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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 333-00724
VALLEY RIDGE FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
MICHIGAN 38-2888214
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6 NORTH MAIN STREET (616) 678-5911
KENT CITY, MICHIGAN 49330 (Issuer's Telephone Number,
(Address of Principal Executive Offices) Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes__X__ No_____.
There were 619,979 shares of Common Stock ($10 par value) outstanding as of
April 30, 1998.
Transitional Small Business Disclosure Format (check one): Yes_____
No__X__.
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VALLEY RIDGE FINANCIAL CORP.
FORM 10-QSB
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997 . . . . 3
Condensed Consolidated Statements of Income -
Comprehensive Income - Three Months Ended
March 31, 1998 (Unaudited) and March 31, 1997
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 (Unaudited) and
March 31, 1997 (Unaudited) . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION. . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,992,720 $ 5,502,762
Federal funds sold 3,100,000 3,000,000
------------ ------------
Total cash and cash equivalents 9,092,720 8,502,762
Securities 25,028,843 24,645,876
Total loans 91,996,771 92,417,342
Allowance for loan losses (1,232,668) (1,186,772)
------------ ------------
90,764,103 91,230,570
Premises and equipment - net 4,432,646 3,428,200
Other assets 3,148,251 3,067,101
------------ ------------
Total assets $132,466,563 $130,874,509
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 15,596,056 $ 16,465,625
Interest-bearing 91,092,933 88,709,310
------------ ------------
106,688,989 105,174,935
Other borrowings 11,000,000 11,000,000
Accrued expenses and other liabilities 1,212,917 1,402,198
------------ ------------
Total liabilities 118,901,906 117,577,133
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Shareholders' equity
Common stock, $10 par value: 1,000,000 shares
authorized; 619,979 shares outstanding
at March 31, 1998 and December 31, 1997 6,199,790 6,199,790
Surplus 1,396,736 1,396,736
Retained earnings 5,301,510 5,002,083
Net unrealized gain on securities available for sale 666,621 698,767
------------ ------------
Total shareholders equity 13,564,657 13,297,376
------------ ------------
Total liabilities and shareholders equity $132,466,563 $130,874,509
============ ============
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
(Unaudited)
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<CAPTION>
--------- THREE MONTHS ENDED --------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Interest income
Loans, including fees $2,178,393 $2,025,655
Federal funds sold 69,283 36,455
Investment securities 345,410 277,743
---------- ----------
2,593,086 2,339,853
Interest expense
Deposits 933,770 825,609
Other 165,670 116,864
---------- ----------
1,099,440 942,473
---------- ----------
NET INTEREST INCOME 1,493,646 1,397,380
Provision for loan losses 37,500 30,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,456,146 1,367,380
Other income
Service charges and other income 271,567 253,223
Gain on sales of investment securities 80,577 18,077
---------- ----------
352,144 271,300
Other expense
Salaries and benefits 691,544 610,897
Occupancy 75,035 79,078
Furniture and fixtures 60,816 65,613
FDIC insurance premium 3,062 4,644
Supplies 31,520 67,466
Other 362,435 387,628
---------- ----------
1,224,412 1,215,326
---------- ----------
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INCOME BEFORE FEDERAL INCOME TAX 583,878 423,354
Federal income tax expense 129,456 74,539
---------- ----------
NET INCOME $ 454,422 $ 348,815
========== ==========
Other comprehensive income, net of tax:
Change in unrealized losses on securities (48,706) 168,677
---------- ----------
COMPREHENSIVE INCOME $ 405,716 $ 517,492
========== ==========
Basic and diluted earnings per share $ .73 $ .70
========== ==========
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
VALLEY RIDGE FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
--------- THREE MONTHS ENDED -------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 454,422 $ 348,815
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 50,465 55,901
Amortization of:
Premiums and discounts on securities, net 5,683 13,056
Goodwill and core deposit intangibles 4,146 8,747
Provision for loan losses 37,500 30,000
Gain on sale of securities (80,577) (18,077)
Gain on sale of loans (13,733) (5,398)
Loans originated for sale (2,293,000) (822,800)
Proceeds from loans sold 2,215,233 828,198
Net change in:
Accrued interest receivable (76,953) (104,521)
Other assets (8,343) (8,409)
Accrued expenses and other liabilities 111,024 248,944
---------- -----------
Net cash from operating activities 405,867 574,456
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans 520,467 (3,661,084)
Proceeds from:
Sales of securities available for sale 3,542,237 2,611,198
Repayments and maturities of securities
available for sale 307,026 884,525
Purchase of:
Securities available for sale (4,206,042) (1,429,219)
Premises and equipment, net (1,054,911) (47,088)
---------- -----------
Net cash used in investing activities (891,223) (1,641,668)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,230,309 $ 4,308,281
Dividends paid (154,995) (99,217)
---------- -----------
Net cash from financing activities 1,075,314 4,209,064
---------- -----------
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Net change in cash and cash equivalents 589,958 3,141,852
Cash and cash equivalents at beginning of period 8,502,762 7,516,367
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,092,720 $10,658,219
========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $1,065,073 $ 918,840
Income taxes 0 0
</TABLE>
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See accompanying notes to condensed consolidated financial statements.
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. BASIS OF PRESENTATION
The unaudited financial statements for the three months ended
March 31, 1998 and March 31, 1997 include the consolidated results of
operations of Valley Ridge Financial Corp. (the "Corporation") and its
wholly-owned subsidiary, Valley Ridge Bank (the "Bank"). These
consolidated financial statements have been prepared in accordance
with the Instructions for Form 10-QSB and Item 310(b) of Regulation
S-B and do not include all disclosures required by generally accepted
accounting principles for a complete presentation of the Corporation's
financial condition and results of operations. In the opinion of
management, the information reflects all adjustments (consisting only
of normal recurring accruals) which are necessary in order to make the
financial statements not misleading and for a fair presentation of the
results of operations for such periods. The results for the period
ended March 31, 1998 should not be considered as indicative of results
that may be achieved for a full year. For further information, refer
to the consolidated financial statements and footnotes included in the
Corporation's Annual Report on Form 10-KSB for the year ended December
31, 1997.
2. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the activity in the allowance for loan
losses account for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at January 1, 1998 $1,186,772
Provision for loan losses charged
to operating expense 37,500
Recoveries on loans previously charged
to the allowance 10,152
Loans charged off (1,756)
----------
Balance at March 31, 1998 $1,232,668
==========
</TABLE>
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VALLEY RIDGE FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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3. OTHER BORROWINGS
At March 31, 1998, the Corporation had the following advances from the
Federal Home Loan Bank (the "FHLB"):
<TABLE>
<CAPTION>
TYPE INTEREST RATE MATURITY DATE AMOUNT
---- ------------- ------------- ------
<S> <C> <C> <C> <C>
Variable 5.779% October 22, 1998 $ 3,000,000
Fixed 5.230 February 1, 1999 1,000,000
Fixed 5.260 February 1, 1999 2,000,000
Fixed 6.070 July 9, 1999 2,000,000
Fixed 6.080 September 22, 1999 3,000,000
-----------
$11,000,000
===========
</TABLE>
Each advance requires monthly interest payments at either fixed or
adjustable rates. The variable rate is based on the FHLB overnight
rate and adjusts quarterly. These borrowings are collateralized by
nonspecific loans within the mortgage portfolio up to the principal
outstanding.
4. EARNINGS PER COMMON SHARE
Basic earnings and diluted earnings per share are calculated on the basis
of the weighted average number of shares outstanding. Earnings per share
amounts are based on 619,979 and 496,089 shares outstanding for the
three months ended March 31, 1998 and 1997, respectively. All share
amounts have been restated to reflect stock dividends and splits.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is designed to provide a review of the
consolidated financial condition and results of operations of Valley Ridge
Financial Corp. (the "Corporation"). This discussion should be read in
conjunction with the consolidated financial statements and related notes.
RESULTS OF OPERATIONS
NET INCOME. The Corporation reported net income of $454,422, or $0.73 per
share, for the first quarter of 1998 compared to $348,815, or $0.70 per
share, for the same period in 1997. The improvement was primarily a result
of improved net interest income and other income, partially offset by
increased other expenses. Management is not aware of any existing trends,
events, uncertainties or current recommendations by regulatory authorities
that are expected to have a material impact on the Corporation's future
operating results.
NET INTEREST INCOME. Net interest income increased $96,266, or 6.9%, to
$1,493,646 for the three-month period ended March 31, 1998 compared to the
same period in 1997. The increase in net interest income is primarily
attributable to an increase in investment securities of $7.3 million, or
41.5%, from March 31, 1997 to March 31, 1998, coupled with an increase in
loans during the same period.
PROVISION FOR LOAN LOSSES. The provision for loan losses represents the
adjustment to the allowance for loan losses needed to maintain the
allowance at a level determined by management to cover inherent losses
within the Corporation's loan portfolio. The allowance for loan losses is
based on the application of projected loss ratios to the risk-ratings of
loans, both individually and by category. Projected loss ratios
incorporate such factors as recent loss experience, current economic
conditions and trends, trends in past due and impaired loans, and risk
characteristics of various categories and concentrations of loans. The
provision increased to $37,500 for the three months ended March 31, 1998
from $30,000 for the same period in 1997. Net recoveries on loans previously
charged off were approximately $8,400 for the first quarter of 1998 compared
to net charge-offs of $3,600 for the same period in 1997. Management will
continue to monitor the allowance for loan losses and make additions to the
allowance through the provision for loan losses as economic conditions dictate.
NONINTEREST INCOME. Noninterest income for the three months ended
March 31, 1998 was approximately $352,000 as compared to $271,000 for the
same period in 1997. The increase is primarily attributable to increased
gains on sales of investment securities from $18,077 in 1997 to $80,577 in
1998.
NONINTEREST EXPENSE. The increase in noninterest income was offset by an
increase in noninterest expense to approximately $1,224,000 for the three
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<PAGE>
months ended March 31, 1998 compared to $1,215,000 for the same period in
1997. Salaries and benefits, the largest component of noninterest
expense, increased 13% from $610,897 for the three months ended March 31,
1997 to $691,544 for the same period in 1998. This increase is a result of
the opening of the White Cloud branch in 1997. Supplies expense decreased
53% from $67,466 to $31,520 for the same periods. This decrease in
supplies expense is primarily attributable to the changing of the Bank's
name and logo in late 1996, which caused increased expense during early
1997. The decrease in other expenses from $387,628 for the three months
ended March 31, 1997 to $362,435 for the same period in 1998 is due to
legal and professional fees charged in 1997 related to the acquisition of
Community Bank Corporation.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total assets increased approximately 1.2%, or by $1.6 million, to $132.5
million at March 31, 1998 compared to $130.9 million at December 31, 1997.
Total liabilities increased by 1.1%, or $1.3 million, to $118.9 million at
March 31, 1998 compared to $117.6 million at December 31, 1997. Total
shareholders' equity increased by approximately $.3 million to $13.6
million at March 31, 1998. The increase in shareholders' equity is
primarily related to the retention of earnings after dividend payouts
offset by a decrease in unrealized gain on securities available for sale.
Total loans decreased by approximately $.4 million or .46% to $91.9
million. Deposits increased by approximately $1.5 million or 1.4% to
$106.7 million. The increase in deposits is partially due to the opening
of the White Cloud branch in 1997. The remainder of the increase in
deposits is due to improved marketing efforts of the Bank in connection
with the change in name and logo of the Bank. The net loan to deposit
ratio has remained constant at approximately 85% for both periods
presented. The allowance for loan losses increased by approximately
$46,000 while maintaining a reserve of 1.34% of outstanding loans.
Premises and equipment increased by approximately $1 million, or 29%,
during the period as a result of the construction of a new main office
building in Kent City. Total expenditures relating to the new facility are
estimated to be $2.8 million. Completion is anticipated for June 1998.
The Corporation paid a dividend of $154,995 in the first quarter of 1998,
compared to $99,218 paid during the first quarter of 1997.
Shareholders' equity as a percent of total assets was 10.2% at March 31,
1998 compared to 10.2% at December 31, 1997. The Corporation's capital
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<PAGE>
ratios continue to exceed the minimum regulatory levels prescribed by the
Board of Governors of the Federal Reserve System.
Total cash and cash equivalents and investment securities totaled
approximately $34.1 million at March 31, 1998, or about 26% of total
assets. Deposits increased 1.4% during the first quarter of 1998 and
management believes its deposit base will remain a stable source of funds
for the remainder of 1998. Other sources of funding include normal loan
repayments, sales and maturities of securities, federal funds available
from correspondent banks, and additional advances available from the
Federal Home Loan Bank of Indianapolis ("FHLB"). As of March 31, 1998, the
Corporation had outstanding advances from the FHLB totaling $11,000,000.
Management believes that the current level of liquidity is sufficient to
meet the normal operating needs of the Bank.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
EXHIBIT NO. DOCUMENT
3.1 ARTICLES OF INCORPORATION. Previously filed as
Exhibit 3(a) to the Corporation's Form S-4 Registration
Statement filed January 30, 1996. Here incorporated by
reference.
3.2 BYLAWS. Previously filed as Exhibit 3(b) to the
Corporation's Form S-4 Registration Statement filed
January 30, 1996. Here incorporated by reference.
4.1 FORM OF STOCK CERTIFICATE. Previously filed as Exhibit
4(a) to the Corporation's Form S-4 Registration Statement
filed January 30, 1996. Here incorporated by reference.
4.2 LONG-TERM DEBT. The Corporation is a party to several
long-term debt agreements which at the time of this report
do not exceed 10% of the Corporation's total consolidated
assets. The Corporation agrees to furnish copies of the
agreements defining the rights of the parties thereto to
the Securities and Exchange Commission upon request.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
the quarter covered by this report.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VALLEY RIDGE FINANCIAL CORP.
Registrant
Date: May 15, 1998 /S/RICHARD L. EDGAR
Richard L. Edgar, President and Chief
Executive Officer (Principal Executive
Officer)
Date: May 15, 1998 /S/MICHAEL MCHUGH
Michael McHugh, Secretary and Treasurer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
3.1 ARTICLES OF INCORPORATION. Previously filed as
Exhibit 3(a) to the Corporation's Form S-4 Registration
Statement filed January 30, 1996. Here incorporated by
reference.
3.2 BYLAWS. Previously filed as Exhibit 3(b) to the
Corporation's Form S-4 Registration Statement filed
January 30, 1996. Here incorporated by reference.
4.1 FORM OF STOCK CERTIFICATE. Previously filed as Exhibit
4(a) to the Corporation's Form S-4 Registration
Statement filed January 30, 1996. Here incorporated by
reference.
4.2 LONG-TERM DEBT. The Corporation is a party to several
long-term debt agreements which at the time of this
report do not exceed 10% of the Corporation's total
consolidated assets. The Corporation agrees to furnish
copies of the agreements defining the rights of the
parties thereto to the Securities and Exchange
Commission upon request.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF VALLEY
RIDGE CORP. FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,993
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 25,029
<INVESTMENTS-MARKET> 25,029
<LOANS> 92,417
<ALLOWANCE> 1,233
<TOTAL-ASSETS> 132,467
<DEPOSITS> 106,689
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 11,000
<COMMON> 6,200
0
0
<OTHER-SE> 7,365
<TOTAL-LIABILITIES-AND-EQUITY> 132,467
<INTEREST-LOAN> 2,178
<INTEREST-INVEST> 345
<INTEREST-OTHER> 69
<INTEREST-TOTAL> 2,593
<INTEREST-DEPOSIT> 934
<INTEREST-EXPENSE> 1,099
<INTEREST-INCOME-NET> 1,494
<LOAN-LOSSES> 38
<SECURITIES-GAINS> 81
<EXPENSE-OTHER> 1,224
<INCOME-PRETAX> 584
<INCOME-PRE-EXTRAORDINARY> 584
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
<YIELD-ACTUAL> 4.97
<LOANS-NON> 123
<LOANS-PAST> 2,779
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,187
<CHARGE-OFFS> 2
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,233
<ALLOWANCE-DOMESTIC> 699
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 534
</TABLE>
