UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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, Virginia 24401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 885-1232
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
None None
Securities registered pursuant to section 12 (g) of the Act:
Common Stock, $5.00 par value per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in the definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
As of March 5, 1997, there were 4,000,000 shares of common stock, $5.00
par value, outstanding and the aggregate market value of common stock of
Virginia Financial Corporation held by nonaffiliates was approximately
$106,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1997 Annual Report to Shareholders - Parts I and II
Notice of Annual Meeting and Proxy Statement dated March 27, 1998 - Part III
================================================================================
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PART I
Item 1. Business
The Company
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 (hereinafter referred to as
"the Company") which serves as the holding company of the Bank. This transaction
was consummated on January 2, 1997.
The Company had no material operations other than the ownership of the
Bank in 1997, therefore, the financial statements and discussions related
thereto included in this annual 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. Items 10, 11 and 13
regarding management of the Company relate to the Company's directors and
officers.
The Bank
Planters Bank & Trust Company of Virginia (hereinafter referred to as
"the Bank") was incorporated under the laws of the Commonwealth of Virginia on
October 29, 1971. It opened for business on September 1, 1972, with its main
office located at U.S. Route 250 and State Route 640 in Augusta County,
Virginia. The name Augusta Bank & Trust Company was changed to Planters Bank &
Trust Company of Virginia as part of a merger of Planters Bank & Trust Company,
Staunton, Virginia, a bank organized under the laws of the Commonwealth of
Virginia, into Augusta Bank & Trust Company as of October 1, 1977.
Planters Bank & Trust Company, Staunton, Virginia, (Planters Bank) had
been incorporated under the laws of the Commonwealth of Virginia on September
13, 1911. It opened for business on November 21, 1911, with its main office
located at 24 South Augusta Street, Staunton, Virginia.
The Bank's main office is located at 24 South Augusta Street, Staunton,
Virginia. Branch offices are located in Staunton, Virginia, at (1) 2307 West
Beverley Street, (2) 2201 North Augusta Street, and (3) 1135 Richmond Road.
Branches are located in Augusta County at (1) 132 Greenville Road, Stuarts
Draft, (2) U.S. Route 11 in Verona, (3) 1480 Greenville Avenue, Staunton and (4)
the intersection of U. S. Route 250 and State Route 640 in Fishersville. A
branch is located in Waynesboro, Virginia, at the intersection of North Poplar
and Ohio Streets. A branch is located in Rockingham County at 106 Sixth Street,
Grottoes, Virginia. The Bank employs one hundred and fifty-three (153) full-time
employees and nineteen (19) part-time employees.
The Bank's trade area includes 100% of Augusta County, Virginia, and
encompasses the independent cities of Staunton, Waynesboro and the Grottoes,
Virginia area in Rockingham County. The population of the trade area is
estimated to be 105,000.
During the preceding five years, the Bank increased its total assets
and the number of customers served. On April 1, 1984, Planters Bank & Trust
Company of Virginia purchased the Verona office of Bank of Virginia located on
U.S. Route 11, Verona, Virginia, and operates this facility as a branch of the
Bank.
The Bank, on November 10, 1987, was authorized to establish a branch at
1480 Greenville Avenue, Staunton, Virginia. The Bank opened the branch at this
location May 8, 1989.
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The Bank, on April 15, 1994, purchased the Grottoes, Virginia office of
First Union National Bank of Virginia and operates this facility as a branch of
the Bank.
The Bank, on September 1, 1994, leased office space consisting of
263.556 square feet located at 2262 Bluestone Hills Drive, Harrisonburg,
Virginia 22801. This facility was used for the sole purpose of generating
secondary mortgage market real estate loans. This office was closed effective
April 30, 1996.
The Bank, in January 1996, formed Planters Insurance Agency, Inc., a
wholly-owned subsidiary of the Bank and is licensed to sell title insurance.
The Bank on April 29, 1997, leased office space consisting of 225
square feet located at 10 East Washington Street, Lexington, Virginia 24450.
This facility is used for the sole purpose of generating secondary mortgage
market real estate loans.
On September 5, 1997 the Bank purchased a parcel of land with 50 feet
frontage and 171 feet deep fronting on Tinkling Springs Road, Fishersville,
Virginia. Also on this property is an office building consisting of 1400 square
feet. This office is used as an operational area for secondary mortgage
processing.
On November 14, 1997, the Bank purchased a lot consisting of 1.253
acres at the intersection of Rosser Avenue and Lucy Lane, Waynesboro, Virginia
to establish a branch at this location. The Bank plans to establish a 4000
square feet branch at this location in the fourth quarter of 1998.
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Services
Principal services offered and rendered by the Bank include the
following:
Savings Accounts
- ----------------
Statement Savings:
Personal
Business
Passbook Savings:
Personal
Business
Individual Retirement
Accounts
Certificates of Deposit:
7-31 Days
90 Days
182 Days
1 Year
1 1/2 Years
2 1/2 Years
4 Years
Christmas Clubs
Save-O-Matic
Checking Accounts
- -----------------
Personal
Negotiable Order of
Withdrawal
Money Market
Zero Balance Checking
Business
Organizations and Clubs
Estate
Student
Personalized Checks
Quarterly or Monthly
Statements
Visa Check Card
Investment Products
- -------------------
Discount Brokerage
Full Service:
Money Market Accounts
Stocks
Bonds
Mutual Funds
Annuities
Loans
- -----
Personal
Home Improvement
Automobile or Trailer
Business
Student
Mortgage
Agriculture
Vacation
Visa and MasterCard Accounts
Home Equity
Customer Support Department
- ---------------------------
Stop Payments
Statements on Demand
Photocopies of Checks and Records
Assistance in Balancing Checkbooks
Computation of Interest
International Banking
- ---------------------
Letters of Credit
Foreign Collection
Bank Transfer Wire Service
Foreign Currency Available
Trust Department
- ----------------
Executor or Administrator of Estates
Testamentary Trustee
Inter Vivos Trustee
Guardian
Agent Under Agreement
Escrow Agreement
Power of Attorney
Trustee Under Employee Benefit
Agreements
Additional Services
- -------------------
Bank Transfer Wire Service
Bank by Mail
Drive-in Banking, all locations
Night Depositories
Bank Money Orders
Travelers Checks
Safe Deposit Boxes
Bank Drafts
Cashier's Checks
Savings Bonds
Utility Bill Payments
Applications for Visa and MasterCard
Notary Public
Certified Checks
Federal Tax Deposits
Electronic Direct Deposit and Payment of Funds
Automatic Transfers of Funds Between Accounts
Retail Repurchase Agreements
Automated Teller Machines
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In rendering these services, the Bank serves general retail customers
and businesses in the cities of Staunton and Waynesboro, Augusta County and in
Grottoes, Virginia.
Lumbering operations, paving facilities and quarrying concerns are
serviced as well as dairy and beef cattle operations and some sheep operations.
Also served are various manufacturing concerns employing from 10 to 2,000
persons.
Competition
NationsBank, First Virginia Bank-Blue Ridge, Jefferson National Bank,
Community Bank, First Union National Bank of Virginia, Crestar Bank, Shenandoah
National Bank, F&M Bank-Massanutten and Bank of Rockbridge maintain offices
within the trade area of the Bank. These banks offer full banking services with
the exception of the Bank of Rockbridge and Shenandoah National Bank which do
not offer trust services.
Other institutions compete effectively and aggressively for various
types of business within the Bank's trade area. The several credit unions in the
Bank's trade area aggressively offer commercial bank products. Automobile sales
finance companies compete for automobile financing and dealership floor plans.
Sales finance companies finance small appliances and furniture and personal loan
companies compete effectively. Direct lending by governmental agencies is done
primarily through Staunton Farm Credit, A.C.A. which maintains an office outside
the Staunton city limits. Farmers Home Administration operates within the Bank's
trade area also. Deposits and loans from medium-sized and larger business
organizations are successfully solicited by financial institutions located
outside the Bank's service area. There is also competition from the numerous
insurance companies represented in the area. In offering trust services there is
competition with attorneys as well as other banks.
No material part of the business of the Bank is dependent upon a single
or a few customers and the loss of one or more customers would not have a
materially adverse effect upon the business of the Bank. Management is not aware
of any indications that the business of the Bank or material portion thereof is,
or may be, seasonal.
Item 2. Properties
The Bank owns twelve (12) parcels of property. Ten (10) of these
properties are land and buildings used by the Bank in its operation and two (2)
properties are held for future bank use. The properties are more fully described
as follows:
1. The Bank owns the land and building at its main office located at
24 South Augusta Street, Staunton, Virginia. The land with
buildings was purchased from various owners at various dates. The
Bank has completed an expansion and renovation program at this
location whereby 18 on-site parking spaces were provided, along
with entry and exit from Augusta Street, entry from Johnson
Street and exit onto Central Avenue. Also provided are
appropriate entry lanes for three drive-up windows. The
renovated building has a basement area of 6,415 sq. ft., a
commercial and trust banking area of 11,827 sq. ft., and a
second floor was developed into a customer service area and
offices. The Bank purchased a piece of property, December 1985,
located at the corner of Central Avenue and Johnson Streets.
This parcel joins property presently owned by the Bank. The
building, which was gutted by fire, was torn down and the lot is
presently leased to the City of Staunton. The Bank purchased a
piece of property, May 12, 1989, located at 11 West Johnson
Street. During 1993, the building was removed and a new building
was incorporated into the present Bank building. This addition
consisting of three floors contain 3,476 square feet. This
building and location are considered ample to accommodate the
Bank's needs for the immediate future.
2. The Bank owns a 1-3/4 acre parcel of property at 1135 Richmond
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Road, Staunton, Virginia. This property fronts 158 feet on U. S.
Route 250. The land was purchased in March 1964, and in March
1966, a 1,650 sq. ft. one story brick bank building was completed.
During 1987, the drive-up facilities were expanded and the
entrance was rerouted for drive-in traffic. A portion of land on
the northeast side consisting of 0.165 acres was sold in December
1981. The topography of this small parcel was such as it would
have been of no value for future expansion. This building and
location are considered ample to accommodate the Bank's needs for
the immediate future.
3. The Bank owns a parcel of land in Staunton, Virginia, with 175
feet of frontage on West Beverley Street known as 2307 West
Beverley. This parcel contains approximately 42,800 sq. ft. and
was purchased in 1966, and in 1968 a 2,112 sq. ft. one-story brick
bank building with full basement was constructed. The Bank
purchased an adjoining piece of property known as 2301 West
Beverley Street on June 25, 1987, which contains 0.914 acres and a
one story brick and block building containing approximately 1,200
sq. ft. at a cost of $115,000. A portion of this property is used
for a new and expanded drive-in entrance which was completed at
the end of 1987. The building on the remaining portion of this
property is rented on a 5 year lease. The present branch site with
the adjoining property is considered ample to accommodate the
Bank's needs for the immediate future.
4. The Bank owns a parcel of property at 250 North Poplar Avenue,
Waynesboro, Virginia. This property fronts 202 feet on North
Poplar Avenue and 200 feet on Ohio Street. The land was purchased
October 1977, and in November 1978 a one-story brick bank building
consisting of 3,832 sq. ft. was occupied.
5. In Augusta County, the Bank owns a parcel of land at the northeast
corner of the intersection of U. S. Route 250 and Virginia State
Route 640 approximately 1.4 miles west of Waynesboro city limits.
This location consists of 3.47 acres of land, improved with a
single-story 3,825 sq. ft. building designed for commercial
banking functions with ample ingress, egress and parking. The land
was purchased July 18, 1972, and the building completed in
December 1973. This building and location are considered ample to
accommodate the Bank's needs for the foreseeable future.
6. The Bank purchased a parcel of land fronting on State Route 340,
Stuarts Draft, Virginia, in December 1981. This parcel of land is
225 feet by 225 feet. A used preconstructed building containing
1,440 sq. ft. was placed on the land in April 1982. The
construction of a new building consisting of 3,130 sq. ft. on the
ground floor and a basement consisting of 1,080 sq. ft. was
completed in August of 1988 at a cost of approximately $350,000.
This building and location are considered ample to accommodate the
Bank's needs for the immediate future.
7. The Bank purchased a piece of property located on the west side of
U.S. Route 11 in Verona, Virginia, from the Bank of Virginia on
April 1, 1984. It contains 36,024 sq. ft. or 0.827 acres of land
and has 120 feet frontage on Route 11. Located on the property is
a two-story brick building containing 2,416 sq. ft. on the first
floor and 1,794 sq. ft. on the second floor. Due to the widening
of U.S. Route 11, it was necessary to relocate the drive-up
windows and the automated teller machine. An addition was added to
the rear of the building consisting of 441 square ft. for the
drive-up facility. This facility now has three drive-up lanes.
This addition was completed in August 1991 at a cost of $135,000.
8. The Bank purchased a parcel of land October 20, 1987, at 1480
Greenville Avenue in Augusta County, just south of the city of
Staunton at a cost of $259,337. The construction of a new building
consisting of 3,130 sq. ft. on the ground floor and a basement
consisting of 1,080 sq. ft. was completed and opened May 8, 1989
at a cost of approximately $400,000. This property contains 1.269
acres with a 200 foot road frontage on Greenville Avenue.
9. The Bank purchased a piece of property located at 106 Sixth
Street, Grottoes, Virginia from First Union National Bank of
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Virginia on April 15, 1994. It contains 52,000 square feet of land
with twenty parking spaces with ample ingress and egress from
Sixth Street and from Seventh Street as the property extends
through the block. Located on the property is a two-story brick
building containing 6,000 square feet. This facility has one
drive-up lane. This building and location are considered ample to
accommodate the Bank's needs for the foreseeable future.
10. The Bank purchased a piece of property located at 113A Tinkling
Springs Road, Fishersville, Virginia, 22939 on September 5, 1997.
This property fronts 50 feet on Tinkling Springs Road and contains
8,566 square feet of land with eleven (11) parking spaces. Located
on the property is a one-story brick building containing 1,400
square feet. This property is used as a processing center for the
secondary mortgage market function. This property is well located
in the areas' traffic pattern and is able to accommodate the
present needs of this function.
11. The Bank owns a piece of property consisting of land and a
two-story building fronting 23 feet on Johnson Street, Staunton,
Virginia. This property is presently under lease and is held for
future expansion.
12. On November 14, 1997, the Bank purchased a lot at the intersection
of Rosser Avenue and Lucy Lane, Waynesboro, Virginia 22980. This
property contains 1,253 acres and is part of "Coyner Commercial
Park". This property was purchased for future expansion and the
Bank plans to establish a branch at this location in the fourth
quarter of 1998.
Leased Properties
The Bank leases its Northside banking facility located in the Terry
Court Shopping Center on North Augusta Street, Staunton, Virginia. In 1986, the
Bank renegotiated its lease with Highway Properties, Inc. to expand the banking
facilities. The facilities at this location now consist of banking quarters of
approximately 1,800 sq. ft. and a two-window drive-up facility with ingress,
egress and right-of-way to and from these premises. The renegotiated lease was
for an initial term of five years, expiring April 30, 1991 with three 5-year
options to renew the lease. The Bank exercised the first and second option April
30, 1991 and April 30, 1996 to renew the lease for an additional five year
period expiring April 30, 2001. The base rental for the first year is $19,190
with an increase of 2 1/2% of the monthly rent each year for the remaining four
years. Lease expense for 1997 was $20,015. The Terry Court Shopping Center was
sold, subject to the lease, to W. J. Perry Corporation, trading as Terry Court
Properties, and subsequently sold to W. Thomas Eavers doing business as Terry
Court Properties.
The Bank leases office space consisting of 225 square feet at 10 East
Washington Street, Lexington, Virginia 24450. This office space is used for the
sole purpose of generating secondary mortgage market real estate loans. The
negotiated lease is for a term of one year expiring April 29, 1998 with options
to renew on a year to year basis expiring at the option of the lessor January 1,
2000. The initial rental is $360.00 per month and any renewal term shall be
increased based on the prior twelve (12) months Consumer Price Index. Rental
expense for 1997 was $3,300.
Item 3. Legal Proceedings
The Bank is party to various legal proceedings originating from the
ordinary course of business. Management and counsel are of the opinion that
settlement of these items should not have a material effect on the financial
position of the Bank.
Item 4. Submission of Matters To a Vote of Security Holders
There were no matters submitted, during the fourth quarter of the
fiscal year covered by this report, to a vote of security holders.
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PART II
Item 5. Market For The Registrant's Common Equity And Related Security Holder
Matters
The portions of the 1997 Annual Report to Shareholders (Annual
Report) captioned, "Comments by Management," page 4, for market and dividend
information is hereby incorporated by reference. Management currently
anticipates payment of future dividends consistent with past practices.
The number of holders of the Bank's Common Stock (the only class of
equity security of the Company) of record was 1,099 as of the end of the
Company's fiscal year, December 31, 1997.
Based upon sales prices furnished the Company by the Staunton Virginia
office of a Virginia headquartered brokerage firm the low and high sales prices
of the Company's stock during 1997 and 1996 by quarter, were as shown below.
<TABLE>
<CAPTION>
1997 1996
---- ----
Low High Low High
--- ---- --- ----
<S> <C>
1st quarter $ 23.00 $ 23.38 $ 22.63 $ 23.38
2nd quarter $ 23.00 $ 24.00 $ 23.00 $ 24.13
3rd quarter $ 23.00 $ 24.50 $ 23.00 $ 24.50
4th quarter $ 24.00 $ 25.06 $ 24.00 $ 25.06
</TABLE>
Item 6. Selected Financial Data
The Annual Report, page 3, item titled "Selected Financial Data" and
Table 1 of Item 7 of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on Page 8 hereof are incorporated by
reference.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The Annual Report, Pages 5 through 10, "Management's Discussion and
Analysis of Operations" and year-end balances is hereby incorporated by
reference.
Earnings Performance:
Net income for 1997 was $5,735,112 compared to $5,541,801 for 1996 for an
increase of 3.49%. On a per share basis, 1997 earnings were $1.43 per share. Net
income for 1996 was $5,541,801 compared to $5,034,607 for 1995 for an increase
of 10.07%. On a per share basis, 1996 earnings were $1.39 per share.
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Table 1 - Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
(in thousands, except ratios and per share amounts)
<S> <C>
Income Statement Data:
Interest Income $ 29,068 $ 27,321 $ 26,073 $ 22,902 $ 21,436
Interest Expense $ 13,292 $ 12,684 $ 12,343 $ 9,748 $ 9,209
Net Interest Income $ 15,776 $ 14,637 $ 13,730 $ 13,154 $ 12,227
Provision for Loan Losses $ 831 $ 450 $ 309 $ 421 $ 217
Net Interest Income After
Provision for Loan Losses $ 14,945 $ 14,187 $ 13,421 $ 12,733 $ 12,010
Non-interest Income $ 2,885 $ 2,542 $ 2,126 $ 2,206 $ 2,191
Security Gains (Losses) 0 $ 6 $ 1 $ 1 $ 44
Non-interest Expense $ 9,475 $ 8,679 $ 8,235 $ 8,082 $ 7,511
Income Before Income Taxes $ 8,355 $ 8,056 $ 7,313 $ 6,858 $ 6,734
Income Taxes $ 2,620 $ 2,514 $ 2,278 $ 2,105 $ 2,097
Net Income $ 5,735 $ 5,542 $ 5,035 $ 4,753 $ 4,637
Per Share Data:
Net Income Basic and Diluted* $ 1.43 $ 1.39 $ 1.26 $ 1.19 $ 1.16
Cash Dividends* $ 0.56 $ 0.48 $ 0.42 $ 0.36 $ 0.30
Book Value at Period End* $ 10.33 $ 9.39 $ 8.54 $ 7.51 $ 6.83
Balance Sheet Data:
Assets $403,999 $377,113 $356,068 $344,473 $308,243
Loans, Net of Unearned Income $269,581 $235,952 $212,327 $196,579 $171,068
Securities $113,409 $118,800 $125,398 $129,332 $122,229
Deposits $352,167 $330,375 $319,578 $297,006 $279,290
Stockholders' Equity $ 41,335 $ 37,574 $ 34,154 $ 30,046 $ 27,335
Average Shares Outstanding * $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000
Performance Ratios:
Return on Average Assets 1.48% 1.51% 1.45% 1.43% 1.53%
Return on Average Equity 14.48% 15.34% 15.48% 16.30% 18.03%
Dividend Payout* 38.71% 34.65% 32.97% 29.87% 25.88%
Capital and Liquidity Ratios
Leverage 10.34% 9.98% 9.53% 8.91% 8.83%
Risk-based Capital Ratios:
Tier 1 Capital 16.97% 17.20% 16.74% 16.10% 16.45%
Total Capital 18.22% 18.45% 17.99% 17.35% 17.70%
</TABLE>
*Adjusted for 100 percent stock dividend, December 1993 and December 1997
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Interest Income:
Interest income, on a tax equivalent basis, increased in 1997 compared to
1996 by $1,721,000 or 6.02%. The tax equivalent yield on earning assets in 1997
was 8.03% compared to 7.97% in 1996. This increase in the yield along with an
increase of $18,540,000 in average earning assets produced the over-all
increase.
Interest income in 1996 increased $1,266,000 compared to 1995, on a
tax-equivalent basis, for an increase of 4.78%. This increase was due to average
earning assets increasing by $17,890,000. The tax-equivalent yield decreased
from 8.02% in 1995 to 7.97% in 1996.
Interest income in 1995 increased $3,162,000 compared to 1994, on a
tax-equivalent basis, for an increase of 13.55%. This increase was due to
average earning assets increasing by $15,579,000 and the tax-equivalent yield
increasing from 7.41% in 1994 to 8.02% in 1995.
Interest Expense:
Interest expense increased during 1997 by $608,000 or 4.80% compared to
1996. This increase was due to interest-bearing liabilities increasing during
1997 compared to 1996 by $10,962,000 and the average interest rate paid during
1997 of 4.49% compared to 4.47% during 1996.
Interest expense increased during 1996 by $341,000 compared to 1995. This
represents an increase of 2.76%. The increase was due to average
interest-bearing liabilities increasing by $10,242,000 as the average rate paid
on these liabilities decreased from 4.51% in 1995 to 4.47% in 1996.
Interest expense during 1995 increased $2,596,000 compared to 1994. This
represents an increase of 26.63%. This increase was due to interest-bearing
liabilities increasing by $10,058,000 and the average rate paid during 1995
increasing to 4.51% compared to 3.70% in 1994.
Net interest income and the net interest margin along with the average
yield of the individual categories for the years 1995 through 1997 is shown on
Table 2. Table 3 summarizes the effect on net interest income of changes in
interest rates earned and paid as well as changes in volume.
The presentation appears on a fully tax-equivalent basis to adjust for
the tax exempt status of income earned on certain loans and investment
securities using statutory rates of 34% in 1997, 1996 and 1995.
Non-interest income:
Non-interest income increased $342,817 or 13.49% during 1997 when
compared to 1996. Trust Department income increased by $48,457 or 4.92% during
1997 when compared to 1996. This increase in Trust Department income is due
primarily to increases in the volume of fee generating activity and to increases
in the market values. Other non-interest income and fee income increased about
$257,000 in the following areas. Fees on ATM foreign transactions, Visa debit
cards, printed check commissions, and fees from the sale of non-FDIC insured
investment products. Non-interest income increase during 1996 compared to 1995
by $417,108 or 19.63%. Trust Department income increased by $163,283 or 19.87%
during 1996 compared to 1995. This increase was due to the number and asset size
of estates closed and under administration and the overall volume of fee
generating activity during the year. Income from the secondary mortgage market
area increased $110,523 or 32.75%. The increase in this area was the result of a
greater number of loans being closed and the dollar amount of these loans.
During 1996 the Bank began offering non-FDIC insured investment products which
produced income of $86,648. Also during 1996, the Bank began operating Planters
Insurance Agency, Inc., a wholly-owned subsidiary of the Bank, which markets
title insurance, provided income of $17,408. Service charges on deposit
accounts, safe deposit box rent and other non-interest income experienced a very
modest increase due to the volume of business only, as the pricing of these
services and fees have not changed.
Non-interest income decreased by $81,149 or 3.68% during 1995 compared to
1994. Trust Department income decreased $119,440 or 12.69% during 1995 compared
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to 1994. This decrease was due to the number of estates being closed and
declining interest rates. As interest rates decline the Trust Department income
is impacted due to a segment of the income earned being based on income
collected in the individual accounts. Service charges on deposit accounts
experienced a modest increase due to the volume of business.
Non-Interest Expense:
Non-interest expense increased during 1997 by $795,704 or 9.12% compared
to 1996. Salaries and employee benefits increased by $252,437 or 4.78% comparing
1997 to 1996. This increase was due to an increase in the number of employees
and to increases in individual salaries. Expense of premises and fixed assets
increased by $190,992 or 20.34%. This increase is due to installing an image
item processing system and image statement system along with two additional ATM
and two cash machines. Computer expense increased $44,487 due to additional
volume, and FDIC Insurance expense increased $39,185. Other non-interest
expenses which increased in 1997 was advertising which increased by $49,757, ATM
operating expenses increased $22,955 and supplies in the ongoing day to day
operations increased $75,293. This increase was also due to increased volume of
business activity.
Non-interest expense increased during 1996 compared to 1995 by $444,218
or 5.39%. Salaries and employee benefits increased by $579,717 or 12.34%. This
increase was due to increases of individual salaries, employee benefits and the
expansion of the officer staff. These additions are in preparation of pending
retirements of executive and other officers. Most other operating expenses
continue to increase due to increased prices and the increase in volume of
business. Technological changes taking place in the financial industry at a
rapid pace must be dealt with, and though over a period of time result in
savings, have impact on other operating expenses, i.e. research, installation,
educational training and equipment costs. Two areas of non-interest expenses had
a rather significant decrease which are advertising and FDIC insurance.
Advertising decreased about $61,000 and FDIC Insurance decreased about $345,000
due to premium decreases.
Non-interest expense increased $151,787 or 1.88% during 1995 compared to
1994. Salaries and employee benefits increased $319,377 or 7.29%. This increase
was due to increases in individual salaries, an increase in personnel and
increases in the cost of employee benefits. An educational department was
created during 1995 increasing educational expenses about $32,000. Other
operating expenses continue to increase due to increased prices and increases in
the total volume of business. Federal deposit insurance expense decreased
comparing 1995 to 1994 by about $300,000 due to premium decreases.
10
<PAGE>
Table 2 - Virginia Finiancial Corporation
Average Balances, Income and Expense, Yields and Rates (1)
Twelve Months Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996
-------------- ------------- --------- -------------- ------------- ---------
Annual Annual
Assets Average Income/ Yield Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------- ------------- --------- -------------- ------------- ---------
(Dollars In Thousands) (Dollars in Thousands)
<S> <C>
Securities:
Taxable $ 100,215 $ 5,897 5.88% $ 106,059 $ 6,152 5.80%
Tax exempt (1) 15,666 1,191 7.60% 17,625 1,254 7.11%
-------------- ------------- ------------- -------------
Total securities $ 115,881 $ 7,088 6.12% $ 123,684 $ 7,406 5.99%
Loans (net of unearned income):
Taxable $ 248,143 $22,229 8.96% $222,348 $20,223 9.10%
Tax exempt (1) 471 28 5.94% 679 41 6.04%
-------------- ------------- ------------- -------------
Total loans $ 248,614 $22,257 8.95% $ 223,027 $ 20,264 9.09%
Federal funds sold and repurchase 2,469 137 5.55% 1,713 91 5.31%
agreements -------------- ------------- ------------- -------------
Total earning assets $ 366,964 $ 29,482 8.03% $ 348,424 $ 27,761 7.97%
Less: allowance for loan losses (3,312) (2,881)
Total nonearning assets 23,589 21,262
-------------- -------------
Total assets $ 387,241 $ 366,805
============== =============
Liabilities and Shareholder's Equity
Interest-bearing deposits:
Checking $ 97,421 $ 3,320 3.41% $ 99,981 $ 3,436 3.44%
Regular savings 35,644 1,060 2.97% 38,562 1,154 2.99%
Certificates of deposit:
Less than $100,000 135,168 7,438 5.50% 119,745 6,565 5.48%
$100,000 and more 21,474 1,139 5.30% 20,457 1,251 6.12%
-------------- ------------- ------------- -------------
Total interest-bearing deposits $ 289,707 $ 12,957 4.47% $ 278,745 $ 12,406 4.45%
Short-term borrowings 6,285 335 5.33% 5,305 278 5.24%
-------------- ------------- ------------- -------------
Total interest-bearing $ 295,992 $ 13,292 4.49% $ 284,050 $ 12,684 4.47%
liabilities
Noninterest-bearing liabilities:
Demand deposits 50,109 44,711
Other liabilities 1,543 1,907
-------------- -------------
Total liabilities $ 347,644 $ 330,668
Stockholders' equity 35,597 36,137
-------------- -------------
Total liabilities and $ 383,241 $ 366,805
shareholders' equity ============== =============
Net interest income $ 16,190 $ 15,077
Interest rate spread 3.54% 3.50%
Interest expense as a percent of average
earning assets 3.62% 3.64%
Net interest margin 4.41% 4.33%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis.
11
<PAGE>
Table 2 - (Continued)
Average Balances, Income and Expense,
Yields and Rates (1)
<TABLE>
<CAPTION>
1995
-------------- ------------ ---------
Annual
Assets Average Income/ Yield
Balance Expense Rate
-------------- ------------ ---------
(Dollars in Thousands)
<S> <C>
Securities:
Taxable $ 107,996 $ 6,066 5.62%
Tax exempt (1) 16,108 1,184 7.35%
-------------- ------------
Total securities $ 124,104 $ 7,250 5.84%
Loans (net of earned income):
Taxable $ 203,654 $ 19,081 9.37%
Tax exempt (1) 910 57 6.26%
-------------- ------------
Total loans $ 204,564 $ 19,138 9.36%
Federal funds sold and repurchase
agreements 1,866 107 5.73%
-------------- ------------
Total earning assets $ 330,534 $ 26,495 8.02%
Less: allowance for loan losses (2,655)
Total nonearning assets 19,782
--------------
Total assets $ 347,661
==============
Liabilities and Shareholder's Equity
Interest-bearing deposits:
Checking $ 106,571 $ 3,949 3.71%
Regular savings 38,698 1,344 3.47%
Certificates of deposit:
Less than $100,000 103,356 5,613 5.43%
$100,000 and more 17,842 995 5.58%
-------------- ------------
Total interest-bearing deposits $ 266,467 $ 11,901 4.47%
Short-term borrowings 7,341 442 6.02%
-------------- ------------
Total interest-bearing
liabilities $ 273,808 $ 12,343 4.51%
Noninterest-bearing liabilities:
Demand deposits 39,633
Other liabilities 1,696
--------------
Total liabilities $ 315,137
Stockholders' equity 32,524
--------------
Total liabilities and
shareholders' equity $ 347,661
==============
Net interest income $ 14,152
Interest rate spread 3.51%
Interest expense as a percent of average
earning assets 3.73%
Net interest margin 4.28%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis.
12
<PAGE>
The following table describes the impact on the interest income of the
Corporation resulting from changes in average balances and average rates for the
periods indicated. The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
Table 3 - Volume and Rate Analysis
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1997 compared to 1996 1996 compared to 1995
Change Due To: Change Due To:
-------------- --------------
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ---------- ------------ ---------- ---------- ------------
(Dollars in thousands) (Dollars in thousands)
<S> <C>
Assets:
Securities:
Taxable $ (340) $ 85 $ (255) $ (109) $ 195 $ 86
Nontaxable (166) 103 (63) 107 37 144
---------- ---------- ----------- ----------- ---------- ------------
Total securities (506) 188 (318) (2) 232 230
Loans:
Taxable 2,313 (307) 2,006 1,665 (523) 1,142
Nontaxable (12) (1) (13) (14) (2) (16)
---------- ---------- ----------- ----------- ---------- ------------
Total Loans 2,301 (308) 1,993 1,651 (525) 1,126
Federal funds sold 42 4 46 (8) (8) (16)
---------- ---------- ----------- ----------------------- ------------
Total earning
assets $ 1,837 $ (116) $ 1,721 $ 1,641 $ (301) $ 1,340
---------- ---------- ----------- ----------- ---------- ------------
Liabilities and Stockholder's Equity:
Interest bearing deposits:
Interest checking $ (87) $ (29) $ (116) $ (236) $ (277) $ (513)
Savings (86) (8) (94) (5) (185) (190)
Certificates of deposit:
$100,000 and over 66 (178) (112) 154 102 256
Under $100,000 849 24 873 900 52 952
---------- ---------- ----------- ----------- ---------- ------------
Total interest-bearing
deposits 742 (191) 551 813 (308) 505
Short-term borrowings 52 5 57 (112) (52) (164)
---------- ---------- ----------- ----------- ---------- ------------
Total interest-bearing
Total interest-bearing
liabilities $ 794 $ (186) $ 608 $ 701 $ (360) $ 341
---------- ---------- ----------- ----------- ---------- ------------
Change in net
interest income $ 1,043 $ 70 $ 1,113 $ 940 $ 59 $ 999
========== ========== =========== =========== ========== ============
</TABLE>
13
<PAGE>
Table 4 - Loan Portfolio
<TABLE>
<CAPTION>
Loans at December 31
(book value rounded to thousands)
1997 1996 1995 1994 1993
--------------- -------------- -------------- --------------- --------------
<S> <C>
Real Estate Loans:
Construction $ 20,183 $ 14,205 $ 12,924 $ 8,993 $ 7,387
Secured by Farm Land 1,316 933 1,056 649 785
Secured by 1-4 Family
Residential 128,130 106,693 91,125 86,487 78,335
Other Real Estate Loans 39,037 38,965 40,022 37,394 29,582
Loans to Farmers 2,725 2,879 2,988 3,116 2,824
Commercial and Industrial 34,434 34,313 34,626 33,930 32,329
Loans to Individuals for
Household, Family and
other Consumer Expenses 43,364 37,542 29,056 25,221 19,988
All Other Loans 799 774 908 1,205 264
--------------- -------------- -------------- --------------- --------------
Total Loans $ 269,988 $ 236,304 $ 212,705 $ 196,995 $ 171,494
Less Unearned Income 406 352 378 416 426
--------------- -------------- -------------- --------------- --------------
Net Loans $ 269,582 $ 235,952 $ 212,327 $ 196,579 $ 171,068
=============== ============== ============== =============== ==============
</TABLE>
Table 5 - Maturity Schedule of Selected Loans
<TABLE>
<CAPTION>
December 31, 1996
Over One
One Year Through Over
or Less Five Yrs Five Yrs Total
----------------- ----------------- ------------------ -----------------
(Dollars in Thousands)
<S> <C>
Commercial, Financial
and Agricultural $ 33,154 $ 3,939 $ 66 $ 37,159
Real Estate-
Construction 18,613 1,562 8 20,183
----------------- ----------------- ------------------ -----------------
Total $ 51,767 $ 5,501 $ 74 $ 57,342
================= ================= ================== =================
Fixed Rates $ 22,020
Variable Rates 35,322
-----------------
Total $ 57,342
=================
</TABLE>
14
<PAGE>
Allowance for Loan Losses:
The allowance for loan losses is an estimate by management of an
amount to provide for potential losses in the loan portfolio.
Various factors, including charge-off experience, change in the
mix and volume of loans, the level of underperforming loans, the ratio of
outstanding loan balances to total loans and the perceived economic conditions
in the Bank's trade area are taken into consideration in determining the amount
of the provision for loan losses and the total amount of the loan loss reserve.
The reserve for loan losses was 1.39% of outstanding loans as of
December 31, 1997, 1.29% of outstanding loans as of December 31, 1996 and 1.31%
as of December 31, 1995. Net charge-offs were $117, 293 during 1997, $196,833
during 1996 and $47,518 during 1995. The percentage of net charge-offs to
year-end loans was 0.04% for 1997, 0.08% for 1996 and 0.02% for 1995. The
balance of the reserve for loan losses was $3,752,500 as of December 31, 1997,
$3,038,958 as of December 31, 1996, $2,785,791 as of December 31, 1995.
15
<PAGE>
Table 6 - Allowance for Loan Losses
(in thousands of dollars)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
Balance, Beginning of Period 3,039 2,786 2,524 2,217 2,143
Loans Charged Off
Real Estate:
Construction - - 5 - -
Secured by Farm Land - - - - -
Secured by 1-4 Family
Residential 19 42 - 13 36
Other Real Estate - - - - -
Loans to Farmers - - 19 - 102
Commercial and Industrial - 14 - 24 -
Consumer Loans 139 212 119 102 29
All Other Loans - - - - -
-------------------------------------------------------------
Total Loans Charged Off 158 268 143 139 167
-------------------------------------------------------------
Recoveries
Real Estate: - - - - -
Construction - - - - -
Secured Farm Land - - - - -
Secured by 1-4 Family
Residential 1 - - - -
Other Real Estate - - - - -
Loans to Farmers - 14 70 - -
Commercial and Industrial 7 34 - 6 9
Consumer Loans 33 23 22 19 15
All Other Loans - - 4 - -
-------------------------------------------------------------
Total Recoveries 41 71 96 25 24
-------------------------------------------------------------
Net Charge-Offs 117 197 47 114 143
Provision for Loan Losses 831 450 309 421 217
-------------------------------------------------------------
Balance, End of Period 3,753 3,039 2,786 2,524 2,217
=============================================================
Ratio of net charge-offs
during the period to average loans
outstanding during the period 0.05% 0.09% 0.02% 0.06% 0.08%
</TABLE>
16
<PAGE>
Table 7 - Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Allowance Total Loans Allowance Total Loans Allowance Total Loans
----------- -------------- ----------- ------------- ---------- --------------
(Dollars in Thousands)
<S> <C>
Real Estate:
Construction $ 150 7.47% $ 100 6.01% $ 100 6.08%
Secured by Farm Land 170 0.49% 75 0.39% 56 0.50%
Secured by 1-4 Family
Residential 770 47.46% 650 45.15% 400 42.84%
Other Real Estate 620 14.46% 550 16.49% 300 18.81%
Loans to Farmers 270 1.01% 275 1.22% 200 1.40%
Commercial and Industrial 595 12.75% 450 14.52% 750 16.28%
Consumer Loans 610 16.06% 500 15.89% 525 13.66%
All Other Loans 25 0.30% 25 0.33% 30 0.43%
Unallocated 543 - 414 - 425 -
----------- -------------- ----------- ------------- ---------- --------------
$ 3,753 100.00% $ 3,039 100.00% $ 2,786 100.00%
=========== ============== =========== ============= ========== ==============
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---- ----
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Allowance Total Loans Allowance Total Loans
----------- -------------- ----------- -------------
<S> <C>
Real Estate:
Construction $ 100 4.57% $ 100 4.31%
Secured by Farm Land 50 0.33% 50 0.46%
Secured by 1-4 Family
Residential 400 43.90% 400 45.68%
Other Real Estate 324 18.98% 300 17.25%
Loans to Farmers 200 1.58% 200 1.65%
Commercial and Industrial 500 17.23% 400 18.85%
Consumer Loans 500 12.80% 450 11.65%
All Other Loans 50 0.61% 50 0.15%
Unallocated 400 - 267 -
----------- -------------- ----------- -------------
$ 2,524 100.00% $ 2,217 100.00%
=========== ============== =========== =============
</TABLE>
17
<PAGE>
Table 8 - Nonperforming Assets and Loans
Contractually Past Due
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------- ------------ -------------
(Dollars in Thousands)
<S> <C>
Non-accrual Loans $ 1,193 $ 194 $ 140 $ 219 $ 170
Other Real Estate 258 - - - 44
------------ ------------ ------------- ------------ -------------
Total Nonperforming Assets $ 1,451 $ 194 $ 140 $ 219 $ 214
Loans Past Due as to
Principal or Interest
for 90 Days or More $ 359 $ 248 $ 147 $ 489 $ 186
Nonperforming Assets to
Total Assets 0.36% 0.05% 0.04% 0.06% 0.07%
Nonperforming Assets to
Year-end Loans and
Other Property 0.54% 0.08% 0.07% 0.11% 0.13%
</TABLE>
Potential Problem Loans:
At December 31, 1997 Management is not aware of any significant Problem
loans not included in Table 8.
18
<PAGE>
Table 9 - Investment Securities
Maturity Distribution and Average Yield
<TABLE>
<CAPTION>
December 31, 1997
(Dollars in Thousands)
Weighted
Average Weighted
Book Market Maturity Average
Value Value In Yrs Mos TE Yield
---------------- ---------------- -------------------- -------------
<S> <C>
U.S. Treasury Securities
Within One Year $ 2,999 $ 2,997 0 3.1 5.53%
After One But Within Five Years 10,026 10,133 1 8.9 6.32%
After Five But Within Ten Years 0 0 0 0.0 0.00%
After Ten Years 0 0 0 0.0 0.00%
---------------- ----------------
Total U.S. Treasury Securities $ 13,025 $ 13,130 1 4.8 6.14%
---------------- ----------------
Federal Agencies:
Within One Year $ 31,490 $ 31,399 0 7.0 5.35%
After One But Within Five Years 51,069 51,234 3 2.3 6.32%
After Five But Within Ten Years 0 0 0 0.0 0.00%
After Ten Years 0 0 0 0.0 0.00%
---------------- ----------------
Total Federal Agencies $ 82,559 $ 82,633 2 4.4 6.01%
---------------- ----------------
Obligations of State and Political
Subdivisions:
Within One Year $ 1,747 $ 1,748 0 4.4 6.11%
After One But Within Five Years 11,983 12,104 3 0.1 6.50%
After Five But Within Ten Years 3,860 3,910 6 2.2 6.94%
After Ten Years 0 0 0 0.0 0.00%
---------------- ----------------
Total State and Political
Subdivisions $ 17,590 $ 17,762 3 7.1 7.60%
---------------- ----------------
Other Securities:
Within One Year $ 0 $ 0 0 0.0 0.00%
After One But Within Five Years 0 0 0 0.0 0.00%
After Five But Within Ten Years 0 0 0 0.0 0.00%
After Ten Years 0 0 0 0.0 0.00%
---------------- ----------------
Total Other Securities $ 0 $ 0 0 0.0 0.00%
---------------- ----------------
Total Securities $ 113,174 $ 113,525 2 5.4 6.12%
================ ================
</TABLE>
19
<PAGE>
Liquidity and Interest Sensitivity:
Liquidity is the ability to satisfy demands for withdrawal of deposits,
lending obligations and other corporate needs. Liquidity is provided from
sources such as readily marketable investments, principal and interest payments
on loans and through increases in deposits and borrowed funds. Planters' deposit
base has become more rate sensitive since deregulation; however, there remains a
strong base of core deposits. The investment portfolio of which 96.4% matures
within five years and the opportunity to purchase Federal Funds provides a basic
source of liquidity along with the principal and interest payments on the loan
portfolio. In the management of interest rate risk, all loans except consumer
and mortgage are made with the opportunity to reprice the interest on a one or
three year basis. The Bank strives to maintain a relationship between rate
sensitive assets and rate sensitive liabilities which will maximize profits
under foreseeable or projected economic and competitive conditions. Additional
data regarding liquidity and interest sensitivity is presented in Tables 11 and
12.
Interest Sensitivity
The primary goals of interest rate risk management are to minimize
fluctuations in net interest margin as a percentage of earning assets and to
increase the dollars of net interest margin at a growth rate consistent with the
growth rate of total assets. These goals are accomplished by balancing the
volume of floating rate liabilities with a similar volume of floating-rate
assets, by keeping the average maturity of fixed rate asset and liability
contracts reasonably consistent and short, and by routinely adjusting pricing
rates to market conditions on a weekly basis.
The goal of Virginia Financial Corporation (VFC) is to generally maintain
a position that is to provide flexibility enough to move to an equality between
rate-sensitive assets and rate-sensitive liabilities, which may be desirable
when there are wide and frequent fluctuations in interest rates. Interest rate
gaps are managed through investments loan pricing and deposit pricing. When an
unacceptable positive gap within a one-year time frame occurs, maturities can be
extended by selling shorter term investments and buying longer maturities. The
same effect can also be accomplished by reducing emphasis on variable rate
loans. When an unacceptable negative gap occurs, variable rate loans can be
increased and more investment in shorter term investments can be made. Pricing
policies on either or both loans and deposits can be changed to accomplish any
of the goals. VFC reviews the interest sensitivity position once a quarter.
It is VFC's policy not to engage in activities considered to be
derivative in nature such as futures, option contracts, swaps, caps, floors.
collars or forward commitments. VFC considers derivatives as speculative which
is contrary to VFC's historical or prospective philosophy. VFC does not hold or
issue financial instruments for trading purposes. VFC does hold in its loan
portfolio, loans that adjust or float according to changes in the "prime"
lending rate which is not considered speculative, but necessary for good
asset/liability management. Off-balance sheet risks such as commitments to
extend credit, standby letters of credit and other items are discussed in Note
10 in the Notes to Consolidated Financial Statements.
Forward-Looking Statements
The sections that follow, Market Risk Management, contain certain
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). These forward-looking statements may involve significant
risks and uncertainties. Although VFC believes that the expectations reflected
in such forward-looking statements are reasonable, actual results may differ
materially from the results discussed in these forward-looking statements.
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, exchange rates
and equity prices. VFC's market risk is composed primarily of interest rate
risk. Asset/Liability/Risk Committee ("ALCO") is responsible for reviewing the
interest rate sensitivity position of
20
<PAGE>
VFC and establishing policies to monitor and limit exposure to interest rate
risk. Guidelines established by ALCO are reviewed by VFC's Board of Directors.
Asset/Liability/Risk Management: The primary goals of asset/liability
management are to maximize net interest income and the net value of VFC's future
cash flows within the interest rate risk limits set by ALCO.
Interest Rate Risk Measurement: Interest rate risk is monitored through
the use of three complementary measures: static gap analysis, earnings
simulation modeling and net present value estimation. While each of the interest
rate risk measurements has limitations, taken together they represent a
reasonably comprehensive view of the magnitude of interest rate risk in the
Corporation, the distribution of risk along the yield curve, the level or risk
through time, and the amount of exposure to changes in certain interest rate
relationships. To this point the ALCO Committee has relied on static gap and
static gap shock. In the interest of better management of interest rate risk,
the ALCO Committee will begin employing the above technique in future policy
decisions.
Static Gap: Gap analysis measures the amount of repricing risk embedded
in the balance sheet at a point in time. It does so by comparing the differences
in the repricing characteristics of assets and liabilities. A gap is defined as
the difference between the principal amount of assets and liabilities, adjusted
for off-balance sheet instruments, which reprice within a specified time period.
The cumulative one-year gap, at year-end, was 1.7% of total earning assets. The
policy limit for the one-year gap is plus or minus 15% of adjusted total earning
assets.
Core deposits and loans with noncontractual maturities are included in
the gap repricing distributions based upon historical patterns of balance
attrition and pricing behavior which are reviewed at least annually.
The gap repricing distributions include principal cash flows from
residential mortgage loans in the time frames in which they are expected to be
received. Mortgage prepayments are estimated by applying industry median
projections of prepayment speeds to portfolio segments based on coupon range and
loan age.
Earnings Simulation: The earnings simulation model forecasts one year net
income under a variety of scenarios that incorporate changes in the absolute
level of interest rates, changes in the shape of the yield curve and changes in
interest rate relationships. Management evaluates the effects on income of
alternative interest rate scenarios against earnings in a stable interest rate
environment. This type of analysis is also most useful in determining the
short-run earnings exposures to changes in customer behavior involving loan
payments and deposit additions and withdrawals.
The most recent earnings simulation model projects net income would
decrease by approximately 2.5% of stable-rate net income if rates immediately
fall by two percentage points over the next year. It projects a increase of
approximately 1.2% if rates rise immediately by two percentage points.
Management believes this reflects a liability-sensitive rate risk position for
the one-year horizon. This one-year forecast is within the ALCO guideline of
15.0%.
This dynamic simulation model includes assumptions about how the balance
sheet is likely to evolve through time, in different interest rate environments.
Loan and deposit growth rate assumptions are derived from historical analysis
and management's outlook, as are the assumptions used to project yields and
rates for new loans and deposits. All maturities, calls and prepayments in the
securities portfolio are assumed to be reinvested in like instruments. Mortgage
loan prepayment assumptions are developed from industry median estimates of
prepayment speeds for portfolios with similar coupon ranges and seasoning. Non
contractual deposit growth rates and pricing are assumed to follow historical
patterns. The sensitivities of key assumptions are analyzed at least annually
and reviewed by ALCO.
Net Present Value: The Net Present Value ("NPV") of the balance sheet,
at a point in time, is defined as the discounted present value of asset cash
flows minus the discounted value of liability cash flows. Interest rate risk
21
<PAGE>
analysis using NPV involves changing the interest rates used in determining the
cash flows and in discounting the cash flows. The resulting percentage change in
NPV is an indication of the longer term repricing risk and options risk embedded
in the balance sheet.
At year-end, a 200 basis point immediate increase in rates is estimated
to reduce NPV by 4.5%. Additionally, NPV is projected to decrease by less than
1% if rates fall immediately by 200 basis points. Analysis of the average
quarterly change in the Treasury yield curve over the past ten years indicates
that a parallel curve shift of 200 basis points or more is an event that has
less than a .1% chance of occurrence.
As with gap analysis and earnings simulation modeling, assumptions about
the timing and variability of balance sheet cash flows are critical in NPV
analysis. Particularly important are the assumptions driving mortgage
prepayments and the assumptions about expected attrition of the core deposit
portfolios. These assumptions are applied consistently across the different rate
risk measures.
Summary information about Interest-rate risk measures are presented
below.
Interest-rate Risk Measures
Year-end
1997
----
Static 1-Year Cumulative Gap 1.7%
1-year Net Income Simulation projection
-200 bp Shock vs. Stable Rate -2.5%
+200 bp Shock vs. Stable Rate 1.2%
Static Net Present Value Change
-200 bp Shock vs. Stable Rate -0.2%
+200 bp Shock vs. Stable Rate -4.5%
Due to borrowers' preferences for floating-rate loans and depositors'
preferences for fixed-rate deposits, VFC's balance sheet tends to move toward
more asset sensitivity with the passage of time. The earnings simulation model
indicates that if all prepayments, calls and maturities of the securities
portfolios expected over the next year were to remain uninvested, then the
current asset sensitivity position would become greater. Purchases of fixed rate
securities have been made to offset the natural tendency toward a less liability
sensitive interest rate risk position.
Management expects interest rates to be relatively stable during
1998 and believes that the current modest level of liability sensitivity
is appropriate.
22
<PAGE>
Table 11 - Average Deposits and Rates Paid
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C>
Noninterest Bearing Deposits $ 50,109 - $ 44,711 - $ 39,633 -
--------------- ---------------- -------------
Interest Bearing Deposits
Interest Checking 97,421 3.41% 99,981 3.44% 106,571 3.71%
Regular Savings 35,644 2.97% 38,562 2.99% 38,698 3.47%
Time Deposits
Less than $100,000 135,168 5.50% 119,745 5.48% 103,356 5.43%
$100,000 and more 21,474 5.30% 20,457 6.12% 17,842 5.58%
--------------- ---------------- -------------
Total Interest- Bearing Deposits $ 289,707 4.47% $ 278,745 4.45% $ 266,467 4.47%
--------------- ---------------- -------------
Total $ 339,816 $ 323,456 $ 306,100
=============== ================ =============
</TABLE>
Table 12 - Remaining Maturities of CD's of $100,000 or More
December 31, 1997
-----------------
(In Thousands)
Three Months or Less $ 7,468
Over Three Through Six Months 715
Over Six Through Twelve Months 1,504
Over Twelve Months 11,700
-------------
Total $ 21,387
=============
23
<PAGE>
Stockholders' Equity:
Stockholders' equity, during 1997, increased $3,761,651 or 10.01%.
Reflected in this increase is $246,539 unrealized net gain on securities in the
available for sale category. During 1996 stockholders' equity increased
$3,420,220 or 10.01%. This increase reflects $201,581 unrealized net loss on
securities in the available for sale category. Stockholders' equity, during
1995, increased $4,107,185 or 13.67%. This increase reflects $732,578 unrealized
net gain on the securities in the available for sales category. These increases
represent retention of net income after the payment of dividends. Cash dividends
paid increased by 15.63% in 1997, 15.66% in 1996 and 16.90% in 1995. Book value
per share as of December 31, 1997 was $10.33, $9.39 as of December 31, 1996 and
$8.54 as of December 31, 1995. Book value per share has been adjusted for the
100% stock dividend, December 1997
Table 13 - Return on Equity and Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands except per share data)
<S> <C>
Total Dividends Paid as a
Percent of Net Income 38.71% 34.65% 32.97% 29.87% 25.88%
Return on Averge Assets 1.48 1.51 1.45 1.43 1.53
Return on Average Equity 14.48 15.34 15.48 16.30 18.30
Average Equity to Average Assets 10.23 9.85 9.36 8.77 8.46
</TABLE>
Recent Accounting Pronouncements:
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments 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 or 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 of
(a) paragraph 15 of Statement 125 and (b) for repurchase agreement, dollar-roll,
securities lending, or similar transactions, of paragraph 9-12 of Statement 125.
During June 1997, the FASB issued FASB No. 130, "Reporting
Comprehensive Income". This pronouncement established standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. FASB
No. 130 is effective for financial statements beginning after December 15, 1997.
Additionally during June of 1997, the FASB issued FASB No. 131,
"Disclosures about Segments of an Enterprise and Related Information". FASB No.
131 establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement becomes effective for financial statements for periods
beginning after December 31, 1997.
24
<PAGE>
The effects of these Statements on the Company's consolidated financial
statements are not expected to be material.
Year 2000
During 1997 the Bank began to assess the effect of the Year 2000 by
contacting vendors for documentation regarding their planning, testing and
implementation for Year 2000 compliance. In November 1997, the Bank's Board of
Directors approved the appointment of a Year 2000 committee composed of officers
and staff. The Board has approved a written plan which details the steps to be
taken for Year 2000 compliance, including problem definition, assessment of
systems and equipment, necessary repairs, upgrades and replacements of systems
and equipment testing. This plan consists of quarterly action schedules with
reporting requirements to the Board of Directors quarterly.
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software is
provided by a service bureau. The service bureau and the majority of the other
vendors (including vendors for systems and equipment other than for data
processing) which have been contacted have indicated that their hardware and/or
software will be Year 2000 compliant.
Upgrading and replacing PC workstations and file servers has been
completed. The cost of year 2000 compliance is not expected to have a material
effect on the Corporation's consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information set forth in "Market Risk Management" on pages 20-22
of this Form 10-K under Item 7 is hereby incorporated by reference.
Item 8. Financial Statements And Supplementary Data
Item 14 titled "Exhibits, Financial Statement Schedules and
Reports on 8-K" of the Annual Report, pages 18-35 is hereby incorporated by
reference.
Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
None
PART III
Item 10. Directors And Executive Officers Of The Registrant
The section captioned "Definitive Proxy Statement" as filed with the
commission on March 27, 1998 is hereby incorporated by reference.
Executive Officers of Company and the Bank
The names and ages of all principal officers of the Company and the
Bank and of all persons chosen to become principal officers, the nature of any
family relationship between them, their positions and offices with the Bank and
terms of office and any arrangements or understandings between officers and any
other person pursuant to which that person was selected as an officer is as
follows:
William P. Heath, Jr., Age 52, President of Virginia Financial Corporation
and President of Planters Bank & Trust Company of Virginia.
Mr. Heath was employed by Planters Bank & Trust Company of Virginia in
January 1996 as Executive Vice President and served in that capacity through
December 31, 1996. Mr. Heath became Vice President of the Company on September
27,1996, President of the Bank on January 1, 1997 and President of the Company
January 1, 1998. Mr. Heath has thirty-two years experience in banking, having
served as Executive Vice President and area President in a statewide banking
organization.
25
<PAGE>
Fred D. Bowers, Age 61, Secretary/Treasurer, Virginia Financial Corporation, and
Senior Vice President and Cashier, Planters Bank & Trust Company of Virginia.
Mr. Bowers was employed as an Assistant Vice President of Planters Bank
& Trust Company, Staunton, Virginia, October 19, 1968, and was elected Cashier
on December 31, 1972, Vice President and Cashier January 1, 1974, Senior Vice
President and Cashier December 4, 1984, and has served in that position to the
present time. Mr. Bowers was elected Secretary Treasurer of the Company on
September 27, 1996.
Joseph Shomo, Age 63, Senior Vice President, Planters Bank & Trust
Company of Virginia.
Mr. Shomo was employed by Planters Bank & Trust Company, Staunton,
Virginia, in July 1957. He was elected Assistant Cashier in 1963 and Vice
President in 1967. Mr. Shomo has been serving as Senior Vice President since
1974.
Thomas A. Davis, Age 53, Senior Trust Officer, Planters Bank & Trust
Company of Virginia.
Mr. Davis was employed by Planters Bank & Trust Company of Virginia
in May of 1978 as Senior Trust Officer and head of the Trust Department. He
continues to serve in this capacity.
There is no family relationship among the principal officers of the
Bank. To the knowledge of the management of the Bank, there are no arrangements
or understandings between officers and any other person or persons pursuant to
which any person was selected as an officer of the Bank other than the usual
fiduciary relationship existing between the officers and stockholders and
depositors of the Bank.
Item 11. Executive Compensation
Executive Compensation summary table, page 7 of the Definitive Proxy
Statement is hereby included by reference.
Human Resources Committee Report On Executive Compensation
The report on Executive Compensation by the Personnel and Salary
Committee on page 8 of the Definitive Proxy Statement is hereby incorporated by
reference.
Shareholder Return
Shareholder Return on page 9 of the Definitive Proxy Statement is
hereby incorporated by reference.
Item 12. Security Ownership Of Certain Beneficial Owners
Security Ownership of Certain Beneficial Owners page 2 of the
Definitive Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships And Related Transactions
Compensation Committee Interlocks and Insider Participation and
Other Transactions With Management on page 5 and 6 of the Definitive Proxy
Statement is hereby incorporated by reference.
26
<PAGE>
Directors' Fees And Attendance
Directors Fees And Attendance on page 6 of the Definitive Proxy
Statement is hereby incorporated by reference.
Transactions In Which Directors Have An Interest
Transactions In Which Directors Have An Interest on page 6 of the
Definitive Proxy Statement is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On 8-K
Listed below are all financial statements and exhibits filed as part of
this annual report.
(a) (1) Financial Statements
Report of Independent Auditors (See Exhibit 13, Annual Report, page 11)
Consolidated Balance Sheets as of December 31, 1997, and December 31,
1996 (See Annual Report, page 12)
Consolidated Statements of Income for Years Ended December 31, 1997,
December 31, 1996, and December 31, 1995 (See Annual Report, page
13 and 14)
Consolidated Statements of Cash Flows for Years Ended December 31,
1997, December 31, 1996, and December 31, 1995 (See Annual Report,
pages 15 and 16)
Consolidated Statements of Changes in Stockholders' Equity for Years
Ended December 31, 1997, December 31, 1996, and December 31, 1995
(See Annual Report, page 17)
Notes to Consolidated Financial Statements for Years Ended
December 31, 1997, December 31, 1996 and December 31, 1995
(See Annual Report, pages 18-28)
(a) (2) Financial Statement Schedules
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
27
<PAGE>
(a) (3) Exhibits Description
Exhibit
Number Description
------- -----------
3(i) Articles of Incorporation Incorporated by
reference to Exhibit
3.1 of the Company's
Form 8-B successor
registration statement
filed March 24, 1997.
3(ii) Bylaws Incorporated by
reference to Exhibit
3.2 of the Company's
Form 8-B successor
registration statement
filed March 24, 1997.
10 Material Contracts None.
13 Annual Report Attached hereto
21 Subsidiaries Planters Bank & Trust
Company of Virginia
27 Financial Data Schedule Attached.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997
28
<PAGE>
28
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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 Virginia Financial Corporation
Staunton, Virginia Staunton, Virginia
by /s/ William P. Heath, Jr. /s/ Fred D. Bowers, Sr.
-------------------------------- --------------------------------
William P. Heath, Jr., President Fred D. Bowers, Sr., Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Benham M. Black Chairman of the Board 3-31-98
- -------------------------------- Director
Benham M. Black
/s/ Harry V. Boney, Jr. Director 3-31-98
- --------------------------------
Harry V. Boney, Jr.
/s/ Lee S. Baker Director 3-31-98
- --------------------------------
Lee S. Baker
/s/ William P. Heath, Jr. President 3-31-98
- --------------------------------
William P. Heath, Jr. Director
/s/ Jan S. Hoover Director 3-31-98
- --------------------------------
Jan S. Hoover
/s/ Martin F. Lightsey Director 3-31-98
- --------------------------------
Martin F. Lightsey
/s/ James S. Quarforth Director 3-31-98
- --------------------------------
James S. Quarforth
(INSERT PHOTO HERE)
BOARD OF DIRECTORS OF VIRGINIA FINANCIAL CORPORATION
and PLANTERS BANK & TRUST COMPANY OF VIRGINIA
First Row: *Benham M. Black (Chairman); Elizabeth M. Schreiber; *Harry V.
Boney, Jr.(Vice Chairman); *William P. Heath, Jr., *Jan S. Hoover; *Lee S.
Baker; Second Row: H. C. Stuart Cochran; *James S. Quarforth; *Martin F.
Lightsey; G. Raymond Ergenbright.
* Director of Virginia Financial Corporation
VIRGINIA FINANCIAL CORPORATION and PLANTERS BANK ARE...YOUR
FINANCIAL PARTNERS FOR THE FUTURE
<PAGE>
TO OUR STOCKHOLDERS
Dear Stockholders:
I am delighted to report to you on the progress of Virginia Financial
Corporation and Planters Bank & Trust Company of Virginia for the year 1997. As
you will see in the enclosed financial information the Bank had an excellent
year relative to both growth and profitability. Please take a few minutes to
study the data. Several initiatives were begun during the year which will
aid our efforts in providing "world class service". I want to share some of
those with you below.
We began the year with the introduction of our new imaged bank statements
which are produced on "state of the art" equipment. We have been pleased with
the overwhelmingly positive reception of the statements and are delighted to
be one of only a few banks in the State with this capability.
During the year we installed two new automated teller machines (ATM); one
at our Richmond Road Branch and the other at our West Beverley Street Branch.
Cash machines were installed in the Food Lion on Coalter Street in Staunton
and at the 7-11 Convenience Store in Grottoes, Virginia.
As a convenience to our customers who are unable to contact the Bank during
normal banking hours, we installed 24-Hour Banking By Phone. Now our
customers have the ability to verify account balances, confirm deposits and
withdraws, inquire about interest paid or earned, transfer funds and conduct a
number of other transactions when it is convenience for them.
Overdraft protection is another new product designed with the customer
in mind. A pre-approved personal line of credit is established to assist
with temporary cash needs.
In addition we established a new fixed rate mortgage office in Lexington,
Virginia and relocated Planters Mortgage Services to a new facility on Route
608 in Fishersville, Virginia. The latest technology has been installed so
that we can give a quick response to customers who want to buy a house or
refinance an existing mortgage.
We recently purchased a lot on Rosser Avenue in Waynesboro where a new
branch facility will be built in 1998. The Waynesboro market is a good place
to do business and we have enjoyed an excellent relationship with many good
customers over the years. This addition to our branch network will give us the
ability to continue to grow both in Augusta County and the City of Waynesboro.
We are preparing to install a new teller system which will allow our staff to
use the latest equipment as they do their daily tasks and better serve our
customers. That brings me to our staff. We have dedicated, motivated and
focused employees who work hard. As I stated last year, next to our customers,
our employees are the most valuable asset we have.
In essence, the state of Virginia Financial Corporation and Planters Bank &
Trust Company of Virginia is strong. We are poised for the future and look
forward to the new millennium with anticipation. This is your company and I
hope you will continue to use our products and services. The continued
support of our stockholders will allow us to strive to be the best provider
of financial services in the State.
The balance of this letter is devoted to Harry V. Boney, Jr. On January 1,
1997, Harry retired as President of the Bank to become President of Virginia
Financial Corporation. On January 1, 1998, Harry decided to retire from that
position to spend more time with his wife, Sarah, and to do volunteer work in
the community. While Harry will be available on a consulting basis and as a
member of the Board of Directors, he will not be spending a great deal of time
in the Bank. I want to take this opportunity to say "Thank You" to Harry for
being the leader of Planters Bank for over twenty years. His abilities,
attitude, dedication, and presence in general will be missed by all. I speak
for everyone here at the Bank when I say "Bon Voyage." We wish you the best
of everything!
Sincerely,
William P. Heath, Jr.
President and Chief Executive Officer
<PAGE>
Contents
Highlights of 1997 1
Glossary of Financial Terms 2
Selected Financial Data 3
Comments by Management 4
Report of Independent Auditors 11
Balance Sheets 12
Statements of Income 13
Statements of Cash Flows 15
Statements of Changes in Stockholders' Equity 17
Notes to Financial Statements 18
Locations 36
Management 37
<PAGE>
* HIGHLIGHTS OF 1997
=============================================================================
* Met goal of $400 million asset objective by September
* Imaging System Installed
* Overdraft Protection Program developed and implemented
* 24-Hour Banking by Phone
* Two new ATM's and two cash machines installed
* New Fixed-Rate Mortgage Office opened in Lexington
* Purchased building for Fixed-Rate Mortgage Operations
* Made Available Accident and Dismemberment Insurance to Customers
* Approved purchase of AutoBank system
* Purchased lot in Waynesboro for future expansion
"The listing above is a sample of
the progressive posture
taken by VFC during 1997.
We are poised for the future."
Bill Heath
<PAGE>
Glossary of Financial Terms
Book Value Per Share
The book value of a share of common stock is determined by dividing
stockholders' equity by the number of common shares outstanding.
Interest-Bearing Liabilities
Deposits and borrowed funds on which interest is paid.
Interest-Earning Assets
Interest-bearing financial instruments consisting principally of loans,
investment securities and short-term investments that generate interest and
yield related fee income.
Net Charge-offs
The amount of loans written off as losses net of recoveries on loans previously
written off.
Net Interest Margin
Net interest income on a taxable equivalent basis divided by average earning
assets.
Non-Performing Assets
Loans on which interest income is not being accrued, loans classified as
in-substance foreclosed properties prior to 1994, loans on which the accrual of
interest has been discontinued.
NOW Account
An interest bearing account designed for individuals and sole proprietorships.
Provision for Loan Losses
The amount charged against current earnings in order to maintain in management's
judgment an adequate allowance for loan losses.
Return on Average Asset
A measure that indicates how efficiently an entity uses its total resources.
It is calculated by dividing annual net income by average assets.
Return on Average Stockholders' Equity
A measure of how effectively an entity's equity has been employed. It is
calculated by dividing annual net income by average stockholder' equity.
Risk-Based Capital Ratios
Regulatory ratios of capital to assets, including assets not reflected on the
balance sheet, which have been adjusted to reflect the risk profile of such
assets. Tier 1 capital consists of stockholders' equity reduced by deposit
intangibles, while total capital is Tier 1 capital plus the allowable portion
of the allowance for loan losses and plus subordinated debt.
Stockholders' Equity
A balance sheet amount that represents the total investment in the corporation
by holders of common stock; it includes amounts added through the retention of
earnings.
<PAGE>
Virginia Financial Corporation
and Subsidiary
provides a full range of banking services with ten offices
in Staunton, Waynesboro, Grottoes and Augusta County.
Selected Financial Data
(000's Omitted on Dollar Items, Except for Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C>
Deposits.............................$ 352 167............$ 330 375........$ 319 578.........$ 297 006.........$ 279 290
Loans, Net...........................$ 265 829............$ 232 913........$ 209 541.........$ 194 054.........$ 168 850
Assets...............................$ 403 999............$ 377 113........$ 356 068.........$ 344 473.........$ 308 243
Stockholders' Equity.................$ 41 335............$ 37 574........$ 34 154........ $ 30 046........ $ 27 335
Interest Income......................$ 29 068............$ 27 321........$ 26 073.........$ 22 902.........$ 21 436
Net Interest Income..................$ 15 776............$ 14 637........$ 13 730.........$ 13 154.........$ 12 227
Provision for Loan Losses............$ 831............$ 450........$ 309.........$ 421.........$ 217
Other Expenses Net of
Other Income......................$ 6 590............$ 6 131........$ 6 108.........$ 5 875.........$ 5 276
Income Taxes.........................$ 2 620............$ 2 514........$ 2 278.........$ 2 105.........$ 2 097
Net Income...........................$ 5 735............$ 5 542........$ 5 035.........$ 4 753.........$ 4 637
Return on
Average Assets (%)................ 1.48............ 1.51......... 1.45.......... 1.43.......... 1.53
Return on
Average Equity (%)................ 14.48............ 15.34......... 15.48.......... 16.30.......... 18.03
Earnings Per Share,
basic and diluted*................$ 1.43............$ 1.39........$ 1.26.........$ 1.19.........$ 1.16
Book Value Per Share*................$ 10.33............$ 9.39........$ 8.54.........$ 7.51.........$ 6.83
Cash Dividends
Per Share*........................$ 0.56............$ 0.48........$ 0.42 $ 0.36.........$ 0.30
Average Shares
Outstanding*......................4 000 000............ 4 000 000......... 4 000 000.......... 4 000 000.......... 4 000 000
</TABLE>
3
<PAGE>
Comments By Management
Nature and Scope of Business
At a special meeting of Shareholders held November 14, 1996, the
shareholders approved the agreement and plan of reorganization dated July
30, 1996 between the Bank and Virginia Financial Corporation. The
agreement provided for the reorganization of the Bank into a wholly-owned
subsidiary of Virginia Financial Corporation, organized to serve as the
holding company for the Bank. This reorganization became effective January 2,
1997.
Planters Bank & Trust Company of Virginia, a registered state bank with
its main office and executive offices located at 24 South Augusta Street,
Staunton, Virginia, was formed in 1977 by merger of Planters Bank & Trust
Company, Staunton, Virginia, organized in 1911, and Augusta Bank & Trust
Company, organized in 1972. The Bank has ten offices, in Staunton,
Waynesboro, Grottoes and Augusta County. Commercial banking and trust
activities account for 100% of the Bank's business. Planters provides a full
range of banking services, and as of December 31, 1997, had 161
full-time employees and 16 part-time employees. The composition of the
Bank's business is reflected by the breakdown of current loans and deposits as
shown.
The Bank, effective December 12, 1995, formed Planters Insurance
Agency, Inc., a wholly-owned subsidiary of Planters Bank & Trust Company of
Virginia. During January 1996 the agency began marketing title insurance, its
only product, to the general public.
Loans:
Real Estate 69.98%
Farmers 1.01%
Commercial 12.77%
Consumer 15.94%
Other 0.30%
Deposits:
Demand Deposits 15.46%
NOW 12.18%
Money Market 16.46%
Savings 10.07%
Time Deposits 45.83%
Stock
The bank issues one class of stock, Common, which is not listed for
trading on a registered exchange or quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ), as so far as the
Bank is aware, there are no active market makers in the Bank's stock. Trades
in the bank's stock occur sporadically on a local basis. Local brokerage
offices will "match" or "pair" buy and sell orders. Accordingly, there is no
established public trade market for shares of the Bank's stock, and
quotations do not necessarily reflect the price that would be paid in an active
and liquid market.
On December 31, 1997, there were 1,099 stockholders. Cash dividends
per share for 1997 were $0.56 and 1996 were $0.48. Management expects to pay
approximately $0.64 per share dividends in 1998.
Based upon sale prices furnished to the Bank by the Staunton, Virginia,
office of a Virginia headquartered brokerage firm, the high and low sales
prices of Bank stock during 1995, 1996, and 1997 were as shown on the chart.
[GRAPH] [GRAPH]
Dividend per Share ($)* Stock Price per Share Year-End ($)*
1993 0.30 1993 13.00
1994 0.36 1994 16.12
1995 0.42 1995 18.50
1996 0.48 1996 22.50
1997 0.56 1997 25.00
Per Share Sales Prices*
High Low
________________________________
1995 16.12 13.00
1996 18.50 15.50
1997 25.00 18.50
*Adjusted for 100% stock dividends, December 1997.
4
<PAGE>
Management's Discussion and Analysis of Operations
[GRAPH]
Net Income ($ in Millions)
1995 5.035
1996 5.542
1997 5.735
During 1997, the Company's Net income was $5,735,112 compared to
$5,541,801 for 1996 and $5,034,607 for 1995. The increase in Net income
comparing 1997 to 1996 was $193,311 or 3.49%, comparing 1996 to 1995 was
$507,194 or 10.07% and comparing 1995 to 1994 was $281,446 or 5.92%
[GRAPH]
Net Income per share ($)*
1995 1.26
1996 1.39
1997 1.43
Net interest income is the principal source of income for the Company.
The changes in volume, interest rates and the mix of interest-earning assets
and interest-bearing liabilities has a significant impact on net interest
income.
Net interest income was $15.8 million for 1997 compared to $14.6
million for 1996 and $13.7 million for 1995. This represents increases of
7.8% in 1997, 6.6% in 1996, and 4.4% in 1995.
*Adjusted for 100% stock dividends, December 1997.
Investment Securities
[GRAPH]
Investment Securities
($ in Millions)
1995 125.4
1996 118.8
1997 113.4
The average maturity of the investment portfolio was 2.5 years, 1.9
years, and 2.4 years as of December 31, 1997, 1996 and 1995, respectively.
Securities maturing in one year or less were $36.2 million or 31.9% of the
portfolio as of December 31, 1997, $14.7 million or 12.4% of the portfolio as of
December 31, 1996 and $34.9 million or 27.8% of the portfolio as of December 31,
1995.
The portfolio was reduced during 1997 by $5.4 million to fund loan
growth. During 1996 the portfolio was reduced by $6.6 million and these funds
were used to fund loan growth during the year. During 1995 the portfolio
was reduced by $3.9 million and was used to reduce securities sold under
agreement to repurchase and to fund loan growth.
U.S. Treasury Securities were 11.6% of the portfolio as of December
31, 1997, 11.4% as of December 31, 1996 and 11.2% as of December 31, 1995. U.S.
Government Agencies were 72.9% of the portfolio as of December 31, 1997, 72.7%
as of December 31, 1996 and 75.1% as of December 31, 1995. Obligations of
states and political subdivisions were 15.5% as of December 31, 1997, 15.7%
as of December 31, 1996 and 13.2% as of December 31, 1995.
During 1994 the accounting policy was revised, adopting FASB 115,
"Accounting for Certain Investments in Debt and Equity Securities" resulting
in a reclassification of a portion of investment securities to securities
available for sale. As of December 31, 1997 investment securities classified
as available for sale were $56.2 million and as of December 31, 1996 were $50.7
million and as of December 31, 1995 were $36.5 million. Securities classified
as available for sale are reported at fair value and as of December 31, 1997
had an unrealized gain of $235,495, and as of December 31, 1996 had an
unrealized loss of $138,052 and as of December 31, 1995 an unrealized gain
of $167,378 which is shown net of deferred taxes as a separate component of
stockholders' equity.
5
<PAGE>
Loans
[GRAPH]
Total Net Loans ($ in Millions)
1995 209.5
1996 232.9
1997 265.8
The loan portfolio increased during 1997 by $32.9 million, increased by
$23.4 million during 1996 and increased during 1995 by $15.5 million. The
percentage of net loans to total assets as of December 31, 1997 was 65.8%, as
of December 31, 1996 was 61.8% and as of December 31, 1995 was 58.8%.
The demand for loans, as indicated by overall growth and as a percentage
of assets, has remained relatively strong during the three year period. The
primary trade area continues to provide diversity and relative stability in
the employment and economic activities.
During 1998 approximately $ 143.8 million of the $265.8 loan
portfolio is due to mature or be repriced. During 1997 approximately
$139.2 million was due to mature or be repriced and during 1995 approximately
$107.2 million was due to mature or be repriced.
Most mortgage loans placed in the loan portfolio are made with the
provision to reprice on a one, three or five year basis. A significant number
of commercial loans are represented by demand notes which
provide the ability to reprice.
Mortgage loan financing is offered through the secondary mortgage
market which provides other sources of financing for the customer base. During
1997, about $ 30.0 million was placed through the secondary mortgage market,
during 1996 about $35.3 million and during 1995 about $28.5 million.
Management believes the overall quality and collectability of the loan
portfolio remains good. Total non-earning loans which represent loans which the
accrual of interest has been discontinued were $1,193,000 as of December 31,
1997, $194,000 as of December 31, 1996, and $140,000 as of December 31, 1995.
Allowance for Loan Losses
[GRAPH]
Provision and Net Charge-Offs ($ in Thousands)
Provision Net Charge-Offs
1995 309 48
1996 450 197
1997 831 117
The allowance for loan losses is an estimate of an amount, by
management, to provide for potential losses in the loan portfolio.
Various factors, including charge-off experience, change in the mix and
volume of loans, the level of underperforming loans, the ratio of outstanding
loan balances to total loans and the perceived economic conditions in the
primary trade area are taken into consideration in determining the amount of the
provision for loan losses and the total amount of the loan loss reserve.
The reserve for loan losses was 1.39% of outstanding loans as of December
31, 1997, 1.29% of outstanding loans as of December 31, 1996 and 1.31% as of
December 31, 1995. Net charge-offs were $117,293 during 1997, $196,833
during 1996 and $47,518 during 1995. The percentage of net charge-offs to
year-end loans was 0.04% for 1997, 0.08% for 1996 and 0.02% for 1995. The
balance of the reserve for loan losses was $3,752,500 as of December 31,
1997, $3,038,958 as of December 31,1996, and $2,785,791 as of December
31, 1995.
6
<PAGE>
Deposits
[GRAPH]
Total Deposits ($ in Millions)
1995 320.0
1996 330.4
1997 352.2
During 1997 total deposits increased by $21.8 million or 6.6% compared to
year-end 1996. Certificates of Deposits increased during 1997 by about
$13.7 million or 9.3% due to competitive interest rates on select maturities.
NOW accounts increased by $3.2 million, money market checking accounts
increased by $2.5 million and savings accounts decreased by $0.8 million.
Non-interest checking also increased by $3.2 million due primarily to
increased volume and customer base. A Visa debit card program was also
introduced and promoted along with an image statement system which also
contributed to the growth.
During 1996 total deposits increased $10.8 million or 3.4% compared to
1995. Demand deposits and NOW accounts both experienced growth during 1996.
Money Market accounts and savings accounts decreased during the year due to
the movement of these deposits to Certificates of Deposit. Certificates of
Deposit continued to increase during 1996 due to interest rates on
certificates compared to other interest earning deposits offered by the Bank.
During 1995 total deposits increased $22.6 million or 7.6% compared to
1994. The movement of deposits from savings, NOW and Money Market accounts
into Certificates of Deposit which began in 1994 continued in 1995 due to
the interest rates paid on Certificates of Deposit. Non-interest checking
increased in 1995 due primarily to the increase in volume and customer base.
Interest rates and the versatility of financial instruments offered by
other entities continue to present strong competition in the growth of deposits
and attracting new deposit balances.
Assets
During 1997 total assets increased $26.9 million or 7.1%. The two
major categories of assets are the loan and investment portfolio. The loan
portfolio increased about $32.9 million during the year and the security
investment portfolio decreased about $5.4 million or 4.5%. This decrease in
the investment portfolio along with the decrease in cash and due from Banks
along with the growth in deposits and securities sold under agreement to
repurchase funded the loan growth. At year-end 1997 the loan portfolio was
65.8% of assets and the investment portfolio was 28.1% of assets.
[GRAPH]
Total Assets ($ in Millions)
1995 356.1
1996 377.1
1997 404.0
Total assets increased during 1996 by approximately $21 million or 5.9%.
Securities during 1996 decreased about $6.6 million and the loan portfolio
increased by about $23.4 million. The decrease in the investment portfolio,
the increase in deposits of about $10.8 million and federal funds purchased of
$5.0 million funded the loan growth. At year-end 1996 loans were 61.8% of
assets and the investment portfolio was 31.5% of assets.
Total assets increased during 1995 by about $11.6 million or 3.36%.
Loan growth for 1995 was about $15.5 million and the security portfolio
decreased $3.9 million. The decrease in the security portfolio and deposit
growth of $22.6 million and $14.4 million in securities sold under agreement
to repurchase was used to fund the increase in loans and fund the repayment
of $1.0 million in federal funds during 1995. At year end 1995 loans were 59%
of assets, and the security portfolio was 35% of assets.
7
<PAGE>
Stockholders' Equity
[GRAPH]
Dividends per Share ($)*
1995 0.42
1996 0.48
1997 0.56
Stockholders' equity, during 1997, increased $3,761,651 or 10.01%.
Reflected in the increase is $246,539 unrealized net gain on securities in the
available for sale category. During 1996 stockholders' equity increased
$3,420,220 or 10.01%. This increase reflects $201,581 unrealized net loss on
securities in the available for sale category. Stockholders equity during
1995, increased $4,107,185 or 13.67%. This increase reflects $732,578
unrealized net gain on the securities in the available for sale category.
These increases represent retention of net income after the payment of
dividends. Cash dividends paid increased by 15.63% in 1997, 15.66% in 1996 and
16.90% in 1995. Book value per share as of December 31, 1997 was $10.33,
$9.39 as of December 31, 1996, and $8.54 as of December 31, 1995. Book value
per share has been adjusted for the 100% stock dividend in December 1997.
Additional dividend information is provided under "Selected Financial Data"
and on page 4 under "Stock". The Company's Tier I risk based capital ratio as
of December 31, 1997 was 16.97, as of December 31, 1996 was 17.20%, and as of
December 31, 1995 was 16.74%. The total risk based capital ratio as of
December 31, 1997 was 18.23%, December 31, 1996 was 18.45% and December 31,
1995 was 17.99%. Additional risk based capital information is provided under
"Notes to Consolidated Financial Statements, Note 12, Regulatory Matters".
[GRAPH]
Year-End Stockholders Equity
($ in Millions)
1995 34.1
1996 37.6
1997 41.3
[GRAPH]
Return on Average Equity (%)
1995 15.5
1996 15.3
1997 14.5
8
<PAGE>
Results of Operations
Net income for 1997 was $5,735,112 for an increase of $193,311 or 3.49%
compared to 1996. Net income for 1996 was $5,541,801 for an increase of
$507,194 or 10.07% compared to 1995. Net income for 1995 was $5,034,607 for
an increase of $281,446 or 5.92% compared to 1994.
[GRAPH]
Net Interest Income
($ in Millions)
1995 13.7
1996 14.6
1997 15.8
Net Interest Income:
Net interest income, represents the difference in interest received on
interest earning assets and interest paid on interest bearing liabilities.
Factors which have a significant impact on net interest income and the net
interest margin are changes in volume and mix and their respective yields or
rates on interest earning assets and interest bearing liabilities. Net
interest income for 1997 was $15,775,530 for an increase of $1,136,421 or
7.78% when compared to 1996. Net interest income for 1996 was $14,637,109
for an increase of $906,951 or 6.61% compared to 1995. Net interest income for
1995 was $13,730,158 for an increase of $575,703 or 4.38% compared to 1994.
The net interest margins for 1997, 1996 and 1995 were 4.40%, 4.32% and 4.27%
respectively.
[GRAPH]
Non-Interest Income
($ in Thousands)
1995 2,125
1996 2,542
1997 2,885
Non-Interest Income:
Non-interest income increased $342,817 or 13.49% during 1997 when
compared to 1996. Trust Department income increased by $48,457 or 4.92%
during 1997 when compared to 1996. This increase in Trust Department income
is due primarily to increases in the volume of fee generating activity and to
increases in the market values. Other non-interest income and fee income
increased about $257,000 in the following areas: Fees on ATM foreign
transactions, Visa debit cards, printed check commissions and fees from the
sale of non-FDIC insured investment products.
Non-interest income increased during 1996 compared to 1995 by
$417,108 or 19.63%. Trust Department income increased by $163,283 or 19.87%
during 1996 compared to 1995. This increase was due to the number and asset
size of estates closed and under administration and the overall volume of fee
generating activity during the year. Income from the secondary mortgage
market area increased $110,523 or 32.75%. The increase in this area was the
result of a greater number of loans being closed and the dollar amount of
these loans. During 1996 the Bank began offering non-FDIC insured investment
products which produced income of $86,648. Also during 1996, the Bank began
operating Planters Insurance Agency, Inc., a wholly-owned subsidiary of the
Bank, which markets title insurance, provided income of $17,408. Service
charges on deposit accounts, safe deposit box rent and other non-interest
income experienced a very modest increase due to the volume of business
only, as the pricing of these services and fees have not changed.
Non-interest income decreased by $81,149 or 3.68% during 1995 compared to
1994. Trust Department income decreased $119,440 or 12.69% during 1995
compared to 1994. This decrease was due to the number of estates being closed
and declining interest rates. As interest rates decline the Trust Department
income is impacted due to a segment of the income earned being based on income
collected in the individual accounts. Service charges on deposit accounts and
other non-interest income both experienced a modest increase due to the
volume of business.
9
<PAGE>
Non-Interest Expense:
[GRAPH]
Non-Interest Expense
($ in Millions)
1995 8.2
1996 8.7
1997 9.5
Non-interest expense increased during 1997 by $795,704 or 9.17% compared
to 1996. Salaries and employee benefits increased by $252,437 or 4.78%
comparing 1997 to 1996. This increase was due to an increase in the number
of employees and to increases in individual salaries. Expense of premises
and fixed assets increased by $190,992 or 20.34%. This increase is due to
installing an image item processing system and image statement system along
with two additional ATM and two cash machines. Computer expense increased
$44,487 due to additional volume and FDIC Insurance expense increased
$39,185. Other Non-interest expenses which increased in 1997 was advertising
which increased by $49,757, ATM operating expenses increased $22,955 and
supplies in the ongoing day to day operations increased $75,293. This increase
was also due to increased volume of business activity.
Non-interest expense increased during 1996 compared to 1995 by $444,218
or 5.39%. Salaries and employee benefits increased by $579,717 or 12.34%. This
increase was due to increases of individual salaries, employee benefits and
the expansion of the officer staff. These additions are in preparation of
pending retirements of executive and other officers. Most other operating
expenses continue to increase due to increased prices and the increase in
volume of business. Technological changes taking place in the financial
industry at a rapid pace must be dealt with, and though over a period of time
result in savings, have impact on other operating expenses, i.e. research,
installation, educational training and equipment costs. Two areas of
non-interest expenses had a rather significant decrease which are advertising
and FDIC Insurance. Advertising decreased about $61,000 and FDIC Insurance
decreased about $347,000 due to premium decreases.
Non-interest expense increased $151,787 or 1.88% during 1995 compared
to 1994. Salaries and employee benefits increased $319,377 or 7.29%. This
increase was due to increases in individual salaries, an increase in personnel
and increases in the cost of employee benefits. An educational department
was created during 1995 increasing educational expenses about $32,000.
Other operating expenses continue to increase due to increased prices and
increases in the total volume of business. Federal deposit insurance expense
decreased comparing 1995 to 1994 by about $300,000 due to premium decreases.
Forecast
The local economy during 1997 experienced growth and the level of
employment has been high which is expected to continue during 1998. Loan demand
is expected to remain relatively strong. Deposit growth continues at a
modest level with strong competition experienced for the investors' fund.
The Company will continue to offer annuities and mutual funds in order to
meet customer demands.
We continue to be committed to providing our customers with products
and services they have come to expect from their full service community Bank.
During 1998 we will put into place a state-of-the-art data processing
software system, automate all teller functions and offer a home banking
program in early 1999. A parcel of land has been purchased in Waynesboro,
Virginia to add another full service branch to be completed in late 1998.
Virginia Financial Corporation and its subsidiary, Planters Bank & Trust
Company of Virginia continues to be positioned to expand product offerings
as appropriate and continues to be positioned for possible geographic
boundary expansions.
10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors
Virginia Financial Corporation
and Subsidiaries
Staunton, Virginia
We have audited the accompanying consolidated balance sheets of
Virginia Financial Corporation and Subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1997,
1996, and 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Virginia Financial Corporation and Subsidiaries as of December 31, 1997
and 1996, and the results of its operations and cash flows for the years ended
December 31, 1997, 1996, and 1995, in conformity with generally accepted
accounting principles.
Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 7, 1998
11
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C>
Assets
Cash and due from banks (Note 2) $ 14 684 410 $ 16 287 053
Securities (fair value: 1997, $113,524,939,
1996, $118,474,977) (Note 3) 113 409 044 118 800 021
Loans, net (Notes 4, 5 and 9) 265 828 579 232 913 171
Bank premises and equipment, net (Note 6) 4 793 779 4 389 691
Accrued interest on loans and securities 3 236 457 2 987 949
Intangibles (Note 1) 266 161 289 813
Other real estate owned (Note 1) 258 000 - -
Other assets (Note 7) 1 522 237 1 445 677
--------------- -------------
Total assets $ 403 998 667 $ 377 113 375
=============== =============
Liabilities and Stockholders' Equity
Liabilities
Demand deposits $ 54 456 838 $ 51 260 387
Negotiable orders of withdrawal 42 896 782 39 653 412
Money market deposit accounts 57 949 660 55 479 621
Regular savings 35 472 191 36 266 674
Time certificates of deposit of $100,000 or more (Note 8) 19 903 430 20 036 467
Time deposits (Note 8) 141 487 874 127 678 403
--------------- -------------
Total deposits $ 352 166 775 $ 330 374 964
Securities sold under agreements to repurchase 4 960 000 3 110 000
Federal funds purchased 4 550 000 5 000 000
Other liabilities 986 432 1 054 602
--------------- -------------
Total liabilities $ 362 663 207 $ 339 539 566
--------------- -------------
Commitments and contingencies (Notes 10 and 11)
Stockholders' Equity
Common stock; $5 par value; 10,000,000 shares
authorized; 1997, 4,000,000 shares issued and
outstanding, 1996, 2,000,000 shares issued and
outstanding $ 20 000 000 $ 10 000 000
Surplus 13 554 034 13 554 034
Retained earnings (Note 12) 7 626 000 14 110 888
Unrealized gain (loss) on securities available for sale, net 155 426 (91 113)
--------------- -------------
Total stockholders' equity $ 41 335 460 $ 37 573 809
--------------- -------------
Total liabilities and stockholders' equity $ 403 998 667 $ 377 113 375
=============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C>
Interest Income
Interest and fee income on loans:
Loans secured by real estate $ 15 113 716 $ 13 621 057 $ 12 541 809
Loans to finance agricultural production
and other loans to farmers 278 000 290 222 289 841
Commercial and industrial loans 3 341 429 3 260 741 3 528 696
Loans to individuals for household, family
and other personal expenditures 3 495 993 3 051 222 2 721 136
Obligations of states and political subdivisions
in the U.S. 18 790 27 113 37 318
Interest on investment securities:
U.S. Treasury and U.S. Government
Agency securities 2 469 621 3 353 388 4 586 212
Corporate securities 8 015 34 616 37 906
Nontaxable interest income, state and municipal
securities 786 117 827 466 781 481
Interest on securities available for sale:
U.S. Treasury and U.S. Government
Agency securities 3 419 348 2 763 960 1 442 122
Interest income on federal funds sold and
securities purchased under agreements to resell 136 946 90 918 106 690
-------------- ------------- --------------
Total interest income $ 29 067 975 $ 27 320 703 $ 26 073 211
-------------- ------------- --------------
Interest Expense
Interest on time certificates of deposit of $100,000
or more $ 1 138 707 $ 1 251 381 $ 995 031
Interest on other deposits 11 818 365 11 154 523 10 905 851
Interest on federal funds purchased and securities
sold under agreements to repurchase 335 373 277 690 442 171
-------------- ------------- --------------
Total interest expense $ 13 292 445 $ 12 683 594 $ 12 343 053
-------------- ------------- --------------
Net interest income $ 15 775 530 $ 14 637 109 $ 13 730 158
Provision for loan losses (Note 5) 830 835 450 000 309 000
-------------- ------------- --------------
Net interest income after provision for loan losses $ 14 944 695 $ 14 187 109 $ 13 421 158
-------------- ------------- --------------
Noninterest Income
Trust department income $ 1 033 384 $ 984 927 $ 821 644
Service charge on deposit accounts 674 333 636 560 620 520
Fees on loans sold 439 454 423 105 315 477
Other noninterest income 737 469 497 231 367 074
-------------- ------------- --------------
Total noninterest income $ 2 884 640 $ 2 541 823 $ 2 124 715
-------------- ------------- --------------
Gains on securities $ - - $ 5 963 $ 1 250
-------------- ------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(Continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ -------------
<S> <C>
Noninterest Expense
Salaries and employee benefits $ 5 529 963 $ 5 277 526 $ 4 697 809
Expense of premises and fixed assets 1 130 060 939 068 924 055
Computer services 601 522 557 035 528 252
FDIC insurance 41 185 2 000 347 206
Other noninterest expense 2 171 800 1 903 197 1 737 286
-------------- -------------- --------------
Total noninterest expense $ 9 474 530 $ 8 678 826 $ 8 234 608
-------------- -------------- --------------
Income before income taxes $ 8 354 805 $ 8 056 069 $ 7 312 515
Applicable income taxes (Note 7) 2 619 693 2 514 268 2 277 908
-------------- -------------- --------------
Net income $ 5 735 112 $ 5 541 801 $ 5 034 607
============== ============== ==============
Earnings per share, basic and diluted * $ 1.43 $ 1.39 $ 1.26
Average shares outstanding * 4 000 000 4 000 000 4 000 000
</TABLE>
* Adjusted for 100% stock dividend, December 1997.
See Notes to Consolidated Financial Statements.
14
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C>
Cash Flows from Operating Activities
Interest received $ 28 816 153 $ 27 390 248 $ 25 946 155
Fees and other noninterest income 2 861 488 2 534 371 2 124 715
Interest paid (13 395 456) (12 648 063) (11 988 598)
Cash paid to suppliers and employees (8 695 381) (8 251 920) (7 904 943)
Income taxes paid (2 817 404) (2 580 651) (2 327 327)
------------ ------------ ------------
Net cash provided by operating activities $ 6 769 400 $ 6 443 985 $ 5 850 002
------------ ------------ ------------
Cash Flows from Investing Activities
Proceeds from maturities of investment securities $ 29 015 000 $ 30 079 930 $ 24 049 524
Proceeds from calls of investment securities - - 217 150 251 250
Proceeds from maturities of securities available
for sale - - 7 500 000 6 500 000
Proceeds from sales and calls of securities
available for sale - - 7 023 789 - -
Purchases of investment securities (23 248 084) (9 764 647) (7 504 014)
Purchases of securities available for sale - - (28 787 127) (18 246 520)
Net (increase) in loans (33 103 354) (22 824 368) (15 795 828)
Origination of loans available for sale (28 472 859) (11 504 489) - -
Proceeds from sale of loans available for sale 27 579 113 10 506 939 - -
Proceeds from sale of equipment 7 800 - - - -
Capital expenditures (1 045 119) (575 017) (320 551)
Purchase of other assets (76 350) (261 042) - -
------------- ------------- -------------
Net cash (used in) investing activities $ (29 343 853) $ (18 388 882) $ (11 066 139)
------------- ------------- -------------
Cash Flows from Financing Activities
Net increase in certificates of deposit $ 13 676 434 $ 16 699 960 $ 43 609 040
Net increase (decrease) in demand and savings deposits 8 115 376 (5 902 782) (21 036 856)
Net increase (decrease) in federal funds purchased (450 000) 5 000 000 (1 000 000)
Net increase (decrease) in securities sold
under repurchase agreements 1 850 000 1 780 000 (14 365 000)
Cash dividends paid (2 220 000) (1 920 000) (1 660 000)
------------ ------------ ------------
Net cash provided by financing activities $ 20 971 810 $ 15 657 178 $ 5 547 184
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents $ (1 602 643) $ 3 712 281 $ 331 047
Cash and cash equivalents at beginning of year 16 287 053 12 574 772 12 243 725
------------ ------------ ------------
Cash and cash equivalents at end of year $ 14 684 410 $ 16 287 053 $ 12 574 772
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 5 735 112 $ 5 541 801 $ 5 034 607
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 636 925 475 822 437 333
Provision for loan losses 830 835 450 000 309 000
Deferred tax (benefit) (249 245) (77 777) (72 864)
(Gain) on sale of securities - - (5 963) (1 250)
(Gain) loss on sale of equipment (3 694) 5 886 779
Changes in assets and liabilities:
Increase in taxes payable 51 534 9 161 - -
(Increase) decrease in interest receivable (248 508) 95 155 (185 542)
Increase (decrease) in interest payable (103 011) 35 531 354 455
(Increase) decrease in prepaid expenses 24 396 (34 244) 3 156
Increase (decrease) in accrued expenses (15 772) 8 276 (88 158)
Premium amortization (discount accretion)
on securities, net 111 749 (20 868) 44 514
Increase (decrease) in deferred income (921) (38 795) 13 972
------------ ------------ ------------
Net cash provided by operating activities $ 6 769 400 $ 6 443 985 $ 5 850 002
============ ============ ============
Supplemental Schedule of Noncash
Investing Activities
Other real estate acquired in settlement of loans $ 258 000 $ - - $ - -
============ ============ ============
Unrealized gain (loss) on securities available for sale $ 373 544 $ (305 430) $ 1 109 969
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) On
Securities
Common Stock Available
---------------------- Retained For Sale,
Shares Par Value Surplus Earnings Net
------ --------- ------- -------- ------------
<S> <C>
Balances, December 31, 1994 2 000 000 $ 10 000 000 $ 13 554 034 $ 7 114 480 $ (622 110)
Cash dividends ($0.42 per share) - - - - - - (1 660 000) - -
Net income - - - - - - 5 034 607 - -
Net change in unrealized gain (loss)
on securities available for sale, net
of deferred income taxes of $377,391 - - - - - - - - 732 578
--------- ------------ --------------- ------------ -------------
Balances, December 31, 1995 2 000 000 $ 10 000 000 $ 13 554 034 $ 10 489 087 $ 110 468
Cash dividends ($0.48 per share) - - - - - - (1 920 000) - -
Net income - - - - - - 5 541 801 - -
Net change in unrealized gain (loss)
on securities available for sale, net
of deferred income taxes of $103,849 - - - - - - - - (201 581)
--------- ------------ --------------- ------------ --------------
Balances, December 31, 1996 2 000 000 $ 10 000 000 $ 13 554 034 $ 14 110 888 $ (91 113)
Cash dividends ($0.56 per share) - - - - - - (2 220 000) - -
Net income - - - - - - 5 735 112 - -
Stock split effected in the form of a
100% stock dividend, at par 2 000 000 10 000 000 - - (10 000 000) - -
Net change in unrealized gain (loss)
on securities available for sale, net
of deferred income taxes of $127,005 - - - - - - - - 246 539
--------- ------------ --------------- ------------ -------------
Balances, December 31, 1997 4 000 000 $ 20 000 000 $ 13 554 034 $ 7 626 000 $ 155 426
========= ============ =============== ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Nature of Banking Activities and Significant Accounting Policies
On November 14, 1996, the stockholders of Planters Bank & Trust
Company of Virginia voted in favor of a merger to become a
wholly-owned subsidiary of Virginia Financial Corporation
which became a newly formed one-bank holding company.
Upon consummation of the reorganization at January 2, 1997,
each outstanding common share of Planters Bank and Trust
Company of Virginia was exchanged for one share of Virginia
Financial Corporation common stock, par value $5 per share.
The exchange of shares was a tax-free transaction for
federal income tax purposes. The merger was accounted for on
the same basis as a pooling-of-interests and financial
statements for prior periods are identical to the financial
statements of the Bank. Stockholders' equity has been restated
to reflect this transaction in all prior periods.
In 1996, Planters Bank and Trust Company of Virginia formed
Planters Insurance Agency, Inc., a wholly-owned subsidiary of
the Bank. This subsidiary was formed to acquire and hold an
interest in Bankers' Title of Shenandoah, LLC.
Virginia Financial Corporation and Subsidiaries (the
Corporation) grant consumer, agribusiness, commercial and real
estate loans to customers located primarily in the Augusta
County and Rockingham County, Virginia area. The loan portfolio
is well diversified and is not concentrated with any one
business sector or industry.
The accounting and reporting policies of the Corporation conform
to generally accepted accounting principles and predominant
practices within the banking industry. The following is a
description of the more significant of these policies:
Principles of Consolidation
The consolidated financial statements of Virginia
Financial Corporation and Subsidiaries, Planters Bank &
Trust Company of Virginia and Planters Insurance Agency,
Inc., include the accounts of all three companies. All
material intercompany balances and transactions have been
eliminated in consolidation.
Cash and Due From Banks
For purposes of reporting cash flows, cash and due from banks
includes cash on hand, amounts due from banks and cash items
in process of collection. Cash flows from deposits,
federal funds purchased and renewals and extensions of loans
are reported net.
Securities
The Corporation has adopted FASB No. 115, "Accounting for
Certain Investment in Debt and Equity Securities". This
statement addresses the accounting and reporting for
investments in equity securities that have readily
determinable fair values and for all investments in
debt securities. Those investments are classified in three
categories and accounted for as follows:
18
<PAGE>
Notes to Consolidated Financial Statements
a. Securities Held to Maturity
Securities classified as held to maturity are those debt
securities the Corporation has both the intent and
ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of
discount, computed by the interest method over their
contractual lives.
b. Securities Available for Sale
Securities classified as available for sale are those
debt and equity securities that the Corporation intends to
hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various
factors, including significant movements in interest
rates, changes in the maturity mix of the Corporation's
assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors.
Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or
decreases in stockholders' equity, net of the related
deferred tax effect. Realized gains or losses, determined
on the basis of the cost of specific securities sold, are
included in earnings.
c. Trading Securities
Trading securities, which are generally held for the
short term in anticipation of market gains, are carried
at fair value. Realized and unrealized gains and losses on
trading account assets are included in interest income on
trading account securities. The Corporation had no trading
securities at December 31, 1997 and 1996.
Loans
Loans are stated at the amount of unpaid principal, reduced
by unearned discount and fees and an allowance for loan
losses. Interest on all loans is accrued daily on the
outstanding balances. Mortgage loan origination and
commitment fees and certain direct costs are deferred and the
net amount amortized, generally over the contractual loan
life, as an adjustment of yield. Commitment fees related
to standby letters of credit are recognized over the commitment
period.
The Corporation has adopted FASB No. 114, "Accounting by
Creditors for Impairment of a Loan." This Statement has been
amended by FASB No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures."
Statement 114, as amended, requires that the impairment of
loans that have been separately identified for evaluation is
to be measured based on the present value of expected future
cash flows or, alternatively, the observable market price of
the loans or the fair value of the collateral. However, for
those loans that are collateral dependent (that is, if
repayment of those loans is expected to be provided
solely by the underlying collateral) and for which management
has determined foreclosure is probable, the measure of
impairment of those loans is to be based on the fair
value of the collateral. Statement 114, as amended, also
requires certain disclosures about investments in impaired
loans and the allowance for credit losses and interest income
recognized on loans.
The Corporation considers all consumer installment loans and
residential mortgage loans to be homogeneous loans. These
loans are not subject to impairment under FASB 114. A
loan is considered impaired when it is probable that the
Corporation will be unable to collect all principal and
interest amounts according to the contractual terms of the
loan agreement. Factors involved in determining impairment
include, but are not limited to, expected future cash flows,
financial condition of the borrower, and the current economic
conditions. A performing loan may be
19
<PAGE>
considered impaired, if the factors above indicate a need for
impairment. A loan on nonaccrual status may not be impaired if
in the process of collection or there is an insignificant
shortfall in payment. An insignificant delay of less than 30
days or a shortfall of less than 5% of the required principal
and interest payment generally does not indicate an impairment
situation, if in management's judgment the loan will be
paid in full. Loans that meet the regulatory definitions
of doubtful or loss generally qualify as an impaired
loan under FASB 114. Charge-offs for impaired loans occur
when the loan, or portion of the loan is determined to be
uncollectible, as is the case for all loans.
Loans are placed on nonaccrual when a loan is specifically
determined to be impaired or when principal or interest is
delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied
as a reduction of the loan principal balance. Interest
income on other nonaccrual loans is recognized only to the
extent of interest payments received.
Mortgage loans held for resale are stated at the lower of
cost or market on an individual loan basis.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level
which, in management's judgment, is adequate to absorb
credit losses inherent in the loan portfolio. The amount of
the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historic
loss experience, specific impaired loans, and economic
conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value
of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense and
reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited
to the provision for loan losses. Because of uncertainties
inherent in the estimation process, management's estimate of
credit losses inherent in the loan portfolio and the related
allowance may change in the near term.
Nonrefundable Loan Fees and Costs
Loan origination and commitment fees and certain direct loan
origination costs are being deferred and the net amount
amortized as an adjustment of the related loan's yield.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less
accumulated depreciation. Repairs and maintenance are
expensed as incurred. Gains and losses on routine
dispositions are reflected in current operations.
Depreciation is computed by the straight-line and declining
balance methods over the following estimated useful lives:
Buildings and improvements 10-50 years
Furniture and equipment 3-25 years
Trust Department Assets
Securities and other property held by the Trust Department in
a fiduciary or agency capacity are not assets of the
Corporation and are not included in the accompanying financial
statements.
20
<PAGE>
Notes to Consolidated Financial Statements
Deposit Intangibles
The cost of purchased deposit relationships and other
intangible assets, based on independent valuation, are being
amortized over estimated remaining lives ranging from
nine to fifteen years. Amortization expense charged to
operations was $23,652 in 1997 and 1996, and $23,650 in 1995.
Income Taxes
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences, operating loss carryforwards and tax credit
carryforwards. Deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share." Statement 128 replaced
the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported
fully diluted earnings per share. The Corporation had no
potential common stock as of December 31, 1997, 1996 and 1995.
Pension Plan
The Corporation has a trusteed, noncontributory defined
contribution pension plan covering substantially all
full-time employees.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Advertising Costs
The Corporation follows the policy of charging the production
costs of advertising to expense as incurred.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost
basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the
lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the
valuation allowance are included in loss on foreclosed real
estate.
21
<PAGE>
Note 2. Restrictions on Cash
To comply with Federal Reserve Regulations, the Bank is
required to maintain certain average reserve balances. The
daily average reserve requirement was $5,035,000 and
$4,178,000 for the reserve periods including December 31, 1997 and
1996, respectively.
Note 3. Securities
The amortized cost and fair value of the securities being held
to maturity as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -----
<S> <C>
U. S. Government Agencies $ 39 659 677 $ 54 184 $ (110 088) $ 39 603 773
State and Municipal 17 590 097 187 140 (15 341) 17 761 896
-------------- ------------- ------------ --------------
Total $ 57 249 774 $ 241 324 $ (125 429) $ 57 365 669
============== ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Fair Cost Gains (Losses) Value
Value ----------- ---------- ---------- ---------
<S> <C>
U. S. Treasury $ 998 732 $ 256 $ - - $ 998 988
U. S. Government Agencies 48 284 508 53 094 (383 798) 47 953 804
State and Municipal 18 608 140 79 122 (74 270) 18 612 992
Corporate Securities 249 934 552 - - 250 486
-------------- ------------- ------------ --------------
Total $ 68 141 314 $ 133 024 $ (458 068) $ 67 816 270
============== ============= ============ ==============
</TABLE>
The amortized cost and fair value of the securities being held to
maturity as of December 31, 1997 and 1996 by contractual
maturity, are shown below. Expected maturities may differ
from contractual maturities because issuers may have the right to
call or prepay obligations without any penalties.
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- ------
<S> <C>
Due in one year or less $ 29 239 356 $ 29 155 169 $ 9 264 553 $ 9 277 091
Due after one year through
five years 23 900 087 24 049 465 54 728 553 54 416 588
Due after five years through
ten years 3 860 331 3 909 713 3 898 208 3 872 326
Due after 10 years 250 000 251 322 250 000 250 265
-------------- -------------- -------------- ---------------
Total $ 57 249 774 $ 57 365 669 $ 68 141 314 $ 67 816 270
============== ============== ============== ===============
</TABLE>
22
<PAGE>
Notes to Consolidated Financial Statements
The amortized cost and fair values of securities available for
sale as of December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
--------- ---------- ---------- -----
<S> <C>
U. S. Treasury $ 13 025 137 $ 108 104 $ (3 160) $ 13 130 081
U. S. Government Agencies 42 898 638 186 289 (55 738) 43 029 189
-------------- -------------- ------------- ---------------
Total $ 55 923 775 $ 294 393 $ (58 898) $ 56 159 270
============== ============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ---------- ---------- -----
<S> <C>
U. S. Treasury $ 12 514 561 $ 67 682 $ (19 716) $ 12 562 527
U. S. Government Agencies 38 282 198 79 082 (265 100) 38 096 180
-------------- -------------- ------------- ---------------
Total $ 50 796 759 $ 146 764 $ (284 816) $ 50 658 707
============== ============== ============= ===============
</TABLE>
The amortized cost and fair value of securities available for
sale as of December 31, 1997 and 1996, by contractual maturity
are shown below. Expected maturities may differ from
contractual maturities because issuers may have the right to call
or prepay obligations without any penalties.
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ------- ---------- -------
<S> <C>
Due in one year or less $ 6 996 819 $ 6 989 369 $ 5 495 498 $ 5 476 405
Due after one year through
five years 48 926 956 49 169 901 44 801 810 44 695 116
Due after five years through
ten years - - - - 499 451 487 186
-------------- -------------- -------------- ---------------
Total $ 55 923 775 $ 56 159 270 $ 50 796 759 $ 50 658 707
============== ============== ============== ===============
</TABLE>
There were no calls of securities held to maturity during 1997.
Proceeds from the calls of securities held to maturity during
1996 and 1995 were $217,150 and $251,250. Gross gains of
$2,150 and $1,250 were realized on those calls.
There were no sales of securities available for sale during
1997 and 1995. Proceeds from the sale of securities available
for sale during 1996 were $7,023,789. Gross gains of $14,493 and
gross losses of $10,680 were realized on sales during 1996.
The book value of securities pledged to secure deposits and for
other purposes amounted to $19,751,457 and $24,701,775 at
December 31, 1997 and 1996, respectively.
23
<PAGE>
Note 4. Loans
Loans at December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(in thousands)
<S> <C>
Real estate loans:
Construction $ 20 183 $ 14 205
Secured by farmland 1 316 933
Secured by 1-4 family residential 128 130 106 693
Other real estate loans 39 037 38 965
Loans to farmers (except those
secured by real estate) 2 725 2 879
Commercial and industrial loans
(except those secured by real estate) 34 434 34 313
Loans to individuals for household, family
and other consumer expenditures 43 364 37 542
All other loans (including overdrafts) 799 774
------------ ------------
Total loans $ 269 988 $ 236 304
Less: Unearned income 406 352
Allowance for loan losses 3 753 3 039
------------ ------------
Net loans $ 265 829 $ 232 913
============ ============
</TABLE>
Information about impaired loans as of and for the year ended
December 31, 1997 is as follows. There were no loans subject to
Statement 114 at December 31, 1996.
Impaired loans for which an allowance
has been provided $ 379 632
Impaired loans for which no allowance
has been provided - -
------------
Total impaired loans $ 379 632
============
Allowance provided for impaired loans,
included in allowance for loan losses $ 379 632
============
Average balance in impaired loans $ 379 632
============
Interest income recognized $ - -
============
Nonaccrual loans excluded from impaired loan disclosure
under FASB 114 amounted to $813,395, $193,876 and $140,326 at
December 31, 1997, 1996 and 1995, respectively. If interest
on these loans had been accrued, such income would have
approximated $72,937, $15,476 and $3,689 for 1997, 1996, and
1995, respectively.
24
<PAGE>
Notes to Consolidated Financial Statements
Note 5. Allowance for Loan Losses
Transactions in the allowance for loan losses for each of the
three years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C>
Balance, beginning $ 3 038 958 $ 2 785 791 $ 2 524 309
Recoveries 40 514 70 955 95 359
Provisions charged to operations 830 835 450 000 309 000
------------- ------------- -------------
Total $ 3 910 307 $ 3 306 746 $ 2 928 668
Loans charged off 157 807 267 788 142 877
------------- ------------- -------------
Balance, ending $ 3 752 500 $ 3 038 958 $ 2 785 791
============= ============= =============
</TABLE>
Note 6. Bank Premises and Equipment
The major classes of bank premises and equipment and the total
accumulated depreciation are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C>
Land $ 1 162 221 $ 877 694
Buildings and improvements 4 384 493 4 266 597
Furniture and equipment 4 370 443 3 852 943
------------- -------------
$ 9 917 157 $ 8 997 234
Accumulated depreciation 5 123 378 4 607 543
------------- -------------
$ 4 793 779 $ 4 389 691
============= =============
</TABLE>
Depreciation charged to operations was $515,835 in 1997, $408,181
in 1996 and $413,683 in 1995.
Note 7. Income Taxes
Net deferred tax assets consist of the following components as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C>
Deferred tax assets:
Allowance for loan losses $ 1 042 609 $ 799 235
Deferred loan fees 90 593 85 057
Securities available for sale - - 46 937
Other 45 052 15 628
------------- -------------
$ 1 178 254 $ 946 857
------------- -------------
Deferred tax liabilities:
Bank premises $ 133 330 $ 104 867
Securities available for sale 80 068 - -
Other 2 399 1 773
------------- -------------
$ 215 797 $ 106 640
------------- -------------
$ 962 457 $ 840 217
============= =============
</TABLE>
25
<PAGE>
The provision for income taxes charged to operations for the
years ended December 31, 1997, 1996 and 1995, consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C>
Current tax expense $ 2 868 938 $ 2 592 045 $ 2 350 772
Deferred tax (benefit) (249 245) (77 777) (72 864)
----------- ----------- -----------
$ 2 619 693 $ 2 514 268 $ 2 277 908
=========== =========== ===========
</TABLE>
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to
pretax income due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C>
Computed "expected" tax expense $ 2 840 634 $ 2 739 063 $ 2 486 255
Increase (decrease) in income taxes
resulting from:
Tax exempt interest income (217 874) (234 641) (221 993)
Other (3 067) 9 846 13 646
----------- ----------- -----------
$ 2 619 693 $ 2 514 268 $ 2 277 908
=========== =========== ===========
</TABLE>
Note 8. Deposits
The aggregate amount of jumbo time deposits, each with a
minimum denomination of $100,000 was $19,903,430 and
$20,036,467 in 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of time deposits
are as follows:
1998 $ 84 844 198
1999 73 142 222
2000 2 412 403
2001 947 244
2002 and thereafter 45 237
--------------
$ 161 391 304
==============
Note 9. Related Party Transactions
The following transactions between the Corporation and
stockholders/directors are reflected in the financial statements:
1. Benham M. Black: Director
During 1997, the Corporation paid $33,346 for legal
services to the firm of Black, Noland & Read of which Mr.
Black is a member.
2. H. C. Stuart Cochran: Director
During 1997, the Corporation paid $77,307 to Insurance
Partners of Virginia, for various insurance coverages.
Mr. Cochran is Vice President and Treasurer of Insurance
Partners of Virginia.
26
<PAGE>
Notes to Consolidated Financial Statements
The Corporation has also had, and may be expected to have in the
future, banking transactions in the ordinary course of business
with directors, their immediate families and affiliated
companies in which they are principal stockholders, all of which
have been, in the opinion of management, on the same terms,
including interest rates and collateral, as those prevailing
at the time for comparable transactions with others.
Aggregate loan transactions with related parties were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C>
Beginning balance $ 690 591 $ 757 547
New loans 605 697 247 696
Repayments (408 632) (154 538)
Reduction due to board member retirement - - (160 114)
--------- ---------
Ending balance $ 887 656 $ 690 591
========= =========
</TABLE>
Note 10. Financial Instruments With Off-Balance-Sheet Risk
The Corporation is a party to financial instruments with
off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The Corporation's exposure to
credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual
amount of those instruments. The Corporation uses the same
credit policies in making commitments as it does for
on-balance-sheet instruments.
A summary of the contract amount of the Corporation's exposure
to off-balance-sheet risk as of December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(in thousands)
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 48 537 $ 42 816
Standby letters of credit 3 033 2 895
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract and represent the undrawn
portion of the total commitment. Collateral held is, primarily,
deeds of trust on real estate.
Standby letters of credit are conditional commitments issued
by the Corporation to guarantee the performance of a customer to
a third party. Most commitments are extended for less than one
year with the longest expiring in 2001. The credit risk
involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers. The extent
of collateral held for those commitments at December 31,
1997, varies from 0% to 100%; the average amount
collateralized is 34.1%.
27
<PAGE>
The Corporation maintains cash accounts in other commercial
banks. The amount on deposit at December 31, 1997 exceeded the
insurance limits of the Federal Deposit Insurance Corporation
by approximately $ 8,728,787.
Note 11. Commitments and Contingencies
The Corporation is party to various legal proceedings. Counsel
is of the opinion that settlement of these items should not have
a material effect on financial position.
Note 12. Regulatory Matters
The Corporation is subject to various regulatory capital
requirements administered by the Federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory - possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material
effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation must meet specific
capital guidelines that involve quantitative measures of the
Corporation's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The Corporation's capital amounts and classification are also
subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Corporation to maintain minimum
amounts and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1997, that the Corporation
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification
from the Federal Deposit Insurance Corporation categorized
the Corporation as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Corporation must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the
institution's category.
28
<PAGE>
Notes to Consolidated Financial Statements
The Corporation's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- ------ --------- -------
(Amount in Thousands)
<S> <C>
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets):
Consolidated $44 508 18.22% =>$19 544 =>8.0% =>$ N/A
Bank $35 812 14.77% =>$19 403 =>8.0% =>$24 254 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $41 446 16.97% =>$ 9 772 =>4.0% =>$ N/A
Bank $32 771 13.51% =>$ 9 701 =>4.0% =>$14 552 =>6.0%
Tier 1 Capital (to
Average Assets):
Consolidated $41 446 10.34% =>$16 039 =>4.0% =>$ N/A
Bank $32 771 8.23% =>$15 930 =>4.0% =>$19 912 =>5.0%
As of December 31, 1996:
Total Capital (to Risk
Weighted Assets),
Bank $40 096 18.45% =>$17 388 =>8.0% =>$21 734 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets),
Bank $37 375 17.20% =>$ 8 694 =>4.0% =>$13 040 =>6.0%
Tier 1 Capital (to
Average Assets),
Bank $37 375 9.99% =>$14 972 =>4.0% =>$18 715 =>5.0%
</TABLE>
Transfer of funds from the banking subsidiary to the Parent
Corporation in the form of loans, advances and cash dividends,
are restricted by federal and state regulatory authorities. As
of December 31, 1997, the aggregate amount of unrestricted funds
which could be transferred from the Corporation's subsidiary to
the Parent Corporation, without prior regulatory approval,
totaled $9,483,606 or 22.9% of the consolidated net assets.
Note 13. Employee Retirement Plan
The Corporation has a defined contribution retirement plan which
covers substantially all full-time salaried employees.
Contributions are at the discretion of the Board of
Directors. Contributions amounted to $329,661, $316,464 and
$292,346 in 1997, 1996 and 1995, respectively.
29
<PAGE>
Note 14. Leases
The Bank leases its Terry Court banking facility located in the
Terry Court Shopping Center on North Augusta Street, Staunton,
Virginia. The lease provides for an original five (5) year term
ending April 30, 1991, with options for three (3) five (5) year
extensions. The second option for a five (5) year extension was
exercised. The current minimum lease payment is $19,190.
Lease expense was $20,015, $20,244 and $21,885 for the years
ended December 31, 1997, 1996, and 1995, respectively.
Note 15. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Cash and Short-Term Investments
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
For securities held for investment purposes, fair values are based
on quoted market prices or dealer quotes.
Loan Receivables
For certain homogeneous categories of loans, such as some
residential mortgages, and other consumer loans, fair value is
estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
The fair value of other types of loans is estimated by discounting
the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates
of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings
The carrying amounts of federal funds purchased, borrowings
under repurchase agreements, and other short-term borrowings
maturing within 90 days approximate their fair values. Fair
values of other short-term borrowings are estimated using
discounted cash flow analyses based on the Corporation's current
incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance-Sheet Financial Instruments
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate
loan commitments, fair value also considers the difference
between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
At December 31, 1997 and 1996, the carrying amounts and fair
values of loan commitments and stand-by letters of credit were
immaterial.
30
<PAGE>
Notes to Consolidated Financial Statements
The estimated fair values of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(in thousands) (in thousands)
<S> <C>
Financial assets:
Cash and short-term investments $ 14 684 $ 14 684 $ 16 287 $ 16 287
Securities 113 409 113 525 118 800 118 475
Loans 269 582 273 205 235 952 237 946
Less: allowance for loan losses (3 753) - - (3 039) - -
---------- ----------- --------- -----------
Total financial assets $ 393 922 $ 401 414 $ 368 000 $ 372 708
========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(in thousands) (in thousands)
<S> <C>
Financial liabilities:
Deposits $ 352 167 $ 352 481 $ 330 375 $ 330 253
Securities sold under agreements
to repurchase 4 960 4 960 3 110 3 110
Federal funds purchased 4 550 4 550 5 000 5 000
------------ ----------- ---------- -----------
Total financial liabilities $ 361 677 $ 361 991 $ 338 485 $ 338 363
============ =========== ========== ===========
</TABLE>
Note 16. Short-Term Borrowings
The Corporation had unused lines of credit totaling $9,450,000
with nonaffiliated banks at December 31, 1997.
31
<PAGE>
Note 17. Unaudited Interim Financial Information
The results of operations for each of the quarters during the two
years ended December 31, 1997 and 1996 are summarized below (in
thousands, except per share data). Per share data has been
retroactively adjusted to reflect the 100% stock dividend
declared and paid in 1997.
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C>
Interest income $ 6 935 $ 7 097 $ 7 412 $ 7 624
Net interest income 3 814 3 933 3 896 4 133
Income before
income taxes 2 309 1 931 1 895 2 220
Net income 1 582 1 328 1 303 1 522
Net income per share,
basic and diluted 0.40 0.33 0.33 0.37
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------------
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C>
Interest income $ 6 686 $ 6 747 $ 6 900 $ 6 988
Net interest income 3 557 3 597 3 689 3 794
Income before
income taxes 2 244 1 832 1 827 2 153
Net income 1 539 1 268 1 264 1 471
Net income per share,
basic and diluted 0.39 0.32 0.32 0.36
</TABLE>
32
<PAGE>
Notes to Consolidated Financial Statements
Note 18. Condensed Financial Information - Parent Company Only
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
Assets
Cash on deposit with subsidiary bank $ 106 268
Investments 7 999 104
Accrued interest 112 139
Organizational expenses, net 27 793
Investment in subsidiaries, at cost, plus equity
in undistributed net income 33 193 067
-------------
$ 41 438 371
=============
Liabilities
Due to subsidiary $ 102 911
-------------
Stockholders' Equity
Common stock $ 20 000 000
Surplus 13 554 034
Retained earnings 7 626 000
Unrealized gain on securities available for sale, net 155 426
-------------
$ 41 335 460
-------------
$ 41 438 371
=============
</TABLE>
33
<PAGE>
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Statement of Income
December 31, 1997
<TABLE>
<S> <C>
Income
Dividends from subsidiaries $ 10 330 000
Interest on investments 34 150
------------
$ 10 364 150
------------
Expenses
Amortization $ 6 948
Directors' fees 6 160
Legal fees 12 126
Stockholder accounting 12 000
Other 6 214
------------
Total expenses $ 43 448
------------
Income before income tax and distributions in excess of
earnings of subsidiaries $ 10 320 702
Income tax (benefit) (1 578)
------------
Income before equity distributions in excess of earnings
of subsidiaries $ 10 322 280
Distributions in excess of earnings of subsidiaries (4 587 168)
------------
Net income $ 5 735 112
============
</TABLE>
34
<PAGE>
Notes to Consolidated Financial Statements
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Statement of Cash Flows
December 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income $ 5 735 112
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 6 948
Undistributed earnings of subsidiaries (3 371 823)
(Increase) in accrued interest (7 650)
(Increase) in organization costs (34 741)
(Decrease) in due to subsidiary (1 578)
------------
Net cash provided by operating activities $ 2 326 268
------------
Net cash provided by operating activities $ 2 326 268
------------
Cash Flows from Financing Activities
cash dividends paid $ (2 220 000)
------------
Increase in cash and cash equivalents $ 106 268
Beginning - -
------------
Ending $ 106 268
============
Supplemental schedule of noncash
investing activities
dividend of securities from the subsidiary $ 7 999 104
============
</TABLE>
35
<PAGE>
LOCATIONS
=============================================================================
VIRGINIA FINANCIAL CORPORATION
CORPORATE HEADQUARTERS
24 S. Augusta Street
Staunton, Virginia 24401
(540) 885-1232
PLANTERS BANK & TRUST COMPANY OF VIRGINIA
OFFICE LOCATIONS
<TABLE>
<S> <C>
* 24 South Augusta St. * 5018 Lee Highway
Staunton, Virginia 24401 Verona, Virginia 24482
(540) 885-1232 FAX: (540) 885-8530 (540) 248-7243 FAX: (540) 248-7246
* 2307 W. Beverley St. 106 Sixth St.
Staunton, Virginia 24401 Grottoes, Virginia 24441
(540) 885-6469 FAX: (540) 885-6432 (540) 249-3691 FAX: (540) 249-5521
2201 N. Augusta St. * 251 N. Poplar Ave.
Staunton, Virginia 24401 Waynesboro, Virginia 22980
(540) 885-6730 FAX: (540) 885-4793 (540) 886-3328 FAX: (540) 943-1336
(540) 949-7145
U.S. Rt. 250 & State Rt. 640 * 132 Greenville Ave.
Fishersville, Virginia 22939 Stuarts Draft, Virginia 24477
(540) 887-9603 FAX: (540) 943-7024 (540) 337-1563 FAX: (540) 337-5436
(540) 943-1161 (540) 943-8110
* 1480 Greenville Ave. * 1135 Richmond Road
Staunton, Virginia 24401 Staunton, Virginia 24401
(540) 885-6888 FAX: (540) 886-1694 (540) 885-6501 FAX: (540) 885-1834
</TABLE>
* ATM on Premises
PLANTERS MORTGAGE SERVICES: CASH MACHINE LOCATIONS:
113 Tinkling Springs Road FOOD LION
Fishersville, Virginia 22939 600 N. Coalter St.
(540) 941-8400 OR 941-8060 Staunton, Virginia 24401
Lexington Office: (540) 464-1538
FAX: (540) 885-2471 OR (540) 941-8060 7-11 Convenience Store
305 Augusta St.
PLANTERS INVESTMENT SERVICES: Grottoes, Virginia 24441
24 S. Augusta Street, Staunton, Virginia 24401
(540) 885-1232 FAX: [email protected]
YOU CAN ALSO CONTACT US AT:
TOLL FREE: 1-888-752-6825 WEBSITE: plantersofva.com
EMAIL: [email protected] Trust Dept. EMAIL: [email protected]
24-HOUR BANKING BY PHONE:
1-888-286-1045 (540) 885-9882 or (540) 942-1491
36
<PAGE>
VIRGINIA FINANCIAL CORPORATION
<TABLE>
<S> <C>
BOARD OF DIRECTORS
- ----------------------------------------------------------------------------------------------------------------
Lee S. Baker - Owner-Manager, Staunton Tractor, Inc. Jan S. Hoover - Vice President & Treasurer,
Farm equipment dealership Arehart Associates, Ltd. Certified Public
Benham M. Black - Attorney at Law; Member of law firm Accounting firm
Black, Noland & Read, P.L.C. Martin F. Lightsey - President & CEO,
Harry V. Boney, Jr. - Vice-Chairman of the Board, Planters Specialty Blades, Inc.
Bank & Trust Company of Virginia James S. Quarforth - President, CEO & Director
William P. Heath, Jr., - President & CEO Planters CFW Communications Company
Bank & Trust Company of Virginia
OFFICERS
- ----------------------------------------------------------------------------------------------------------------
Benham M. Black Chairman of the Board Fred D. Bowers Secretary/Treasurer
William P. Heath, Jr. President & CEO
</TABLE>
PLANTERS BANK & TRUST COMPANY OF VIRGINIA
BOARD OF DIRECTORS
- ------------------------------------------------------------------------
Lee S. Baker G. Raymond Ergenbright
Benham M. Black Jan S. Hoover
Harry V. Boney, Jr. Martin F. Lightsey
H. C. Stuart Cochran James S. Quarforth
Steven C. Corell Elizabeth M. Schreiber
William P. Heath, Jr.
<TABLE>
<S> <C>
EXECUTIVE OFFICERS
- -------------------------------------------------------------------------------------------------------------------------
Benham M. Black Chairman of the Board Joseph Shomo Senior Vice President
Harry V. Boney, Jr. Vice Chairman of the Board Fred D. Bowers Senior Vice President & Cashier
William P. Heath, Jr. President and CEO Thomas A. Davis Senior Trust Officer
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
COMMERCIAL OFFICERS
- --------------------------------------------------------------------------------------------------------------
Carl H. Craig, Jr. Vice President JoAnn W. Bartley Assistant Vice President
Merle M. Dodson Vice President John P. Bowers Assistant Vice President
Robert E. Harris Vice President James H. Carper Assistant Vice President
Bobbie E. Meyerhoeffer Vice President M. Paul Coleman Assistant Vice President
Jackson E. Quick Vice President Mark R. Dunsmore Assistant Vice President
Donna H. Snyder Vice President Elizabeth I. Early Assistant Vice President
Larry F. Staples Vice President Jeffery C. Jones Assistant Vice President
Eric K. Moore Auditor Brenda F. Moore Assistant Vice President
George Ballew Assistant Vice President Edward L. Pursley Assistant Vice President
David W. Balser Assistant Vice President Robert D. Thompson Assistant Vice President
Charlie W. Barnes Assistant Vice President Alan J. Sweet Branch Officer
Sheila M. Price Mortgage Operations Officer Kelly S. Davis Training Officer
Kathy C. Floyd Systems Officer Susan S. Brown Loan Operations Officer
Davis A. Miers Retail Investment Officer Janice T. Johnson Human Resources Admin. Officer
TRUST DEPARTMENT OFFICERS
- --------------------------------------------------------------------------------------------------------------
Ruth C. Talmage Trust Officer Richard A. Mosley Business Trust Officer
Mollie K. Butler Trust Officer Priscilla R. Stanley Senior Pension Trust Officer
Glendon K. Gill Trust Officer Mark J. Setaro Trust Investment Officer
Gregory L. Owen Pension Trust Officer Dorothea S. Stewart Trust Operations Officer
</TABLE>
38
[INSERT SUBSIDIARIES -- PLANTERS BANK & TRUST COMPANY OF VIRGINIA]
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001036070
<NAME> VIRGINIA FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,684
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,159
<INVESTMENTS-CARRYING> 57,250
<INVESTMENTS-MARKET> 57,366
<LOANS> 269,582
<ALLOWANCE> 3,753
<TOTAL-ASSETS> 403,999
<DEPOSITS> 352,167
<SHORT-TERM> 9,510
<LIABILITIES-OTHER> 986
<LONG-TERM> 0
0
0
<COMMON> 20,000
<OTHER-SE> 21,335
<TOTAL-LIABILITIES-AND-EQUITY> 403,999
<INTEREST-LOAN> 22,248
<INTEREST-INVEST> 6,683
<INTEREST-OTHER> 137
<INTEREST-TOTAL> 29,068
<INTEREST-DEPOSIT> 12,957
<INTEREST-EXPENSE> 13,292
<INTEREST-INCOME-NET> 15,776
<LOAN-LOSSES> 831
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,475
<INCOME-PRETAX> 8,355
<INCOME-PRE-EXTRAORDINARY> 8,355
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,735
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 8.03
<LOANS-NON> 1,193
<LOANS-PAST> 359
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,039
<CHARGE-OFFS> 158
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 3,753
<ALLOWANCE-DOMESTIC> 3,210
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 543
</TABLE>
