UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission File Number 000-22283
VIRGINIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1829288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
24 South Augusta Street, Staunton, Virgnia 24401
(Address of principal executive ooofices) (Zip Code)
Registrant's telephone number, including area code (540)885-1232
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
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
----- -----
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class: Common Stock, $5.00 par value
Outstanding as of July 31, 1997: 2,000,000
<PAGE>
VIRGINIA FINANCIAL CORPORATION
INDEX
<TABLE>
<S> <C>
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheet 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Changes in Stockholders' Equity 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS
<CAPTION>
<S> <C>
Three Months Ended
JUNE 30 JUNE 30
1997 1996
----------- -----------
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 3,642 $ 3,306
To Finance Agriculture & Farmers 71 71
Commercial & Industrial 855 835
Individuals for Household & Personal 859 737
Obligations of State & Political
Tax-Exempt 5 5
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 1,453 1,564
State & Political-Taxable 18 19
State & Political-Tax Exempt 173 195
Other Domestic Debt Securities 3 9
Income on Federal Funds Sold 18 6
----------- -----------
Total Interest Income 7,097 6,747
Interest Expense:
Interest on Deposits:
NOW Accounts 281 277
Money Market Accounts 553 576
Other Savings Deposits 272 290
CD's of 100M or More 281 322
All Other Time Deposits 1,683 1,594
Interest on Fed Funds Purch'd
& Repurchase Agreements 94 91
----------- -----------
Total Interest Expense 3,164 3,150
Net Interest Income 3,933 3,597
Provision for Loan Losses 238 156
Non-Interest Income:
Fiduciary Income 201 170
Service Charges on Deposit Accts. 160 162
Other Fee Income 255 177
All Other Non-Interest Income 28 18
----------- -----------
Total Non-Interest Income 644 527
Realized Gain (Losses) on AFS Securities 0 4
Non-Interest Expense:
Salaries & Employee Benefits 1,383 1,303
Expense of Premise & Fixed Assets 284 223
Other Non-Interest Expense 741 614
----------- -----------
Total Non-Interest Expense 2,408 2,140
Income Before Income Taxes 1,931 1,832
Applicable Income Taxes 603 564
----------- -----------
Net Income $ 1,328 $ 1,268
=========== ===========
Per Share Data Net Income $ 0.66 $ 0.63
Cash Dividends $ 0.27 $ 0.23
The accompanying notes are an integral part of these statements
3
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS
<CAPTION>
Six Months Ended
JUNE 30 JUNE 30
1997 1996
----------- -----------
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 7,181 $ 6,626
To Finance Agriculture & Farmers 137 141
Commercial & Industrial 1,686 1,624
Individuals for Household & Personal 1,678 1,433
Obligations of State & Political
Tax-Exempt 10 15
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 2,909 3,103
State & Political-Taxable 39 38
State & Political-Tax Exempt 358 378
Other Domestic Debt Securities 7 18
Income on Federal Funds Sold 27 57
----------- -----------
Total Interest Income 14,032 13,433
Interest Expense:
Interest on Deposits:
NOW Accounts 556 541
Money Market Accounts 1,090 1,222
Other Savings Deposits 540 575
CD's of 100M or More 576 637
All Other Time Deposits 3,345 3,174
Interest on Fed Funds Purch'd
& Repurchase Agreements 178 130
----------- -----------
Total Interest Expense 6,285 6,279
Net Interest Income 7,747 7,154
Provision for Loan Losses 313 156
Non-Interest Income:
Fiduciary Income 602 566
Service Charges on Deposit Accts. 311 323
Other Fee Income 525 414
All Other Non-Interest Income 59 35
----------- -----------
Total Non-Interest Income 1,497 1,338
Realized Gain (Losses) on AFS Securities 0 4
Non-Interest Expense:
Salaries & Employee Benefits 2,732 2,604
Expense of Premise & Fixed Assets 550 463
Other Non-Interest Expense 1,409 1,197
----------- -----------
Total Non-Interest Expense 4,691 4,264
Income Before Income Taxes 4,240 4,076
Applicable Income Taxes 1,330 1,268
----------- -----------
Net Income $ 2,910 $ 2,808
=========== ===========
Per Share Data Net Income $ 1.45 $ 1.40
Cash Dividends $ 0.54 $ 0.46
The accompanying notes are an integral part of these statements
4
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<CAPTION>
JUNE 30 DECEMBER
1997 1996
----------- -----------
ASSETS
Cash & Due from Banks $ 19,964 $ 16,287
Federal Funds Sold 6,000 0
Investments -
U.S. Government 14,564 13,561
U.S. Agencies 81,264 86,381
Municipal Bonds 16,920 18,608
Corporate Securities 250 250
----------- -----------
Total Investments 112,998 118,800
Loans
Secured by Real Estate 171,322 160,573
To Finance Agriculture & Farmers 2,925 2,879
Commercial & Industrial 34,483 34,313
Individuals for Household & Personal 39,594 37,413
Obligations of State & Political
Tax Exempt 478 582
Other Loans 240 192
----------- -----------
Total Loans 249,042 235,952
Less Reserve for
Loan Losses (3,302) (3,039)
----------- -----------
Net Loans 245,740 232,913
Bank Premises 4,402 4,390
Deposit Intangibles 278 290
Other Assets 4,919 4,433
----------- -----------
Total Assets $ 394,301 $ 377,113
=========== ===========
LIABILITIES AND CAPITAL
Deposits
Demand $ 49,165 $ 51,260
NOW Accounts 39,169 39,653
Money Market Checking 52,868 55,480
Savings 34,593 36,267
Time Deposits 171,201 147,715
----------- -----------
Total Deposits 346,996 330,375
Securities Sold Under
Agmt. to Repurchase 6,515 3,110
Federal Funds Purchased 0 5,000
Other Liabilities 1,415 1,054
Stockholders' Equity
Capital Stock 10,000 20,000
Surplus 13,554 3,554
Unrealized Gain (Loss) on Sec. (120) (91)
Undivided Profits 15,941 14,111
----------- -----------
Total Equity 39,375 37,574
----------- -----------
Total Liabilities
and Capital $ 394,301 $ 377,113
=========== ===========
The accompanying notes are an integral part of these statements
5
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<CAPTION>
Six Months Ended
JUNE 30 JUNE 30
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 13,952 $ 13,318
Fees and other non-interest income 1,484 1,338
Interest paid (6,343) (6,259)
Cash paid to suppliers and employees (4,191) (3,816)
Income taxes paid (1,455) (1,313)
----------- -----------
Net cash provided by operating activities $ 3,447 $ 3,268
----------- -----------
Cash flows from investing activities
Maturities of investment securities 11,505 21,976
Proceeds from sales of investment securities 0 7,024
Purchases of investment securities (5,750) (30,513)
Net increase in loans (13,140) (9,341)
Proceeds from sale of equipment 3 0
Capital expenditures (264) (247)
Purchase of other assets (70) (12)
----------- -----------
Net cash used in investing activities $ (7,716) $ (11,113)
----------- -----------
Net cash provided by financing activities
Net increase in certificates of deposit 23,487 4,758
Net decrease in demand deposits (6,866) (5,844)
Net (decrease) increase in federal funds purchased (5,000) 10,498
Net increase in securities held for resale 3,405 340
Dividends paid (1,080) (920)
----------- -----------
Net cash used in financing activities $ 13,946 $ 8,832
----------- -----------
Net increase in cash and cash equivalents 9,677 987
Cash and cash equivalents at beginning of year 16,287 12,575
----------- -----------
Cash and cash equivalents at end of year $ 25,964 $ 13,562
=========== ===========
6
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Six Months Ended
JUNE 30 JUNE 30
1997 1996
----------- -----------
Reconciliation of net income to net cash
provided by operating activities
Net income $ 2,910 $ 2,808
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 249 197
Provision for loan losses 313 156
(Gain) Loss on sale of equipment 0 0
Realized Gains on available for sale securities 0 (4)
Decrease in taxes payable (9) 0
Increase in interest receivable (85) (86)
Increase (Decrease) in interest payable (58) 20
Increase in prepaid expenses (375) (181)
Increase in accrued expenses 427 358
Amortization and accretion 60 13
Increase (Decrease) in deferred interest 1 (13)
Decrease in fees receivable 14 0
----------- -----------
Total Adjustments $ 537 $ 460
----------- -----------
Net cash provided by operating activities $ 3,447 $ 3,268
=========== ===========
The accompanying notes are an integral part of these statements
7
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS OF DOLLARS)
<CAPTION>
Unrealized Gain/
Loss on Securities Retained
Common Stock Surplus Available for Sale Earnings Total
------------ ------- ------------------ -------- -----
Balances, December 31, 1995 20,000 $3,554 $110 $10,489 $34,153
Cash Dividends (920) (920)
Net Income 2,808 2,808
Unrealized Loss on Securities
Available for Sale (462) (462)
------------- --------- ------------- ---------- ----------
Balances, June 30, 1996 20,000 $3,554 ($352) $12,377 $35,579
============= ========= ============= ========== ==========
Unrealized Gain/
Loss on Securities Retained
Common Stock Surplus Available for Sale Earnings Total
------------ ------- ------------------ -------- -----
Balances, December 31, 1996 20,000 $3,554 ($91) $14,111 $37,574
Issuance of Virginia Financial
Corporation Common Stock
1-2-97 Par Value $5. (10,000) 10,000 0
Cash Dividends (1,080) (1,080)
Net Income 2,910 2,910
Increase in Unrealized Loss
on Securities Available for Sale (29) (29)
------------- --------- ------------- ---------- ----------
Balances, June 30, 1997 10,000 $13,554 ($120) $15,941 $39,375
============= ========= ============= ========== ==========
The accompanying notes are an integral part of these statements
</TABLE>
8
<PAGE>
VIRGINIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
On November 14, 1996, the shareholders approved an Agreement and Plan
of Reorganization and related Plan of Share Exchange, relating to the adoption
of a bank holding company, Virginia Financial Corporation (herein after referred
to as "the Company"), which will serve as the holding company of the Bank. This
transaction was consumated on January 2, 1997.
The Company was not operational in 1996; therefore, the financial
statements and discussions for 1996 in this quarterly report relate to
operations of Planters Bank & Trust Company of Virginia and its subsidiary.
Planters Bank & Trust Company of Virginia is the sole bank subsidiary of the
Company. The Company has no material operations other than the ownership of the
Bank.
The accompanying financial statements of Virginia Financial Corporation
and its Subsidiary have not been audited by independent accountants for the
second quarter of 1997. The balance sheet at December 31, 1996, reflecting
Planters Bank & Trust Company of Virginia has been audited by independent
accountants.
Note 2. Securities as of June 30, 1997 and December 31, 1996 are summarized
below.
<TABLE>
<CAPTION>
<S> <C>
(000 Omitted)
June 30, 1997 December 31, 1996
Unrealized Unrealized
Book Market Gain (Loss) Book Market Gain (Loss)
---- ------ ----------- ---- ------ -----------
Securities Available for Sale
U.S. Treasury Securities $14,529 $14,565 $36 $12,515 $12,563 ($48)
U.S. Agency Securities 38,790 38,573 (217) 38,282 38,096 186
Obligations of State and
Political Subdivisions 0 0 0 0 0 0
Other Securities 0 0 0 0 0 0
---------- ---------- ----------- --------- ---------- ------------
Total Securities Available for Sale $53,319 $53,138 ($181) $50,797 $50,659 $138
Securities Held to Maturity
U.S. Treasury Securities $0 $0 $0 $999 $999 $0
U.S. Agency Securities 42,691 42,429 (262) 48,285 47,954 (331)
Obligations of State and
Political Subdivisions 16,920 16,921 1 18,608 18,613 5
Other Securities 250 250 0 250 251 1
---------- ---------- ----------- --------- ---------- ------------
Total Securities Held to Maturity $59,861 $59,600 ($261) $68,142 $67,817 ($325)
</TABLE>
9
<PAGE>
VIRGINIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<TABLE>
<CAPTION>
<S> <C>
June 30, 1997 December 31, 1996
------------- -----------------
Real Estate Loans:
Construction and Land Development $16,255 $14,205
Secured by Farm Land 1,271 933
Secured by 1-4 Family residential 114,167 106,693
Other Real Estate Loans 39,629 38,965
Loans to Farmers (Except Those Secured by Real Estate) 2,925 2,879
Commercial and Industrial Loans
(Except Those Secured by Real Estate) 34,483 34,313
Loans to Individuals for Personal Expenditures 39,984 37,542
All Other Loans 718 774
------------ -----------
Total Loans $249,432 $236,304
Less Unearned Income Reflected in Loans 390 352
------------ -----------
Loans, Net of Unearned Income $249,042 $235,952
============ ===========
</TABLE>
The Bank had loans in a Nonaccrual category of $194 on December 31, 1996 and
$1,367 on June 30, 1997.
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
For the Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Balance at Beginning of Period $3,039 $2,786
Charge-Offs (75) (119)
Recoveries 25 15
--------- ----------
Net Charge-Offs (50) (104)
Provision for Loan Losses 313 156
--------- ----------
Balance at End of Period $3,302 $2,838
========= ==========
10
<PAGE>
VIRGINIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. New Accounting Pronouncements
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" was issued in June, 1996 and
establishes, among other things, new criteria for determining whether a transfer
of financial assets in exchange for cash of other consideration should be
accounted for as a sale or as a pledge of collateral in a secured borrowing.
Statement 125 also establishes new accounting requirements for pledged
collateral. As issued, Statement 125 is effective for all transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 1996.
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the effective date
(a) paragraph 15 of Statement 125 and (b) for repurchase agreement, dollar-roll,
securities lending, or similar transactions, of paragraph 9-12 and 237(b) of
Statement 125.
The effects of these Statements on the Company's consolidated financial
statements are not expected to be material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income for the first six months of 1997 was $2,909,695 compared to
$2,807,516 for the first six months of 1996. This represents an increase of
$102,179 or 3.64 percent. Net income for the second quarter of 1997 was
$1,327,664 compared to $1,268,255 for the second quarter of 1996. This
represents an increase of $59,409 or 4.68 percent. Total interest income
comparing the two six month periods increased in 1997 by $599,001 or 4.46
percent while total interest expense increased only $6,401 or .10 percent.
Non-interest income increased in 1997 comparing the two six month periods by
$159,361 or 11.91 percent due primarily to increases in trust department and
secondary mortgage department income. Non-interest expense comparing the two
periods increased in 1997 by $427,719 or 10.03 percent due to increased cost of
ongoing operational expenses, salaries and benefits.
Financial Condition
Total assets increased the first six months of 1997 by $17.2 million or
4.56 percent compared to an increase of $11.5 million or 3.24 percent the first
six months of 1996. Assets increased the second quarter of 1997 by $15.7 million
compared to $5.4 million the second quarter of 1996. This increased growth
during the second quarter of 1997 was due to a promotion of a twenty month
certificate of deposit with an APY of 6.25 percent. Loan growth the first six
months of 1997 was $13.1 million compared to $9.2 million growth the first six
months of 1996. Deposit growth for the first six months of 1997 was $16.6
million compared to a decrease of $1.1 million during the first six months of
1996. The loan growth during the first six months of 1996 was funded by $8.0
million dollars in federal funds and $2.8 million dollars in securities sold
under agreement to repurchase.
Future Operations
Management has not planned and does not anticipate any significant
changes in the nature or methods of operations of the Bank's ongoing business in
the third quarter of 1997.
11
<PAGE>
<TABLE>
VIRGINIA FINANCIAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<CAPTION>
<S> <C>
(000 Omitted)
Six Months Ended June 30,
1997 1996
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
--------- --------- ------- --------- -------- -------
Balances at Correspondent Banks - Interest Bearing $0 $0 N/A $0 $0 N/A
Securities:
Taxable 99,594 2,955 5.93% 109,948 3,159 5.75%
Tax-exempt (1) 16,166 543 6.72% 16,314 572 7.01%
--------- --------- ------- --------- ------- ------
Total Securities 115,760 3,498 6.04% 126,262 3,731 5.91%
Loans (net of earned income):
Taxable 239,907 10,681 8.90% 213,878 9,825 9.19%
Tax-Exempt (1) 523 16 6.12% 731 22 6.02%
--------- ---------- ------- --------- ------- ------
Total Loans 240,430 10,697 8.90% 214,609 9,847 9.18%
Fed Funds Sold and Repurchase Agreements 1,011 27 5.34% 2,176 57 5.24%
--------- ---------- ------- --------- ------- ------
Total Earning Assets 357,201 14,222 7.96% 343,047 13,635 7.95%
Less Allowance for Loan Losses (3,118) (2,788)
Total Nonearning Assets 23,100 20,685
--------- ---------
Total Assets $377,183 $360,944
========= =========
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
NOW Accounts 40,145 556 2.77% 38,747 541 2.79%
Money Market Savings 57,683 1,090 3.78% 63,321 1,222 3.86%
Regular Savings 36,604 540 2.95% 38,747 575 2.97%
Certificates of Deposit:
Less than $100,000 126,162 3,345 5.30% 113,388 3,174 5.60%
$100,000 and More 20,689 576 5.57% 21,896 637 5.82%
--------- --------- ------- --------- ------- ------
Total Interest Bearing Deposits 281,283 6,107 4.34% 276,099 6,149 4.45%
Fed Funds Purchased 1,673 47 5.62% 1,461 41 5.61%
Short Term Borrowings 5,102 131 5.14% 3,526 89 5.05%
Long Term Borrowings 0 0 N/A 0 0 N/A
--------- --------- ------- --------- ------- ------
Total Interest Bearing Liabilities 288,058 6,285 4.36% 281,086 6,279 4.47%
Noninterest Bearing Liabilities
Demand Deposits 48,362 42,755
Other Liabilities 1,923 1,837
--------- ---------
Total Liabilities 338,343 325,678
Stockholders' Equity 38,840 35,266
--------- ---------
Total Liabilities and Stockholders' Equity $377,183 $360,944
Net Interest Income 7,937 7,356
Interest Rate Spread 3.60% 3.48%
Interest Expense as a Percent of Average
Earning Assets 3.52% 3.66%
Net Interest Margin 4.44% 4.29%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 1996 and 1997
12
<PAGE>
VIRGINIA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, 1997 neither the corporation nor the Bank was a party to
any legal proceedings.
Item 2. Changes in Securities
(a) The articles of incorporation of the Registrant as amended and restated (the
"Restated Articles") (see also item 4 below relating to the Annual Meeting of
Shareholders) provide for certain changes defining the rights of holders of the
Registrant's Common Stock, par value $5.00. The discussion below is qualified in
its entirety by reference to the actual text of the Restated Articles as set
forth in Exhibit 3 to this Form 10-Q and made a part hereof.
The Restated Articles provide: (i) the number of authorized shares of
Common Stock, par value $5.00 per share, is increased from five million
(5,000,000) to ten million (10,000,000) shares; (ii) the number of directors is
fixed within a range of five to fifteen individuals, and the exact number within
such range may be changed from time to time by the Board of Directors; (iii) the
directors may be removed with or without cause upon the affirmative vote of at
least two-thirds of the outstanding shares entitled to vote; (iv) provisions
relating to the voting requirements for the approval by shareholders of certain
significant business transactions are inserted; and (v) provisions relating to
the limitation on liability and broader indemnification of directors and
officers of the Registrant are inserted.
Certain Effects of the Restated Articles. The Restated Articles provide
shareholders with substantially the same voting rights, privileges, and equity
interest in the Registrant as they had prior to amendment. The Restated Articles
do not affect the absence of preemptive rights to subscribe for and purchase
additional shares of stock nor do they affect the absence of cumulative voting
rights with respect to the election of directors.
13
<PAGE>
Increase in Authorized Shares of Common Stock. The Restated Articles
authorize the Registrant to issue ten million (10,000,000) shares of common
stock. Following the amendment, the Registrant has in reserve approximately
eight million authorized but unissued shares of common stock. The management
of the Registrant believes that the availability of an ample reservoir
of authorized but unissued shares enhances the flexibility of the
Registrant in raising additional capital and in negotiating the acquisition of
other businesses through the issuance of Registrant common stock.
Fixing a Range of Directors. The amendment fixing a range of directors
in the Restated Articles does not represent an actual, immediate change in the
number of directors who currently serve on the Board of Directors. Both the
current Bylaws and the Restated Articles fix this number between five and
fifteen individuals and the Board of Directors is given the authority to set the
actual number within this range from time to time as it deems appropriate.
Currently the Bylaws of the Registrant may be amended by action of the Board of
Directors without shareholder action. The Restated Articles provision providing
for the range of five to fifteen directors may only be amended by a vote of the
shareholders. (See also Article VI in the Restated Articles relating to
shareholder approval of certain transactions, including amendment of the
Articles of Incorporation). Article VI will impact how future revisions to the
Articles of Incorporation are effected. Therefore, the insertion of provisions
in the Restated Articles relating to fixing the number of directors will make
future changes to the range more difficult to implement since a shareholder vote
will be required, thus, potentially acting to inhibit a change in the number of
directors that is not supported by the incumbent directors and the shareholders.
Therefore, this change may have an anti-takeover effect.
Removal of Directors. The previous Articles of the Registrant contained
no provision relating to removal of directors; therefore, the Virginia Stock
Corporation Act (the "Virginia SCA") provisions governed removal of directors.
The Virginia SCA provides that shareholders may remove directors with or without
cause, unless the articles of incorporation provide that directors may be
removed only with cause. Additionally, the Virginia SCA requires, in the absence
14
<PAGE>
of a provision in a corporation's articles of incorporation, that the removal of
a director must be approved by a majority vote of shareholders at an annual
meeting or a special meeting specifically called for the purpose of removing the
director. The Restated Articles provide that a director may be removed with or
without cause, but increase the required shareholder vote from approval by the
holders of a majority of the outstanding shares entitled to vote to the approval
by holders of at least two-thirds of the outstanding shares entitled to vote.
Thus, removal of a director may be more difficult. This provision prohibiting
the removal of directors except by a two-thirds vote stabilizes the Registrant's
Board of Directors by making the removal and replacement of a director by a
substantial shareholder or group of shareholders more difficult, thus,
potentially having an anti-takeover effect.
Shareholder Vote Required for Certain Actions. The Virginia SCA
provides that certain significant corporate actions must be approved by a vote
of more than two-thirds of the votes entitled to be cast on the matter, unless a
corporation's articles of incorporation provide for a higher or lower vote.
These corporate actions include amendments to a corporation's articles of
incorporation, plans of merger or exchange, sales of substantially all of the
corporation's assets other than in the ordinary course of business, or plans of
dissolution ("Fundamental Actions"). Virginia law provides that a corporation's
articles of incorporation may either increase the vote required to approve
Fundamental Actions or may decrease the required vote to not less than a
majority of the votes entitled to be cast.
15
<PAGE>
Article VI of the Registrant's Restated Articles decreases in certain
instances the shareholder vote requirement to approve Fundamental Actions if the
Board of Directors of the Registrant overwhelmingly approves of a transaction.
Article VI reduces the shareholder vote requirement to a majority of the shares
entitled to be cast for the proposal, provided that 80% of the members of the
Board of Directors then in office have approved and recommended the Fundamental
Action. In the absence of such approval and recommendation by the Board, the
vote required for approval of Fundamental Actions is two-thirds or more of the
shares entitled to vote on the matter. As noted above, the statutory approval
requirement under which the Registrant previously operated required approval of
Fundamental Actions by a vote of greater than two-thirds vote of the shares
entitled to be cast on such matters.
This provision makes shareholder approval of Fundamental Actions less
difficult (a simple majority of the outstanding shares) if a proposal receives
substantial (80%) support from the Board of Directors. If the incumbent Board
does not approve a Fundamental Action by at least 80%, then a two-thirds vote by
shareholders is required for approval. For this reason, the provisions of
Article VI have anti-takeover implications in that they make a Fundamental
Action not approved by the Board more difficult to adopt.
Limitation of Liability and Indemnification of Directors and Officers.
The Virginia SCA provides that in any proceeding brought by or on behalf of a
corporation or brought by or on behalf of shareholders of the corporation, the
damages assessed against an officer or director arising out of a single
transaction, occurrence, or course of conduct may not exceed the lesser of (i)
the monetary amount, including the elimination of liability, specified in the
articles of incorporation or, if approved by the shareholders, in the bylaws as
a limitation on or elimination of the liability of the officer or director; or
(ii) the greater of (a) $100,000 or (b) the amount of cash compensation received
by the officer or director from the corporation during the twelve months
immediately preceding the act or omission for which liability was imposed. This
statutory limitation of liability pertains to the remedy of monetary damages
16
<PAGE>
only and does not affect the availability of equitable remedies, for example, an
action to enjoin or rescind a transaction. Further, the provisions limiting
liability do not apply if the officer or director engaged in willful misconduct
or knowing violations of the criminal law or of any federal or state securities
and banking law.
The prior Articles of Incorporation of the Registrant did not limit the
liability of its directors and officers and, as a result, such liability would
be limited, as described in the discussion of applicable Virginia SCA provisions
immediately above, to the greater of (a) $100,000 or (b) the amount of cash
compensation received by the officer or director from the corporation during the
twelve months immediately preceding the act or omission for which liability was
imposed. Additionally, the Registrant's prior Articles of Incorporation did not
require indemnification of the Registrant's directors and officers, rather the
Registrant directors were indemnified only at the discretion of the Board or if
such indemnification was mandatory under the Virginia SCA.
However, by comparison, Article VII of the Restated Articles requires
that the Registrant indemnify its officers and directors against actions brought
by reason of having been such an officer or director by or on behalf of the
Registrant or by shareholders of the Registrant. The Registrant is required to
indemnify its directors and officers for monetary damages to the full extent
permitted by the Virginia SCA. Under the Restated Articles, liability of the
directors and officers of the Registrant for monetary damages will be limited or
eliminated in connection with any shareholder or derivative lawsuit, except in
17
<PAGE>
cases of willful misconduct or knowing violations of the criminal law.
Additionally, some federal agencies have taken the position that indemnification
for liabilities arising under the federal securities and banking laws is against
public policy and, therefore, is unenforceable.
The Board believes that limitation or elimination of directors'
liability in shareholder and derivative suits and the mandatory indemnification
provisions provided in the Restated Articles will assist the Registrant in
attracting highly-qualified directors in the future. The Registrant has not
experienced any problems attracting and retaining directors and officers in the
past, nor has the Registrant experienced problems in maintaining or obtaining
liability insurance for its directors and officers at a reasonable cost. No
recent incidents or litigation involving directors or officers has occurred
which might have encouraged adoption of these provisions. The adoption of these
provisions incidentally may benefit the current directors of the Registrant who
will serve on the Board of the Registrant by providing greater protections from
liability as a director. However, the provisions are adopted solely in
anticipation of providing adequate protections to attract experienced directors
and officers and to bring the limitation of liability and indemnification
provisions in-line with permitted corporate governance practices.
(b) Not applicable.
(c) Not applicable.
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Virginia Financial Corporation's Annual Meeting of Shareholders was
held Tuesday, April 8, 1997 in Staunton, Virginia. Three items were submitted to
the shareholders to be voted upon: (1) To approve the Amended and Restated
Articles of Incorporation of the company, (2) to elect directors of the company
and (3) to ratify the appointment of Yount, Hyde & Barbour, P.C. Certified
Public Accountants, as independent outside auditors for the year ending December
31, 1997.
The votes cast for, against or withheld for the three items were as follows:
(1) To approve the Amended and Restated Articles
For Against Abstentions
--- ------- -----------
1,487,799 2,334 0
(2) Election of Directors of the company.
Name For Against Abstentions
---- --- ------- -----------
Lee S. Baker 1,587,545 15,804 0
Benham M. Black 1,602,469 880 0
Harry V. Boney, Jr. 1,602,761 588 0
Jan S. Hoover 1,602,873 476 0
Martin F. Lightsey 1,602,173 1,176 0
James S. Quarforth 1,588,353 14,996 0
(3) Ratification of Yount, Hyde & Barbour P.C. Certified Public
Accounts.
For Against Abstentions
--- ------- -----------
1,601,219 2,130 0
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits to this Form 10-Q are filed herewith.
Exhibit No. Item
----------- ----
3 Amended and Restated Articles of Incorporation
of Virginia Financial Corporation
27 Financial Data Schedule
(b) Not applicable.
18
<PAGE>
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 Financial Corporation
(Registrant)
Date August 5, 1997 /S/ Fred D. Bowers
------------------------ --------------------------------------
Fred D. Bowers, Secretary/Treasurer
(Principal Accounting Officer and Duly
Authorized Officer)
19
EXHIBIT 3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIRGINIA FINANCIAL CORPORATION
I. NAME
The name of the Corporation is Virginia Financial Corporation.
II. PURPOSE
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact any and all lawful business, not required to be
specifically stated in the Articles of Incorporation, for which corporations may
be incorporated under the Virginia Stock Corporation Act.
III. CAPITAL STOCK
Section 1. The Corporation shall have authority to issue ten million
(10,000,000) shares of Common Stock, par value $5.00 per share.
Section 2. Subject to the provisions of law, the holders of Common
Stock at the time outstanding shall be entitled to receive such dividends at
such times and in much amounts as the Board of Directors may deem advisable.
Section 3. In the event of any liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, after the payment or
provision for payment in full for all debts and other liabilities of the
Corporation , the remaining net assets of the Corporation shall be distributed
ratably among the holders of the shares at the time outstanding of Common Stock.
Section 4. The holders of Common Stock shall be entitled to one vote
per share on all matters as to which a stockholder vote is taken.
IV. NO PREEMPTIVE RIGHTS
No holder of capital stock of the corporation of any class shall have
any preemptive right to subscribe to or purchase (i) any shares of capital stock
of the Corporation, (ii) any securities convertible into such shares or (iii)
any options, warrants or rights to purchase such shares or securities
convertible into any such shares.
<PAGE>
V. DIRECTORS
Section 1. The Board of Directors shall consist of a minimum of five
(5) and a maximum of fifteen (15) individuals, and the number of directors may
be fixed or changed from time to time within such range by the Board of
Directors.
Section 2. Directors of the Corporation may be removed with or without
cause upon the affirmative vote of at least two-thirds of the outstanding shares
entitled to vote.
Section 3. If the office of any director shall become vacant, the
directors at the time in office, whether or not a quorum, may, by majority vote
of the directors then in office, choose a successor who shall hold office until
the next annual meeting of stockholders. Vacancies resulting from the increase
in the number of directors shall be filled in the same manner.
VI. SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
Any amendment of the Corporation's Articles of Incorporation, a plan of
merger or share exchange, a transaction involving the sale of all or
substantially all the Corporation's assets other than in the regular course of
business and a plan of dissolution shall be approved by the vote of a majority
of all the votes entitled to be cast on such transactions by each voting group
entitled to vote on the transaction at a meeting at which a quorum of the voting
group is present in person or by proxy, provided that the transaction has been
approved and recommended by at least eighty percent (80%) of the directors in
office at the time of such approval and recommendation. If the transaction is
not so approved and recommended, then the transaction shall be approved by the
vote of two-thirds or more of all votes entitled to be cast on such transactions
by each voting group entitled to vote on the transaction.
VII. LIMIT ON LIABILITY AND INDEMNIFICATION
Section 1. To the full extent that the Virginia Stock Corporation Act,
as it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors or officers, a director
or officer of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages.
Section 2. To the full extent permitted and in the manner prescribed by
the Virginia Stock Corporation Act, the Corporation shall indemnify each
director or officer of the Corporation against liabilities, fines, penalties and
claims imposed upon or asserted against him (including amounts paid in
settlement) by reason of having been such director or officer, whether or not
then continuing so to be, and against all expenses (including counsel fees)
reasonably incurred by him in connection therewith, except in relation to
matters as to which he shall have been finally adjudged liable by reason of his
willful misconduct or a knowing violation of criminal law in the performance of
his duty as such director or officer. The Board of Directors is hereby
empowered, by majority vote of a quorum of disinterested directors, to contract
in advance to indemnify any director or officer.
Section 3. The Board of Directors is hereby empowered, by majority vote
of a quorum of disinterested directors, to cause the Corporation to indemnify or
contract in advance to indemnify any person not specified in Section 2 of this
Article against liabilities, fines, penalties and claims imposed upon or
asserted against him (including amounts paid in settlement) by reason of having
been an employee, agent or consultant of the Corporation, whether or not then
2
<PAGE>
continuing so to be, and against all expenses (including counsel fees)
reasonably incurred by him in connection therewith, to the same extent as if
such person were specified as one to whom indemnification is granted in Section
2.
Section 4. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by it in
accordance with this Article and may also procure insurance, in such amounts as
the Board of Directors may determine, on behalf of any person who is or was a
director, officer, employee, agent or consultant of the Corporation against any
liability asserted against or incurred by any such person in any such capacity
or arising from his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the provisions of this
Article.
Section 5. In the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act or omission
with respect to which indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Sections 2 or 3 of this Article VI shall be
made by special legal counsel agreed upon by the Board of Directors and the
proposed indemnitee. If the Board of Directors and the proposed indemnitee are
unable to agree upon such special legal counsel, the Board of Directors and the
proposed indemnitee each shall select a nominee, and the nominees shall select
such special legal counsel.
Section 6. No amendment, modification or repeal of this Article shall
diminish the rights provided hereby or diminish the right to indemnification
with respect to any claim, issue or matter in any then pending or subsequent
proceeding that is based in any material respect on any alleged action or
failure to act occurring before the adoption of such amendment, modification or
repeal.
Section 7. Every reference herein to director, officer, employee, agent
or consultant shall include (i) every director, officer, employee, agent, or
consultant of the Corporation or any corporation the majority of the voting
stock of which is owned directly or indirectly by the Corporation, (ii) every
former director, officer, employee, agent, or consultant of the Corporation,
(iii) every person who may have served at the request of or on behalf of the
Corporation as a director, officer, employee, agent, consultant or trustee of
another corporation, partnership, joint venture, trust or other entity, and (iv)
in all of such cases, his executors and administrators.
367522
3
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