UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-34100
Second National Financial Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1542438
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
102 South Main Street, Culpeper, Virginia 22701
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 540-825-4800
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996:
Common Stock, $2.50 par value 1,497,550
- ----------------------------- ---------------
Class Number of Shares
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page Number
ITEM 1 Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 13
ITEM 2 Changes in Securities 13
ITEM 3 Defaults Upon Senior Securities 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
ITEM 5 Other information 13
ITEM 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(unaudited)
-------------- ------------
<S> <C>
ASSETS
Cash and due from depository institutions
(non-interest bearing deposits) ....................... $ 5,576 $ 4,728
Interest-bearing deposits in other banks ............... 501 2,254
Securities held to maturity (market value,
1996 - $15,021; 1995 - $14,576) ................. 14,791 13,999
Securities held for sale (market value,
1996 - $69,665; 1995 - $70,041) ................. 69,774 70,041
Federal funds sold and securities
purchased under agreements to resell .................. 3,641 4,281
Loans receivable - net ................................. 105,393 93,196
Bank premises and equipment ............................ 4,671 4,728
Other assets ........................................... 2,916 2,690
-------- --------
Total Assets ....................................... 207,263 195,917
======== ========
LIABILITIES
Deposits
Non-interest bearing ............................... 19,728 18,038
Interest bearing ................................... 154,248 146,080
-------- --------
Total Deposits ...................................... 173,976 164,118
Long-term debt ........................................ 1,451 1,675
Repurchase agreements ................................. 1,300 1,200
Master Notes .......................................... 2,416 2,511
Short-term borrowing .................................. 1,150 207
Other liabilities ..................................... 1,038 989
-------- --------
Total Liabilities ................................ 181,331 170,700
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, no par value:
(Authorized 1,000,000 shares,
no shares outstanding) ............................ -- --
Common stock par value $2.50 per share:
(Authorized 3,000,000 shares; issued and outstanding
1,506,419 shares 1996;1,502,862 shares 1995) ....... 3,749 3,757
Capital surplus ....................................... 1,256 1,323
Market valuation AFS securities ....................... (495) (18)
Retained earnings ..................................... 21,422 20,155
-------- --------
Total Stockholders' Equity ....................... 25,932 25,217
-------- --------
Total Liabilities and Stockholders'
Equity ............................................... $207,263 $195,917
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
---------------- --------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $2,358 $2,127 $ 6,908 $5,988
Interest income from depository institutions 0 0 0 48
Interest on investment securities:
Taxable interest income 12 37 51 166
Interest income exempt from federal taxes 166 158 490 476
Interest and dividends on securities available
for sale:
Taxable interest income 1,060 960 3,084 3,002
Dividends 7 7 16 11
Interest on federal funds and securities
purchased under agreements to resell 79 85 219 175
-------------- --------------- ------------- -------------
Total Interest Income 3,682 3,374 10,768 9,866
-------------- --------------- ------------- -------------
INTEREST EXPENSE
Interest on deposits 1,615 1,545 4,739 4,499
Interest on notes payable 32 42 102 130
Interest on short-term borrowings 46 51 124 143
-------------- --------------- ------------- -------------
Total Interest Expense 1,693 1,638 4,965 4,772
-------------- --------------- ------------- -------------
NET INTEREST INCOME 1,989 1,736 5,803 5,094
Less: Provision for loan losses 0 0 0 0
-------------- --------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,989 1,736 5,803 5,094
NONINTEREST INCOME
Commissions and fees from fiduciary activities 92 78 277 247
Service charges on deposit accounts 172 130 471 400
Other operating income 46 51 96 154
-------------- --------------- ------------- -------------
Total Non-interest Income 310 259 844 801
-------------- --------------- ------------- -------------
NONINTEREST EXPENSES
Salaries and employee benefits 714 628 2,086 1,841
Net occupancy expense of premises 194 181 568 524
Furniture and equipment expenses 53 49 145 149
Other operating expenses 293 184 896 858
-------------- -------------- - ------------ -------------
Total Non-interest Expense 1,254 1,042 3,695 3,372
-------------- -------------- - ------------ -------------
Income before income tax expense 1,045 953 2,952 2,523
Income tax expense 299 255 829 665
-------------- --------------- ------------- -------------
Net Income $ 746 $ 698 $ 2,123 $1,858
============== =============== ============= =============
Net income per share $ 0.50 $ 0.46 $ 1.42 $ 1.24
============== =============== ============= =============
Dividends per share $ 0.19 $ 0.17 $ 0.57 $ 0.51
============== =============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(000 OMITTED)
<TABLE>
<CAPTION>
UNREALIZED GAIN
COMMON CAPITAL RETAINED (LOSS) ON SECURITIES
STOCK SURPLUS EARNINGS AVAILABLE FOR SALE, NET TOTAL
--------------------------------------------------------------------
<S> <C>
Balances - January 1, 1995 $3,756 $1,317 $18,824 ($1,743) $22,154
Net Income $ 1,859 $ 1,859
Change in unrealized gain
(loss) on securities
available for sale, net of
deferred income taxes $1,490 $ 1,490
Cash Dividends ($766) ($766)
--------------------------------------------------------------------
Balances - September 30, 1995 $3,756 $1,317 $19,917 ($253) $24,737
====================================================================
Balances - January 1, 1996 $3,757 $1,323 $20,155 ($18) $25,217
Net Income $2,123 $2,123
Change in unrealized gain
(loss) on securities
available for sale, net of
deferred income taxes ($477) ($477)
Dividend Re-investment ($8) ($67) ($75)
Cash Dividends ($856) ($856)
--------------------------------------------------------------------
Balances - September 30, 1996 $3,749 $1,256 $21,422 ($495) $25,932
====================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
9 MONTHS ENDING
SEPTEMBER 30
1996 1995
-----------------------------
(Unaudited) (Unaudited)
<S> <C>
OPERATING ACTIVITIES
Net income $ 2,123 $ 1,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 399 212
Pension (19) (15)
Amortization (accretion) of premiums
and discounts on securities 65 (10)
Loss on sale of securities 32 -
(Increase) decrease in other assets (207) 59
Increase (decrease) in other liabilities 304 (308)
----------- --------------
Net cash provided by operating activities 2,697 1,098
----------- --------------
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits
in other banks 1,753 3,003
Proceeds from maturity of investment securities 1,750 5,310
Proceeds from sales of securities available
for sale 9,709 499
Proceeds from maturity of securities available
for sale 21,400 16,422
Purchase of securities available for sale (33,322) (4,512)
Purchase of investment securities (780) (4,952)
Purchase of premises and equipment (342) (85)
Decrease in other real estate owned - 60
Net increase in loans (12,166) (10,063)
Net cash provided by (used in) investing ----------- --------------
activities (11,998) 5,682
----------- --------------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings
deposits 5,835 (4,708)
Net increase in time deposits 4,023 5,483
Net decrease in long-term borrowings (225) (150)
Net increase (decrease) in repurchase agreements 100 (2,375)
Net increase (decrease) in short-term borrowings 943 (62)
Net decrease in master notes (95) -
Common stock repurchases (293) -
Common stock issued 76 -
Cash dividends paid on common stock (856) (511)
Net cash provided by (used in) financing ----------- --------------
activities 9,508 (2,323)
----------- --------------
Increase in cash and cash equivalents 207 4,457
CASH AND CASH EQUIVALENTS
Beginning of the period 9,010 6,938
----------- --------------
End of the period $ 9,217 $ 9,072
=========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September
30, 1996 and December 31, 1995, and the results of operations and cash flows
for the nine months ended September 30, 1996 and 1995. The statements should
be read in conjunction with the Notes to Financial Statements include
Company's Annual Report for the year ended December 31, 1995.
2. The results of operations for the nine month period ended September 30, 1996
and 1995 ar not necessarily indicative of the results to be expected for
the full year.
3. The Corporation's securities portfolio is composed of the following:
(000 omitted)
Amortized Fair
Cost Value
--------- ---------
Securities being Held to Maturity:
September 30, 1996
--------- ---------
U. S. Government Agencies $2,495 $2,536
Obligations of States and Political
Subdivisions $12,296 $12,485
--------- ---------
$14,791 $15,021
========= =========
December 31, 1995
--------- ---------
U. S. Government Agencies $2,492 $2,594
Obligations of States and Political
Subdivisions $11,507 $11,982
--------- ---------
$13,999 $14,576
========= =========
Securities Available For Sale:
September 30, 1996
--------- ---------
U. S. Treasury Securities $19,428 $19,332
U. S. Government Securities $50,679 $50,025
Other Equity Securities $417 $417
--------- ---------
$70,524 $69,774
========= =========
December 31, 1995
--------- ---------
U. S. Treasury Securities $28,461 $28,457
U. S. Government Securities $41,282 $41,259
Other Equity Securities $325 $325
--------- ---------
$70,068 $70,041
========= =========
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
4. The Corporation's loan portfolio is composed of the following:
Sept 30 Dec. 31
1996 1995
------------------ ----------------
(000 Omitted)
------------------ ----------------
Real estate loans:
Construction $5,244 $3,834
Secured by farmland $1,213 $2,227
Secured by 1-4 family residential $51,668 $45,087
Other real estate loans $26,617 $24,938
Loans to farmers (except secured by
real estate) $476 $756
Commercial and industrial loans (except
those secured by real estate) $8,903 $7,455
Loans to individuals for personal
expenditures $9,234 $6,875
All other loans $3,426 $3,443
----------- ---------
$106,781 $94,615
=========== =========
5. Activity in the allowance for loan losses is as follows:
Sept 30 Dec. 31
1996 1995
------------------ ----------------
(000 Omitted)
------------------ ----------------
Balance at January 1 $1,320 $1,365
Recoveries added to the allowance $21 $33
Loan losses charged to the allowance ($43) ($78)
------------------ ----------------
Balance at end of period $1,298 $1,320
================== ================
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the nine month period
ended September 30, respectively were 1,499,587 in 1996 and 1,502,352 in 1995.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SEPTEMBER 30, 1996
Results of Operations
Second National Financial Corporation's consolidated net income amounted to $746
thousand or $.50 per share for the three month period ended September 30, 1996,
compared with $698 thousand or $.46 per share for the same period in 1995.
Second National Financial Corporation's consolidated net income amounted to
$2.123 million or $1.42 per share for the nine month period ended September 30,
1996, compared with $1.858 million or $1.24 per share for the same period in
1995. Operating results for the both the first three and nine months where
positively impacted by continuing loan growth, good expense control and
improvement in the net interest margin. In addition, earnings for the nine month
period were positively impacted by the collection of $173 thousand of delinquent
interest in connection with a problem loan which paid off during the first
quarter. Net income for the three month period represented a 1.45% return on
average assets and a 11.78% return on stockholder's equity versus 1.44% and
11.51% for 1995. Net income for the nine month period represented a 1.40% return
on average assets and a 11.16% return on stockholder's equity versus 1.28% and
10.79% for 1995.
Net interest income, the Corporation's primary source of earnings, increased
$253 thousand from $1.736 million in 1995 to $1.989 million for the three months
ended September 30, 1996 .The increase reflects an increase in average earning
assets and improvement in the net interest margin. Average earning assets was
positively impacted by growth in the loan portfolio. Net loans amounted to
$105.393 million, up $12.197 million from $93.196 at December 31, 1995, and up
$1.950 million for the quarter. The net interest margin improved to 4.17% for
the nine months ended September 30, 1996, compared to 3.96% for the same period
in 1995.
Noninterest income consists of earnings generated primarily from service charges
on deposit accounts, fiduciary income and other service charges, commissions and
fees.The Corporation's noninterest income increased $51 thousand or 19.7% from
$259 thousand in 1995 to $310 thousand for the three months ended September 30,
1996. The Corporation's noninterest income increased $43 thousand or 5.4% from
$801 thousand in 1995 to $844 thousand for the nine months ended September 30,
1996.
Noninterest expenses increased $212 thousand or 20.4% from 1.042 million in 1995
to $1.254 million for the three months ended September 30, 1996. Increases in
employee salaries and benefits of $86 thousand and professional fees of $45
thousand accounted for much of the increase.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SEPTEMBER 30, 1996
Asset Quality
The Corporation continued to experience high loan quality during 1996, as
evidenced by net charge-offs of $22 thousand for the nine month period ending
September 30, 1996, compared to net charge-offs of $45 thousand for all of 1995.
The allowance for loan losses as a percentage of net loans amounted to 1.23% at
September 30, 1996 compared to 1.39% at December 31, 1995. This decrease was
primarily due to the aforementioned increase in gross loans in 1996.
The adequacy of the allowance for loan losses is reviewed quarterly by
management based on an evaluation of the collectibility of the loan portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. While the Bank has not found it necessary to
provide additional provisions for loan loss in 1996 and 1995, there can be no
assurance that its loan loss experience and loan growth will allow this to occur
in the future.
Capital Adequacy
Stockholders' equity as of September 30, 1996 of $25.932 million increased $715
thousand or approximately 2.8% from $25.217 million at December 31, 1995. The
Corporation's Tier I risk-based capital-to-asset ratio was 24.87% at September
30, 1996, compared to 26.91% at December 31, 1995. Federal Reserve and FDIC
guidelines require 8% of total capital to risk weighted assets, and the
Corporation far exceeds this regulatory requirement.
Liquidity
Liquidity is identified as the ability to generate or acquire sufficient amounts
of cash when needed and at reasonable cost to accommodate withdrawals, payments
of debt, and increased loan demand. These events may occur daily or other
short-term intervals in the normal operation of the business. Experience helps
management predict time cycles in the amount of cash required. In assessing
liquidity, management gives consideration to relevant factors including
stability of deposits, quality of assets, economy of market served,
concentrations of business and industry, competition, and the Corporation's
overall financial condition. The Corporation's primary source of liquidity are
cash, due from banks, fed funds sold and securities in our available for sale
portfolio. In addition, the Bank has substantial lines of credit from its
correspondent banks and access to the Federal Reserve discount window to support
liquidity. The Corporation has no brokered deposits. Certificates of deposit in
denominations of $100 thousand or more represent 7.9% of total deposits
primarily from established core depositors.In the judgment of management, the
Company maintains the ability to generate sufficient amounts of cash to cover
normal requirements and any additional needs which may arise, within realistic
limitations.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the
Registrant or any of its subsidiaries, directors, or officers
is a party or by which they, or any of them, are threatened.
Any legal proceeding presently pending or threatened against
Second National Financial Corporation and its subsidiary are
either not material in respect to the amount in controversy or
fully covered by insurance.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(b) No Form 8-K was filed during the nine month period
ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECOND NATIONAL FINANCIAL CORPORATION
/s/ W. Douglas Kyle, Jr.
W. Douglas Kyle, Jr., President
Chief Executive Officer
November 8, 1996
/s/ Jeffrey W. Farrar
Jeffrey W. Farrar, CPA
Vice President
Principal Financial Officer
November 8, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 5,576
<INT-BEARING-DEPOSITS> 501
<FED-FUNDS-SOLD> 3,641
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,774
<INVESTMENTS-CARRYING> 14,791
<INVESTMENTS-MARKET> 14,643
<LOANS> 105,393
<ALLOWANCE> 1,298
<TOTAL-ASSETS> 207,263
<DEPOSITS> 173,976
<SHORT-TERM> 1,150
<LIABILITIES-OTHER> 1,038
<LONG-TERM> 1,451
0
0
<COMMON> 3,749
<OTHER-SE> 22,183
<TOTAL-LIABILITIES-AND-EQUITY> 207,263
<INTEREST-LOAN> 6,908
<INTEREST-INVEST> 3,100
<INTEREST-OTHER> 760
<INTEREST-TOTAL> 10,768
<INTEREST-DEPOSIT> 4,739
<INTEREST-EXPENSE> 4,965
<INTEREST-INCOME-NET> 5,803
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (32)
<EXPENSE-OTHER> 3,695
<INCOME-PRETAX> 2,952
<INCOME-PRE-EXTRAORDINARY> 2,952
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,123
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 0
<YIELD-ACTUAL> 194,100
<LOANS-NON> 551
<LOANS-PAST> 84
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,087
<ALLOWANCE-OPEN> 1,320
<CHARGE-OFFS> 21
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 1,298
<ALLOWANCE-DOMESTIC> 203
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,095
</TABLE>
