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 June 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 July 31, 1996:
Common Stock, $2.50 par value 1,506,419
- ----------------------------- ---------------
Class Number of Shares
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1996 1995
(unaudited)
<S> <C>
Assets
Cash and due from depository institutions
(non-interest bearing deposits) $ 5,892 $ 4,728
Interest-bearing deposits in other banks 1,002 2,254
Securities held to maturity (market value,
1996 - $14,643; 1995 - $14,576) 14,529 13,999
Securities held for sale (market value,
1996 - $69,665; 1995 - $70,041) 69,665 70,041
Federal funds sold and securities
purchased under agreements to resell 3,438 4,281
Loans held to maturity 104,845 94,615
Less: Reserve for loan losses
valuation portion 1,307 1,320
Less: Unearned income on loans 95 99
Total Loans - Net 103,443 93,196
Bank premises and equipment 4,687 4,728
Other assets 3,158 2,690
Total Assets 205,814 195,917
LIABILITIES
Deposits
Non-interest bearing 20,306 18,038
Interest bearing 152,811 146,080
Total Deposits 173,117 164,118
Long-term debt 1,525 1,675
Repurchase agreements 1,300 1,200
Master Notes 2,436 2,511
Short-term borrowing 1,121 207
Other liabilities 880 989
Total Liabilities 180,379 170,700
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) 3,766 3,757
Capital surplus 1,378 1,323
Market valuation AFS securities (669) (18)
Retained earnings 20,960 20,155
Total Stockholders' Equity 25,435 25,217
Total Liabilities and Stockholders'
Equity $ 205,814 $ 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 SIX MONTHS ENDING
JUNE 30 JUNE 30
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $ 2,229 $ 2,009 $ 4,550 $ 3,861
Interest income from depository institutions 0 0 0 48
Interest on investment securities:
Taxable interest income 17 59 39 129
Interest income exempt from federal taxes 165 161 324 318
Interest and dividends on securities available
for sale:
Taxable interest income 1,054 984 2,024 2,042
Dividends 7 2 9 4
Interest on federal funds and securities
purchased under agreements to resell 51 55 140 90
Total Interest Income 3,523 3,270 7,086 6,492
INTEREST EXPENSE
Interest on deposits 1,569 1,481 3,124 2,954
Interest on notes payable 34 44 70 88
Interest on short-term borrowings 39 46 78 92
- - - -
Total Interest Expense 1,642 1,571 3,272 3,134
NET INTEREST INCOME 1,881 1,699 3,814 3,358
Less: Provision for loan losses 0 0 0 0
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,881 1,699 3,814 3,358
NONINTEREST INCOME
Commissions and fees from fiduciary activities 93 82 185 169
Service charges on deposit accounts 162 135 299 270
Other operating income 13 56 50 103
Total Non-interest Income 268 273 534 542
NONINTEREST EXPENSES
Salaries and employee benefits 696 611 1,372 1,213
Net occupancy expense of premises 189 167 374 343
Furniture and equipment expenses 50 56 92 100
Other operating expenses 282 351 603 674
Total Non-interest Expense 1,217 1,185 2,441 2,330
Income before income tax expense 932 787 1,907 1,570
Income tax expense 277 208 530 410
Net Income $ 655 $ 579 $ 1,377 $ 1,160
Net income per share $ 0.43 $ 0.39 $ 0.91 $ 0.77
Dividends per share $ 0.19 $ 0.17 $ 0.38 $ 0.34
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
6 MONTHS ENDING
JUNE 30
1996 1995
<S> <C>
OPERATING ACTIVITIES
Net income $ 1,377 $ 1,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 239 212
Pension (13) (15)
Amortization (accretion) of premiums
and discounts on securities 37 (10)
Loss on sale of securities 32 -
(Increase) decrease in other assets (468) 59
Increase (decrease) in other liabilities (109) (308)
Net cash provided by operating activities 1,095 1,098
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits
in other banks 1,252 3,003
Proceeds from maturity of investment securities 1,250 5,310
Proceeds from sales of securities available
for sale 9,709 499
Proceeds from maturity of securities available
for sale 16,400 16,422
Purchase of securities available for sale (27,713) (4,512)
Purchase of investment securities (525) (4,952)
Purchase of premises and equipment (198) (85)
Decrease in other real estate owned - 60
Net increase in loans (10,230) (10,063)
Net cash provided by (used in) investing
activities (10,055) 5,682
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings
deposits 4,635 (4,708)
Net increase in time deposits 4,364 5,483
Net decrease in long-term borrowings (150) (150)
Net increase (decrease) in repurchase agreements 100 (2,375)
Net increase (decrease) in short-term borrowings 914 (62)
Net decrease in master notes (75) -
Common stock repurchases (94) -
Common stock issued 157 -
Cash dividends paid on common stock (571) (511)
Net cash provided by (used in) financing
activities 9,280 (2,323)
Increase in cash and cash equivalents 320 4,457
CASH AND CASH EQUIVALENTS
Beginning of the period 9,010 6,938
End of the period $ 9,330 $ 9,072
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30,
1996 and December 31, 1995, and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995. The statements should be read
in conjunction with the Notes to Financial Statements included in the
Company's Annual Report for the year ended December 31, 1995.
2. The results of operations for the six month period ended June 30, 1996 and
1995 are 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)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
(unaudited) (unaudited)
Securities being Held to Maturity:
June 30, 1996
<S> <C>
U. S. Government Agencies $ 2,494 $ 2,540
Obligations of States and Political Subdivisions 12,035 12,103
$ 14,529 $ 14,643
<CAPTION>
December 31, 1995
<S> <C>
U. S. Government Agencies $ 2,492 $ 2,594
Obligations of States and Political Subdivisions 11,507 11,982
$ 13,999 $ 14,576
<CAPTION>
Securities Available For Sale:
June 30, 1996
(unaudited) (unaudited)
<S> <C>
U. S. Treasury Securities $ 20,925 $ 20,772
U. S. Government Securities 49,414 48,553
Other Equity Securities 340 340
$ 70,679 $ 69,665
<CAPTION>
December 31, 1995
<S> <C>
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
</TABLE>
<PAGE>
4. The Corporation's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
June 30 Dec. 31
1996 1995
(000 Omitted)
(unaudited)
<S> <C>
Real estate loans:
Construction $ 5,764 $ 3,834
Secured by farmland 1,126 2,227
Secured by 1-4 family residential 50,079 45,087
Other real estate loans 25,831 24,938
Loans to farmers (except secured by
real estate) 617 756
Commercial and industrial loans (except
those secured by real estate) 8,589 7,455
Loans to individuals for personal
expenditures 8,873 6,875
All other loans 3,966 3,443
Less:
Allowance for loan losses (1,307) (1,320)
Deferred loan fees, net (95) (99)
$ 103,443 $ 93,196
</TABLE>
As of January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by SFAS No. 118. As of June 30, 1996, the Corporation's recorded
investment in loans for which impairment has been recognized in accordance with
SFAS No. 114 amounted to $174 thousand.
5. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the six month period ended
June 30, respectively were 1,506,419 in 1996 and 1,502,352 in 1995.
On February 29, 1996, the Corporation paid to stockholders of record January 17,
1996, a quarterly cash dividend of $.19 per share. On May 31, 1996, the
Corporation paid a quarterly dividend of $.19 per share to stockholders of
record April 17, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second National Financial Corporation's consolidated net income amounted to
$1.377 million or $.91 per share for the six month period ended June 30, 1996,
compared with $1.160 million or $.77 per share for the same period in 1995.
Operating results for the both the first three and six months where positively
impacted by continuing loan growth, good expense control and improvement in the
net interest margin. In addition, earnings 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 period
represented a 1.37% return on average assets and a 10.85% return on
stockholder's equity versus 1.20% and 10.40% for 1995.
Net interest income, the Corporation's primary source of earnings, increased
$456 thousand from $3.358 million in 1995 to $3.814 million in 1996 .The
increase reflects an increase in average earning assets, collection of the
aforementioned delinquent interest and improvement in the net interest margin.
Average earning assets was positively impacted by growth in the loan portfolio.
Net loans amounted to $103.443 million, up $10.247 million from $93.196 at
December 31, 1995. Net interest margin improved to 4.16% for the six months
ended June 30, 1996, compared to 4.00% 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 decreased $8 thousand or 1.4% from
$542 thousand in 1995 to $534 thousand in 1996.
Noninterest expenses increased $111 thousand or 4.8% from 2.330 million in 1995
to $2.441 million in 1996. Increases in employee salaries and benefits of $185
thousand and occupancy expenses of $42 thousand accounted for most of the
increase. While the Bank continues to benefit from significantly reduced FDIC
insurance assessments, there can be no assurance that the Bank will continue pay
reduced premiums in the future.
ASSET QUALITY
The Corporation continued to experience high loan quality during 1996, as
evidenced by net charge-offs of $12 thousand, compared to net charge-offs of $45
thousand in 1995. The allowance for loan losses as a percentage of net loans
amounted to 1.25% at June 30, 1996 compared to 1.39% at December 31, 1995. This
decrease was primarily due to the aforementioned increase in gross loans in
1996.
<PAGE>
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 portfolio growth will allow
this to occur for the remainder of 1996.
CAPITAL ADEQUACY
Stockholders' equity as of June 30, 1996 of $25.435 million increased $218
thousand or approximately .9% from $25.217 million at December 31, 1995. The
Corporation's Tier I risk-based capital-to-asset ratio was 24.10% at June 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 as conditions dictate.
The Corporation has no brokered deposits. Certificates of deposit in
denominations of $100 thousand or more represent 7.3% 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 are not applicable.
(b) No Form 8-K was filed during the six month period ended
June 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
August 9, 1996
/s/ Jeffrey W. Farrar
Jeffrey W. Farrar, CPA
Vice President
Principal Financial Officer
August 9, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,892
<INT-BEARING-DEPOSITS> 1,002
<FED-FUNDS-SOLD> 3,438
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,665
<INVESTMENTS-CARRYING> 14,529
<INVESTMENTS-MARKET> 14,643
<LOANS> 104,845
<ALLOWANCE> 1,307
<TOTAL-ASSETS> 205,814
<DEPOSITS> 173,117
<SHORT-TERM> 4,857
<LIABILITIES-OTHER> 880
<LONG-TERM> 1,525
0
0
<COMMON> 3,766
<OTHER-SE> 21,669
<TOTAL-LIABILITIES-AND-EQUITY> 205,814
<INTEREST-LOAN> 4,550
<INTEREST-INVEST> 2,396
<INTEREST-OTHER> 140
<INTEREST-TOTAL> 7,086
<INTEREST-DEPOSIT> 3,272
<INTEREST-EXPENSE> 3,814
<INTEREST-INCOME-NET> 3,814
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (32)
<EXPENSE-OTHER> 2,441
<INCOME-PRETAX> 1,907
<INCOME-PRE-EXTRAORDINARY> 1,377
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,377
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0
<YIELD-ACTUAL> 202,998
<LOANS-NON> 468
<LOANS-PAST> 73
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,968
<ALLOWANCE-OPEN> 1,320
<CHARGE-OFFS> 23
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1,308
<ALLOWANCE-DOMESTIC> 233
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,075
</TABLE>
