<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.
BOE FINANCIAL SERVICES OF VIRGINIA, INC.
(Exact name of small business issuer as specified in its charter)
Virginia 54-1980794
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
323 Prince St., P.O. Box 965, Tappahannock, VA 22560-0965
(Address of principal executive offices) (Zip Code)
(804) 443-4343
(Issuer's telephone number, including area code)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes (X) No ( )
State the number of shares outstanding of each of the issuer's classes of
common equity as of November 9, 2000.
Class Outstanding at November 9, 2000
Common Stock, $5.00 par value 1,167,790
Transitional Small Business Disclosure Format (Check one): Yes No x
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BOE Financial Services of Virginia, Inc.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements..................................1-6
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999..................1-2
Consolidated Statements of Earnings
Three months ended September 30, 2000 and 1999..............3
Consolidated Statements of Earnings
Nine months ended September 30, 2000 and 1999...............4
Consolidated Statement of Cash Flows
Nine months ended September 30, 2000 and 1999...............5
Consolidated Statement of Changes in
Stockholders' Equity
Nine months ended September 30, 2000 and 1999...............6
Notes to Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of
Financial Condition Results of Operations................8-11
PART II - OTHER INFORMATION
Signatures.......................................................12
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. - Financial Statements
BOE FINANCIAL SERVICES OF VA., INC. September 30, December 31,
Consolidated Balance Sheets 2000 1999
<S> <C> <C>
(in Thousands)
ASSETS (Unaudited)
Cash and due from banks.................... $ 3,565 $ 6,133
Federal funds sold......................... 574 0
Securities held to maturity
---------------------------
U.S. Government agencies (fair value of
$1,145-2000 and $785-1999) 1,149 803
Obligations of state and political
subdivisions (fair value of
$1,960-2000 and $2,017-1999) 1,954 2,039
Other Securities (fair value
$199-2000 and $796-1999)................. 200 800
Securities available for sale
-----------------------------
U.S. Government agencies (book value of
$10,235-2000 and $5,398-1999) 10,173 5,230
Obligations of state and political
subdivisions (book value of
$15,340-2000 and $14,534-1999) 15,153 14,204
Other Securities (book value of
$3,874-2000 and $2,175-1999)............. 4,018 2,145
Loans...................................... 139,367 126,064
Less: Reserve for loan loss................ (1,761) (1,601)
------------------------
Net loans............................... 137,606 124,463
Bank premises and equipment, net........... 7,005 7,275
Other real estate owned.................... 0 72
Investment in unconsolidated subsidiaries 8 8
Accrued interest receivable................ 872 742
Intangible assets, net..................... 1,311 1,405
Other assets............................... 2,164 1,977
------------------------
Total assets............................ $185,752 $167,296
========================
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1
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<TABLE>
<CAPTION>
BOE FINANCIAL SERVICES OF VA., INC. September 30, December 31,
Consolidated Balance Sheets 2000 1999
<S> <C> <C>
(in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Deposits
Noninterest bearing deposits........... $ 16,308 $ 15,860
Savings and interest bearing deposits 42,559 44,696
Certificates of deposit................ 97,654 82,335
------------------------------
Total deposits....................... 156,521 142,891
Federal funds purchased................. 0 901
Federal Home Loan Bank advances......... 11,000 7,000
Accrued interest payable................ 796 460
Other liabilities....................... 749 661
------------------------------
Total other liabilities.............. 12,545 9,022
Total liabilities.................... 169,066 151,913
Commitments
Shareholders' equity
Common stock, $5.00 par value........... 5,839 5,839
9/30/00 12/31/99
------- --------
Shares auth............................. 10,000,000 4,000,000
Shares o/s.............................. 1,167,790 1,167,790
Paid in capital......................... 4,820 4,820
Accumulated other comprehensive
loss.................................. (111) (349)
Retained earnings....................... 6,138 5,073
------------------------------
Total shareholders' equity........... 16,686 15,383
------------------------------
Total liabilities and shareholders'
equity............................... $ 185,752 $167,296
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
Page: 2
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<TABLE>
<CAPTION>
BOE FINANCIAL SERVICES OF VA., INC. Three Months Ended
Consolidated Statements of Earnings September 30,
(in Thousands) 2000 1999
<S> <C> <C>
Interest Income (Unaudited)
Interest and fees on loans................ $3,136 $2,518
Interest on federal funds sold............ 38 7
Interest on U.S. Treasury securities and
U.S. Agency Obligations.................. 189 123
Interest on obligations of state and
political subdivisions................... 211 179
Interest on other securities.............. 75 51
---------------------
Total interest income $3,649 $2,878
Interest Expense
Interest on savings and interest bearing
deposits................................. 294 296
Interest on certificates of deposit....... 1,397 992
Interest on federal funds purchased....... 0 35
Interest Federal Home Loan Bank advances.. 184 0
---------------------
Total interest expense 1,875 1,323
---------------------
Net interest income....................... 1,774 1,555
Provision for loan losses................. 130 80
---------------------
Net interest income after provision for
loan losses.............................. 1,644 1,475
---------------------
Noninterest Income
Service charges on deposit accounts....... 119 95
Securities gains (losses) -net............ 13 3
Other fee income.......................... 124 115
All other noninterest income.............. 15 9
---------------------
Total noninterest income 271 222
---------------------
Noninterest Expense
Salaries and employee benefits............ 654 574
Premises and fixed assets................. 198 158
Other expenses............................ 449 546
---------------------
Total noninterest expense............... 1,301 1,278
---------------------
Income before income taxes................ 614 419
Income taxes.............................. 148 98
---------------------
Net income.............................. $ 466 $ 321
=====================
Earnings per share, basic and diluted..... $ 0.40 $ 0.27
</TABLE>
See accompanying notes to consolidated financial statements.
Page: 3
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<TABLE>
<CAPTION>
BOE FINANCIAL SERVICES OF VA., INC. Nine Months Ended
Consolidated Statements of Earnings September 30,
(in Thousands) 2000 1999
<S> <C> <C>
Interest Income (Unaudited)
Interest and fees on loans................ $ 8,905 $7,218
Interest on federal funds sold............ 99 56
Interest on U.S. Treasury securities and
U.S. Agency Obligations.................. 428 407
Interest on obligations of state and
political subdivisions................... 619 488
Interest on other securities.............. 189 124
----------------------
Total interest income $10,240 $8,293
Interest Expense
Interest on savings and interest bearing
deposits................................. 863 856
Interest on certificates of deposit....... 3,708 3,003
Interest on federal funds purchased....... 10 40
Interest Federal Home Loan Bank advances.. 503 0
----------------------
Total interest expense 5,084 3,899
----------------------
Net interest income....................... 5,156 4,394
Provision for loan losses................. 365 260
----------------------
Net interest income after provision for
loan losses.............................. 4,791 4,134
----------------------
Noninterest Income
Service charges on deposit accounts....... 360 290
Securities gains (losses) -net............ 7 5
Other fee income.......................... 456 327
All other noninterest income.............. 80 26
----------------------
Total noninterest income 903 648
----------------------
Noninterest Expense
Salaries and employee benefits............ 1,915 1,624
Premises and fixed assets................. 584 421
Other expenses............................ 1,416 1,388
----------------------
Total noninterest expense............... 3,915 3,433
----------------------
Income before income taxes................ 1,779 1,349
----------------------
Income taxes 445 311
----------------------
Net income.............................. $ 1,334 $1,038
======================
Earnings per share, basic and diluted..... $ 1.14 $ 0.89
</TABLE>
See accompanying notes to consolidated financial statements.
Page: 4
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<TABLE>
<CAPTION>
BOE FINANCIAL SERVICES OF VA., INC. Nine Months Ended
Consolidated Statements of Cash Flows September 30,
<S> <C> <C>
(in Thousands) 2000 1999
(Unaudited)
Cash Flows from Operating Activities
Net income........................................ $ 1,334 $ 1,038
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 382 333
Provision for credit losses...................... 365 260
Net amortization premium on securities........... 55 58
Net (gain)on sale of securities.................. (7) (5)
(Increase) in accrued interest
receivable and other assets.................... (440) (341)
Increase (decrease) in accrued expenses
and other liabilities............................ 424 (80)
-----------------------
Net cash provided by operating
activities...................................... $ 2,113 $ 1,263
-----------------------
Cash Flows from Investing Activities
Proceeds from sale of securities
available-for-sale............................ $ 3,283 $ 1,837
Proceeds from maturities and calls of
securities held-to-maturity................... 339 1,109
Proceeds from maturities and calls of
securities available-for-sale................. 208 700
Purchase of securities held-to-maturity........... 0 (504)
Purchase of securities available for sale......... (10,943) (3,355)
Net increase in loans to customers................ (13,508) (12,410)
(Increase) decrease in federal funds sold......... (574) 1,236
Capital expenditures.............................. (18) (2,012)
Proceeds from sale of other real estate........... 72 0
-----------------------
Net cash (used in)investing activities.......... $(21,141) $(13,399)
-----------------------
Cash Flows from Financing Activities
Net increase in deposits.......................... $ 13,630 $ 7,179
Proceeds from borrowings.......................... 4,000 7,000
(Decrease) in federal funds purchased............. (901) 0
Dividends paid.................................... (269) (257)
Net cash provided by financing -----------------------
activities...................................... $ 16,460 $ 13,922
-----------------------
Net increase (decrease) in cash and
cash equivalents................................ $ (2,568) 1,786
Cash and Cash Equivalents
Beginning of year 6,133 3,607
-----------------------
End of year $ 3,565 $ 5,393
-----------------------
Supplemental disclosure of cash flow information
Cash paid during the year
Interest.......................................... $ 4,748 $ 3,962
-----------------------
Income Taxes...................................... $ 548 $ 362
-----------------------
</TABLE>
Page: 5
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BOE FINANCIAL SERVICES OF VA., INC.
Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
(in thousands)
Accumulated
Other
Compre- Compre- Additional
hensive Retained hensive Common Paid-In
Total Income Earnings Income Stock Capital
------------ --------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998 $15,005 -- $4,195 $ 151 $5,839 $4,820
Comprehensive income:
Net income 1,038 1,038 1,038
Other comprehensive income,
net of tax
Unrealized (loss) on
securities available-for-
sale (412) (412)
------
Other comprehensive income,
Net of tax (412) (412)
-------
Total comprehensive income $ 626
=======
Dividends paid (257) (257)
------- ------ ------- ------ ------
Balance, September 30, 1999 $15,374 $4,976 $ (261) $5,839 $4,820
======= ===================================================
Balance, December 31,1999 $15,383 -- 5,073 $ (349) $5,839 $4,820
Comprehensive income
Net income 1,334 1,334 1,334
Other comprehensive income,
net of tax
Unrealized (gain) on
securities available-for-
sale, net 238 238
------
Other comprehensive income,
Net of tax 238 238
-------
Total comprehensive income 1,572
Dividends paid (269) ====== (269)
------- ------ ------- ------ ------
Balance, September 30,2000 $16,686 $6,138 $(111) $5,839 $4,820
======= ===================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Page: 6
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BOE FINANCIAL SERVICES OF VA., INC.
Notes to Consolidated Financial Statements
1. The accounting and reporting policies of the registrant conform to
generally accepted accounting principles and to the general practices within the
banking industry. The interim financial statements have not been audited;
however, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
consolidated financial statements have been included.
These financial statements should be read in conjunction with the financial
statements and the footnotes included in the registrant's 1999 Annual Report to
Shareholders.
2. Earnings per share are based on the weighted average number of common
shares and common stock equivalents outstanding during the year. The number of
common shares and common stock equivalents used for September 30, 2000 and
December 31, 1999 were 1,167,790 and 1,167,790, respectively.
3. Loans are shown on the balance sheets net of unearned discounts and the
allowance for loan losses. Interest is computed by methods which result in level
rates of return on principal. Loans are charged off when in the opinion of
management they are deemed to be uncollectable after taking into consideration
such factors as the current financial condition of the customer and the
underlying collateral and guarantees. Loan fees and origination costs are
deferred and the net amount amortized as an adjustment of the related loans
yield using the level yield method. The Bank is amortizing these amounts over
the contractual life of the related loans.
4. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether they qualify
for hedge accounting. This statement is not expected to have a material impact
on the Banks financial statements. The standard also allows securities
classified as held-to-maturity to be transferred to the available- for-sale
category at the date of initial application of this standard. This statement is
effective for fiscal quarters of years beginning after June 15, 2000, with
earlier adoption encouraged. The Bank will adopt this accounting standard as
required by January 1, 2001.
Page: 7
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Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in
understanding and evaluating the financial condition and
results of operations of BOE Financial Services of Virginia,
Inc. ("BOE" or "the Company" or "the Bank"). This section
should be read in conjunction with BOE's consolidated financial
statements and accompanying notes included elsewhere in this
report.
Overview
--------
On September 30, 2000 BOE had total assets of $185.8 million, an increase
of $18.5 million or 11.1% from $167.3 million December 31, 1999. Total assets
September 30, 1999 were $160.4 million. The September 30, 2000 total assets
figure represents an increase of 15.8% or $25.4 million over one year ago.
Total loans amounted to $139.4 million on September 30, 2000, an increase
of $13.3 million, or 10.5% over the December 31, 1999 total of $126.1 million.
This September 30, 2000 figure represents an increase of $20.5 million or 17.2%
over total loans of $118.9 million on September 30, 1999.
The Company's securities portfolio increased $7.4 million, or 29.4% from
$25.2 million December 31, 1999 to $32.6 million on September 30, 2000. Total
securities were $25.3 million on September 30, 1999. Federal funds sold were
$574,000 on September 30, 2000. The Bank had federal funds sold of $643,000 as
of September 30, 1999.
The Bank is required to account for the effect of market changes in the
value of securities available-for-sale (AFS) under Financial Accounting
Standards Board Pronouncement #115 (FASB 115). The market value of the September
30, 2000 securities available-for -sale portfolio was $29.3 million compared to
$21.6 million at December 31, 1999 and $22.1 million at September 30, 1999. The
impact of the change in market value of AFS securities, net of deferred income
taxes, is reflected in the Statement of Changes in Stockholder's Equity under
Accumulated other comprehensive income. On September 30, 2000 $111,000
represented the Bank's net unrealized loss on AFS securities compared to
$349,000 at December 31, 1999 and a loss of $261,000 at September 30, 1999.
These totals are also reported on the Balance Sheet under Stockholder's Equity
on the Accumulated other comprehensive income line.
Total deposits at September 30, 2000 were $156.5 million. This $13.6
million increase is 9.5% greater than total deposits of $142.9 million at
December 31, 1999 and $19.5 million, or 14.2% greater than total deposits of
$137.0 million at September 30, 1999.
Page 8
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Stockholder's equity at September 30, 2000 was $16.7 million and
represented 9.0% of total assets. Stockholder's equity was $15.4 million, or
9.2% of total assets at December 31, 1999 and $15.4 million, or 9.6% of total
assets at September 30, 1999.
Results of Operations
----------------------
Net Income
Net income was $1.3 million through nine months of 2000, or $1.14 per
common share. This compares to net income of $1.0 million, or $0.89 per common
share in the first nine months of 1999. The increase in earnings through nine
months of 2000 over 1999 was $296,000, or 28.5%. The number of average common
shares outstanding for each period was 1,167,790.
The increase in earnings was primarily from a $762,000, or 17.3% increase
in net interest income before provision for credit losses. Additionally,
noninterest income increased $255,000, or 39.4%, from $648,000 in the first nine
months of 1999 to $903,000 in the first nine months of 2000.
These increases in net income were offset by a $482,000, or 14.0% increase
in noninterest expenses from $3.4 million in the first nine months of 1999 to
$3.9 million in the first nine months of 2000. Income tax expense increased
$134,000 in the first nine months of 2000,or 43.1%, to $445,000, up from
$311,000 in the first nine months of 1999.
Net Interest Income
The Bank's results of operations are significantly affected by it's ability
to manage effectively the interest rate sensitivity and maturity of its
interest-earning assets and interest-bearing liabilities. At September 30, 2000
the Bank's interest-earning assets exceeded it's interest-bearing liabilities by
approximately $19.5 million, compared with a $15.0 million excess one year ago.
Net interest margins were 4.17% through September 30, 2000 compared to 4.52%
through September 30, 1999.
Annualized net interest income on a tax-equivalent basis through nine
months of 2000 increased by 17.7% to $7.3 million from $6.2 million for the same
period a year ago. Through the first nine months of 2000 loan demand has been
healthy, thereby increasing funding pressures and ultimately increasing the
Bank's cost of funds. Through the first nine months of 2000 the Bank's yield on
earning assets was 8.28%, down from 8.32% a year ago, while its cost of average
interest bearing liabilities increased from 3.80% to 4.67% during the same
period. In February, 2000 the Bank obtained a one year funding advance from the
Federal Home Loan Bank of Atlanta for $11,000,000. The Bank's loan-to-deposit
ratio has increased from 86.8% on September 30, 1999 to 89.0% on September 30,
2000.
Page 9
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Provision for Credit Losses
The Bank's provision for credit losses for the first three quarters of 2000
was $365,000 and $260,000 in the first three quarters of 1999. The increase in
provision in 2000 was due to recognition of higher non-performing assets during
the year, increased possibilities of an economic slowdown in the months ahead
and higher loan volumes. Net charged-off loans were $222,000 in the first nine
months of 2000 and $80,000 in the first nine months of 1999. The allowance for
loan losses as a percentage of total loans was 1.26%, 1.27%, and 1.28%,
respectively as of September 30, 2000, December 31, 1999 and September 30, 1999.
Noninterest Income
Noninterest income, including gains/(losses) on securities was $903,000 in
first nine months of 2000 compared to $648,000 in the same period of 1999. This
represents an increase of 39.4%, or $255,000. Service charges on deposit
accounts were $360,000 in the first three quarters of 2000, a 24.1% increase
over $290,000 in the first three quarters of 1999. A larger deposit base of
14.2% for the comparison period and increased management focus in this area
represent this improvement. Other fee income increased 39.4%, or $129,000 from
$327,000 in the first three quarters of 1999 to $456,000 in the first three
quarters of 2000. $110,000 of this increase related to the Banks'non-qualified
benefit plans. In the first nine months of 2000 the Bank realized gains on
available-for-sale securities of $7,000 and in the first nine months of 1999
gains of $5,000 were realized on sales from the securities portfolio.
Noninterest Expenses
Noninterest expenses increased $482,000, or 14.0%, from $3.4 million in the
first three quarters of 1999 to $3.9 million in the first three quarters of
2000. Salaries and employee benefits comprised the largest component of this
increase, $291,000, from $1,624,000 in the first three quarters of 1999 to
$1,915,000 in the first three quarters of 2000. New employees were added to the
Bank's payroll in anticipation of the Bank's newest office which opened in June
of 1999. This facility houses a fixed rate mortgage department, commercial loan
department and a full service branch. In August of 1999 a commercial lender was
added and in October of 1999 an investment officer joined the company.
Income Taxes
Income tax expense through September 30, 2000 was $445,000. This represents
a $134,000, or 43.1% increase over $311,000 in income tax expense for the same
period in 1999.
Asset Quality
The Bank's allowance for credit losses totaled $1.761 million on September
30, 2000 or 1.26% of total loans, as compared to 1.27% at December 31, 1999 and
1.28% on September 30, 1999. On September 30, 2000 the Bank had non- performing
assets of $1.0 million compared to $82,000 on September 30, 1999. Loans past due
and still accruing interest totaled $827,000 on September 30, 2000 compared to
$1,810,000 on September 30, 1999.
Page 10
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Capital Requirements
The determination of capital adequacy depends upon a number of factors,
such as asset quality, liquidity, earnings, growth trends and economic
conditions. The Bank seeks to maintain a strong capital base to support its
growth and expansion plans, provide stability to current operations and promote
public confidence in the Bank.
The federal banking regulators have defined three tests for assessing the
capital strength and adequacy of banks, based on two definitions of capital.
"Tier 1 Capital" is defined as a combination of common and qualifying preferred
stockholders' equity less goodwill. "Tier 2 Capital" is defined as qualifying
subordinated debt and a portion of the allowance for loan losses. "Total
Capital" is defined as Tier 1 Capital plus Tier 2 Capital.
Three risk-based capital ratios are computed using the above capital
definitions, total assets and risk-weighted assets and are measured against
regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk
items are grouped into categories according to degree of risk and assigned a
risk-weighting and the resulting total is risk- weighted assets. "Tier 1
Risk-based Capital" is Tier 1 Capital divided by risk-weighted assets. "Total
Risk-based Capital" is Total Capital divided by risk-weighted assets. The
Leverage ratio is Tier 1 Capital divided by total average assets.
At September 30, 2000 the Bank's ratio of total capital to risk-weighted
assets was 11.26% and its ratio of Tier 1 Capital to risk-weighted assets was
10.06%. The Bank's leverage ratio (Tier I capital to average adjusted total
assets)was 8.39%. These ratios exceed regulatory minimums.
Year 2000 Issue
---------------
The Y2K issue involved the risk that computer programs and computer Systems
would not be able to perform without interruption into the year 2000. If
computer systems did not correctly recognize the date change from December 31,
1999 to January 1, 2000, computer applications that rely on the date field could
have failed or created erroneous results. All computer programs and systems at
the Bank operated without problems when the date change occurred from December
31, 1999 to January 1, 2000. While the Bank will continue to monitor computer
programs and systems, no problems are expected. To date the Bank has expensed
$35,000 related to the Year 2000 issue. Remaining expenditures are not expected
to have a material effect on the Bank's consolidated financial statements.
PART II - OTHER INFORMATION
Page 11
<PAGE>
SIGNATURES
In accordance with to the requirements of the
Act, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
BOE Financial Services of Virginia, Inc.
(Registrant)
11/8/00 By: /s/George M. Longest, Jr.
-------- --------------------------
(Date) (Signature)
George M. Longest, Jr.
President and Chief Executive Officer
11/8/00 By: /s/Bruce E. Thomas
-------- -----------------------------
(Date) (Signature)
Bruce E. Thomas
Secretary, Vice President & Cashier
Page 12
