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, 1998
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 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, 1998:
Common Stock, $2.50 par value 1,506,686
- ----------------------------- -----------------------
Class Number of Shares
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page No.
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4-5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Financial Statements 8-9
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-14
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 2 Change in Securities 15
ITEM 3 Defaults Upon Senior Securities 15
ITEM 4 Submission of Matters to a Vote of Security Holders 15
ITEM 5 Other Information 15
ITEM 6 Exhibits and Reports on Form 8-K 15-16
SIGNATURES 17
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Cash and due from depository institutions (non-interest bearing deposits) $ 5,710 $ 6,546
Securities held to maturity (market value, 1998 - $20,756; 1997 - $14,765) 19,998 14,265
Securities held for sale (market value, 1998 - $64,034; 1997 - $63,790) 64,034 63,790
Federal funds sold 8,985 475
Loans receivable - net 131,946 129,352
Bank premises and equipment 5,294 4,988
Other real estate owned 299 --
Other assets 3,171 2,654
-------- --------
Total Assets $239,437 $222,070
======== ========
LIABILITIES
Deposits
Non-interest bearing $ 28,502 $ 24,499
Interest bearing 173,650 160,106
-------- --------
Total Deposits 202,152 184,605
Repurchase agreements 1,149 3,301
Short-term borrowings 3,288 3,838
Other liabilities 1,833 1,431
-------- --------
Total Liabilities 208,422 193,175
-------- --------
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 1,506,686 shares 1998;
1,500,529 shares 1997) 3,767 3,751
Capital surplus 1,531 1,309
Retained earnings 25,234 23,730
Accumulated other comprehensive income 483 105
-------- --------
Total Stockholders' Equity 31,015 28,895
-------- --------
Total Liabilities and Stockholders' Equity $239,437 $222,070
======== ========
</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 ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Interest Income
Interest and fees on loans $ 3,001 $ 2,684
Interest income on securities:
Taxable interest income 964 1,059
Interest income exempt from federal taxes 243 141
Dividends 19 9
Interest on federal funds sold 76 40
------- -------
Total Interest Income 4,303 3,933
------- -------
Interest Expense
Interest on deposits 1,858 1,686
Interest on short-term borrowings 56 70
------- -------
Total Interest Expense 1,914 1,756
------- -------
Net Interest Income 2,389 2,177
Less: Provision for loan losses 75 38
------- -------
Net Interest Income After Provision for Loan Losses 2,314 2,139
Noninterest Income
Commissions and fees from fiduciary activities 120 87
Service charges on deposit accounts 206 197
Mortgage banking and other loan fees 166 63
Gain (loss) on securities available for sale 6 (3)
Other operating income 89 86
------- -------
Total Noninterest Income 587 430
------- -------
Noninterest Expense
Salaries and employee benefits 911 790
Net occupancy expense of premises 250 205
Computer services 87 61
Capital stock taxes 44 47
Merger expenses 91 --
Other operating expenses 357 339
------- -------
Total Noninterest Expense 1,740 1,442
------- -------
Income Before Income Tax Expense 1,161 1,127
Income tax expense 317 323
------- -------
Net Income $ 844 $ 804
======= =======
Earnings per Share, basic and
assuming dilution $ 0.56 $ 0.53
======= =======
Dividends per share $ 0.24 $ 0.22
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Interest Income
Interest and fees on loans $ 8,849 $ 7,717
Interest income on securities:
Taxable interest income 2,853 3,065
Interest income exempt from federal taxes 662 515
Dividends 28 22
Interest on federal funds sold 209 117
----------- -----------
Total Interest Income 12,601 11,436
----------- -----------
Interest Expense
Interest on deposits 5,369 4,929
Interest on short-term borrowings 168 174
----------- -----------
Total Interest Expense 5,537 5,103
----------- -----------
Net Interest Income 7,064 6,333
Less: Provision for loan losses 225 76
----------- -----------
Net Interest Income After Provision for Loan Losses 6,839 6,257
Noninterest Income
Commissions and fees from fiduciary activities 362 259
Service charges on deposit accounts 596 558
Mortgage banking and other loan fees 441 150
Gain (loss) on sale of securities available for sale 6 (3)
Other operating income 277 145
----------- -----------
Total Noninterest Income 1,682 1,109
----------- -----------
Noninterest Expense
Salaries and employee benefits 2,649 2,224
Net occupancy expense of premises 692 607
Computer services 225 167
Capital stock taxes 131 140
Merger expenses 165 --
Other operating expenses 1,041 889
----------- -----------
Total Noninterest Expense 4,903 4,027
----------- -----------
Income Before Income Tax Expense 3,618 3,339
Income tax expense 1,032 954
----------- -----------
Net Income $ 2,586 $ 2,385
=========== ============
Earnings per Share, basic and
assuming dilution $ 1.72 $ 1.59
=========== ============
Dividends per share $ 0.72 $ 0.66
=========== ============
</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, 1998 AND 1997
(000 OMITTED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income Earnings Income Total
--------- --------- ------------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances - January 1, 1997 $ 3,737 $ 1,171 $ (162) $ 21,829 $ -- $ 26,575
Comprehensive Income:
Net Income -- -- -- 2,385 2,385 2,385
Other Comprehensive Income, net of
tax:
Unrealized gains on securities available for sale:
Unrealized holding gains arising
during the period -- -- -- -- 208 208
Less: reclassification adjustment -- -- -- -- (3) (3)
------------- ---------
Other Comprehensive Income, net of tax -- -- 205 -- 205 --
-------------
Total Comprehensive Income -- -- -- -- $ 2,590 --
=============
Dividend Reinvestment 29 219 -- -- 248
Stock Repurchases (22) (156) -- -- (178)
Cash Dividends -- -- -- (985) (985)
-------- -------- -------- -------- --------
Balances - September 30, 1997 $ 3,744 $ 1,234 $ 43 $ 23,229 $ 28,250
======== ======== ======== ======== ========
Balances - January 1, 1998 $ 3,751 $ 1,309 $ 105 $ 23,730 $ -- $ 28,895
Comprehensive Income:
Net Income -- -- -- 2,586 2,586 2,586
Other Comprehensive Income, net of
tax:
Unrealized gains on securities available for sale:
Unrealized holding gains arising
during the period -- -- -- -- 384 384
Less: reclassification adjustment -- -- -- -- (6) (6)
------------- ---------
Other Comprehensive Income, net of tax -- -- 378 -- 378 --
-------------
Total Comprehensive Income -- -- -- -- $ 2,964 --
===============
Dividend Reinvestment 16 222 -- -- 238
Cash Dividends -- -- -- (1,082) (1,082)
-------- -------- -------- -------- --------
Balances - September 30, 1998 $ 3,767 $ 1,531 $ 483 $ 25,234 $ 31,015
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDING
SEPTEMBER 30,
1998 1997
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,586 $ 2,385
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 225 76
Depreciation and amortization 455 371
Pension 3 24
Amortization (accretion) of premiums and discounts on securities (27) (54)
(Gain) loss on sale of securities (6) 3
Undistributed loss of subsidiary 8 28
(Increase) decrease in other assets (520) 179
Increase (decrease) in other liabilities 208 7
-------- --------
Net cash provided by operating activities 2,932 3,019
-------- --------
INVESTING ACTIVITIES
Proceeds from maturity of investment securities 1,200 420
Proceeds from sales of securities available for sale 3,264 5,506
Proceeds from maturity of securities available for sale 30,264 17,622
Purchase of securities available for sale (34,197) (18,239)
Purchase of investment securities (5,929) (1,595)
Purchase of premises and equipment (743) (475)
Proceeds from sale of other real estate 60 --
Purchase of other real estate (364) --
Net increase in loans (2,814) (14,730)
-------- --------
Net cash used in investing activities (9,259) (11,491)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 12,047 4,208
Net increase in time deposits 5,500 2,524
Net increase (decrease) in repurchase agreements (152) 281
Net increase (decrease) in short-term borrowings (2,548) 794
Net increase (decrease) in master notes (2) (292)
Common stock repurchases -- (178)
Common stock issued 238 250
Cash dividends paid on common stock (1,082) (984)
-------- --------
Net cash provided by financing activities 14,001 6,603
-------- --------
Increase (decrease) in cash and cash equivalents 7,674 (1,869)
CASH AND CASH EQUIVALENTS
Beginning of the period 7,021 9,380
-------- --------
End of the period $ 14,695 $ 7,511
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
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, 1998 and December 31, 1997, and the results of operations and
cash flows for the nine months ended September 30, 1998 and 1997. 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, 1997.
2 The results of operations for the nine month period ended September 30,
1998 and 1997 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):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- -----------
<S> <C> <C>
Securities being Held to Maturity:
September 30, 1998
--------------------------
Obligations of States and Political Subdivisions $ 19,998 $ 20,756
========= ===========
December 31, 1997
--------------------------
Obligations of States and Political Subdivisions $ 14,265 $ 14,765
========= ==========
Securities Available For Sale:
September 30, 1998
--------------------------
U. S. Treasury Securities $ 9,974 $ 10,111
U. S. Government Securities 42,102 42,612
Obligations of States and Political Subdivisions 2,019 2,056
Corporate Bonds 8,070 8,117
Other Equity Securities 1,138 1,138
--------- ----------
$ 63,303 $ 64,034
========= ==========
December 31, 1997
--------------------------
U. S. Treasury Securities $ 18,946 $ 19,025
U. S. Government Securities 39,704 39,775
Corporate Bonds 3,502 3,511
Obligations of States and Political Subdivisions 1,009 1,009
Other Equity Securities 470 470
--------- ------------
$ 63,631 $ 63,790
========= ============
</TABLE>
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(000 Omitted)
4. The Corporation's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Real estate loans:
Construction $ 12,780 $ 10,878
Secured by farmland 479 611
Secured by 1-4 family residential 50,725 53,953
Other real estate loans 42,465 37,513
Loans to farmers (except secured by
real estate) 168 455
Commercial and industrial loans (except
those secured by real estate) 6,861 9,660
Loans to individuals for personal
expenditures 17,080 14,528
All other loans 2,992 3,204
--------- ---------
133,550 130,802
Less:
Deferred loan fees (140) (89)
Allowance for loan losses (1,464) (1,361)
--------- ---------
$ 131,946 $ 129,352
========= =========
</TABLE>
5. Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
--------- --------
(unaudited)
<S> <C> <C>
Balance at January 1 $ 1,361 $ 1,247
Recoveries added to the allowance 21 20
Loan losses charged to the allowance (143) (31)
Provision recorded to expense 225 125
------- -------
Balance at end of period $ 1,464 $ 1,361
======= =======
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the nine month periods
ended September 30, 1998 and 1997 were 1,503,425 and 1,495,500 shares. Average
shares for the three month periods ended September 30, 1998 and 1997, were
1,505,420 and 1,495,345 shares, respectively.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information about the major components of the
results of operations, financial condition, liquidity and capital resources of
Second National Financial Corporation (the Company). This discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements and supplemental financial data.
Overview
Second National Financial Corporation's consolidated net income for the quarter
ended September 30, 1998 amounted to $844 thousand or $.56 per share,
representing a 5% increase over $804 thousand or $.53 per share for the quarter
ended September 30, 1997. Net income for the nine month period ended September
30, 1998 was $2.586 million or $1.72 per share, representing a 8.43% increase
over $2.385 million or $1.59 per share for the nine month period ended September
30, 1997. Premerger earnings, adjusted for expenses of $165 thousand incurred in
connection with the Company's pending merger with Virginia Heartland Bank, would
reflect earnings increases of 16.2% for the quarter ended September 30, 1998,
and 15.4% for the nine months ended September 30, 1998, respectively.
The Company's annualized return on average equity for the quarter and nine
months ended September 30, 1998 was 11.17% and 11.64%, compared to 12.48% and
11.82% for the comparative periods in 1997. The Company's annualized return on
average assets for the quarter and nine months ended September 30, 1998 was
1.44% and 1.50%, compared to 1.47% and 1.52% for the comparative periods in
1997.
Net Interest Income
Net interest income, the Company's primary source of earnings, increased $212
thousand or 9.74% to $2.389 million for the three months ended September 30,
1998. Net interest income for the nine months ended September 30, 1998 was
$7.064 million, an increase of $731 thousand or 11.54% from $6.333 million at
September 30, 1997. This improvement can be attributed to an increase in average
earning assets of $19.414 million to $224.461 million at September 30, 1998, an
increase of 9.47% over $205.047 million at September 30, 1997.The increase in
average earning assets can be attributed to growth in retail deposits, which
were used to fund increases in loans receivable of $2.594 million and an
increase in investments and federal funds sold of $14.487 for the nine months
ended September 30, 1998. Deposits at September 30, 1998 were $202.152 million,
an increase of $20.547 million or 10.16% from $184.605 million at December 31,
1997. The net interest margin for the nine months ended September 30, 1998 was
4.58%, slightly improved from 4.55% for the comparable period in 1997.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Noninterest Income
Noninterest income increased $157 thousand to $587 thousand for the three months
ended September 30, 1998, an improvement of 36.51% over the comparative period
in 1997. Noninterest income increased $573 thousand, or 51.67%, to $1.682
million for the nine months ended September 30, 1998. Fees from trust services,
brokerage services and mortgage banking operations accounted for much of the
increase. Loan originations through the mortgage division increased to $12.522
million during the quarter ended September 30, 1998, an increase of $7.641
million from the $4.881 million originated in the quarter ended September 30,
1997. Originations for the nine months ended September 30, 1998 were $25.963
million, an increase of $13.441 million or 107.3% from the nine months period in
1997.
Noninterest Expense
Operating expenses increased $298 thousand, or 20.67% to $1.740 million for the
three months ended September 30, 1998, compared to $1.442 million for the same
period in 1997. Operating expenses increased $876 thousand, or 21.75% to $4.903
million for the nine months ended September 30, 1998, compared to $4.027 million
for the same period in 1997. This increase can be primarily attributed to merger
related costs of $90 thousand for the three month period and $165 thousand for
the nine month period, and operating expenses associated with new offices and
management hiring.
Asset Quality
Nonperforming loans amounted to $588 thousand or .25% of assets at September 30,
1998, compared to $516 thousand or .23% of assets at December 31, 1997. The
Company recorded a provision for loan losses of $75 thousand and $225 thousand
for the three month and nine month periods ended September 30, 1998, compared to
a provision of $38 thousand and $76 thousand for the three month and nine month
periods ended September 30, 1997. The allowance for loan losses at September 30,
1998 amounted to $1.464 million compared to $1.361 million at December 31, 1997.
The allowance for loan losses represents 249% of nonperforming assets and 1.10%
of gross loans receivable at September 30, 1998.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Corporation's capital base provides the resource and ability to support the
assets of the Company and provide capital for future expansion. Stockholders'
equity as of September 30, 1998 of $31.015 million increased $2.120 million or
approximately 7.34% from $28.895 million at December 31, 1997. The Corporation's
Tier I capital consists primarily of common stockholder's equity. Risk weighted
assets are determined by assigning various risk levels to each asset type. The
Corporation's Tier 1 risk based capital ratio was 18.96% at September 30, 1998,
compared to 21.57% at December 31, 1997, placing the Corporation in a well
capitalized position as defined by regulators.
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 sources 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 and
Federal Home Loan Bank to support liquidity.
The Corporation has no brokered deposits. Certificates of deposit in
denominations of $100 thousand or more represent 8.85% 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.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000 Preparedness
The Corporation utilizes and is reliant upon significant data processing systems
in the ordinary course of its business. The mainframe processing systems and
related communication networks include various software packages licensed from
various outside vendors.
The Corporation has completed an initial review and assessment of its hardware
and software for Year 2000 compliance. Based on this initial assessment, the
Corporation's mainframe hardware and bank application software are Year 2000
complaint. However, all critical applications are currently being rigorously
tested to ensure compliance. Costs incurred to date are not material to the
consolidated financial statements, and remaining expenditures are not expected
to have a material effect on the Corporation's financial statements. However,
there can be no guarantee that these estimates will be achieved and actual
results could materially differ from those estimates.
The Corporation has also initiated formal communications with all significant
loan and deposit customers to determine whether the Corporation is at risk if
certain of those third parties fail to address Year 2000 compliance. Such risk
can not be reasonably estimated at this time.
New Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131. (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 requires that a
public enterprise report financial and descriptive information about its
reportable segments. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. Adoption of this statement will not impact the Corporation's
consolidated financial position, results of operations or cash flows, but will
be limited to the form and content of disclosures.
In June 1998, FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." FAS 133 establishes accounting and reporting standards for
derivative financial instruments and other similar financial instruments
including hedging activities. FAS 133 is effective for years beginning after
June 15, 1999. Implementation of the statement is not expected to have a
material impact on the consolidated financial statements of the Corporation.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effects of Inflation
The effect of changing prices on financial institutions is typically different
from other industries as the Corporation's assets and liabilities are monetary
in nature. Interest rates and thus the Corporation's asset liability management
is impacted by changes in inflation, but there is not a direct correlation
between the two measures. Management monitors the impact of inflation on the
financial markets.
Forward Looking Statements
The statements contained in this report that are not historical facts may be
construed as forward looking statements. The forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the quantitative and qualitative
market risk disclosures in the Company's Form 10K for the year ended December
31, 1997.
<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 September 10, 1998, the Company held a special meeting of its
shareholders at which an Agreement and Plan of Reorganization and a
related Plan of Merger were approved in connection with the
Company's merger with Virginia Heartland Bank. The following is a
summation of voting results:
Votes for approval 1,059,603
Votes against approval of merger 20,199
Votes abstaining from vote 9,167
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are incorporated herein by reference or
are filed as part of this document:
Exhibit No. 2 Plan of Reorganization
Incorporated herein by reference to Appendix A to
the Registrant's Registration Statement Form S-4
No. 333-57479 filed on June 23, 1998.
Exhibit No. 3 Articles of Incorporation
Incorporated herein by reference to Appendix B to
the Registrant's Registration Statement Form S-4
No. 333-57479 filed on June 23, 1998.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
PART II - OTHER INFORMATION
Exhibit No. 4 Instruments defining the rights of security
holders
Incorporated herein by reference to Exhibit 1 to
the Registrant's Registration Statement Form 8-A
filed on September 22, 1998.
Exhibit No. 20 Other documents or statements to security holders
Incorporated herein by reference to Exhibit 99.1
to the Registrant's Current Report Form 8-K filed
on September 14, 1998.
Exhibit No. 27 Financial Data Schedule
(b) The following represents reports on Form 8-K.
During the quarter ended September 30, 1998, a Form 8-K was filed on
September 10, 1998 to announce (1) shareholder approval of the April
18, 1998 Agreement and Plan of Reorganization providing for the
affiliation of the Company with Virginia Heartland Bank and (2)
adoption by the Company's Board of Directors of a shareholder rights
plan.
<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
November 12, 1998
/s/ Jeffrey W. Farrar
-------------------------------
Jeffrey W. Farrar, CPA
Senior Vice President - Chief Financial Officer
November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
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0
0
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