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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission File Number 000-22283
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VIRGINIA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1829288
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
24 South Augusta Street, Staunton, Virginia 24401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 885-1232
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
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None None
Securities registered pursuant to section 12 (g) of the Act:
Common Stock, $5.00 par value per share
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(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
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 1, 2000, there were 3,990,938 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 $132,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1999 Annual Report to Shareholders - Parts I and II
Notice of Annual Meeting and Proxy Statement dated March 24, 2000 - Part III
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Item 1. Business
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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") 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 1999, 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.
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) 374 Lee Highway in Verona, (3) 1480 Greenville Avenue, Staunton and
(4) the intersection of U. S. Route 250 and State Route 640, Fishersville.
Branches are located in Waynesboro, Virginia at (1) 251 N Poplar St. and (2) 100
Lucy Lane. Branches are located in Rockbridge County at (1) 9 Lloyd Tolley Rd,
Natural Bridge Station, and (2) 1197 Lee Highway, Lexington. A branch is located
in Rockingham County at 106 Sixth Street, Grottoes, Virginia. A branch is
located at 375 North Mason Street, Harrisonburg, Virginia.. A branch is located
at 2101 Forest Ave., Buena Vista, Virginia. The Bank employs two hundred
twenty-one (221) full-time employees and twenty-one (21) part-time employees.
The Bank's trade area encompasses the counties of Augusta, Rockbridge and
Rockingham. The population of the trade area is estimated to be 220,300.
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, in January 1996, formed Planters Insurance Agency, Inc., a
wholly-owned subsidiary of the Bank and is licensed to sell title insurance.
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 May
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14, 1999 the Bank began leasing a trailer containing a 12 x 50 foot office space
located on the same parcel of land. This trailer is also being 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 opened this branch, effective
April 23, 1999.
The Bank entered into a lease agreement August 21, 1998 with Steroben
Associates to lease a branch facility consisting of 2,400 square feet located at
375 North Mason Street, Harrisonburg, Virginia. This branch opened effective
October 1, 1998.
The Bank purchased a parcel of land consisting of 0.941 acres fronting on
U.S. Route 11, 1197 North Lee Highway at the entrance of Lexington Crossing
Shopping Center, Lexington, Virginia on August 21, 1998. The Bank constructed
and opened a branch at this location, effective September 23, 1999.
On August 20, 1999, the Bank purchased the Natural Bridge Station and Buena
Vista, Virginia offices of Wachovia Bank, N.A. and operates these facilities as
branches of the Bank.
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Services
Principal services offered and rendered by the Bank include the following:
<TABLE>
<CAPTION>
Savings Accounts Investment Products Trust Department
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<S> <C> <C>
Statement Savings: Discount Brokerage Executor or Administrator
Personal Full Service: of Estates
Business Money Market Accounts Testamentary Trustee
Passbook Savings: Stocks Inter Vivos Trustee
Personal Bonds Guardian
Business Mutual Funds Agent Under Agreement
Individual Retirement Annuities Escrow Agreement
Accounts Power of Attorney
Certificates of Deposit: Loans Trustee Under Employee Benefit
7-31 Days ----- Agreements
91 Days Personal
182 Days Home Improvement Additional Services
1 Year Automobile or Trailer -------------------
1 1/2 Years Business Bank Transfer Wire Service
2 Years Student Bank by Fax
2 1/2 Years Mortgage Bank by Mail
3 Years Agriculture Drive-in Banking, all
4 Years Vacation locations
Christmas Clubs Visa and MasterCard Accounts Night Depositories
Save-O-Matic Home Equity Money Orders
Travelers Checks
Checking Accounts Customer Support Safe Deposit Boxes
- ----------------- Department Bank Drafts
Personal ---------- Cashier's Checks
Negotiable Order of Stop Payments Savings Bonds
Withdrawal Statements on Demand Utility Bill Payments
Money Market Photocopies of Checks and Applications for Visa and
Zero Balance Checking Records MasterCard
Business Assistance in Balancing Notary Public
Organizations and Clubs Checkbooks Certified Checks
Estate Computation of Interest Federal Tax Deposits
Student Electronic Direct Deposit and
Personalized Checks International Banking Payment of Funds
Quarterly or Monthly --------------------- Automatic Transfers of
Statements Letters of Credit Funds Between Accounts
Visa Check Card Foreign Collection Retail Repurchase
Visa Business Check Card Bank Transfer Wire Service Agreements
Foreign Currency Available Automated Teller Machines
Overdraft Protection
24 Hour Banking by Phone
Bankcard Services
Internet Banking
Bank at Your Desk
Press & Pay Bill Payment
Service
</TABLE>
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In rendering these services, the Bank serves general retail customers and
businesses in the counties of Augusta, Rockbridge and Rockingham.
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
Bank of America, First Virginia Bank-Blue Ridge, Wachovia Bank, N.A.,
Community Bank, First Union National Bank of Virginia, Crestar Bank, Shenandoah
National Bank, F&M Bank-Massanutten, One Valley Bank, Second Bank, Black Diamond
Savings Bank, Rockingham Heritage Bank, Branch Banking & Trust Company, Guaranty
Bank and First and Citizens Bank maintain offices within the trade area of the
Bank. These banks offer full banking 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
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The Bank owns fifteen (15) parcels of property. Fourteen (14) of these
properties are land and buildings used by the Bank in its operation and one (1)
property is 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. The
building is not adequate for future needs and plans are underway to
lease or construct a building for operations.
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2. The Bank owns a 1-3/4 acre parcel of property at 1135 Richmond 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-up 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. Another portion of the property consisting of 0.045 acres
was conveyed to the Virginia Department of Transportation on April 14,
1999. Due to the small size of the property conveyed, the building and
location are still 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 was 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 was rented on a 5 year lease. The
Bank sold the property know as 2301 West Beverley Street on June 22,
1999. The present branch site 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 Lee
Highway 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 Lee Highway. 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 Lee Highway, 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
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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 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 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. On
May 1, 1998, the Bank purchased the remaining half of this two-story
building fronting on Johnson Street. 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. This property
contains 1.253 acres and is part of "Coyner Commercial Park". The Bank
completed construction and opened a new building consisting of 3,130
square feet on the ground floor and a basement consisting of 1,080
square feet on April 23, 1999. The facility has with it (29) parking
spaces, (3) drive-up lanes and an ATM.
13. The Bank purchased a parcel of land containing 0.941 acres at 1197
North Lee Highway, Lexington, Virginia. The construction of a new
building consisting of 3,130 square feet on the ground floor and 1,080
square feet in the basement was completed and opened September 23,
1999. The property includes (26) parking spaces, (3) drive-up lanes
and an ATM. This building and location are considered ample to
accommodate the Bank's needs for the foreseeable future.
14. The Bank purchased a piece of property located at 2101 Forest Avenue,
Buena Vista, Virginia from Wachovia Bank, N.A. on August 20, 1999. It
contains approximately 1.5 acres of land. Located on the property is a
one-story brick building containing 3,100 square feet with (15)
parking spaces, (2) drive-up lanes, and an ATM.
15. The Bank purchased a piece of property located at 9 Lloyd Tolley Road,
Natural Bridge Station, Virginia from Wachovia Bank, N.A. on August
20, 1999. Located on the property is a one-story brick building with a
2,690 square foot ground floor and a 2,690 square foot basement. This
facility has one drive-up lane. The building and location are
considered ample to accommodate the Bank's needs for the foreseeable
future.
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
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expense for 1999 was $21,034. 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 its Harrisonburg banking facility located at 375 North
Mason Street, Harrisonburg, Virginia. This facility consists of a 2,400 square
foot building with drive-up window. The lease was negotiated August 21, 1998 at
$1,500.00 per month for two years and will increase by five percent for each two
year period thereafter. The lease is for a period of ten years with one ten year
option or two five year options.
The Bank leases a trailer containing office space that has been set up on
the property of the Bank at 113A Tinkling Springs Road, Fishersville, Virginia.
This office space consists of a 12 x 50 foot area. The Bank entered the lease
May 14, 1999 with an agreement to renew the contract on a monthly basis and is
currently paying $216.00 per month. The office space is being used as an
operational area for secondary mortgage processing.
Item 3. Legal Proceedings
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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
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There were no matters submitted, during the fourth quarter of the fiscal
year covered by this report, to a vote of security holders.
PART II
Item 5. Market For The Registrant's Common Equity And Related Security
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Holder Matters
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The portions of the 1999 Annual Report to Shareholders (Annual Report)
captioned, "Comments by Management," page 2, and Table 1 of Item 7
"Selected Consolidated Financial Data" on page 9, 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 Company's Common Stock (the only class of
equity security of the Company) of record was 1,173 as of the end of the
Company's fiscal year, December 31, 1999.
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 1999 and 1998 by quarter, were as shown below.
1999 1998
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Low High Low High
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1st quarter $ 27.50 $ 30.00 $ 25.00 $ 27.00
2nd quarter $ 28.00 $ 32.50 $ 25.00 $ 26.75
3rd quarter $ 30.00 $ 34.00 $ 26.25 $ 28.50
4th quarter $ 31.50 $ 35.00 $ 27.50 $ 29.50
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Item 6. Selected Financial Data
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The Annual Report, page 1, 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 9 hereof are incorporated by reference.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
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Of Operations
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The Annual Report, Pages 3 through 11, "Management's Discussion and
Analysis of Operations" and year-end balances is hereby incorporated by
reference.
Earnings Performance:
Net income for 1999 was $5,553,532 compared to $6,248,230 for 1998 for a
decrease of 11.12%. The decrease in net income in 1999 compared to 1998 was
principally due to an increase in expenses associated with the investment in
four new branches, two of which were started de nova and two of which were
purchased from Wachovia, and expenses incurred in ensuring that the
Corporation's computers and systems were Y2K compliant. On a per share basis,
1999 earnings were $1.39 per share. Net income for 1998 was $6,248,230 compared
to $5,735,112 for 1997 for an increase of 8.95%. On a per share basis, 1998
earnings were $1.56 per share.
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Table 1 - Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
(in thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest Income $ 31,373 $ 31,060 $ 29,068 $ 27,321 $ 26,073
Interest Expense $ 13,970 $ 14,188 $ 13,292 $ 12,684 $ 12,343
Net Interest Income $ 17,403 $ 16,872 $ 15,776 $ 14,637 $ 13,730
Provision for Loan Losses $ 1,100 $ 1,327 $ 831 $ 450 $ 309
Net Interest Income After
Provision for Loan Losses $ 16,303 $ 15,545 $ 14,945 $ 14,187 $ 13,421
Non-interest Income $ 4,679 $ 3,955 $ 2,885 $ 2,542 $ 2,126
Security Gains (Losses) $ 62 0 0 $ 6 $ 1
Non-interest Expense $ 13,239 $ 10,431 $ 9,475 $ 8,679 $ 8,235
Income Before Income Taxes $ 7,805 $ 9,069 $ 8,355 $ 8,056 $ 7,313
Income Taxes $ 2,251 $ 2,821 $ 2,620 $ 2,514 $ 2,278
Net Income $ 5,554 $ 6,248 $ 5,735 $ 5,542 $ 5,035
Per Share Data:
Net Income Basic and Diluted* $ 1.39 $ 1.56 $ 1.43 $ 1.39 $ 1.26
Cash Dividends* ** $ 0.65 $ 0.61 $ 0.56 $ 0.48 $ 0.42
Book Value at Period End* $ 11.54 $ 11.37 $ 10.33 $ 9.39 $ 8.54
Balance Sheet Data:
Assets $473,381 $434,140 $403,999 $377,113 $356,068
Loans, Net of Unearned Income $294,983 $278,569 $269,581 $235,952 $212,327
Securities $137,203 $130,292 $113,409 $118,800 $125,398
Deposits $397,365 $370,432 $352,167 $330,375 $319,578
Stockholders' Equity $ 46,120 $ 45,464 $ 41,335 $ 37,574 $ 34,154
Average Shares Outstanding * 3,999 4,000 4,000 4,000 4,000
Performance Ratios:
Return on Average Assets 1.24% 1.50% 1.48% 1.51% 1.45%
Return on Average Equity 11.90% 14.37% 14.48% 15.34% 15.48%
Dividend Payout* 46.80% 39.05% 38.71% 34.65% 32.97%
Capital and Liquidity Ratios
Leverage 9.70% 10.78% 10.34% 9.98% 9.53%
Risk-based Capital Ratios:
Tier 1 Capital 15.15% 17.02% 16.97% 17.20% 16.74%
Total Capital 16.30% 18.24% 18.22% 18.45% 17.99%
</TABLE>
* Adjusted for 100 percent stock dividends, December 1997
** Cash dividends are paid quarterly
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Interest Income:
Interest income, on a tax equivalent basis, increased in 1999 compared to
1998 by $618,000 or 1.96%. The tax equivalent yield on earning assets in 1999
was 7.70% compared to 8.05% in 1998. Although there was a decrease in the yield,
the increase of $25,697,000 in average earning assets produced the increase in
interest income.
Interest income, on a tax equivalent basis, increased in 1998 compared to
1997 by $2,090,000 or 7.10%. The tax equivalent yield on earning assets in 1998
was 8.05% compared to 8.02% in 1997. This increase in the yield along with an
increase of $24,719,000 in average earning assets produced the overall increase.
Interest income in 1997 increased $1,715,000 compared to 1996, on a
tax-equivalent basis, for an increase of 6.19%. This increase was due to average
earning assets increasing by $18,540,000 and the tax-equivalent yield increasing
0.06%.
Interest Expense:
Interest expense decreased during 1999 by $218,000 or 1.54% compared to
1998. Although average interest-bearing liabilities increased during 1999
compared to 1998 by $22,301,000, the average interest rate paid decreased during
1999 to 4.16% compared to 4.52% during 1998
Interest expense increased during 1998 by $896,000 or 6.74% compared to
1997. This increase was due to average interest-bearing liabilities increasing
during 1998 compared to 1997 by $17,731,000 and the average interest rate paid
during 1998 of 4.52% compared to 4.49% during 1997.
Interest expense increased during 1997 by $608,000 compared to 1996. This
represents an increase of 4.80%. The increase was due to average
interest-bearing liabilities increasing by $11,942,000 as the average rate paid
on these liabilities increased from 4.47% in 1996 to 4.49% in 1997.
Net interest income and net interest margin along with the average yield of
the individual categories for the years 1997 through 1999 are 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 1999, 1998 and 1997.
Non-interest income:
Non-interest income increased $723,459 or 18.29% when compared to 1998.
Fiduciary income increased $210,552 or 17.73%. This increase is due to increases
in business volume and a change in the method of employee benefit fee
collection. Service charges on deposit accounts increased $167,848 or 15.72%.
This increase is due to an increase in volume and a continuing uniform program
of accessing and collecting fees. Other fee income increased $169,847 or 10.68%.
The major portion of this increase is attributable to increases in secondary
mortgage fees and investment services fees. Other non-interest income increased
$175,212 or 159.12%. This increase is mainly due to proceeds from the
condemnation of a very small portion of a bank owned property resulting in a
damage payment and the sale of one property owned by the bank collectively
amounting to $133,641.
Non-interest income increased $1,070,614 or 37.11% when compared to 1997.
The major components making up this increase are the following areas: Fiduciary
income from the Trust department increased $153,921 or 14.89%. This increase is
due to increases in business volume and a modest increase in the fee schedule
for services. Service charges on deposit accounts increased $393,413 or 58.34%.
This increase is due to a uniform program of accessing and collecting fees.
Secondary mortgage fees increased $406,529 or 92.51%. This increase is due to
the expansion of the department and the volume of business. The volume of
business was affected by the level of interest rates creating opportunities to
refinance. Fees generated from the investment department offering non-FDIC
insured investment products increased $44,963 or 19.80%. This increase is due to
increased volume and the level of
- 10 -
<PAGE>
interest rates of FDIC insured deposit accounts.
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 Expense:
Non-interest expense increased during 1999 by $2,809,158 or 26.93% compared
to 1998. Salaries and employee benefits increased by $1,389,858 or 22.96%. This
increase is due to increases in individual salaries, the staffing of four new
branches in Waynesboro, Lexington, Buena Vista and Natural Bridge Station,
Virginia, a full year of personnel costs associated with the Harrisonburg branch
opened in the fall of 1998 and additional employees in select areas. Premise and
fixed asset expense increased by $332,886 or 27.13% due to the addition of four
new branches and a full year of occupancy expense for the Harrisonburg branch.
Computer services increased by $148,768 or 19.69% due to additional volume,
branch expansion network connectivity, and expenses related to the new products;
Planters Internet Banking and Planters Press & Pay Bill Payment Service. Other
areas of non-interest expense which increased during 1999 were advertising by
$87,848 or 45.44%, legal fees by $121,495 or 167.67%, supplies by $77,623 or
24.40% and telephone expenses by $45,664 or 30.84%. The expansion by four
branches and a full year of operating expenses for the Harrisonburg branch were
a major factor in these areas of non-interest expense along with the development
of new products and the overall increase in the volume of business.
Non-interest expense increased during 1998 by $955,737 or 10.09% compared
to 1997. Salaries and employee benefits increased by $523,829 or 9.47%. This
increase is due to increases in individual salaries, the staffing of a new
branch in Harrisonburg, Virginia, and additional employees in select areas.
Premise and fixed asset expense increased by $97,052 or 8.59% due to the new
Harrisonburg office, updating teller stations in all offices to on-line system
and the refurbishing of the Grottoes, Virginia office. Computer services
increased by $154,222 or 25.64% due to updating the teller stations, and the
equipment and communications to support these updates. Other areas of
non-interest expense which increased during 1998 were advertising by $45,649 or
30.91%, consultant fees by $21,054 or 103.67%, legal fees by $16,055 or 34.20%,
state bank exam fees by $17,583 or 33.12% and telephone expenses by $29,019 or
24.37%. The expansion by branching, new products and increased volume of
business increased most areas of non-interest expense.
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. Other non-interest expenses which increased in 1997 were advertising
which increased by $49,757, ATM operating expenses which increased by $22,955,
FDIC Insurance expense which increased $39,185, and supplies in the ongoing day
to day operations which increased $75,293. This increase was also due to an
increased volume of business activity.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Table 2- Virginia Financial Corporation
Average Balances, Income and Expense, Yields and Rates (1)
Twelve Months Ended December 31, 1999, 1998 and 1997
1999 1998
------------- -----------
Annual Annual
Assets Average Income/ Yield Average Income/ Yield
Balance Expense Rate Balance Expense Rate
--------- ------- ------ ------- ------- ------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $ 100,221 $ 6,008 5.99% $ 96,688 $ 5,831 6.03%
Tax exempt (1) 32,372 2,206 6.81% 19,916 1,351 6.78%
--------- --------- --------- ---------
Total securities $ 132,593 $ 8,214 6.19% $ 116,604 $ 7,182 6.16%
Loans (net of unearned income):
Taxable $ 275,916 $ 23,470 8.51% $ 269,037 $ 24,013 8.93%
Tax exempt (1) 68 4 5.88% 261 16 6.13%
--------- --------- --------- ---------
Total loans $ 275,984 $ 23,474 8.51% $ 269,298 $ 24,029 8.92%
Interest Earning Bank Deposits 4,339 239 5.51% - - -
Federal funds sold and repurchase agreements 4,464 216 4.84% 5,781 314 5.43%
--------- --------- --------- ---------
Total earning assets $ 417,380 $ 32,143 7.70% $ 391,683 $ 31,525 8.05%
Less: allowance for loan losses (3,291) (3,633)
Total nonearning assets 33,545 27,455
--------- ---------
Total assets $ 447,634 $ 415,505
========= =========
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Checking $ 104,777 3,159 3.01% $ 101,067 3,385 3.35%
Regular savings 39,196 1,162 2.96% 35,359 1,052 2.98%
Certificates of deposit:
Less than $100,000 152,079 7,670 5.04% 146,169 8,030 5.49%
$100,000 and more 26,155 1,313 5.02% 23,137 1,302 5.63%
--------- --------- --------- ---------
Total interest-bearing deposits $ 322,207 13,304 4.13% $ 305,732 $ 13,769 4.50%
Short-term borrowings 13,817 666 4.82% 7,991 419 5.24%
--------- --------- --------- ---------
Total interest-bearing liabilities $ 336,024 13,970 4.16% 313,723 14,188 4.52%
Noninterest-bearing liabilities:
Demand deposits 62,539 55,967
Other liabilities 2,390 2,338
--------- ---------
Total liabilities $ 400,953 $ 372,028
Stockholders' equity 46,681 43,477
--------- ---------
Total liabilities and stockholders' equity $ 447,634 $ 415,505
========= =========
Net interest income $ 18,173 $ 17,337
Interest rate spread 3.54% 3.53%
Interest expense as a percent of average earning assets 3.35% 3.62%
Net interest margin 4.35% 4.43%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Table 2
Average Balances, Income and Expense,
Yields and Rates (1)
Continued
1997
---------
Annual
Assets Average Income/ Yield/
Balance Expense Rate
--------- --------- ------
(In Thousands)
<S> <C> <C> <C>
Securities:
Taxable $ 100,215 $ 5,990 5.98%
Tax exempt (1) 15,666 1,051 6.71%
--------- ---------
Total securities $ 115,881 $ 7,041 6.08%
Loans (net of unearned income):
Taxable 248,143 22,229 8.96%
Tax exempt (1) 471 28 5.94%
--------- ---------
Total loans $ 248,614 $ 22,257 8.95%
Interest Earning Bank Deposits - - -
Federal funds sold and repurchase agreements 2,469 137 5.55%
--------- ---------
Total earning assets $ 366,964 $ 29,435 8.02%
Less: allowance for loan losses (3,312)
Total nonearning assets 23,589
---------
Total assets $ 387,241
=========
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Checking $ 97,421 $ 3,320 3.41%
Regular savings 35,644 1,060 2.97%
Certificates of deposit:
Less than $100,000 135,168 7,438 5.50%
$100,000 and more 21,474 1,139 5.30%
--------- ---------
Total interest-bearing deposits $ 289,707 $ 12,957 4.47%
Short-term borrowings 6,285 335 5.33%
--------- ---------
Total interest-bearing liabilities $ 295,992 $ 13,292 4.49%
Noninterest-bearing liabilities:
Demand deposits 50,109
Other liabilities 1,543
---------
Total liabilities $ 347,644
Stockholders' equity 39,597
---------
Total liabilities and stockholders' equity $ 387,241
=========
Net interest income $ 16,143
Interest rate spread 3.53%
Interest expense as a percent of average earning assets 3.62%
Net interest margin 4.40%
</TABLE>
(1) Income and yields are reported onataxable-equivalent basis.
-13-
<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>
<CAPTION>
Table 3 - Volume and Rate Analysis
Years Ended December 31,
-----------------------------------------------------------------
1999 compared to 1998 1998 compared to 1997
Change Due To: Change Due To:
-------------- -------------
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- -------- ---------- -------- -------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans: taxable 585 (1,128) (543) 1,865 (81) 1,784
Loans: tax-exempt (11) (1) (12) (13) 1 (12)
Securities: taxable 212 (35) 177 (213) 54 (159)
Securities: tax-exempt 849 6 855 288 12 300
Interest Earning Bank Deposits 239 239 - - -
Federal Funds Sold (64) (34) (98) 180 (3) 177
-------- -------- -------- -------- -------- --------
Total Interest Income 1,810 (1,192) 618 2,107 (17) 2,090
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Interest checking accounts 112 (338) (226) 122 (57) 65
Savings accounts 114 (4) 110 (8) - (8)
Certificates of Deposit under $100,000 298 (658) (360) 605 (13) 592
Certificates of Deposit $100,000 and over 152 (141) 11 93 70 163
Short-term borrowings 281 (34) 247 89 (5) 84
-------- -------- -------- -------- -------- --------
Total Interest Expense 957 (1,175) (218) 901 (5) 896
Net Interest Income 853 (17) 836 1,206 (12) 1,194
======== ======== ======== ======== ======== ========
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Table 4 - Loan Portfolio
Loans at December 31
(In Thousands)
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 8,674 $ 20,065 $ 20,183 $ 14,205 $ 12,924
Secured by Farm Land 3,915 1,284 1,316 933 1,056
Secured by 1-4 Family
Residential 123,428 113,477 128,130 106,693 91,125
Other Real Estate Loans 82,281 59,752 39,037 38,965 40,022
Loans to Farmers 2,883 2,598 2,725 2,879 2,988
Commercial and Industrial 33,874 37,693 34,434 34,313 34,626
Loans to Individuals for
Household, Family and
other Consumer Expenses 39,974 43,676 43,364 37,542 29,056
All Other Loans 277 368 799 774 908
-------- -------- -------- -------- --------
Total Loans $295,306 $278,913 $269,988 $236,304 $212,705
Less Unearned Income 323 344 406 352 378
-------- -------- -------- -------- --------
Net Loans $294,983 $278,569 $269,582 $235,952 $212,327
======== ======== ======== ======== ========
<CAPTION>
Table 5 - Maturity Schedule of Selected Loans
(In Thousands)
December 31, 1999
Over One
One Year Through Over
or Less Five Yrs Five Yrs Total
-------- -------- -------- --------
Loans secured by real estate 106,361 102,878 9,059 218,298
Agricultural production loans 2,277 585 21 2,883
Commercial and industrial loans 29,613 3,811 450 33,874
Consumer loans 12,073 27,273 628 39,974
All other loans 149 128 0 277
-------- -------- -------- --------
$150,473 $134,675 $ 10,158 $295,306
======== ======== ======== ========
For maturities over one year:
Fixed Rates 76,407
Variable Rates 68,426
--------
$144,833
========
</TABLE>
-15-
<PAGE>
Allowance for Loan Losses:
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 under-performing 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 1.18% of outstanding loans as of December
31, 1999, 1.15% as of December 31, 1998 and 1.39% as of December 31, 1997. Net
charge-offs were $842,356 during 1999, $1,868,177 during 1998 and $117,293
during 1997. The percentage of net charge-offs to year-end loans was 0.29% for
1999, 0.67% for 1998 and 0.04% for 1997. The balance of the reserve for loan
losses was $3,469,648 as of December 31, 1999, $3,211,782 as of December 31,
1998, and $3,752,500 as of December 31, 1997. During 1999 and 1998 several
lending relationships significantly deteriorated and resulted in higher
charge-offs than historically experienced by the bank.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
Table 6 - Allowance for Loan Losses
(In Thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance, Beginning of Period 3,212 3,753 3,039 2,786 2,524
Loans Charged Off
Real Estate:
Construction 21 - - - 5
Secured by Farm Land - - - - -
Secured by 1-4 Family
Residential 208 639 19 42 -
Secured by Nonfarm
Nonresidential properties 136 67 - - -
Loans to Farmers - - - - 19
Commercial and Industrial 165 687 - 14 -
Consumer Loans 394 550 139 212 119
All Other Loans - - - - -
-----------------------------------------------------
Total Loans Charged Off 924 1,943 158 268 143
Recoveries
Real Estate:
Construction - - - - -
Secured Farm Land - - - - -
Secured by 1-4 Family
Residential 5 2 1 - -
Secured by Nonfarm
Nonresidential properties - - - - -
Loans to Farmers - - - 14 70
Commercial and Industrial 25 8 7 34 -
Consumer Loans 52 65 33 23 22
All Other Loans - - - - 4
-----------------------------------------------------
Total Recoveries 82 75 41 71 96
-----------------------------------------------------
Net Charge-Offs 842 1,868 117 197 47
Provision for Loan Losses 1,100 1,327 831 450 309
-----------------------------------------------------
Balance, End of Period 3,470 3,212 3,753 3,039 2,786
=====================================================
Ratio of net charge-offs
during the period to average loans
outstanding during the period 0.29% 0.69% 0.05% 0.09% 0.02%
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Table 7 - Allocation of Allowance for Loan Losses
(In Thousands)
1999 1998 1997
---- ---- ----
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
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
Construction $ 43 2.93% $ 150 7.19% $ 150 7.47%
Secured by Farm Land 20 1.33% 72 0.46% 170 0.49%
Secured by 1-4 Family
Residential 622 41.80% 957 40.69% 770 47.46%
Other Real Estate 380 27.86% 638 21.42% 620 14.46%
Loans to Farmers 87 0.98% 26 0.93% 270 1.01%
Commercial and Industrial 785 11.47% 391 13.51% 595 12.75%
Consumer Loans 1,185 13.54% 330 15.66% 610 16.06%
All Other Loans 8 0.09% 12 0.14% 25 0.30%
Unallocated 340 - 396 - 543 -
Off balance sheet items - - 240 - - -
--------- ----------- --------- ----------- --------- -----------
$3,470 100.00% $3,212 100.00% $3,753 100.00%
========= =========== ========= =========== ========= ===========
<CAPTION>
1996 1995
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Allowance Total Loans Allowance Total Loans
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Real Estate:
Construction $ 100 6.01% $ 100 6.08%
Secured by Farm Land 75 0.39% 56 0.50%
Secured by 1-4 Family
Residential 650 45.15% 400 42.84%
Other Real Estate 550 16.49% 300 18.81%
Loans to Farmers 275 1.22% 200 1.40%
Commercial and Industrial 450 14.52% 750 16.28%
Consumer Loans 500 15.89% 525 13.66%
All Other Loans 25 0.33% 30 0.43%
Unallocated 414 - 425 -
--------- ----------- --------- ----------
$3,039 100.00% $2,786 100.00%
========= =========== ========= ==========
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Table 8 - Nonperforming Assets and Loans
Contractually Past Due
Years Ended December 31,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual Loans $1,064 $1,973 $1,193 $ 194 $ 140
Other Real Estate $ 328 $ 279 $ 258 $ - $ -
------ ------ ------ ------ ------
Total Nonperforming Assets $1,392 $2,252 $1,451 $ 194 $ 140
====== ====== ====== ====== ======
Loans Past Due as to
Principal or Interest
for 90 Days or More
Accruing Interest $ 596 $ 897 $ 359 $ 248 $ 147
Nonperforming Assets to
Total Assets 0.29% 0.52% 0.36% 0.05% 0.04%
Nonperforming Assets to
Year-end Loans and
Other Property 0.47% 0.81% 0.54% 0.08% 0.07%
</TABLE>
Potential Problem Loans:
At December 31, 1999 Management is not aware of any significant Problem
loans not included in Table 8.
-19-
<PAGE>
<TABLE>
<CAPTION>
Table 9 - Investment Securities
Maturity Distribution and Average Yield
December 31, 1999
(In Thousands)
Weighted
Average Weighted
Book Market Maturity Average
Value Value In Yrs Mos TE Yield
-------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Within One Year $ 2,320 $ 2,320 0 7.0 5.74%
After One But Within Five Years 5,488 5,412 1 7.2 5.69%
After Five But Within Ten Years 4,938 4,827 6 0.0 6.01%
After Ten Years 0 0 0 0.0 0.00%
-------- --------
Total U.S. Treasury Securities $ 12,746 $ 12,559 3 6.6 5.82%
-------- --------
Federal Agencies:
Within One Year $ 1,500 $ 1,496 0 9.0 6.06%
After One But Within Five Years 72,344 70,167 3 9.1 6.13%
After Five But Within Ten Years 2,022 1,914 6 11.9 5.56%
After Ten Years 0 0 0 0.0 0.00%
-------- --------
Total Federal Agencies $ 75,866 $ 73,577 3 9.1 6.11%
-------- --------
Obligations of State and Political
Subdivisions:
Within One Year $ 5,532 $ 5,531 0 6.4 6.59%
After One But Within Five Years 6,970 6,931 2 7.5 6.66%
After Five But Within Ten Years 13,107 12,117 8 0.6 6.74%
After Ten Years 20,419 19,711 10 10.7 7.00%
-------- --------
Total State and Political
Subdivisions $ 46,028 $ 44,290 7 7.0 6.82%
-------- --------
Other Securities:
Within One Year $ 0 $ 0 0 0.0 0.00%
After One But Within Five Years 750 730 2 8.3 5.68%
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 $ 750 $ 730 2 8.3 5.68%
-------- --------
Equity Securities: $ 4,439 $ 4,279
Total Securities $139,829 $135,435 5 0.4 6.30%
======== ========
</TABLE>
-20-
<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 67.9% matures
within five years plus the opportunity to borrow short term funds through the
Federal Home Loan Bank of Atlanta and 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, the majority of 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 and personal
loans are represented by demand notes which provide the ability to reprice. 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
The Annual Report, Pages 8 through 10, "Market Risk Management" is hereby
incorporated by reference.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Table 11 - Average Deposits and Rates Paid
(In Thousands)
December 31,
1999 1998 1997
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing Deposits $ 62,539 - $ 55,967 - $ 50,109 -
-------- -------- --------
Interest Bearing Deposits
Interest Checking 104,777 3.01% 101,067 3.35% 97,421 3.41%
Regular Savings 39,196 2.96% 35,359 2.98% 35,644 2.97%
Time Deposits
Less than $100,000 152,079 5.04% 146,169 5.49% 135,168 5.50%
$100,000 and more 26,155 5.02% 23,137 5.63% 21,474 5.30%
-------- -------- --------
Total Interest - Bearing Deposits $322,207 4.13% $305,732 4.50% $289,707 4.47%
-------- -------- --------
Total $384,746 $361,699 $339,816
======== ========= ========
<CAPTION>
Table 12 - Remaining Maturities of CD's and
Other Time Deposits of $100,000 or More
December 31, 1999
-----------------
(In Thousands)
Three Months or Less $ 3,710
Over Three Through Six Months 1,324
Over Six Through Twelve Months 13,524
Over Twelve Months 7,341
---------
Total $ 25,899
=========
</TABLE>
-22-
<PAGE>
Stockholders' Equity:
Stockholders' equity, during 1999, increased $655,845 or 1.44%. Reflected
in this increase is $2,208,458 unrealized net loss net of tax on securities in
the available for sale category. During 1998 stockholders' equity increased
$4,128,624 or 9.99%. This increase reflects $320,394 unrealized net gain net of
tax on securities in the available for sale category. Stockholders' equity,
during 1997, increased $3,761,651 or 10.01%. This increase reflects $246,539
unrealized net gain net of tax 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 6.52% in 1999, 9.91% in 1998 and
15.63% in 1997. Book value per share as of December 31, 1999 was $11.54, $11.37
as of December 31, 1998 and $10.33 as of December 31, 1997. Book value per share
has been adjusted for the 100% stock dividend in December 1997.
Table 13 - Return on Equity and Assets
Year Ended December 31,
(In Thousands)
1999 1998 1997
---- ---- ----
Total Dividends Paid as a
Percent of Net Income 46.80% 39.05% 38.71%
Return on Average Assets 1.24 1.50 1.48
Return on Average Equity 11.90 14.37 14.48
Average Equity to Average Assets 10.43 10.46 10.23
-23-
<PAGE>
Item 8. Financial Statements And Supplementary Data
-------------------------------------------
Part IV, Item 14 titled "Exhibits, Financial Statement Schedules and
Reports on 8-K" of the Annual Report, Pages 22 through 39 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 24, 2000 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 Company and 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 54, 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-four years experience in banking, having
served as Executive Vice President and area President in a statewide banking
organization.
Fred D. Bowers, Age 63, Secretary/Treasurer, Virginia Financial Corporation, and
Senior Vice President and Cashier/Chief Financial Officer, 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 65, 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 served as Senior Vice President from 1974 through
1999.
Thomas A. Davis, Age 55, 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
- 24 -
<PAGE>
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 on 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 pages 5 and 6 of the Definitive Proxy Statement
is hereby incorporated by reference.
- 25 -
<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) The following documents are filed or incorporated by reference as part of
this report on Form 10-K.
(1) Financial Statements
Financial statements of the registrant for the fiscal year ended December
31, 1999 are incorporated herein by reference to Exhibit 99.1.
(2) Financial Statement Schedules
All financial statement 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.
(3) Exhibits
The following exhibits, when applicable, are filed with this Form 10-K or
incorporated by reference to previous filings.
Number Description
------ -----------
Exhibit 2. Not applicable.
Exhibit 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.
(ii) Bylaws incorporated by reference to Exhibit
3.2 of the Company's Form 8-B successor
registration statement filed March 24, 1997.
Exhibit 4. Not applicable.
Exhibit 9. Not applicable.
Exhibit 10. Not applicable.
- 26 -
<PAGE>
Exhibit 11. Not applicable.
Exhibit 12. Not applicable.
Exhibit 13. Annual Report Attached hereto.
Exhibit 16. Not applicable.
Exhibit 18. Not applicable.
Exhibit 21. Subsidiaries: Planters Bank & Trust Company
of Virginia
Exhibit 22. Not applicable.
Exhibit 23. Not applicable.
Exhibit 24. Not applicable.
Exhibit 27. Financial Data Schedule Attached.
Exhibit 99. Additional Exhibits
99.1 The following consolidated financial
statements of the Company including the
related notes and the report of the
independent auditors for the year ended
December 31, 1999 (incorporated herein as
Exhibit 99.1).
1. Report of Independent Auditors (See Annual
Report, page 14)
2. Consolidated Balance Sheets as of December
31, 1999, and December 31, 1998 (See Annual
Report, page 15)
3. Consolidated Statements of Income for Years
Ended December 31, 1999, December 31, 1998,
and December 31, 1997 (See Annual Report,
pages 16 and 17)
4. Consolidated Statements of Cash Flows for
Years Ended December 31, 1999, December 31,
1998, and December 31, 1997 (See Annual
Report, pages 18 and 19)
5. Consolidated Statements of Changes in
Stockholders' Equity for Years Ended
December 31, 1999, December 31, 1998, and
December 31, 1997 (See Annual Report, pages
20 and 21)
6. Notes to Consolidated Financial Statements
for Years Ended December 31, 1999, December
31, 1998 and December 31, 1997 (See Annual
Report, pages 22-39)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the
- 27 -
<PAGE>
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Virginia Financial Corporation
Staunton, Virginia
by /s/ William P. Heath, Jr.
--------------------------------------------
William P. Heath, Jr., President
Virginia Financial Corporation
Staunton, Virginia
by /s/ Fred D. Bowers
--------------------------------------------
Fred D. Bowers, 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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Lee S. Baker Director 3/28/00
- ------------------------------------ ----------
Lee S. Baker
/s/ Benham M. Black Director 3/28/00
- ------------------------------------ ----------
Benham M. Black
/s/ Harry V. Boney Chairman of the Board 3/28/00
- ------------------------------------ ----------
Harry V. Boney Director
/s/ William P. Heath, Jr. President 3/28/00
- ------------------------------------ -----------
William P. Heath, Jr. Director
/s/ Jan S. Hoover Director 3/28/00
- ------------------------------------ -----------
Jan S. Hoover
/s/ Martin F. Lightsey Director 3/28/00
- ------------------------------------ -----------
Martin F. Lightsey
/s/ James S. Quarforth Director 3/28/00
- ------------------------------------ -----------
James S. Quarforth
</TABLE>
- 28 -
<PAGE>
VIRGINIA FINANCIAL CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
13 Annual Report.
21 Subsidiaries of the Registrant. *
27 Financial Data Schedule.
99.1 The following consolidated financial statements of the Company
including the related notes and the report of the independent auditors for the
year ended December 31, 1999 (incorporated herein as Exhibit 99.1).
1. Report of Independent Auditors (See Annual
Report, page 14)
2. Consolidated Balance Sheets as of December 31,
1999, and December 31, 1998 (See Annual Report,
page 15)
3. Consolidated Statements of Income for Years Ended
December 31, 1999, December 31, 1998, and
December 31, 1997 (See Annual Report, pages 16
and 17)
4. Consolidated Statements of Cash Flows for Years
Ended December 31, 1999, December 31, 1998, and
December 31, 1997 (See Annual Report, pages 18
and 19)
5. Consolidated Statements of Changes in
Stockholders' Equity for Years Ended December 31,
1999, December 31, 1998, and December 31, 1997
(See Annual Report, pages 20 and 21)
6. Notes to Consolidated Financial Statements for
Years Ended December 31, 1999, December 31, 1998
and December 31, 1997 (See Annual Report, pages
22-39)
* The only subsidiary of the Company is Planters Bank & Trust Company of
Virginia. A separate exhibit has not been included herewith.
- 29 -
<PAGE>
VFC
Virginia Financial Corporation
Virginia Financial Corporation
1999 Annual Report
<PAGE>
[PHOTO]
Dear Fellow Stockholders:
It is my pleasure to report on the progress of both Virginia Financial
Corporation and Planters Bank & Trust Company of Virginia for the year ending
December 31,1999.
Without reservation, 1999 was a unique year for Planters Bank as it was for the
banking industry in general. We invested in four new branches, two being de novo
and two purchased from Wachovia Bank. In the fourth quarter this expansion
impacted our net earnings with the one-time costs involved in the purchase. In
2000 we will absorb the operating costs of the new offices and continue to build
the infrastructure needed to effectively manage a bank approaching the one-half
billion dollar plateau. From my perspective, we made good investments in 1999
that will pay good dividends in the future.
Preparing to deal with the Y2K issue made the year even more interesting. The
good news is we brought in the New Year without difficulty. If there is any bad
news, it relates to the cost of our preparation. All systems were checked and
re-checked. We spent a great deal of time and money telling the public we were
ready and that our systems had been approved by the appropriate regulators. We
also established a significant cash reserve during the last two months of the
year to respond to the potential of unusual cash withdrawals. As a point of
interest, the day we expected to be extremely busy, December 31, turned out to
be one of the lightest days of the year.
Many talented people worked hard to build the new branch offices and to get us
ready for Y2K. I want to thank these dedicated employees at the Bank for a job
well done. I am proud of each of them.
We are constantly looking for ways to enhance customer service with
user-friendly technology. The most important challenge of technological
evolution is to remain aware of what is available and then to use what our
customers really want. For instance, this year we responded to our customer's
wishes by implementing InterNet Banking. Technology will continue to play an
important role in the continued success of Planters Bank.
As we look to the future the economy should remain strong, which can only
benefit the Shenandoah Valley. We are currently enjoying relatively strong loan
demand although deposit gathering is a challenge. Obviously, the competition is
keen so we need to price our products in a manner that generates a reasonable
return.
The Board of Virginia Financial Corporation is committed to orderly growth along
the I-81 corridor. In that regard we will have discussions from time to time
with banks who share the vision of providing excellent customer service in their
communities while being affiliated with a larger organization to maximize
shareholder value.
I feel your corporation is well positioned to prosper in the future. The
management and staff appreciate your support and solicit your comments and
suggestions as we strive to be the premier bank in the markets we serve. I
encourage each of you to read this report for a clear understanding of the
financial aspects of this past year.
In conclusion, I would be remiss if I did not mention Joe Shomo, who retired on
December 31, 1999 after 42 years with the Bank. Joe was truly focused on
treating customers the right way and we will continue with that attitude into
the future. We wish Joe the best of everything in his retirement.
Sincerely,
/s/ William P. Heath, Jr.
William P. Heath, Jr.
President & CEO
VFC
VIRGINIA FINANCIAL
CORPORATION
1
<PAGE>
Directors of Virginia Financial Corporation and
Planters Bank & Trust Company of Virginia
- --------------------------------------------------------------------------------
[PHOTO]
Lee S. Baker
Vice Chairman of the Board
Planters Bank & Trust Company
of Virginia
Owner/Manager
Staunton Tractor, Inc.
Director since 1984
[PHOTO]
Benham M. Black
Attorney at Law
Black, Noland, & Read, P.L.C
Director since 1969
[PHOTO]
Harry V. Boney, Jr.
Chairman of the Board
Virginia Financial Corporation
Director since 1975
[PHOTO]
William P. Heath, Jr.
President & Chief Executive Officer
Virginia Financial Corporation and
Planters Bank & Trust Company of Virginia
Director since 1997
[PHOTO]
Jan S. Hoover
Vice President and Treasurer
Arehart Associates, Ltd.
Director since 1995
VFC
Virginia Financial
Corporation
2
<PAGE>
Directors of Virginia Financial Corporation
- -------------------------------------------------------------------------------
[PHOTO]
Martin F. Lightsey
President and Chief Executive Officer
Specialty Blades, Inc.
Director since 1995
[PHOTO]
James S. Quarforth
Chairman, Chief Executive Officer, and Director
CFW Communications Company
Director
American Illuminet, Inc.
Director since 1995
Directors of Planters Bank & Trust Company of Virginia
- --------------------------------------------------------------------------------
[PHOTO]
H.C. Stuart Cochran
Chairman of the Board
Planters Bank & Trust Company
of Virginia
Vice President and Treasurer
Insurance Partners of Virginia
Director since 1994
[PHOTO]
G. Raymond Ergenbright
Commissioner of the Revenue
City of Staunton
Director since 1984
[PHOTO]
Elizabeth M. Schreiber
Vice President and Treasurer
Mocomp, Inc.
Director since 1997
VFC
VIRGINIA FINANCIAL
CORPORATION
3
<PAGE>
Planters Bank & Trust Company of Virginia, an independent community bank, will
be the premier financial institution in the communities and markets in which it
operates;
will provide its individual and business customers superior, competitively
priced financial products and unequaled customer service;
will produce superior financial performance and quality growth, consistent with
uncompromising dedication and commitment to sound business and banking
practices;
will maintain an environment which promotes and rewards employee initiative,
development and contribution;
and will contribute to the economic and social well-being of its communities
through community reinvestment and employee involvement.
Mission Statement of
Planters Bank & Trust Company of Virginia
Adopted by the Board of Directors on July 11, 1995
VFC
Virginia Financial
Corporation
4
<PAGE>
Contents
- --------------------------------------------------------------------------------
Selected Financial Data 1
Comments by Management 2
Report of Independent Auditors 14
Balance Sheets 15
Statements of Income 16
Statements of Cash Flows 18
Statements of Changes in Stockholders' Equity 20
Notes to Financial Statements 22
Virginia Financial Corporation Management 40
Planters Bank & Trust Company of Virginia Management 41
Locations 42
VFC
Virginia Financial
Corporation
5
<PAGE>
Virginia Financial Corporation
and Subsidiary
provide a full range of banking services with fifteen offices located throughout
the Augusta County, Rockingham County and Rockbridge County areas of Virginia.
================================================================================
Selected Financial Data
- --------------------------------------------------------------------------------
(000's omitted on dollar items, except for Per Share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Deposits $ 397,365 $ 370,432 $ 352,167 $ 330,375 $ 319,578
Loans, Net $ 291,513 $ 275,357 $ 265,829 $ 232,913 $ 209,541
Assets $ 473,381 $ 434,140 $ 403,999 $ 377,113 $ 356,068
Stockholders' Equity $ 46,120 $ 45,464 $ 41,335 $ 37,574 $ 34,154
Interest Income $ 31,373 $ 31,060 $ 29,068 $ 27,321 $ 26,073
Net Interest Income $ 17,403 $ 16,872 $ 15,776 $ 14,637 $ 13,730
Provision for Loan Losses $ 1,100 $ 1,327 $ 831 $ 450 $ 309
Other Expenses Net of Other Income $ 8,498 $ 6,475 $ 6,590 $ 6,131 $ 6,108
Income Taxes $ 2,251 $ 2,821 $ 2,620 $ 2,514 $ 2,278
Net Income $ 5,554 $ 6,248 $ 5,735 $ 5,542 $ 5,035
Return on Average Assets (%) 1.24 1.50 1.48 1.51 1.45
Return on Average Equity (%) 11.90 14.37 14.48 15.34 15.48
Earnings Per Share, basic and diluted* $ 1.39 $ 1.56 $ 1.43 $ 1.39 $ 1.26
Book Value Per Share** $ 11.53 $ 11.37 $ 10.33 $ 9.39 $ 8.54
Cash Dividends Per Share $ 0.65 $ 0.61 $ 0.56 $ 0.48 $ 0.42
Average Shares Outstanding* 3,999,101 4,000,000 4,000,000 4,000,000 4,000,000
</TABLE>
* Adjusted for 100% stock dividends, December 1997
** Weighted average outstanding
VFC
VIRGINIA FINANCIAL
CORPORATION
1
<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
Planters Bank & Trust Company of Virginia 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 the merger of Planters Bank & Trust Company,
Staunton, Virginia, organized in 1911, and Augusta Bank & Trust Company,
organized in 1972. The Bank has fifteen offices located throughout the Augusta
County, Rockingham County and Rockbridge County areas of Virginia. 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, 1999 has 221
full-time employees and 21 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. During 1998, the Bank discontinued marketing title insurance
through the agency and now markets title insurance through Bankers Title
Shenandoah, LLC.
Loans:
Real Estate 73.9%
Farmers 1.0%
Commercial 11.5%
Consumer 13.5%
Other 0.1%
Deposits:
Demand Deposits 16.1%
NOW 12.7%
Money Market 13.6%
Savings 10.6%
Time Deposits 47.0%
Stock
- --------------------------------------------------------------------------------
The Corporation 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), and so far as the
Corporation is aware, there are no active market makers in the Corporation's
stock. The stock is listed on the OTC Bulletin Board under the symbol VFNL.
Trades in the Corporation'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 Corporation's stock, and
quotations do not necessarily reflect the price that would be paid in an active
and liquid market.
On December 31, 1999, there were 3,997,198 shares of stock issued and
outstanding which were held by 1,173 stockholders. During 1999, the Corporation
repurchased 2,802 shares of common stock at a cost of $90,132. Cash dividends
per share for 1999 were $0.65 and for 1998 were $0.61. Management expects to pay
approximately $0.68 per share dividends in 2000.
Based upon sale prices furnished to the Corporation by the Staunton, Virginia
office of a Virginia headquartered brokerage firm, the high and low sales prices
of Corporation stock during 1997, 1998 and 1999 were as shown on the chart.
[GRAPH]
Dividend per Share ($)*
1995 0.42
1996 0.48
1997 0.56
1998 0.61
1999 0.65
Per Share Sales Prices*
High Low
1997 25.00 18.50
1998 29.50 25.00
1999 35.00 28.00
*Adjusted for 100% stock dividends, December 1997.
[GRAPH]
Stock Price per Share
Year-End ($)*
1995 18.50
1996 22.50
1997 25.00
1998 27.50
1999 35.00
[LOGO OF VIRGINIA FINANCIAL CORPORATION]
2
<PAGE>
Management's Discussion and Analysis of Operations
- --------------------------------------------------------------------------------
During 1999, the Corporation's net income was $5,553,532 compared to $6,248,230
for 1998 and $5,735,112 for 1997. The decrease in net income comparing 1999 to
1998 was $694,698 or 11.1%. The decrease in net income in 1999 compared to 1998
was principally due to an increase in expenses associated with the investment in
four new branches, two of which were started de novo and two of which were
purchased from Wachovia, and expenses incurred in ensuring that the
Corporation's computers and systems were Y2K compliant. The increase in net
income comparing 1998 to 1997 was $513,118 or 9.0% and comparing 1997 to 1996
was $193,311 or 3.5%.
Net interest income is the principal source of income for the Corporation. The
changes in volume, interest rates and the mix of interest-earning assets and
interest-bearing liabilities has a significant impact on net interest income.
[GRAPH]
Net Income ($ in Millions)
1997 5.7
1998 6.2
1999 5.6
[GRAPH]
Net Income per Share ($)*
1997 1.43
1998 1.56
1999 1.39
*Adjusted for 100% stock dividends, December 1997
Net interest income was $17.4 million for 1999 compared to $16.9 million for
1998 and $15.8 million for 1997. This represents increases of 3.2% in 1999, 7.0%
in 1998 and 7.8% in 1997.
Investment Securities
- --------------------------------------------------------------------------------
The average maturity of the investment portfolio was 5.0 years, 4.1 years and
2.5 years as of December 31, 1999, 1998 and 1997, respectively. Securities
maturing in one year or less were $9.4 million or 6.8% of the portfolio as of
December 31, 1999, $16.1 million or 12.4% of the portfolio as of December 31,
1998 and $36.2 million or 31.9% of the portfolio as of December 31, 1997.
[GRAPH]
Investment Securities
($ in Millions)
1997 113.4
1998 130.3
1999 137.2
The portfolio increased during 1999 by $6.9 million. Funds for this growth were
provided by deposits purchased with the two branches of Wachovia Bank, N.A. The
portfolio increased during 1998 by $16.9 million. Funds for this growth were
provided by increases in deposits, securities sold under agreements to
repurchase and federal funds purchased less the growth in loans. The portfolio
was reduced during 1997 by $5.4 million to fund loan growth.
U.S. Treasury Securities were 9.2% of the portfolio as of December 31, 1999,
8.6% as of December 31, 1998 and 11.6% as of December 31, 1997. U.S. Government
Agencies were 54.7% of the portfolio as of December 31, 1999, 62.1% as of
December 31, 1998 and 72.9% as of December 31, 1997. Obligations of state and
political subdivisions were 32.5% of the portfolio as of December 31, 1999,
22.9% as of December 31, 1998 and 15.5% as of December 31, 1997. Corporate and
equity securities made up 3.6% of the portfolio as of December 31, 1999.
As of December 31, 1999 investment securities classified as available for sale
were $74.3 million, as of December 31, 1998 were $78.3 million and as of
December 31, 1997 were $56.2 million. Securities classified as available for
sale are reported at fair value and as of December 31, 1999 had an unrealized
loss of $2,625,208, as of December 31, 1998 had an unrealized gain of $720,941
and as of December 31, 1997 had an unrealized gain of $235,495 which is shown
net of deferred taxes as a separate component of stockholders' equity.
[LOGO OF VIRGINIA FINANCIAL CORPORATION]
3
<PAGE>
Loans
- --------------------------------------------------------------------------------
The loan portfolio increased during 1999 by $16.2 million, increased during 1998
by $9.5 million and increased during 1997 by $32.9 million. The percentage of
net loans to total assets as of December 31, 1999 was 61.6%, as of December 31,
1998 was 63.4% and as of December 31, 1997 was 65.8%.
The demand for loans during 1999 remained relatively strong although during the
first nine months this demand was offset by the inducement to move from one,
three and five year adjustable rate mortgages to permanent rate mortgages.
During the fourth quarter, loan demand remained strong and with the upward
movement of interest rates, the adjustable rate mortgage portfolio stabilized
thereby creating the growth shown for the year.
During 2000 approximately $149.1 million of the loan portfolio will mature or
have the ability to be repriced compared to $140.5 million during 1999 and
$143.8 million in 1998.
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
and personal 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 1999 about $63
million was placed through the secondary mortgage market, during 1998 about $53
million was placed and during 1997 about $30 million was placed.
Total Net Loans
($ in Millions)
[GRAPH]
1997 265.8
1998 275.4
1999 291.5
Total non-earning loans which represent loans on which the accrual of interest
has been discontinued were $1,064,000 as of December 31, 1999, $1,973,000 as of
December 31, 1998 and $1,193,000 as of December 31, 1997. The increase in 1998
was due, in part, to an increase of the total loan portfolio and to the
deterioration of a select group of credits. Management believes the overall
quality and collectability of the loan portfolio remains good.
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
under-performing 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 1.2% of outstanding loans as of December 31,
1999, 1.2% as of December 31, 1998 and 1.4% as of December 31, 1997. Net
charge-offs were $842,356 during 1999, $1,868,177 during 1998 and $117,293
during 1997. The percentage of net charge-offs to year end loans was 0.3% for
1999, 0.7% for 1998 and 0.0% for 1997. The balance of the reserve for loan
losses was $3,469,648 as of December 31, 1999, $3,211,782 as of December 31,
1998 and $3,752,500 as of December 31, 1997. During 1999 and 1998 several
lending relationships significantly deteriorated and resulted in higher
charge-offs than historically experienced by the bank.
Provisions & Net Charge-Offs
($ in Thousands)
[GRAPH]
Provisions Net-Charge-Offs
1997 831 117
1998 1,327 1,868
1999 1,100 842
[LOGO OF VIRGINIA FINANCIAL CORPORATION]
4
<PAGE>
Deposits
- --------------------------------------------------------------------------------
[GRAPH]
Total Deposits ($ in Millions)
1997 352.2
1998 370.4
1999 397.4
During 1999 total deposits increased by $26.9 million or 7.3% when compared to
December 31, 1998. This increase was due to deposits purchased with two branches
of Wachovia Bank, N.A. on August 20, 1999. Non-interest checking increased by
$1.4 million or 2.3%. NOW accounts increased by $4.5 million or 9.8%. Money
market checking increased by $0.5 million or 0.8%, savings accounts increased by
$5.0 million or 13.5% and Certificates of Deposit increased by $15.5 million or
9.1%.
During 1998 total deposits increased by $18.3 million or 5.2% when compared to
December 31, 1997. All areas of deposits with the exception of money market
accounts experienced growth. Non-interest checking increased by $8.2 million or
15.0%. NOW accounts increased by $3.0 million or 7.1%, savings accounts
increased by $1.8 million or 4.9% and Certificates of Deposit increased by $9.9
million or 6.1%. Money market checking decreased by $4.6 million or 7.9%.
Interest rates paid on money market checking were reduced during 1998, which
contributed to this decrease.
During 1997 total deposits increased by $21.8 million or 6.6% compared to year
end 1996. Certificates of Deposit 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.
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 1999 total assets increased $39.2 million or 9.0%. Cash & due from banks
increased $10.6 million or 60.4%. This increase was planned by management in
order to adequately prepare for any depositor's concerns regarding Y2K. The loan
portfolio increased $16.2 million or 5.9% and the investment portfolio increased
$6.9 million or 5.3%. Bank premises, deposit intangibles and other assets
increased $5.6 million or 51.0% due to the addition of four new branches. The
growth in assets was funded by increases in deposits, securities sold under
agreements to repurchase and other borrowed short term funds.
During 1998 total assets increased $30.1 million or 7.5%. The two major
categories of assets are the loan and investment securities. The loan portfolio
increased by $9.5 million and investment securities increased by $16.9 million.
This growth in assets was funded by increases in deposits, securities sold under
agreement to repurchase, federal funds purchased and by retained earnings.
During 1997 total assets increased $26.9 million or 7.1%. 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)
1997 404.0
1998 434.1
1999 473.4
[LOGO OF VIRGINIA FINANCIAL CORPORATION]
5
<PAGE>
Stockholders' Equity
- --------------------------------------------------------------------------------
Stockholders' equity, during 1999, increased $655,845 or 1.4%. Reflected in this
increase is $2,208,458 unrealized net loss net of tax on securities in the
available for sale category. During 1998 stockholders' equity increased
$4,128,624 or 10.0%. Reflected in this increase is $320,394 unrealized net gain
net of tax on securities in the available for sale category. During 1997
stockholders' equity increased $3,761,651 or 10.0%. This increase reflects
$246,539 unrealized net gain net of tax on securities held in the available for
sale category. These increases represent retention of net income after the
payment of dividends. Cash dividends paid increased by 6.5% in 1999, 9.9% in
1998 and 15.6% in 1997. Book value per share as of December 31, 1999 was $11.54,
$11.37 as of December 31, 1998 and $10.33 as of December 31, 1997. Book value
per share has been adjusted for the 100% stock dividend in December 1997.
Additional dividend information is provided under "Selected Financial Data" and
on page 2 under "Stock." The Corporation's Tier I risk based capital ratio as of
December 31, 1999 was 15.2%, as of December 31, 1998 was 17.0% and as of
December 31, 1997 was 17.0%. The total risk based capital ratio as of December
31, 1999 was 16.3%, as of December 31, 1998 was 18.2% and as of December 31,
1997 was 18.2%. Additional risk based capital information is provided under
"Notes to Consolidated Financial Statements, Note 12, Regulatory Matters."
[GRAPH]
Dividends per Share ($)*
1997 0.56
1998 0.61
1999 0.65
* Adjusted for 100% stock dividends, December 1997.
[GRAPH]
Year-End Stockholders Equity
($ in Millions)
1997 41.30
1998 45.50
1999 46.12
[GRAPH]
Return on Average Equity (%)
1997 14.5
1998 14.4
1999 11.9
[LOGO OF VIRGINIA FINANCIAL CORPORATION]
6
<PAGE>
Results of Operations
- --------------------------------------------------------------------------------
Net income for 1999 was $5,553,532 for a decrease of $694,698 or 11.1% when
compared to 1998. Net income for 1998 increased by $513,118 or 9.0% when
compared to 1997 and net income for 1997 increased $193,311 or 3.5% when
compared to 1996.
Net Interest Income
($ in Millions)
1997 15.8
1998 16.9
1999 17.4
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 1999
was $17,403,241 for an increase of $531,155 or 3.2% when compared to 1998. Net
interest income for 1998 was $16,872,086 for an increase of $1,096,556 or 7.0%
when compared to 1997. Net interest income for 1997 was $15,775,530 for an
increase of $1,138,421 or 7.8% when compared to 1996. The net interest margins
were 4.4% for 1999, 1998 and 1997 respectively.
Non-Interest Income
($ in Millions)
1997 2.9
1998 4.0
1999 4.7
Non-Interest Income
Non-interest income increased during 1999 by $723,459 or 18.3% when compared to
1998. Trust department fiduciary income increased $210,552 or 17.7%. This
increase is due to increases in business volume and a change in the method of
employee benefit fee collection. Service charges on deposit accounts increased
$167,848 or 15.7%. This increase is due to an increase in volume and a
continuing uniform program of accessing and collecting fees. Other fee income
increased $169,847 or 10.7%. The major portion of this increase is attributable
to increases in secondary mortgage fees and investment services fees. Other
non-interest income increased $175,212 or 159.1%. This increase is mainly due to
proceeds from the condemnation of a very small portion of a bank owned property
resulting in a damage payment and the sale of one property owned by the bank
collectively amounting to $133,641.
Non-interest income increased during 1998 by $1,070,614 or 37.1% when compared
to 1997. The major components making up this increase are the following areas:
fiduciary income from the Trust department increased $153,921 or 14.9%. This
increase was due to increases in business volume and a modest increase in the
fee schedule for services. Service charges on deposit accounts increased
$393,413 or 58.3%. This increase is due to a uniform program of accessing and
collecting fees. Secondary mortgage fees increased $406,529 or 92.5%. This
increase is due to the expansion of the department and the volume of business.
The volume of business was affected by the level of interest rates creating
opportunities to refinance. Fees generated from the investment department
offering non-FDIC insured investment products increased $44,963 or 19.8%. This
increase is due to increased volume and the lower level of interest rates of
FDIC insured deposit accounts.
Non-interest income increased $342,817 or 13.5% during 1997 when compared to
1996. Trust department income increased by $48,457 or 4.9% 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 $257,000
in the following areas: fees on ATM foreign transactions, Visa debit cards,
printed check commissions and fees from the sale of non-FDIC insured investment
products.
VFC
Virginia Financial
Corporation
7
<PAGE>
Non-Interest Expense
($ in Millions)
1997 9.5
1998 10.4
1999 13.2
Non-Interest Expense
Non-interest expense increased during 1999 by $2,809,156 or 26.9% compared to
1998. Salaries and employee benefits increased by $1,389,858 or 23.0%. This
increase is due to increases in individual salaries, the staffing of four new
branches in Waynesboro, Lexington, Buena Vista and Natural Bridge Station,
Virginia, a full year of personnel costs associated with the Harrisonburg branch
opened in the fall of 1998 and additional employees in select areas. Premise and
fixed asset expense increased by $332,886 or 27.1% due to the addition of four
new branches and a full year of occupancy expense for the Harrisonburg branch.
Computer services increased by $148,768 or 19.7% due to additional volume,
branch expansion network connectivity, and expenses related to the new products;
Planters Internet Banking and Planters Press & Pay Bill Payment Service. Other
areas of non-interest expense which increased significantly during 1999 were
advertising by $87,848 or 45.4%, legal fees by $121,495 or 167.7%, printed check
charges by $54,016 or 137.0%, return check losses by $80,596 or 419.3% most of
which was attributed to one customer relationship, and supplies by $77,623 or
24.4%. The expansion by four branches and a full year of operating expenses for
the Harrisonburg branch were a major factor in these areas of non-interest
expense along with the development of new products and the overall increase in
the volume of business.
Non-interest expense increased during 1998 by $955,737 or 10.1% compared to
1997. Salaries and employee benefits increased by $523,829 or 9.5%. This
increase is due to increases in individual salaries, the staffing of a new
branch in Harrisonburg, Virginia, and additional employees in select areas.
Premise and fixed asset expense increased by $97,052 or 8.6% due to the new
Harrisonburg office, updating teller stations in all offices to an on-line
system and the refurbishing of the Grottoes, Virginia office. Computer services
increased by $154,222 or 25.6% due to updating the teller stations, and the
equipment and communications to support these updates. Other areas of
non-interest expense which increased during 1998 were advertising by $45,649 or
30.9%, consultant fees by $21,054 or 103.7%, legal fees by $16,055 or 34.2%,
state bank exam fees by $17,583 or 33.1% and telephone expenses by $29,019 or
24.4%. The expansion by branching, new products and increased volume of business
increased most areas of non-interest expense.
Non-interest expense increased during 1997 by $795,704 or 9.2% compared to 1996.
Salaries and employee benefits increased by $252,437 or 4.8% 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 20.4%. 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 by $44,487 due to additional
volume and FDIC Insurance expense increased $39,185. Other non-interest expenses
which increased in 1997 were advertising which increased by $49,757, ATM
operating expenses which increased by $22,955 and supplies in the ongoing day to
day operations which increased $75,293. This increase was also due to an
increased volume of business activity.
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.
The Asset/Liability/Risk Committee ("ALCO") is responsible for reviewing the
interest rate sensitivity position of 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
VFC
Virginia Financial
Corporation
8
<PAGE>
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 was -11.2% of total earning assets on December 31, 1999 and -18.2%
of total earning assets on December 31, 1998. 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 1.2% of stable-rate net income if rates immediately fall by two
percentage points over the next year. It projects a decrease of approximately
0.6% if rates rise immediately by two percentage points. Management believes
this reflects a asset-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 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 11.9%. Additionally, NPV is projected to increase by 6.8% 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 0.1%
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.
VFC
Virginia Financial
Corporation
9
<PAGE>
Summary information about Interest rate risk measures is presented below:
Interest Rate Risk Measures
1999 1998
---- ----
Static 1-Year Cumulative Gap -11.2% -18.2%
1-year Net Income Simulation projection
-200 bp Shock vs. Stable Rate -1.2% 5.2%
+200 bp Shock vs. Stable Rate -0.6% -6.5%
Static Net Present Value Change
-200 bp Shock vs. Stable Rate 6.8% 8.0%
+200 bp Shock vs. Stable Rate -11.9% -11.4%
Due to borrowers' preferences for adjustable-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 be increased.
Management expects interest rates to increase during 2000 and believes that the
current level of asset sensitivity is manageable.
Forecast
- --------------------------------------------------------------------------------
The economy in the trade area remains well diversified and continued growth is
expected. The strong competition for employees will continue during the year
2000.
General banking activity for Planters Bank will continue to expand in the
Rockbridge County and Harrisonburg areas. Due to the expansion and the increase
in business activity, facilities will be developed to handle the operational
aspects of this growth.
Virginia Financial Corporation and its subsidiary, Planters Bank & Trust Company
of Virginia, continues to strive to be positioned to expand product offerings to
meet customer needs and demands as the customer base availing themselves of
these products expands. The Corporation and/or the Bank will remain positioned
for possible geographic expansion.
VFC
Virginia Financial
Corporation
10
<PAGE>
Unaudited Interim Financial Information
The results of operations for each of the quarters during the two years ended
December 31, 1999 and 1998 are summarized below (in thousands, except per
share data).
1999
----
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
Interest income $ 7 622 $ 7 648 $ 7 895 $ 8 208
Net interest income 4 223 4 295 4 398 4 487
Income before
income taxes 2 430 2 316 1 790 1 269
Net income 1 689 1 618 1 309 938
Net income per share,
basic and diluted 0.42 0.41 0.33 0.23
1998
----
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
Interest income $ 7 650 $ 7 716 $ 7 878 $ 7 816
Net interest income 4 173 4 181 4 264 4 254
Income before
income taxes 2 398 2 452 2 112 2 108
Net income 1 632 1 676 1 466 1 474
Net income per share,
basic and diluted 0.41 0.42 0.37 0.36
VFC
Virginia Financial
Corporation
11
<PAGE>
1999 Planters Bank Branch Additions
- --------------------------------------------------------------------------------
[PHOTO]
Rosser Avenue Office
100 Lucy Lane, Waynesboro, Virginia
[PHOTO]
Buena Vista Office
2101 Forest Avenue, Buena Vista, Virginia
VFC
Virginia Financial
Corporation
12
<PAGE>
[PHOTO]
Natural Bridge Office
9 Lloyd Tolley Road, Natural Bridge Station, Virginia
[PHOTO]
Lexington Office
1197 Lee Highway, Lexington, Virginia
VFC
Virginia Financial
Corporation
13
<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, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1999, 1998, and 1997. 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, 1999 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1999, 1998, and 1997, in conformity with generally accepted accounting
principles.
Winchester, Virginia
January 7, 2000
14
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Assets
Cash and due from banks $ 28,158,395 $ 17,557,042
Securities (fair value: 1999, $ 135,434,258;
1998, $130,615,093) 137,202,912 130,291,723
Loans held for resale 1,016,980 4,449,106
Loans, net of allowance for loan losses, 1999, $3,469,648;
1998, $3,211,782 290,496,124 270,907,774
Bank premises and equipment, net 7,616,815 5,781,813
Accrued interest receivable 3,529,294 3,277,532
Intangibles 2,179,849 242,511
Other real estate owned 328,200 278,900
Other assets 2,852,187 1,353,860
--------------- --------------
Total assets $ 473,380,756 $ 434,140,261
=============== ==============
Liabilities and Stockholders' Equity
Liabilities
Demand deposits $ 64,051,672 $ 62,607,987
Negotiable orders of withdrawal 50,453,965 45,937,568
Money market deposit accounts 53,834,722 53,393,627
Regular savings 42,257,428 37,226,362
Time deposits of $100,000 or more 25,898,530 25,061,579
Time deposits 160,869,082 146,204,960
--------------- --------------
Total deposits $ 397,365,399 $ 370,432,083
Securities sold under agreements to repurchase 9,725,000 7,695,000
Federal funds purchased 3,900,000 9,475,000
Federal Home Loan Bank advances 15,000,000 --
Other liabilities 1,270,428 1,074,094
--------------- --------------
Total liabilities $ 427,260,827 $ 388,676,177
--------------- --------------
Commitments and Contingencies
Stockholders' Equity
Common stock; $5 par value; 10,000,000 shares
authorized; 1999: 3,997,198 shares issued and
outstanding; 1998: 4,000,000 shares issued and
outstanding $ 19,985,990 $ 20,000,000
Surplus 13,477,912 13,554,034
Retained earnings 14,388,664 11,434,230
Accumulated other comprehensive income (loss) (1,732,637) 475,820
--------------- --------------
Total stockholders' equity $ 46,119,929 $ 45,464,084
--------------- --------------
Total liabilities and stockholders' equity $ 473,380,756 $ 434,140,261
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income
Interest and fee income on loans:
Loans secured by real estate $16,437,501 $16,505,842 $15,113,716
Loans to finance agricultural production
and other loans to farmers 258,914 299,281 278,000
Commercial and industrial loans 3,475,617 3,509,454 3,341,429
Loans to individuals for household, family
and other personal expenditures 3,275,054 3,698,556 3,495,993
Obligations of states and political subdivisions
in the U.S. (nontaxable) 2,805 10,566 18,790
Other loans 22,826 -- --
Interest from depository institutions 239,295 -- --
Interest on investment securities:
U.S. Treasury and U.S. Government
Agency securities 2,478,365 1,468,021 2,469,621
Corporate securities 13,012 -- 8,015
Nontaxable interest income, state and municipal
securities 688,291 738,034 693,569
Taxable interest income, state and municipal
securities 195,514 145,847 92,548
Interest and dividends on securities available for sale:
U.S. Treasury and U.S. Government
Agency securities 2,862,940 4,045,087 3,419,348
Corporate securities 36,693 171,755 --
Equity 316,450 -- --
Nontaxable interest income, state and municipal securities 767,491 153,801 --
Taxable interest income, state and municipal securities 86,378 -- --
Interest income on federal funds sold and
securities purchased under agreements to resell 215,474 314,226 136,946
------------ ------------ ------------
Total interest income $31,372,620 $31,060,470 $29,067,975
------------ ------------ ------------
Interest Expense
Interest on time deposits of $100,000
or more $ 1,312,903 $ 1,302,555 $ 1,202,135
Interest on other deposits 11,990,806 12,466,384 11,754,937
Interest on federal funds purchased and securities
sold under agreements to repurchase 566,533 419,445 335,373
Other short-term borrowings 99,137 -- --
------------ ------------ ------------
Total interest expense $13,969,379 $14,188,384 $13,292,445
------------ ------------ ------------
Net interest income $17,403,241 $16,872,086 $15,775,530
Provision for loan losses 1,100,222 1,327,459 830,835
------------ ------------ ------------
Net interest income after provision for loan losses $16,303,019 $15,544,627 $14,944,695
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
(Continued)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Noninterest Income
Trust department income $ 1,397,857 $ 1,187,305 $ 1,033,384
Service charge on deposit accounts 1,235,594 1,067,746 674,333
Other fee income 1,759,932 1,590,085 1,053,347
Other noninterest income 285,330 110,118 123,576
------------ ------------ -------------
Total noninterest income $ 4,678,713 $ 3,955,254 $ 2,884,640
------------ ------------ -------------
Gains on securities $ 62,407 $ -- $ --
------------ ------------ -------------
Noninterest Expense
Salaries and employee benefits $ 7,443,650 $ 6,053,792 $ 5,529,963
Expense of premises and fixed assets 1,559,998 1,227,112 1,130,060
Computer services 904,512 755,744 601,522
Other noninterest expense 3,331,263 2,393,619 2,212,985
------------ ------------ -------------
Total noninterest expense $13,239,423 $10,430,267 $ 9,474,530
------------ ------------ -------------
Income before income taxes $ 7,804,716 $ 9,069,614 $ 8,354,805
Provision for income taxes 2,251,184 2,821,384 2,619,693
------------ ------------ -------------
Net income $ 5,553,532 $ 6,248,230 $ 5,735,112
============ ============ =============
Earnings per share, basic and diluted * $ 1.39 $ 1.56 $ 1.43
Average shares outstanding * 3,999,101 4,000,000 4,000,000
</TABLE>
* Adjusted for 100% stock dividend, December 1997.
See Notes to Consolidated Financial Statements.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Interest received $ 30,959,681 $ 30,896,790 $ 28,816,153
Fees and other noninterest income 4,557,944 3,922,557 2,861,488
Interest paid (13,816,696) (14,079,768) (13,395,456)
Origination of loans available for sale (58,904,288) (52,984,711) (28,472,859)
Proceeds from sale of loans available for sale 62,336,414 50,019,403 27,579,113
Cash paid to suppliers and employees (12,269,987) (9,750,330) (8,695,381)
Income taxes paid (2,536,375) (2,725,546) (2,817,404)
------------ ------------ ------------
Net cash provided by operating activities $ 10,326,693 $ 5,298,395 $ 5,875,654
------------ ------------ ------------
Cash Flows from Investing Activities
Proceeds from maturities and calls of investment
securities $ 18,685,506 $ 33,435,000 $ 15,255,000
Proceeds from maturities of securities available
for sale 11,147,973 31,250,374 13,760,000
Proceeds from sales and calls of securities available
for sale 40,621,716 -- --
Purchases of investment securities (30,699,708) (28,192,791) (4,631,609)
Purchases of securities available for sale (49,792,092) (52,791,023) (18,616,475)
Net (increase) in loans (21,277,372) (7,890,452) (33,103,354)
Proceeds from sale of equipment 228,686 1,000 7,800
Capital expenditures (2,707,173) (1,567,746) (1,045,119)
Other real estate owned improvements -- (20,900) --
Purchase of other assets (1,612,640) (157,008) (76,350)
------------ ------------ ------------
Net cash (used in) investing activities $(35,405,104) $(25,933,546) $(28,450,107)
------------ ------------ ------------
Cash Flows from Financing Activities
Net increase in certificates of deposit $ 15,501,073 $ 9,875,235 $ 13,676,434
Net increase in demand and savings deposits 11,432,243 8,390,073 8,115,376
Net increase (decrease) in federal funds purchased (5,575,000) 4,925,000 (450,000)
Net increase in securities sold under repurchase
agreements 2,030,000 2,735,000 1,850,000
Proceeds from Federal Home Loan Bank advances 15,000,000 -- --
Payments to repurchase common stock (90,132) -- --
Cash dividends paid (2,618,420) (2,417,525) (2,220,000)
------------ ------------ ------------
Net cash provided by financing activities $ 35,679,764 $ 23,507,783 $ 20,971,810
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents $ 10,601,353 $ 2,872,632 $ (1,602,643)
Cash and cash equivalents at beginning of year 17,557,042 14,684,410 16,287,053
------------ ------------ ------------
Cash and cash equivalents at end of year $ 28,158,395 $ 17,557,042 $ 14,684,410
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Reconciliation of Net Income to Net Cash 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Provided by Operating Activities
Net income $ 5,553,532 $ 6,248,230 $ 5,735,112
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,002,374 705,076 636,925
Provision for loan losses 1,100,222 1,327,459 830,835
Deferred tax expense (benefit) 52,065 232,125 (249,245)
Origination of loans available for sale (58,904,288) (52,984,711) (28,472,859)
Proceeds from sale of loans available for sale 62,336,414 50,019,403 27,579,113
(Gain) on sale of securities (62,407) -- --
(Gain) loss on sale of equipment (146,413) 945 (3,694)
Changes in assets and liabilities:
Increase (decrease) in taxes payable -- (60,696) 51,534
(Increase) in interest receivable (247,829) (45,007) (248,508)
Increase (decrease) in interest payable 152,683 108,617 (103,011)
(Increase) decrease in prepaid expenses (443,819) (119,955) 24,396
Increase (decrease) in accrued expenses 73,625 (264) (15,772)
Premium amortization (discount accretion)
on securities, net (173,326) (98,794) 111,749
(Increase) decrease in other assets 33,860 (34,033) (921)
------------ ------------ ------------
Net cash provided by operating activities $ 10,326,693 $ 5,298,395 $ 5,875,654
------------ ------------ ------------
Supplemental Schedule of Noncash
Investing Activities
Other real estate acquired in settlement of loans $ 588,800 $ -- $ 258,000
------------ ------------ ------------
Unrealized gain (loss) on securities available for sale $ (3,346,147) $ 485,445 $ 373,544
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Common Capital Retained hensive
Stock Surplus Earnings Income (Loss)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 10,000,000 $ 13,554,034 $ 14,110,888 $ (91,113)
Comprehensive income:
Net income - - - - 5,735,112 - -
Other comprehensive income net of tax:
Unrealized holding gains arising during the
period (net of tax, $127,005) - - - - - - 246,539
Total comprehensive income - - - - - - - -
Cash dividends ($0.56 per share) - - - - (2,220,000) - -
Stock split effected in the form of a 100%
stock dividend, at par 10,000,000 - - (10,000,000) - -
------------ ------------ ------------ ------------
Balance, December 31, 1997 $ 20,000,000 $ 13,554,034 $ 7,626,000 $ 155,426
Comprehensive income:
Net income - - - - 6,248,230 - -
Other comprehensive income, net of tax:
Unrealized holding gains arising during the
period (net of tax, $165,051) - - - - - - 320,394
Total comprehensive income - - - - - - - -
Cash dividends ($0.61 per share) - - - - (2,440,000) - -
------------ ------------ ------------ ------------
Balance, December 31, 1998 $ 20,000,000 $ 13,554,034 $ 11,434,230 $ 475,820
Comprehensive income:
Net income - - - - 5,553,532 - -
Other comprehensive income, net of tax:
Unrealized holding (losses) arising
during the period (net of tax, $1,137,690) - - - - - - (2,208,457)
Total comprehensive income - - - - - - - -
Cash dividends ($0.65 per share) - - - - (2,599,098) - -
Stock repurchase of 2,802 shares (14,010) (76,122) - - - -
------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 19,985,990 $ 13,477,912 $ 14,388,664 $ (1,732,637)
============ ============ ============ ============
<CAPTION>
Compre-
hensive
Income Total
------------ ------------
<S> <C> <C>
Balance, December 31, 1996 $ 37,573,809
Comprehensive income:
Net income 5,735,112 5,735,112
Other comprehensive income net of tax:
Unrealized holding gains arising during the
period (net of tax, $127,005) 246,539 246,539
Total comprehensive income $ 5,981,651 - -
============
Cash dividends ($0.56 per share) (2,220,000)
Stock split effected in the form of a 100%
stock dividend, at par - -
------------
Balance, December 31, 1997 $ 41,335,460
Comprehensive income:
Net income $ 6,248,230 6,248,230
Other comprehensive income, net of tax:
Unrealized holding gains arising during the
period (net of tax, $165,051) 320,394 320,394
------------
Total comprehensive income $ 6,568,624 - -
============
Cash dividends ($0.61 per share) (2,440,000)
------------
Balance, December 31, 1998 $ 45,464,084
Comprehensive income:
Net income $ 5,553,532 5,553,532
Other comprehensive income, net of tax:
Unrealized holding (losses) arising
during the period (net of tax, $1,137,690) (2,208,457) (2,208,457)
------------
Total comprehensive income $ 3,345,075 - -
============
Cash dividends ($0.65 per share) (2,599,098)
Stock repurchase of 2,802 shares (90,132)
------------
Balance, December 31, 1999 $ 46,119,929
============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
Amortized costs and fair values of securities available for sale as of December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury $ 8,257,013 $ -- $ (129,511) $ 8,127,502
U. S. Government Agencies 34,580,543 22,611 (859,754) 33,743,400
State and Municipals 28,873,814 -- (1,478,610) 27,395,204
Corporate 750,000 -- (20,228) 729,772
Other 4,438,726 39,788 (199,504) 4,279,010
------------ ------------ ------------ ------------
Total $ 76,900,096 $ 62,399 $ (2,687,607) $ 74,274,888
============ ============ ============ ============
1998
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury $ 11,139,105 $ 115,305 $ -- $ 11,254,410
U. S. Government Agencies 48,162,896 496,524 (13,425) 48,645,995
State and Municipals 9,909,756 139,345 (18,189) 10,030,912
Corporate 973,081 1,381 -- 974,462
Other 7,398,240 -- -- 7,398,240
------------ ------------ ------------ ------------
Total $ 77,583,078 $ 752,555 $ (31,614) $ 78,304,019
============ ============ ============ ============
</TABLE>
The amortized cost and fair value of the securities available for sale as of
December 31, 1999 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.
1999
---------------------------
Amortized Fair
Cost Value
----------- -----------
Due in one year or less $ 2,319,842 $ 2,319,842
Due after one year through five years 35,562,210 34,717,625
Due after five years through ten years 14,791,990 14,278,543
Due after ten years 19,787,328 18,679,869
Other 4,438,726 4,279,009
----------- -----------
Total $76,900,096 $74,274,888
=========== ===========
Proceeds from the sales and calls of securities available for sale during 1999
were $40,621,716. Gross gains of $79,300 and gross losses of $2,582 were
realized on sales and calls of securities available for sale in 1999. There were
no sales of securities available for sale during 1998 or 1997.
<PAGE>
VIRGINIA FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting 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.
Statement of Cash Flow
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
Debt securities that management has the positive intent and ability to
hold to maturity are classified as "held to maturity" and recorded at
amortized cost. Securities not classified as held to maturity,
including equity securities with readily determinable fair values, are
classified as "available for sale" and recorded at fair value, with
unrealized gains and losses excluded from earnings and reported in
other comprehensive income.
Purchase premiums and discounts are recognized in interest income
using the interest method over the terms of the securities. Declines
in the fair value of available for sale securities below their cost
that are deemed to be other than temporary are reflected in earnings
as realized losses. Gains and losses on the sale of securities are
recorded on the trade date and are determined using the specific
identification method.
Loans
The Corporation grants mortgage, commercial and consumer loans to
customers. A substantial portion of the loan portfolio is represented
by mortgage loans throughout the Augusta County, Rockingham County and
Rockbridge County areas of Virginia. The ability of the Corporation's
debtors to honor their contracts is dependent upon the real estate and
general economic conditions in this area.
22
<PAGE>
Notes to Consolidated Financial Statements
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported
at their outstanding unpaid principal balances less the allowance for
loan losses and any deferred fees or costs on originated loans.
Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the related loan yield
using the interest method.
The accrual of interest on mortgage and commercial loans is
discontinued at the time the loan is 90 days delinquent unless the
credit is well-secured and in process of collection. Loans are placed
on nonaccrual at an earlier date or charged off if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans
are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are
reasonably assured.
Loans Held For Sale
Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate.
Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated
to have occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
The impairment of loans that have been separately identified for
evaluation is 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. Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, the Corporation
does not separately identify individual consumer and residential loans
for impairment disclosures.
23
<PAGE>
Notes to Consolidated Financial Statements
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Repairs and maintenance are expensed as
incurred. Gains and losses on routine dispositions are reflected in
current operations.
Depreciation and amortization 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
Computer software 3 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.
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 $66,259 in 1999,
$23,650 in 1998, and $23,652 in 1997.
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
The earnings per common share have been computed by dividing net
income by the weighted average number of common shares outstanding.
Weighted average shares were 3,999,101 for the year ended 1999, and
4,000,000 for each of the years ended 1998 and 1997, respectively. The
Corporation had no potential common stock as of December 31, 1999,
1998 and 1997.
24
<PAGE>
Notes to Consolidated Financial Statements
Pension Plan
The Corporation has a trusteed, noncontributory, defined contribution
pension plan covering substantially all full-time employees.
Use of Estimates
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate and deferred tax assets.
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 the lower of
the outstanding loan balance at the time of foreclosure or the
estimated fair value. 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.
Comprehensive Income
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income".
Statement 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Corporation's net income or
stockholders' equity. The Statement requires other comprehensive
income to include unrealized gains and losses on securities available
for sale, which prior to adoption were reported separately in
stockholders' equity. The financial statements for prior periods have
been reclassified to conform to the requirements of Statement No. 130.
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 $7,000,000 and $5,968,000 for the reserve periods
including December 31, 1999 and 1998, respectively.
25
<PAGE>
Notes to Consolidated Financial Statements
Note 3. Securities
The amortized cost and fair value of the securities being held to
maturity as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury $ 4,488,901 $ -- $ (57,656) $ 4,431,245
U.S. Government Agencies 41,284,946 5,812 (1,457,443) 39,833,315
State and Municipal 17,154,177 19,298 (278,665) 16,894,810
----------- ----------- ----------- -----------
Total $62,928,024 $ 25,110 $(1,793,764) $61,159,370
=========== =========== =========== ===========
<CAPTION>
1998
------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Agencies $32,190,103 $ 65,519 $ (124,849) $32,130,773
State and Municipal 19,797,601 397,539 (14,839) 20,180,301
---------- ----------- ----------- ----------
Total $51,987,704 $ 463,058 $ (139,688) $52,311,074
=========== =========== =========== ===========
</TABLE>
The amortized cost and fair value of the securities being held to
maturity as of December 31, 1999 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.
1999
---------------------------
Amortized Fair
Cost Value
----------- -----------
Due in one year or less $ 7,031,819 $ 7,027,341
Due after one year through five years 49,989,078 48,520,832
Due after five years through ten years 5,275,070 4,579,531
Due after ten years 632,057 1,031,666
----------- -----------
$62,928,024 $61,159,370
=========== ===========
<PAGE>
Notes to Consolidated Financial Statements
Amortized costs and fair values of securities available for sale as of December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury $ 8,257,013 $ -- $ (129,511) $ 8,127,502
U. S. Government Agencies 34,580,543 22,611 (859,754) 33,743,400
State and Municipals 28,873,814 -- (1,478,610) 27,395,204
Corporate 750,000 -- (20,228) 729,772
Other 4,438,726 39,788 (199,504) 4,279,010
------------ ------------ ------------ ------------
Total $ 76,900,096 $ 62,399 $ (2,687,607) $ 74,274,888
============ ============ ============ ============
1998
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
U. S. Treasury $ 11,139,105 $ 115,305 $ -- $ 11,254,410
U. S. Government Agencies 48,162,896 496,524 (13,425) 48,645,995
State and Municipals 9,909,756 139,345 (18,189) 10,030,912
Corporate 973,081 1,381 -- 974,462
Other 7,398,240 -- -- 7,398,240
------------ ------------ ------------ ------------
Total $ 77,583,078 $ 752,555 $ (31,614) $ 78,304,019
============ ============ ============ ============
</TABLE>
The amortized cost and fair value of the securities available for sale as of
December 31, 1999 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.
1999
---------------------------
Amortized Fair
Cost Value
----------- -----------
Due in one year or less $ 2,319,842 $ 2,319,842
Due after one year through five years 35,562,210 34,717,625
Due after five years through ten years 14,791,990 14,278,543
Due after ten years 19,787,328 18,679,869
Other 4,438,726 4,279,009
----------- -----------
Total $76,900,096 $74,274,888
=========== ===========
Proceeds from the sales and calls of securities available for sale during 1999
were $40,621,716. Gross gains of $79,300 and gross losses of $2,582 were
realized on sales and calls of securities available for sale in 1999. There were
no sales of securities available for sale during 1998 or 1997.
<PAGE>
Notes to Consolidated Financial Statements
Held to maturity securities with a book value of $4,569,311 were called
in 1999. Gross losses of $14,311 were realized on these calls.
The book value of securities pledged to secure deposits and for other
purposes amounted to $25,907,647 and $26,509,694 at December 31, 1999 and
1998, respectively.
Note 4. Loans
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(In Thousands)
<S> <C> <C>
Real estate loans:
Construction $ 8,674 $ 20,065
Secured by farmland 3,915 1,284
Secured by 1-4 family residential 122,411 109,144
Other real estate loans 82,281 59,752
Loans to farmers (except those
secured by real estate) 2,883 2,598
Commercial and industrial loans
(except those secured by real estate) 33,874 37,693
Loans to individuals for household, family
and other consumer expenditures 39,974 43,560
All other loans (including overdrafts) 277 368
-------- --------
Total loans $294,289 $274,464
Less: Unearned income 323 344
Allowance for loan losses 3,470 3,212
-------- --------
Net loans $290,496 $270,908
======== ========
</TABLE>
Information about impaired loans as of and for the years ended December
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Impaired loans for which no allowance
has been provided $178,872 $944,461
======== ========
Average balance in impaired loans $301,128 $455,291
======== ========
Interest income recognized $ 9,007 $ 14,199
======== ========
</TABLE>
Nonaccrual loans excluded from impaired loan disclosure under FASB 114
amounted to $885,128, $1,028,481, and $813,395 at December 31, 1999, 1998
and 1997, respectively. If interest on these loans had been accrued, such
income would have approximated $86,130, $142,108, and $72,937 for 1999,
1998, and 1997, respectively.
<PAGE>
Notes to Consolidated Financial Statements
Note 5. Allowance for Loan Losses
Transactions in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning $ 3,211,782 $ 3,752,500 $ 3,038,958
Recoveries 81,368 75,428 40,514
Provisions charged to operations 1,100,222 1,327,459 830,835
----------- ----------- -----------
Total $ 4,393,372 $ 5,155,387 $ 3,910,307
Loans charged off 923,724 1,943,605 157,807
----------- ----------- -----------
Balance, ending $ 3,469,648 $ 3,211,782 $ 3,752,500
=========== =========== ===========
</TABLE>
Note 6. Bank Premises and Equipment
The major classes of bank premises and equipment and the total
accumulated depreciation are as follows:
1999 1998
------------- ------------
Land $ 1,537,938 $ 1,532,938
Buildings and leasehold improvements 5,981,124 4,622,298
Furniture and equipment 6,266,837 5,066,795
------------ -----------
$ 13,785,899 $11,222,031
Less accumulated depreciation 6,169,084 5,440,218
------------ -----------
$ 7,616,815 $ 5,781,813
============ ===========
Depreciation charged to operations was $780,731 in 1999, $577,768 in
1998, and $515,835 in 1997. Amortization expense on computer software was
$134,539 in 1999, $103,658 in 1998, and $90,490 in 1997.
<PAGE>
Notes to Consolidated Financial Statements
Note 7. Income Taxes
Net deferred tax assets consist of the following components as of
December 31, 1999 and 1998:
1999 1998
------------- ------------
Deferred tax assets:
Allowance for loan losses $ 946,439 $ 858,765
Deferred loan fees -- 74,690
Securities available for sale 892,571 --
Other 64,586 56,409
---------- ----------
$1,903,596 $ 989,864
---------- ----------
Deferred tax liabilities:
Bank premises $ 244,110 $ 176,104
Securities available for sale -- 245,119
Other 8,581 3,360
---------- ----------
$ 252,691 $ 424,583
---------- ----------
$1,650,905 $ 565,281
========== ==========
The provision for income taxes charged to operations for the years ended
December 31, 1999, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Current tax expense $ 2,199,119 $ 2,589,259 $ 2,868,938
Deferred tax expense (benefit) 52,065 232,125 (249,245)
----------- ----------- -------------
$ 2,251,184 $ 2,821,384 $ 2,619,693
=========== =========== ===========
</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>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,653,603 $ 3,083,669 $ 2,840,634
Increase (decrease) in income taxes
resulting from:
Tax-exempt interest income (466,310) (277,802) (217,874)
Other 63,891 15,517 (3,067)
----------- ----------- -----------
$ 2,251,184 $ 2,821,384 $ 2,619,693
=========== =========== ===========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 8. Deposits
The aggregate amount of jumbo time deposits, each with a minimum
denomination of $100,000 was $25,898,530 and $25,061,579 in 1999 and
1998, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
2000 $ 112,632,183
2001 51,073,083
2002 8,229,174
2003 13,228,119
2004 and thereafter 1,605,053
-------------
$ 186,767,612
=============
Note 9. Related Party Transactions
The Corporation has 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:
1999 1998
------------- -------------
Beginning balance $ 962,706 $ 887,656
New loans 1,102,654 595,728
Repayments (1,049,469) (520,678)
------------- -------------
Ending balance $ 1,015,891 $ 962,706
============= =============
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.
<PAGE>
Notes to Consolidated Financial Statements
A summary of the contract amount of the Corporation's exposure to
off-balance-sheet risk as of December 31, 1999 and 1998 is as follows:
1999 1998
--------- ---------
(In Thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 63,229 $ 48,808
Standby letters of credit 3,119 3,000
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 2003. 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, 1999, varies from 0% to 100%; the percentage of
commitments collateralized is 32%.
The Corporation maintains cash accounts in other commercial banks. The
amount on deposit at December 31, 1999 exceeded the insurance limits
of the Federal Deposit Insurance Corporation by $11,346,551.
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 and 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,
1999, that the Corporation meets all capital adequacy requirements to
which it is subject.
32
<PAGE>
Notes to Consolidated Financial Statements
As of December 31, 1999, the most recent notification from the State
Corporation Commission 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.
The Corporation's actual capital amounts and ratios are presented in the
table.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
-------------------- ---------------------------------------------------------------------
Amount Ratio Amount Ratio
--------- -------- ---------------------------- --------------------------
(Amount in Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk
Weighted Assets):
Consolidated $49,037 16.3% equal to or greater than $ 24,068 equal to or greater than 8.0%
Bank $36,724 12.4% equal to or greater than $ 23,784 equal to or greater than 8.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $45,567 15.2% equal to or greater than $ 12,034 equal to or greater than 4.0%
Bank $33,255 11.2% equal to or greater than $ 11,892 equal to or greater than 4.0%
Tier 1 Capital (to
Average Assets):
Consolidated $45,567 9.7% equal to or greater than $ 18,790 equal to or greater than 4.0%
Bank $33,255 7.2% equal to or greater than $ 18,445 equal to or greater than 4.0%
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets):
Consolidated $47,958 18.2% equal to or greater than $ 20,981 equal to or greater than 8.0%
Bank $36,176 14.0% equal to or greater than $ 20,695 equal to or greater than 8.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $44,746 17.0% equal to or greater than $ 10,491 equal to or greater than 4.0%
Bank $32,965 12.7% equal to or greater than $ 10,347 equal to or greater than 4.0%
Tier 1 Capital (to
Average Assets):
Consolidated $44,746 10.8% equal to or greater than $ 16,610 equal to or greater than 4.0%
Bank $32,965 7.9% equal to or greater than $ 16,615 equal to or greater than 4.0%
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
--------------------------------------------------------------------
Amount Ratio
---------------------------------- -------------------------------
<S> <C> <C>
As of December 31, 1999:
Total Capital (to Risk
Weighted Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 29,730 equal to or greater than 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 17,838 equal to or greater than 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 23,055 equal to or greater than 5.0%
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 25,868 equal to or greater tha 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 15,521 equal to or greater than 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated equal to or greater than N/A
Bank equal to or greater than $ 20,769 equal to or greater than 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, 1999, the
aggregate amount of unrestricted funds which could be transferred from
the Corporation's subsidiary to the Parent Corporation, without prior
regulatory approval, totaled $11,880,606 or 25.8% of the consolidated net
assets.
<PAGE>
Notes to Consolidated Financial Statements
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 $403,980, $346,377, and $329,661 in 1999, 1998, and 1997,
respectively.
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-year term ending April 30, 1991,
with options for three five-year extensions. The second option for a
five-year extension was exercised. The current monthly lease payment
is $1,736 with annual increases of 2 1/2%.
The Bank leases a banking facility in Harrisonburg, Virginia. The
lease provides for an original ten-year term ending July 31, 2008,
with options for one additional ten-year term or one five-year term
with one additional five-year term. The current monthly lease payment
is $1,500, with a 5% increase every two years.
Rent expense was $68,168, $50,536, and $31,894 for the years ended
December 31, 1999, 1998, and 1997, respectively.
The future minimum annual lease payments are as follows:
2000 $ 39,557
2001 40,612
2002 41,548
2003 42,656
2004 and thereafter 152,409
-----------
$ 316,782
===========
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, fair values are based on quoted market prices or
dealer quotes.
34
<PAGE>
Notes to Consolidated Financial Statements
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.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
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, 1999 and 1998, the carrying amounts and fair values of
loan commitments and stand-by letters of credit were immaterial.
35
<PAGE>
Notes to Consolidated Financial Statements
The estimated fair values of the Corporation's financial instruments are
as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 28,158 $ 28,158 $ 17,557 $ 17,557
Securities 137,203 135,434 130,292 130,615
Loans 291,513 293,103 275,357 285,587
---------- ---------- ---------- ----------
Total financial assets $ 456,874 $ 456,695 $ 423,206 $ 433,759
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits $ 397,365 $ 395,882 $ 370,432 $ 372,240
Securities sold under
agreements to repurchase 9,725 9,725 7,695 7,695
Federal funds purchased 3,900 3,900 9,475 9,475
Federal Home Loan Bank
advances 15,000 15,000 -- --
---------- ---------- ---------- ----------
Total financial liabilities $ 425,990 $ 424,507 $ 387,602 $ 389,410
========== ========== ========== ==========
</TABLE>
Note 16. Short-Term Borrowings
The Corporation had unused lines of credit totaling $12,100,000 with
nonaffiliated banks at December 31, 1999.
Securities sold under agreements to repurchase, which are classified as
secured borrowings, generally mature within one to four days from the
transaction date. Securities sold under agreements to repurchase are
reflected at the amount of cash received in connection with the
transaction. The Corporation may be required to provide additional
collateral based on the fair value of the underlying securities.
The Corporation has available a $73,800,000 line of credit with the
Federal Home Loan Bank of Atlanta. Borrowings are secured by the
Corporation's 1-4 family residential loan portfolio. There was
$15,000,000 in outstanding borrowings on this line of credit at December
31, 1999. There were no outstanding borrowings as of December 31, 1998.
<PAGE>
Notes to Consolidated Financial Statements
Note 17. Condensed Financial Information - Parent Corporation Only
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash on deposit with subsidiary bank $ 24,727 $ 25,750
Investments 11,810,902 10,015,312
Loans -- 1,756,753
Accrued interest 131,988 61,342
Organizational expenses, net -- 20,845
Investment in subsidiaries 34,009,141 33,646,341
Other assets 162,667 --
------------ ------------
Total assets $ 46,139,425 $ 45,526,343
============ ============
Liabilities
Due to subsidiary $ 16,124 $ 20,917
Dividends payable 3,153 22,475
Income taxes payable 219 --
Deferred income taxes -- 18,867
------------ ------------
Total liabilities $ 19,496 $ 62,259
============ ============
Stockholders' Equity
Common stock $ 19,985,990 $ 20,000,000
Surplus 13,477,912 13,554,034
Retained earnings 14,388,664 11,434,230
Accumulated other comprehensive income (loss) (1,732,637) 475,820
------------ ------------
Total stockholders' equity $ 46,119,929 $ 45,464,084
------------ ------------
Total liabilities and stockholders' equity $ 46,139,425 $ 45,526,343
============ ============
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Statements of Income
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 3,000,000 $ 5,840,000 $ 10,330,000
Interest on investments 535,097 404,194 34,150
Interest on loans 10,052 39,775 --
Gain on sale of securities 10,000 -- --
------------ ------------ ------------
Total income $ 3,555,149 $ 6,283,969 $ 10,364,150
------------ ------------ ------------
Expenses
Amortization $ 20,845 $ 6,948 $ 6,948
Directors' fees 30,000 9,600 6,160
Legal fees 8,031 9,458 12,126
Stockholder accounting 12,000 13,270 12,000
Other 34,842 24,350 6,214
------------ ------------ ------------
Total expenses $ 105,718 $ 63,626 $ 43,448
------------ ------------ ------------
Income before income tax expense (benefit) and equity in
undistributed net income of subsidiaries (distributions in
excess of earnings of subsidiaries) $ 3,449,431 $ 6,220,343 $ 10,320,702
Income tax expense (benefit) 123,394 141,617 (1,578)
------------ ------------ ------------
Income before equity in undistributed net income of subsidiaries
(distributions in excess of earnings of subsidiaries) $ 3,326,037 $ 6,078,726 $ 10,322,280
Equity in undistributed net income of subsidiaries 2,227,495 169,504 --
Distributions in excess of earnings of subsidiaries -- -- (4,587,168)
------------ ------------ ------------
Net income $ 5,553,532 $ 6,248,230 $ 5,735,112
============ ============ ============
</TABLE>
38
<PAGE>
Notes to Consolidated Financial Statements
VIRGINIA FINANCIAL CORPORATION
(Parent Corporation Only)
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 5,553,532 $ 6,248,230 $ 5,735,112
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization (accretion), net (216,620) (125,050) --
Amortization expenses 20,845 6,948 6,948
Gain on sale of securities (10,000) -- --
Undistributed earnings of subsidiaries (2,227,495) (169,504) (3,371,823)
(Increase) decrease in accrued interest (70,646) 50,797 (7,650)
Increase in organization costs -- -- (34,741)
(Increase) in prepaid taxes (4,444) -- --
(Decrease) in due to subsidiary (4,793) (81,994) (1,578)
Increase in income taxes payable 219 -- --
------------ ------------ ------------
Net cash provided by operating activities $ 3,040,598 $ 5,929,427 $ 2,326,268
------------ ------------ ------------
Cash Flows from Investing Activities
Proceeds from maturities and calls of
investment securities $ -- $ 8,000,000 $ --
Proceeds from maturities and calls of securities
available for sale 1,147,973 5,475,374 --
Proceeds from sales of securities available for sale 13,960,835 -- --
Purchases of securities available for sale (17,198,630) (15,311,041) --
Net (increase) decrease in loans receivable 1,756,753 (1,756,753) --
------------ ------------ ------------
Net cash (used in) investing activities $ (333,069) $ (3,592,420) $ --
------------ ------------ ------------
Cash Flows from Financing Activities
Cash dividends paid $ (2,618,420) $ (2,417,525) $ (2,220,000)
Stock repurchase (90,132) -- --
------------ ------------ ------------
Net cash (used in) financing activities $ (2,708,552) $ (2,417,525) $ (2,220,000)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents $ (1,023) $ (80,518) $ 106,268
Cash and Cash Equivalents
Beginning 25,750 106,268 --
------------ ------------ ------------
Ending $ 24,727 $ 25,750 $ 106,268
------------ ------------ ------------
Supplemental Schedule of Noncash Investing Activities,
dividend of securities from the subsidiary $ -- $ -- $ 7,999,104
------------ ------------ ------------
</TABLE>
39
<PAGE>
Virginia Financial
Corporation
Board of Directors
- --------------------------------------------------------------------------------
Lee S. Baker Owner/Manager
Staunton Tractor, Inc.
Benham M. Black Attorney at Law
Black, Noland, & Read, P.L.C.
Harry V. Boney, Jr. Retired President & Chief Executive Officer
Planters Bank & Trust Company of Virginia
William P. Heath, Jr. President & Chief Executive Officer
Planters Bank & Trust Company of Virginia
Jan S. Hoover Vice President and Treasurer
Arehart Associates, Ltd.
Martin F. Lightsey President and Chief Executive Officer
Specialty Blades, Inc.
James S. Quarforth Chairman, Chief Executive Officer, and Director
CFW Communications Company
Officers
- --------------------------------------------------------------------------------
Harry V. Boney, Jr. Chairman of the Board
William P. Heath, Jr. President and Chief Executive Officer
Fred D. Bowers Secretary / Treasurer
VFC
VIRGINIA FINANCIAL
CORPORATION
40
<PAGE>
PLANTERS
BANK & TRUST COMPANY OF VIRGINIA
Board of Directors
- --------------------------------------------------------------------------------
Lee S. Baker
Benham M. Black
Harry V. Boney, Jr.
H.C. Stuart Cochran
G. Raymond Ergenbright
William P. Heath, Jr.
Jan S. Hoover
Elizabeth M. Schreiber
Executive Officers
- --------------------------------------------------------------------------------
H.C. Stuart Cochran Chairman of the Board
Lee S. Baker Vice Chairman of the Board
William P. Heath, Jr. President and Chief Executive Officer
Fred D. Bowers Executive Vice President/
Chief Financial Officer
Donna H. Snyder Senior Vice President and Cashier/
Senior Accounting Officer
Thomas A. Davis Senior Trust Officer
Commercial Officers
- --------------------------------------------------------------------------------
Taylor M. Cole Senior Vice President/Lending
Carl H. Craig, Jr. Senior Vice President/
Senior Commercial Real Estate Officer
Robert E. Harris Senior Vice President/ Branch Administration
Larry F. Staples Senior Vice President/Operations
David W. Balser Vice President/Branch Manager
Boyd M. Beasley Vice President/Area Manager
John P. Bowers Vice President/Commercial Loan Officer
Susan S. Brown Vice President/Loan Operations
M. Paul Coleman Vice President/Portfolio Support Manager
Kelly S. Davis Vice President/Marketing and Training
Mark R. Dunsmore Vice President/Branch Manager
Kathy C. Floyd Vice President/Senior Systems Officer
Francis W. Irvine Vice President/Area Manager
Paul K. Martin Vice President/Commercial Loan Officer
Bobbie E. Meyerhoeffer Vice President/Consumer Loan Officer
Brenda F. Moore Vice President/Branch Manager
Eric K. Moore Vice President/Consumer Loan Officer
Jeffrey R. Smith Vice President/Area Manager
Alan J. Sweet Vice President/Commercial Loan Officer
Donald F. Luttrell Auditor
Davis A. Miers Retail Investment Officer
Charlie W. Barnes Assistant Vice President/Branch Manager
Jo Ann W. Bartley Assistant Vice President/Classic Club Coordinator
Elizabeth I. Early Assistant Vice President/Retail Branch Manager
Julia W. Faidley Assistant Vice President/Branch Manager
John M. Holmes Assistant Vice President/Branch Manager
Daniel J. Morgan Assistant Vice President/Systems Officer
Sheila M. Price Assistant Vice President/
Secondary Mortgage Operations Officer
Edward L. Pursley Assistant Vice President/Branch Manager
Robert D. Thompson Assistant Vice President/Branch Manager
Mary Jane Yeager Assistant Vice President/Branch Officer
Diana K. Bowers Branch Officer
S. D'Ann Burford Training Officer
Carolyn S. Curry Senior Mortgage Loan Originator
Janice T. Johnson Human Resources Administrative Officer
Debra M. Kerr Consumer Banker
David B. McDaniel Consumer Banker
Cathy C. Myers Customer Support Officer
Trevania F. Petrie Branch Manager
Tina M. Rexrode Branch Officer
Rebecca V. Rhodes Branch Officer
Gina M. Scott Settlement Services Manager
Linda L. Thompson Senior Underwriting Officer
Celena K. Tomlin Branch Officer
Trust Department Officers
- --------------------------------------------------------------------------------
Mollie K. Butler Trust Officer
Glendon K. Gill Trust Officer
Jeffrey C. Jones Assistant Trust Officer
Safiya Mahmoodian Trust Officer
Gregory L. Owen Pension Trust Officer
Mark J. Setaro Trust Investment Officer
Priscilla R. Stanley Senior Pension Trust Officer
Dorothea S. Stewart Trust Operations Officer
VFC
VIRGINIA FINANCIAL
CORPORATION
41
<PAGE>
Locations
- --------------------------------------------------------------------------------
Virginia Financial Corporation
Corporate Headquarters
24 South Augusta Street
Staunton, Virginia 24401
(540) 885-1232 fax 887-2595
Planters Bank & Trust Company of Virginia
Main Office*
24 South Augusta Street
Staunton, Virginia 24401
(540) 885-1232 fax 885-8530
Richmond Road Office*
1135 Richmond Road
Staunton, Virginia 24401
(540) 885-6501 fax 885-1834
West Beverley Office*
2307 West Beverley Street
Staunton, Virginia 24401
(540) 885-6469 fax 885-6432
Northside Office
2201 North Augusta Street
Staunton, Virginia 24401
(540) 885-6730 fax 885-4793
Fishersville Office
State Route 640 & US Route 250
Fishersville, Virginia 22939
(540) 943-1161 fax 943-7024
Waynesboro Office*
251 North Poplar Street
Waynesboro, Virginia 22980
(540) 949-7145 fax 943-1336
Stuarts Draft Office*
132 Greenville Road
Stuarts Draft, Virginia 24477
(540) 337-1563 fax 337-5436
Verona Office*
5018 Lee Highway
Verona, Virginia 24482
(540) 248-7243 fax 248-7246
Greenville Avenue Office*
1480 Greenville Avenue
Staunton, Virginia 24401
(540) 885-6888 fax 886-1694
Grottoes Office
106 Sixth Street
Grottoes, Virginia 24441
(540) 249-3691 fax 249-5521
Harrisonburg Office
375 North Mason Street
Harrisonburg, Virginia 22801
(540) 432-9709 fax 438-8420
Rosser Avenue Office*
100 Lucy Lane
Waynesboro, Virginia 22980
(540) 932-2600
Buena Vista Office*
2101 Forest Avenue
Buena Vista, Virginia 24416
(540)261-2102 fax 261-7624
Natural Bridge Office
9 Lloyd Tolley Road
Natural Bridge Station, Virginia 24579
(540) 291-2196 fax 291-2529
Lexington Office*
1197 Lee Highway
Lexington, Virginia 22450
(540) 464-6319 fax 464-1539
Planters Investment Services
24 South Augusta Street
Staunton, Virginia 24401
(540) 885-1232 fax 885-2471
Planters Mortgage Services
24 South Augusta Street
Staunton, Virginia 24401
(540)885-1232 fax 885-2471
113 Tinkling Springs Road
Fishersville, Virginia 22939
(540) 941-8400 fax 941-8060
Cash Machines
Food Lion
600 North Coalter Street
Staunton, Virginia
7-11 Convenience Store
305 Augusta Street
Grottoes, Virginia
Stop In #44
113 North Main Street
Lexington, Virginia
Website
plantersofva.com
e-mail
[email protected]
Trust Department e-mail
[email protected]
Investment Services e-mail
[email protected]
24-Hour Banking By Phone
1-888-286-1045
(540) 885-9882
(540) 942-1491
*ATM location
VFC
VIRGINIA FINANCIAL
CORPORATION
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0001036070
<NAME> VIRGINIA FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,917
<INT-BEARING-DEPOSITS> 3,241
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,275
<INVESTMENTS-CARRYING> 62,928
<INVESTMENTS-MARKET> 61,159
<LOANS> 294,983
<ALLOWANCE> 3,470
<TOTAL-ASSETS> 473,381
<DEPOSITS> 397,365
<SHORT-TERM> 28,625
<LIABILITIES-OTHER> 1,271
<LONG-TERM> 0
0
0
<COMMON> 19,986
<OTHER-SE> 26,134
<TOTAL-LIABILITIES-AND-EQUITY> 473,381
<INTEREST-LOAN> 23,473
<INTEREST-INVEST> 7,445
<INTEREST-OTHER> 454
<INTEREST-TOTAL> 31,372
<INTEREST-DEPOSIT> 13,303
<INTEREST-EXPENSE> 13,969
<INTEREST-INCOME-NET> 17,403
<LOAN-LOSSES> 1,100
<SECURITIES-GAINS> 62
<EXPENSE-OTHER> 13,239
<INCOME-PRETAX> 7,805
<INCOME-PRE-EXTRAORDINARY> 7,805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,554
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 7.70
<LOANS-NON> 1,064
<LOANS-PAST> 596
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,212
<CHARGE-OFFS> 924
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 3,470
<ALLOWANCE-DOMESTIC> 3,129
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 341
</TABLE>
