated on a lower expense level than in the first quarter of last fiscal year.
Financial Condition
Liquidity and Capital Resources. The primary sources of funds for
the Company consist of checking and savings deposits, loan sale fundings, loan
repayments, borrowings from the FHLB and others, and funds provided from
operations. Deposits totaled $645,921,000 at September 30, 1997, an increase of
$45,716,000, or 7.6%, over the $600,205,000 at June 30, 1997. Certificates of
deposit grew by $47,222,000 in the first quarter of fiscal year 1998, while
savings deposits declined by $936,000 and checking and money market deposit
accounts declined by $570,000. The principal reason for the decline in checking
deposits due to special promotional CD programs and general changes in deposit
balances.
Advances from the FHLB decreased by $57,000,000 to $124,552,000 at
September 30, 1997, compared to $181,552,000 at June 30, 1997. The decline in
borrowings is directly attributable to the increase in deposits discussed above.
The Company has access to advances from the FHLB generally secured by pledging
mortgage loans and its stock in the FHLB.
At September 30, 1997, the Savings Bank's net worth under generally
accepted accounting principles ("GAAP") was $69,136,000. OTS Regulations require
that savings institutions maintain the following capital levels: (1) tangible
capital of at least 1.5% of total adjusted assets, (2) core capital of 4.0% of
total adjusted assets, and (3) overall risk-based capital of 8.0% of total
risk-weighted assets.
18
As of September 30, 1997, the Savings Bank satisfied all of the
regulatory capital requirements, as shown in the following table reconciling the
Savings Bank's GAAP capital to regulatory capital:
Risk -
Tangible Core Based
(In thousands) Capital Capital Capital
-------------- ------- ------- -------
GAAP capital $ 69,116 $ 69,116 $ 69,116
Non-allowable assets:
Goodwill (2,088) (2,088) (2,088)
Other intangible assets (92) - -
Equity in subsidiaries (893) (893) (893)
Additional capital items:
Unrealized gain on
debt securities, net (8) (8) (8)
General loss allowances - - 7,603
-------- -------- --------
Regulatory capital - computed 66,035 66,127 73,730
Minimum capital requirement 12,766 34,046 48,505
-------- -------- --------
Excess regulatory capital $ 53,269 $ 32,081 $ 25,225
======== ======== ========
Ratios:
Regulatory capital - computed 7.76% 7.77% 12.16%
Minimum capital requirement 1.50 4.00 8.00
-------- -------- --------
Excess regulatory capital 6.26% 3.77% 4.16%
======== ======== ========
19
Asset Quality
The following table sets forth information regarding non-accrual
loans and real estate owned held by the Company at the dates indicated:
(In thousands) September 30, June 30, September 30
1997 1997 1996
------------- ------------ ------------
Non-accrual loans:
Residential mortgage $ 7,637 $ 7,419 $ 5,709
Commercial mortgage 1,061 1,061 1,747
Construction 12,585 3,092 3,283
Consumer non-mortgage 3,170 507 1,487
------- ------- --------
Total non-accrual loans 14,453 12,079 12,226
Specific loss allowances - - -
------- ------- --------
Total non-accrual loans, net 14,453 12,079 12,226
------- ------- --------
Real estate acquired through foreclosure:
One to four family
residential units 4,897 5,903 3,047
Residential land/lots 992 934 1,747
Shopping/retail centers 582 623 1,707
Office buildings - - -
Commercial land 187 187 192
------- ------- --------
Total real estate acquired
through foreclosure 6,658 7,647 6,693
Specific and general
allowances for losses - - (809)
------- ------- --------
Total real estate acquired through
foreclosure, net 6,658 7,647 5,884
------- ------- --------
Total non-performing assets $21,111 $19,726 $ 17,397
======= ======= ========
Non-accrual loans to gross loans 2.15% 1.76% 1.77%
Total non-performing assets to sum of
gross loans and real estate acquired
through foreclosure 3.11% 2.85% 2.50%
Total non-performing assets to total assets 2.47% 2.30% 2.23%
The net amount of interest income foregone during the first
quarters of fiscal years 1998 and 1997 on loans classified as non-performing was
$218,172 and $170,000, respectively.
20
Part II. Other Information
Virginia First Financial Corporation and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended September 30, 1997.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Virginia First Financial Corporation
------------------------------------
(Registrant)
Date: November 13, 1997 /s/ Charles A. Patton
----------------------
Charles A. Patton
President and
Chief Executive Officer
Date: November 13, 1997 /s/ William J. Vogt
---------------------
William J. Vogt
Senior Vice President and
Chief Financial Officer
22