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================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended Sept 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-22283
VIRGINIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1829288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
24 South Augusta Street, Staunton, Virginia 24401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 885-1232
NONE
(Former name, former address and former fiscal year, if changed since last repo
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class: Common Stock, $5.00 par value
Outstanding as of Nov 10, 1999: 3,997,198
================================================================================
<PAGE>
VIRGINIA FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Changes in Stockholders' Equity 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
</TABLE>
<PAGE>
Part 1 Item 1.
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
SEPT 30 SEPT 30
1999 1998
------------------- ---------------------
<S> <C>
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 4,084 $ 4,138
To Finance Agriculture & Farmers 61 79
Commercial & Industrial 850 859
Individuals for Household & Personal 795 944
Obligations of State & Political Tax-Exempt 0 3
Other 10 0
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 1,389 1,381
State & Political-Taxable 81 25
State & Political-Tax Exempt 386 250
Other Domestic Debt Securities 17 0
Equity Securities 70 74
Interest on Earning Deposits Due From Banks 103 0
Interest on Federal Funds Sold 49 125
----------- -----------
Total Interest Income 7,895 7,878
----------- -----------
Interest Expense:
Interest on Deposits:
NOW Accounts 296 293
Money Market Accounts 516 588
Other Savings Deposits 293 266
CD's of 100M or More 332 344
All Other Time Deposits 1,901 2,002
Interest on Fed Funds Purch'd
& Repurchase Agreements 159 121
----------- -----------
Total Interest Expense 3,497 3,614
----------- -----------
Net Interest Income 4,398 4,264
Provision for Loan Losses 287 604
----------- -----------
Net Interest Income after Provision for Loan Losses 4,111 3,660
----------- -----------
Noninterest Income:
Trust Department Income 324 296
Service Charges on Deposit Accts. 306 302
Other Fee Income 411 366
All Other Non-Interest Income 46 20
----------- -----------
Total Noninterest Income 1,087 984
----------- -----------
Noninterest Expense:
Salaries & Employee Benefits 2,004 1,408
Expense of Premise & Fixed Assets 392 315
Other Non-Interest Expense 1,012 809
----------- -----------
Total Non-Interest Expense 3,408 2,532
----------- -----------
Income Before Income Taxes 1,790 2,112
Provision for Income Taxes 481 646
----------- -----------
Net Income $ 1,309 $ 1,466
=========== ===========
Per Share Data Net Income, basic and diluted $ 0.33 $ 0.37
Cash Dividends $ 0.16 $ 0.15
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
Part 1 Item 1.
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended
SEPT 30 SEPT 30
1999 1998
------------------- ---------------------
<S> <C>
Interest Income:
Interest and Fee Income on Loans:
Secured by Real Estate $ 12,070 $ 12,403
To Finance Agriculture & Farmers 193 226
Commercial & Industrial 2,612 2,619
Individuals for Household & Personal 2,486 2,780
Obligations of State & Political Tax-Exempt 2 9
Other 23 0
Interest and Dividend Income on Securities:
U.S. Treas & U.S. Gov't Agencies 3,992 4,152
State & Political-Taxable 188 99
State & Political-Tax Exempt 1,005 613
Other Domestic Debt Securities 39 0
Equity Securities 258 79
Interest on Earning Deposits Due From Banks 103 0
Interest on Federal Funds Sold 194 264
----------- -----------
Total Interest Income 23,165 23,244
----------- -----------
Interest Expense:
Interest on Deposits:
NOW Accounts 870 879
Money Market Accounts 1,468 1,708
Other Savings Deposits 841 778
CD's of 100M or More 994 960
All Other Time Deposits 5,670 6,015
Interest on Fed Funds Purch'd
& Repurchase Agreements 406 286
----------- -----------
Total Interest Expense 10,249 10,626
----------- -----------
Net Interest Income 12,916 12,618
Provision for Loan Losses 698 1,012
----------- -----------
Net Interest Income after Provision for Loan Losses 12,218 11,606
----------- -----------
Noninterest Income:
Trust Department Income 1,090 918
Service Charges on Deposit Accts. 917 737
Other Fee Income 1,421 1,140
All Other Non-Interest Income 289 73
----------- -----------
Total Noninterest Income 3,717 2,868
----------- -----------
Noninterest Expense:
Salaries & Employee Benefits 5,337 4,316
Expense of Premise & Fixed Assets 1,108 893
Other Non-Interest Expense 2,954 2,303
----------- -----------
Total Non-Interest Expense 9,399 7,512
----------- -----------
Income Before Income Taxes 6,536 6,962
Provision for Income Taxes 1,920 2,188
----------- -----------
Net Income $ 4,616 $ 4,774
=========== ===========
Per Share Data Net Income, basic and diluted $ 1.15 $ 1.19
Cash Dividends $ 0.48 $ 0.45
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPT 30 DECEMBER 31
1999 1998
----------- -----------
<S> <C>
ASSETS
Cash & Due from Banks $ 15,269 $ 17,503
Interest Earning Deposits Due From Banks 16,143 54
Federal Funds Sold 0 0
Securities -
U.S. Government 11,393 11,254
U.S. Agencies 84,932 80,836
Municipal Bonds 44,906 29,829
Equity Securities 4,234 7,873
Corporate Securities 1,222 500
----------- -----------
Total Securities 146,687 130,292
Loans
Secured by Real Estate 202,309 194,383
To Finance Agriculture & Farmers 2,543 2,598
Commercial & Industrial 33,752 37,693
Individuals for Household & Personal 39,475 43,527
Obligations of State & Political
Tax Exempt 7 164
Other Loans 437 204
----------- -----------
Total Loans 278,523 278,569
Less Reserve for
Loan Losses (3,280) (3,212)
----------- -----------
Net Loans 275,243 275,357
Bank Premises and Equipment 7,547 5,782
Deposit Intangibles 2,217 242
Other Assets 6,701 4,910
----------- -----------
Total Assets $ 469,807 $ 434,140
=========== ===========
LIABILITIES AND CAPITAL
Deposits
Demand $ 65,694 $ 62,608
NOW Accounts 48,775 45,938
Money Market Checking 59,733 53,393
Savings 42,468 37,226
Time Deposits 188,076 171,267
----------- -----------
Total Deposits 404,746 370,432
Securities Sold Under
Agmt. to Repurchase 10,190 7,695
Federal Funds Purchased 6,625 9,475
Other Liabilities 1,773 1,074
Stockholders' Equity
Common Stock 19,986 20,000
Surplus 13,478 13,554
Retained Earnings 14,130 11,434
Accumulated Other Comprehensive Income (1,121) 476
----------- -----------
Total Stockholder's Equity 46,473 45,464
----------- -----------
Total Liabilities
and Stockholders' Equity $ 469,807 $ 434,140
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
SEPT 30 SEPT 30
1999 1998
----------- -----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 22,422 $ 22,934
Fees and other non-interest income 3,553 2,853
Interest paid (10,059) (10,513)
Cash paid to suppliers and employees (8,311) (6,546)
Income taxes paid (2,084) (2,294)
----------- -----------
Net cash provided by operating activities $ 5,521 $ 6,434
----------- -----------
Cash flows from investing activities
Maturities of securities 35,444 42,020
Proceeds from sales of securities 18,505 3,745
Purchases of securities (72,576) (53,976)
Net increase in loans (584) (1,928)
Proceeds from sale of assets 226 1
Capital expenditures (2,411) (967)
Net increase in other assets (2,102) (164)
Other real estate acquired in settlement of loans (540) (21)
Proceeds from sale of other real estate 422 0
----------- -----------
Net cash used in investing activities $ (23,616) $ (11,290)
----------- -----------
Cash flows from financing activities
Net increase in certificates of deposit 16,810 7,390
Net increase in demand & savings deposits 17,505 3,160
Net decrease in federal funds purchased (2,850) (4,550)
Net increase in securities sold
under repurchase agreements 2,495 5,096
Payment to repurchase common stock (90) 0
Dividends paid (1,920) (1,800)
----------- -----------
Net cash provided by financing activities $ 31,950 $ 9,296
----------- -----------
Net increase (decrease) in cash and cash equivalents 13,855 4,440
Cash and cash equivalents at beginning of year 17,557 14,685
----------- -----------
Cash and cash equivalents at end of year $ 31,412 $ 19,125
=========== ===========
</TABLE>
6
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
SEPT 30 SEPT 30
1999 1998
----------- ----------
<S> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income $ 4,616 $ 4,774
----------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 554 412
Provision for loan losses 698 1,012
Gain on sale of assets (128) 0
Provision for deferred taxes 0 0
Gain on sale of investment securities (58) 0
Decrease in taxes payable 0 (61)
(Increase) in interest receivable (604) (243)
Increase in interest payable 190 113
Increase in prepaid expenses (288) (117)
Increase in accrued expenses 521 536
Amortization and accretion (8) 30
Increase (decrease) in deferred income 6 (8)
(Increase) decrease in fees receivable 22 (14)
----------- ----------
Total Adjustments $ 905 $ 1,660
----------- ----------
Net cash provided by operating activities $ 5,521 $ 6,434
=========== ==========
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans 540 0
=========== ==========
Unrealized gain (loss) on securities available for sale (2,420) 897
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
7
<PAGE>
VIRGINIA FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPT 30, 1998 AND 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Accumulated
Other
Common Caital Retained Comprehensive Comprehensive
Stock Surplus Earnings Income Income Total
---------- ---------- ---------- ------------- ---------- ---------
<S> <C>
Balances, December 31, 1997 20,000 13,554 7,626 155 41,335
Comprehensive income:
Net income 4,774 4,774 4,774
Other comprehensive income net of tax,
unrealized holding gains arising during the period
(net of tax, $304,970) 592 592 592
----------
Total comprehensive income 5,366
==========
Cash dividends ($0.15 per share) (1,800) (1,800)
---------- ---------- ---------- ------------- ---------
Balances, Sept 30, 1998 20,000 13,554 10,600 747 44,901
========== ========== ========== ============= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Common Caital Retained Comprehensive Comprehensive
Stock Surplus Earnings Income Income Total
---------- ---------- ---------- ------------- ---------- ---------
<S> <C>
Balances, December 31, 1998 20,000 13,554 11,434 476 45,464
Comprehensive income:
Net income 4,616 4,616 4,616
Other comprehensive income (loss) net of tax,
unrealized holding (losses) arising during the period
(net of tax, $822,819) (1,597) (1,597) (1,597)
----------
Total comprehensive income 3,019
==========
Repurchase of common stock (14) (76) (90)
Cash dividends ($0.16 per share) (1,920) (1,920)
---------- ---------- ---------- ------------- ---------
Balances, Sept 30, 1999 19,986 13,478 14,130 (1,121) 46,473
========== ========== ========== ------------- =========
</TABLE>
The accompanying notes are an integral part of these statements
8
<PAGE>
VIRGINIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Virginia Financial
Corporation and its Subsidiary have not been audited by independent accountants
except for the balance sheet at December 31, 1998. In the opinion of the
company's management, the financial statements reflect all adjustments necessary
to present fairly the results of operations for the nine month periods ended
Sept 30, 1999 and 1998, the company's financial position at Sept 30, 1999 and
December 31, 1998, and cash flows for the nine month periods ended Sept 30, 1999
and 1998. These adjustments are of a normal recurring nature.
On November 14, 1996, the shareholders approved an Agreement and Plan
of Reorganization and related Plan of Share Exchange, relating to the adoption
of a bank holding company, Virginia Financial Corporation (herein after referred
to as "the Company"), which will serve as the holding company of the Bank. This
transaction was consumated on January 2, 1997.
Note 2. Securities as of Sept 30, 1999 and December 31, 1998 are summarized
below.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
Sept 30, 1999 December 31, 1998
Unrealized Unrealized
Book Market Gain (Loss) Book Market Gain (Loss)
Securities Available for Sale ---- ------ ----------- ---- ------ -----------
<S> <C>
U.S. Treasury Securities $ 5,935 $ 5,933 $ (2) $ 11,139 $ 11,254 $ 115
U.S. Agency Securities 37,627 37,179 (448) 48,163 48,646 483
Obligations of State and
Political Subdivisions 28,334 27,242 (1,092) 9,910 10,031 121
Other Securities 5,127 4,969 (158) 8,371 8,373 2
----------- ---------- ------------ ---------- ---------- ------------
Total Securities Available for Sale $ 77,023 $ 75,323 $ (1,700) $ 77,583 $ 78,304 $ 721
=========== ========== ============ ========== ========== ============
Securities Held to Maturity
U.S. Treasury Securities $ 5,460 $ 5,484 $ 24 $ 0 $ 0 $ 0
U.S. Agency Securities 47,753 46,846 (907) 32,190 32,131 (59)
Obligations of State and
Political Subdivisions 17,664 17,509 (155) 19,798 20,180 382
Other Securities 487 487 0 0 0 0
----------- ---------- ------------ ---------- ---------- ------------
Total Securities Held to Maturity $ 71,364 $ 70,326 $ (1,038) $ 51,988 $ 52,311 $ 323
=========== ========== ============ ========== ========== ============
</TABLE>
9
<PAGE>
VIRGINIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<TABLE>
<CAPTION>
Sept 30, 1999 December 31, 1998
Real Estate Loans: ------------- -----------------
<S> <C>
Construction and Land Development $ 5,804 $ 20,065
Secured by Farm Land 3,760 1,284
Secured by 1-4 Family residential 113,194 113,477
Other Real Estate Loans 79,880 59,752
Loans to Farmers (Except Those Secured by Real Estate) 2,543 2,598
Commercial and Industrial Loans
(Except Those Secured by Real Estate) 33,752 37,693
Loans to Individuals for Personal Expenditures 39,475 43,676
All Other Loans 444 368
------------ ------------
Total Loans 278,852 278,913
Less Unearned Income Reflected in Loans 329 344
------------ ------------
Loans, Net of Unearned Income $ 278,523 $ 278,569
============ ============
</TABLE>
The Bank had loans in a Nonaccrual category of $1,973 on December 31, 1998 and
$1,199 on Sept 30, 1999
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
For the Nine Months Ended
Sept 30, 1999 Sept 30, 1998
------------- -------------
<S> <C>
Balance at Beginning of Period 3,212 3,753
------------ ------------
Charge-Offs (692) (1,670)
Recoveries 62 43
------------ ------------
Net Charge-Offs (630) (1,627)
Provision for Loan Losses 698 1,012
------------ ------------
Balance at End of Period $ 3,280 $ 3,138
============ ============
</TABLE>
Note 5. New Accounting Pronouncements
In June 1998, The Financial Accounting Standards
Board issued Statement No. 133, 'Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards for derivative financial
instruments and other similar financial instruments and for hedging
activities. The Statement also allows securities classified as
held-to-maturity to be transferred to the available-for-sale
category at the date of initial application of this standard.
Statement No 133 is effective for all fiscal years beginning after
June 15, 2000. Management is currently reviewing this statement to
determine the impact, if any, it will have since the Company does
not currently employ such derivative instruments and does not
intend to do so in the future.
The effects of these Statements on the company's
consolidated financial statements are not expected to be material.
10
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<TABLE>
<CAPTION>
(000 Omitted)
Nine Months Ended Sept 30
1999 1998
Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate
----------- --------- ---------- ----------- --------- --------
<S> <C>
Securities:
Taxable $ 100,651 $ 4,487 5.94% $ 96,348 $ 4,330 5.99%
Tax-exempt (1) 30,161 1,523 6.73% 18,172 929 6.82%
----------- --------- ---------- ----------- --------- --------
Total Securities $ 130,812 $ 6,010 6.13% $ 114,520 $ 5,259 6.12%
Loans (net of earned income):
Taxable 272,951 17,385 8.49% 268,304 18,029 8.96%
Tax-Exempt (1) 78 3 5.13% 287 13 6.04%
----------- --------- ---------- ----------- --------- --------
Total Loans 273,029 17,388 8.49% 268,591 18,042 8.96%
Interest Earning Deposits Due From Banks 2,482 103 5.55% 0 0 0.00%
Fed Funds Sold and Repurchase Agreements 5,428 194 4.77% 6,386 263 5.49%
----------- --------- ---------- ----------- --------- --------
Total Earning Assets 411,751 23,695 7.67% 389,497 23,564 8.07%
Less Allowance for Loan Losses (3,261) (3,138)
Total Nonearning Assets 31,030 26,201
----------- -----------
Total Assets $ 439,520 $ 412,560
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
<S> <C>
Interest bearing deposits:
NOW Accounts $ 46,294 $ 870 2.51% $ 42,286 $ 879 2.77%
Money Market Savings 57,041 1,468 3.43% 58,856 1,708 3.87%
Regular Savings 38,005 841 2.95% 34,995 778 2.96%
Certificates of Deposit:
Less than $100,000 149,255 5,671 5.07% 146,759 6,015 5.46%
$100,000 and More 26,194 994 5.06% 22,228 960 5.76%
----------- --------- ---------- ----------- --------- --------
Total Interest Bearing Deposits 316,789 9,844 4.14% 305,124 10,340 4.52%
Fed Funds Purchased 1,128 37 4.37% 213 9 5.63%
Short Term Borrowings 10,738 369 4.58% 6,913 277 5.34%
----------- --------- ---------- ----------- --------- --------
Total Interest Bearing Liabilities 328,655 10,250 4.16% 312,250 10,626 4.54%
Noninterest Bearing Liabilities
Demand Deposits 61,713 54,971
Other Liabilities 2,430 2,297
----------- -----------
Total Liabilities 392,798 369,518
Stockholders' Equity 46,722 43,042
----------- -----------
Total Liabilities and Stockholders' Equity $ 439,520 $ 412,560
=========== ===========
Net Interest Income 13,445 12,618
Interest Rate Spread 3.51% 3.53%
Interest Expense as a Percent of Average
Earning Assets 3.32% 3.64%
Net Interest Margin 4.35% 4.43%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 1998 and 1999
13
<PAGE>
Part 1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net income for the third quarter of 1999 was $1,309,000 compared to
$1,466,000 for the third quarter of 1998. This represents a decrease of $157,000
or 10.71%. During the third quarter interest income increased $247,000 and Total
Earning Assets increased $32,470,000 while the yield on average earning assets
decreased from 7.70% to 7.67%. Interest-bearing liabilities increased by
$30,097,000 and interest expense increased $144,000 during the third quarter.
The interest spread decreased from 3.52% to 3.51% comparing the third quarter
and second quarter of 1999.
Non-interest income increased $103,000 the third quarter of 1999
compared to 1998. This increase was due to increases in fee income, fiduciary
income and gains from the sale of securities and other assets. Non-interest
expense increased the third quarter of 1999 compared to the third quarter of
1998 by $876,000. This increase was due to increases in salaries and employee
benefits and other non-interest operating expenses.
Financial Condition
- -------------------
Total assets increased $35,179,000 the third quarter of 1999 compared
to an increase of $6,652,000 the third quarter of 1998. Assets the first nine
months of 1999 increased $35,667,000 or 8.22% compared to an increase of
$15,242,000 or 3.77% the first nine months of 1998. Deposit growth was
$33,783,000 the third quarter of 1999 while it increased $1,454,000 the third
quarter of 1998. Deposits the first nine months of 1999 increased $34,314,000 or
9.26% compared to an increase of $10,550,000 or 3.00% the first nine months of
1998. The deposit growth in 1999 has been in all deposit types, while in 1998 it
was primarily in Time Deposits. The investment portfolio was increased by
$14,255,000 the third quarter of 1999 and decreased by $436,000 the third
quarter of 1998. Through the first nine months of 1999, investments have
increased $16,395,000 or 12.58% compared to an increase of $9,167,000 or 8.08%
the first nine months of 1998. The increase in asset size has led to the
increase in the security portfolio and an increase in Interest Earning Deposits
Due From Banks of $16,000,000. During the first nine months of 1999 the deposit
growth was used to fund the investment growth.
Future Operations
- -----------------
The Bank opened, effective April 23, 1999, an office at 100 Lucy Lane,
Waynesboro, Virginia, providing another full service bank to the Waynesboro
area. The Bank also opened, effective September 23, 1999, a branch located at
1197 North Lee Highway, Lexington, Virginia. Along with the opening of these two
branches, the Bank has also purchased two other branches located at 9 Lloyd
Tolley Road, Natural Bridge Station, Virginia and 2101 Forest Avenue, Buena
Vista, Virgina. The Bank began the operations of these branches on August 20,
1999. The expansion in Waynesboro, Virginia will provide Planters Bank with
relief from the overflow of the present office at Poplar and Ohio Street plus
serve the southern portion of the city. The expansions in Lexington, Buena
Vista, and Natural Bridge Station, Virginia will provide the Bank with a
presence in those market areas.
Year 2000
- ---------
The Year 2000 issue involves the risk that the computer systems may not
be able to perform without interruption into the Year 2000. If computer systems
do not correctly recognize the date change from December 31, 1999 to January 1,
2000, computer applications that rely on the date field could fail or could
create erroneous results. Such erroneous results could affect interest payments
or due dates and could cause the temporary inability to process transactions and
to engage in ordinary business activities. The failure of the Corporation, its
suppliers, and its borrowers to address the Year 2000 issue could have a
materially adverse effect on the Corporation's financial condition, results of
operations, or liquidity.
In 1997, the Corporation initiated a review and assessment of all data
processing systems, hardware and software to confirm that it will function
properly in the year 2000. Based on this assessment, the Corporation's data
processing systems, hardware and banking software are currently Year 2000
compliant. However, testing is required to confirm this. Testing began in the
second quarter of 1998 and has been completed in the third quarter of 1999. For
certain other systems, the Corporation has replaced or modified certain pieces
of hardware and/or software so that the systems will properly function in the
year 2000. For systems on which the Corporation relies on third party vendors,
these vendors have been contacted and have indicated that the hardware and/or
software will be Year 2000 compliant.
The Corporation has also initiated formal communications with all
significant loan customers to determine the extent to which the Corporation is
vulnerable to those third parties' failures to remedy their own Year 2000
issues. The Corporation believes that exposure to customers who are not Year
2000 compliant is minimal.
The Corporation does have in place contingency plans if any problems
occur due to the Year 2000 issue. The Corporation has placed $13,000,000 into
Interest Earning Bank Deposits Due From Banks that will mature before year end.
As these term deposits mature, they will provide the Corporation with the
ability to respond to above normal cash requests if necessary. Along with
accounting for the potential cash problem, the Corporation has also installed a
generator at the Rosser Avenue branch located at 100 Lucy Lane, Waynesboro,
Virginia. This will allow the Corporation to continue its operations, out of
this office, if there is any kind of power failure as a result of the year 2000
issue.
The Corporation has completed the Year 2000 project as of Sept 30,
1999. To date, the Corporation has expensed $29,137 related to the assessment
of, and efforts in connection with, the Year 2000 issue. Remaining expenditures
are not expected to have material effects on the Corporation's consolidated
financial statements.
Part 1
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in information reported as of
December 31, 1998, in Form 10-K.
15
<PAGE>
VIRGINIA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of Sept 30, 1999 neither the corporation nor the bank was a party to
any legal proceedings.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the Quarter ended September 30, 1999.
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the Quarter ended Sept 30,
1999.
Exhibit 27 See attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Virginia Financial Corporation
(Registrant)
Date Nov 10, 1999 /s/Fred D. Bowers
- ----------------------------- --------------------------------------------
Fred D. Bowers, Secretary/Treasurer
(Principal Accounting Officer and Duly
Authorized Officer)
16
<PAGE>
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