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, 1997
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 000-22747
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 Section13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12months (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, 1997:
Common Stock, $2.50 par value 1,494,281
Class Number of Shares
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page No.
ITEM 1 Consolidated Financial Statements:
Consolidated Statements of Condition 3
Consolidated Statements of Earnings 4-5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-9
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 11
ITEM 2 Change in Securities 11
ITEM 3 Defaults Upon Senior Securities 11
ITEM 4 Submission of Matters to a Vote of Security Holders 11
ITEM 5 Other information 11
ITEM 6 Exhibits and Reports on Form 8-K 11
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(unaudited)
------------ ------------
<S> <C>
ASSETS
Cash and due from depository institutions
(non-interest bearing deposits) $ 4,081 $ 5,012
Securities held to maturity (market value,
1997 - $16,121; 1996 - $14,913) 15,721 14,545
Securities held for sale (market value,
1997 - $62,089; 1996 - $67,848) 62,089 67,848
Federal funds sold and securities
purchased under agreements to resell 2,727 4,368
Loans receivable - net 117,848 107,987
Bank premises and equipment 4,714 4,874
Other assets 2,781 2,840
--------- ---------
Total Assets $ 209,961 $ 207,474
========= =========
LIABILITIES
Deposits
Non-interest bearing $ 20,648 $ 20,753
Interest bearing 155,590 154,284
--------- ---------
Total Deposits 176,238 175,037
Repurchase agreements 1,349 1,200
Master Notes 2,715 2,870
Short-term borrowing 1,076 579
Other liabilities 1,075 1,213
--------- ---------
Total Liabilities 182,453 180,899
--------- ---------
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
1,494,281 shares 1997;1,506,419 shares 1996) 3,736 3,737
Capital surplus 1,162 1,171
Market valuation AFS securities (144) (162)
Retained earnings 22,754 21,829
--------- ---------
Total Stockholders' Equity 27,508 26,575
--------- ---------
Total Liabilities and Stockholders'
Equity $ 209,961 $ 207,474
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
THREE MONTHS ENDED
JUNE 30,
1997 1996
--------- ---------
(unaudited) (unaudited)
INTEREST INCOME
Loans receivable $2,601 $2,189
Securities and other investments 1,237 1,294
------ ------
Total Interest Income 3,838 3,483
------ ------
INTEREST EXPENSE
Interest on deposits 1,642 1,569
Interest on notes payable - 34
Interest on short-term borrowings 56 39
------ ------
Total Interest Expense 1,698 1,642
------ ------
NET INTEREST INCOME 2,140 1,841
Less: Provision for loan losses 19 -
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,121 1,841
NONINTEREST INCOME
Commissions and fees from fiduciary activities 86 93
Service charges on deposit accounts 187 162
Investment sales 22 -
Loan fees 50 44
Other operating income 3 8
------ ------
Total Noninterest Income 348 307
------ ------
NONINTEREST EXPENSES
Salaries and employee benefits 703 698
Occupancy and equipment 200 189
Data processing services 53 50
Marketing 29 20
Capital stock taxes 47 40
Other operating expenses 256 219
------ ------
Total Noninterest Expense 1,288 1,216
------ ------
Income before income tax expense 1,181 932
Income tax expense 341 277
------ ------
Net Income $ 840 $ 655
====== ======
Net income per share $ 0.56 $ 0.43
====== ======
Dividends per share $ 0.22 $ 0.19
====== ======
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
SIX MONTHS ENDED
JUNE 30,
1997 1996
--------- ---------
(unaudited) (unaudited)
INTEREST INCOME
Loans receivable $5,033 $4,479
Securities and other investments 2,470 2,536
------ ------
Total Interest Income 7,503 7,015
------ ------
INTEREST EXPENSE
Interest on deposits 3,743 3,124
Interest on notes payable - 70
Interest on short-term borrowings 104 78
------ ------
Total Interest Expense 3,347 3,272
------ ------
NET INTEREST INCOME 4,156 3,743
Less: Provision for loan losses 38 -
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,118 3,743
NONINTEREST INCOME
Commissions and fees from fiduciary activities 172 186
Service charges on deposit accounts 361 299
Investment sales 26
Loan fees 87 78
Other operating income 33 45
------ ------
Total Noninterest Income 679 608
------ ------
NONINTEREST EXPENSES
Salaries and employee benefits 1,434 1,377
Occupancy and equipment 402 374
Data processing services 106 92
Marketing 56 33
Capital stock taxes 93 81
Other operating expenses 494 487
------ ------
Total Noninterest Expense 2,585 2,444
------ ------
Income before income tax expense 2,212 1,907
Income tax expense 631 530
------ ------
Net Income $1,581 $1,377
====== ======
Net income per share $ 1.06 $ 0.92
====== ======
Dividends per share $ 0.44 $ 0.38
====== ======
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
6 MONTHS ENDING
JUNE 30
1997 1996
--------- ---------
(Unaudited) (Unaudited)
<S> <C>
OPERATING ACTIVITIES
Net income $ 1,581 $ 1,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 38
Depreciation 254 239
Pension 15 (13)
Amortization (accretion) of premiums
and discounts on securities (36) 37
Loss on sale of securities 3 32
(Increase) decrease in other assets 59 (468)
Increase (decrease) in other liabilities (138) (109)
-------- --------
Net cash provided by operating activities 1,776 1,095
-------- --------
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits
in other banks 1,252
Proceeds from maturity of investment securities 420 1,250
Proceeds from sales of securities available
for sale 5,506 9,709
Proceeds from maturity of securities available
for sale 14,279 16,400
Purchase of securities available for sale (13,945) (27,713)
Purchase of investment securities (1,595) (525)
Purchase of premises and equipment (94) (198)
Net increase in loans (9,945) (10,230)
-------- --------
Net cash provided by (used in) investing
activities (5,374) (10,055)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings
deposits 150 4,635
Net increase in time deposits 1,051 4,364
Net decrease in long-term borrowings (150)
Net increase (decrease) in repurchase agreements 149 100
Net increase (decrease) in short-term borrowings 497 914
Net decrease in master notes (155) (75)
Common stock repurchases (178) (94)
Common stock issued 168 157
Cash dividends paid on common stock (656) (571)
-------- --------
Net cash provided by (used in) financing
activities 1,026 9,280
-------- --------
Increase in cash and cash equivalents (2,572) 320
CASH AND CASH EQUIVALENTS
Beginning of the period 9,380 9,010
-------- --------
End of the period $ 6,808 $ 9,330
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND DECEMBER 31, 1996
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,
1997 and December 31, 1996, and the results of operations and cash flows
for the six months ended June 30, 1997 and 1996. 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, 1996.
2. The results of operations for the six month period ended June 30, 1997 and
1996 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's
omitted):
Amortized Fair
Cost Value
--------- ---------
Securities being Held to Maturity:
June 30, 1997
----------------------
U. S. Government Agencies $ 1,999 $ 2,016
Obligations of States and Political Subdivisions 13,722 14,105
---------- ---------
$ 15,721 $ 16,121
========== =========
December 31, 1996
-----------------------
U. S. Government Agencies $ 1,996 $ 2,034
Obligations of States and Political Subdivisions 12,549 12,879
---------- ---------
$ 14,545 $ 14,913
========== =========
Securities Available For Sale:
June 30, 1997
-----------------------
U. S. Treasury Securities $ 19,494 $ 19,447
U. S. Government Securities 40,901 40,667
Corporate Bonds 1,482 1,475
Other Equity Securities 500 500
---------- ---------
$ 62,377 $ 62,089
========== =========
December 31, 1996
-----------------------
U. S. Treasury Securities $ 18,421 $ 18,431
U. S. Government Securities 49,255 49,000
Other Equity Securities 417 417
---------- ---------
$ 68,093 $ 67,848
========== =========
-7-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND DECEMBER 31, 1996
(000 Omitted)
4. The Corporation's loan portfolio is composed of the following:
June 30 Dec. 31
1997 1996
---------- ---------
(Unaudited)
Real estate loans:
Construction $ 8,932 $ 6,274
Secured by farmland 625 627
Secured by 1-4 family residential 55,005 51,927
Other real estate loans 30,284 27,819
Loans to farmers (except secured by
real estate) 372 443
Commercial and industrial loans (except
those secured by real estate) 8,633 9,004
Loans to individuals for personal
expenditures 12,103 9,873
All other loans 3,277 3,353
--------- ---------
119,231 109,320
Less:
Deferred loan fees (91) (86)
Allowance for loan losses (1,292) (1,247)
--------- ---------
$ 117,848 $ 107,987
========= =========
5. Activity in the allowance for loan losses is as follows:
June 30 Dec. 31
1997 1996
--------- ----------
(Unaudited)
Balance at January 1 $ 1,247 $ 1,320
Recoveries added to the allowance 12 28
Loan losses charged to the allowance (5) (101)
Provision recorded to expense 38
-------- --------
Balance at end of period $ 1,292 $ 1,247
======== ========
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the six month periods
ended June 30 were 1,497,281 in 1997 and 1,503,265 in 1996.
-8-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition / Results of Operations
Second National Financial Corporation's consolidated net income amounted to $840
thousand or $.56 per share for the three month period ended June 30, 1997,
compared with $655 thousand or $.43 per share for the same period in 1996.
Consolidated net income for the six month period ended June 30, 1997 amounted to
$1.581 million or $1.06 per share, compared with $1.377 million or $.91 per
share for the same period in 1996 Operating results for the three and six month
periods where positively impacted by continuing loan growth and improvement in
the net interest margin. Net income for the three month period ended June 30,
1997 represented a 28.2% increase over three month comparable earnings and 14.8%
increase over six month comparable earnings in 1996. Cumulative six month
earnings represented 1.54% return on average assets and a 11.82% return on
stockholder's equity versus 1.37% and 10.85% for 1996.
Net interest income, the Corporation's primary source of earnings, increased
$280 thousand from $1.841 million in 1996 to $2.121 million for the three months
ended June 30, 1997. For the six month period ended June 30, 1997 net interest
income increased 413 thousand or 11.0% over the comparable period in 1996. The
increase reflects improvement in the net interest margin and improved
performance in the Company's investment portfolio. The net interest margin
improved to 4.52% for the six months ended June 30, 1997, compared to 4.15% for
the same period in 1996.
The mix of average earning assets was positively impacted by growth in the loan
portfolio. Net loans amounted to $117.848 million, up $9.861 million from
$107.987 million at December 31, 1996. Total assets of the Corporation were
$209.9 million at June 30, 1997, an increase of 1.2% compared to assets of
$207.4 million at December 31, 1996. The loan growth was funded from lower
yielding securities that matured during the period.
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 $41 thousand or 13.3% from
$307 thousand in 1996 to $348 thousand for the three months ended June 30, 1997.
Noninterest income increased $71 thousand or 11.7% from $608 thousand in 1996 to
$679 thousand for the six months ended June 30, 1997. The increase was primarily
attributed to increased service charges on deposit accounts and commission
income on investment sales.
Noninterest expenses increased $72 thousand or 5.9% from $1.216 million in 1996
to $1.288 million for the three months ended June 30, 1997. Noninterest expense
increased $141 thousand or 5.8% from $2.444 million in 1996 to $2.585 million
for the six months ended June 30, 1997.
-9-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Adequacy
Stockholders' equity as of June 30, 1997 of $27.508 million increased $933
thousand or approximately 3.5% from $26.575 million at December 31, 1996. The
Corporation's Tier I risk- based capital-to-asset ratio was 19.79% at June 30,
1997, compared to 23.89% at December 31, 1996. Federal Reserve and FDIC
guidelines require 8% of total capital to risk weighted assets.
Asset Quality
The Corporation continued to experience high loan quality during the three
months ended June 30, 1997, as evidenced by net recoveries of $3 thousand for
the three month period ending June 30, 1997, compared to net charge-offs of $101
thousand for all of 1996. The allowance for loan losses as a percentage of net
loans amounted to 1.07% at June 30, 1997 compared to 1.14% at December 31, 1996.
Nonperforming assets at June 30, 1997 amounted to $600,774 or .65% of loans.
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. The Bank began to record additional provision
for loan loss in 1997 to maintain its ratio of allowances to outstanding loans
receivable given the growth in the loan portfolio. Management considers the
allowance for loan loss to be adequate at this time.
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 8.1% 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.
-10-
<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.
On April 10, 1997 the Corporation held its annual meeting of
stockholders. Messrs. Gayheart and Jebson were elected as directors for
a term of three years. In addition, the ratification of Yount, Hyde &
Barbour to be independent auditors for 1997 was approved.
ITEM 5. OTHER INFORMATION.
Second National Financial Corporations stock commenced trading on the
NASDAQ Small Cap Market July 14, 1997 under the symbol SEFC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits are not applicable
(b) A Form 8-K was filed on behalf of the Corporation on June 24,
1997, to request from the Commission an exchange act file
number to be used in future filings and to meet requirements
for listing of the Corporation's stock on the NASDAQ Small Cap
Market.
-11-
<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/ O.R. Barham, Jr.
---------------------------
O.R. Barham, Jr., President
Chief Executive Officer
August 10, 1997
/s/ Jeffrey W. Farrar
----------------------------
Jeffrey W. Farrar, CPA
Vice President - Principal
Financial Officer
August 10, 1997
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,081
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,727
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,089
<INVESTMENTS-CARRYING> 15,721
<INVESTMENTS-MARKET> 16,121
<LOANS> 117,848
<ALLOWANCE> 1,292
<TOTAL-ASSETS> 209,961
<DEPOSITS> 176,238
<SHORT-TERM> 1,076
<LIABILITIES-OTHER> 1,075
<LONG-TERM> 0
0
0
<COMMON> 3,736
<OTHER-SE> 23,772
<TOTAL-LIABILITIES-AND-EQUITY> 209,961
<INTEREST-LOAN> 5,033
<INTEREST-INVEST> 2,470
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,503
<INTEREST-DEPOSIT> 3,243
<INTEREST-EXPENSE> 3,347
<INTEREST-INCOME-NET> 4,156
<LOAN-LOSSES> 38
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 2,585
<INCOME-PRETAX> 2,212
<INCOME-PRE-EXTRAORDINARY> 2,212
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,581
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
<YIELD-ACTUAL> 193,862
<LOANS-NON> 428
<LOANS-PAST> 75
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,165
<ALLOWANCE-OPEN> 1,247
<CHARGE-OFFS> 5
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1,292
<ALLOWANCE-DOMESTIC> 218
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,074
</TABLE>
