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Previous: UNITED INVESTORS INCOME PROPERTIES II, 10QSB, 1998-05-14 |
Next: SECOND NATIONAL FINANCIAL CORP, DEF 14A, 1998-05-14 |
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 March 31, 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 April 30, 1998:
Common Stock, $2.50 par value 1,502,744
- ----------------------------- ----------------
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
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-8
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 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
SIGNATURES 12
-2-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(000 OMITTED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
ASSETS (unaudited)
<S> <C>
Cash and due from depository institutions (non-interest bearing deposits) $ 6,924 $ 6,546
Securities held to maturity (market value, 1998 - $16,565; 1997 - $14,765) 16,091 14,265
Securities held for sale (market value, 1998 - $62,786; 1997 - $63,790) 62,786 63,790
Federal funds sold and securities purchased under agreements to resell 3,628 475
Loans receivable - net 130,330 129,352
Bank premises and equipment 5,477 4,988
Other assets 2,480 2,654
-------- ---------
Total Assets $ 227,716 $222,070
======== =========
LIABILITIES
Deposits
Non-interest bearing $ 26,077 $ 24,499
Interest bearing 166,434 160,106
-------- ---------
Total Deposits 192,511 184,605
Repurchase agreements 1,242 3,301
Short-term borrowings 3,263 3,838
Other liabilities 1,279 1,431
-------- ---------
Total Liabilities 198,295 193,175
-------- ---------
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 1,502,744 shares 1998;
1,500,529 shares 1997) 3,757 3,751
Capital surplus 1,379 1,309
Retained earnings 24,210 23,730
Accumulated other comprehesive income 75 105
-------- ---------
Total Stockholders' Equity 29,421 28,895
-------- ---------
Total Liabilities and Stockholders' Equity $ 227,716 $222,070
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------------ -----------------
(unaudited) (unaudited)
<S> <C>
Interest Income
Interest and fees on loans $ 2,900 $ 2,432
Interest income from depository institutions 13
Interest income on securities:
Taxable interest income 917 996
Interest income exempt from federal taxes 192 173
Dividends 2 5
Interest on federal funds and securities purchased under
agreements to resell 82 46
------------------ -----------------
Total Interest Income 4,093 3,665
------------------ -----------------
Interest Expense
Interest on deposits 1,738 1,601
Interest on short-term borrowings 57 48
------------------ -----------------
Total Interest Expense 1,795 1,649
------------------ -----------------
Net Interest Income 2,298 2,016
Less: Provision for loan losses 75 19
------------------ -----------------
Net Interest Income After Provision for Loan Losses 2,223 1,997
Noninterest Income
Commissions and fees from fiduciary activities 120 86
Service charges on deposit accounts 184 174
Mortgage banking fees 111 37
Other operating income 73 34
------------------ -----------------
Total Noninterest Income 488 331
------------------ -----------------
Noninterest Expense
Salaries and employee benefits 855 731
Net occupancy expense of premises 219 202
Computer services 81 53
Other operating expenses 385 311
------------------ -----------------
Total Noninterest Expense 1,540 1,297
------------------ -----------------
Income Before Income Tax Expense 1,171 1,031
Income tax expense 331 290
------------------ -----------------
Net Income $ 840 $ 741
================== =================
Earnings per Share, basic and
assuming dilution $ 0.56 $ 0.50
================== =================
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 CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(000 OMITTED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive
Stock Surplus Income
----------- ------------- -------------
<S> <C>
Balances - January 1, 1997 $ 3,737 $ 1,171 $ (162)
Comprehensive Income:
Net Income - -
Other Comprehensive Income, net of
tax:
Unrealized losses on securities
available for sale:
Unrealized holding losses arising
during the period - - -
Add: reclassification adjustment - - -
Other Comprehensive Income, net of tax - - (273)
Total Comprehensive Income - - -
Dividend Reinvestment 11 76 -
Stock Repurchases (22) (156) -
Cash Dividends - - -
----------- ------------- -------------
Balances - March 31, 1997 $ 3,726 $ 1,091 $ (435)
=========== ============= =============
Balances - January 1, 1998 $ 3,751 $ 1,309 $ 105
Net Income - -
Other Comprehensive Income, net of
tax:
Unrealized losses on securities
available for sale:
Unrealized holding losses arising
during the period - - -
Add: reclassification adjustment - - -
Other Comprehensive Income, net of tax - - (30)
Total Comprehensive Income - - -
Dividend Reinvestment 6 70
Cash Dividends - - -
----------- ------------- -------------
Balances - March 31, 1998 $ 3,757 $ 1,379 $ 75
=========== ============= =============
</TABLE>
<TABLE>
<CAPTION>
Retained Comprehensive
Earnings Income Total
---------------- ----------------- -----------
<S> <C>
Balances - January 1, 1997 $ 21,829 - $ 26,575
Comprehensive Income:
Net Income 741 741 741
Other Comprehensive Income, net of
tax:
Unrealized losses on securities
available for sale:
Unrealized holding losses arising
during the period - (274) (274)
Add: reclassification adjustment - 1 1
-------------- ---------
Other Comprehensive Income, net of tax - (273) -
--------------
Total Comprehensive Income - $ 468 -
==============
Dividend Reinvestment - 87
Stock Repurchases - (178)
Cash Dividends (328) (328)
------------- ---------
Balances - March 31, 1997 $ 22,242 $ 26,624
============= =========
Balances - January 1, 1998 $ 23,730 $ 28,895
Net Income 840 840 840
Other Comprehensive Income, net of
tax:
Unrealized losses on securities
available for sale:
Unrealized holding losses arising
during the period - (30) (30)
Add: reclassification adjustment - - -
-------------- ---------
Other Comprehensive Income, net of tax - (30) -
--------------
Total Comprehensive Income - $ 810 -
==============
Dividend Reinvestment - 76
Cash Dividends (360) (360)
------------- ---------
Balances - March 31, 1998 $ 24,210 $ 29,421
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31,
1998 1997
----------------- -----------------
(unaudited) (unaudited)
<S> <C>
OPERATING ACTIVITIES
Net income $ 840 $ 741
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 75 18
Deferred tax expense (benefit) 17 -
Depreciation and amortization 114 127
Pension 3 3
Amortization (accretion) of premiums and discounts
on securities (16) (16)
(Gain) loss on sale of securities - (1)
Undistributed loss of subsidiary 8 -
(Increase) decrease in other assets 174 106
Increase (decrease) in other liabilities (152) 51
----------------- -----------------
Net cash provided by operating activities 1,063 1,029
----------------- -----------------
INVESTING ACTIVITIES
Proceeds from maturity of investment securities 1,000 170
Proceeds from sales of securities available for sale - 2,000
Proceeds from maturity of securities available for sale 16,019 8,314
Purchase of securities available for sale (16,061) (5,472)
Purchase of investment securities (1,825) (555)
Purchase of premises and equipment (597) (104)
Net increase in loans (1,057) (3,766)
----------------- -----------------
Net cash (used in) provided by investing activities (2,521) 587
----------------- -----------------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 3,561 (1,300)
Net increase in time deposits 4,346 1,003
Net increase (decrease) in repurchase agreements (59) -
Net increase (decrease) in short-term borrowings (2,907) 279
Net increase (decrease) in master notes 332 (240)
Common stock repurchases - (178)
Common stock issued 76 87
Cash dividends paid on common stock (360) (328)
----------------- -----------------
Net cash provided by (used in) financing activities 4,989 (677)
----------------- -----------------
Increase in cash and cash equivalents 3,531 939
CASH AND CASH EQUIVALENTS
Beginning of the period 7,021 9,380
----------------- -----------------
End of the period $ 10,552 $ 10,319
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March
31, 1998 and December 31, 1997, and the results of operations and cash
flows for the three months ended March 31, 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 three month period ended March 31, 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>
Securities being Held to Maturity:
March 31, 1998
----------------------------------
Obligations of States and Political Subdivisions $ 16,091 $ 16,565
============== ==============
December 31, 1997
----------------------------------
Obligations of States and Political Subdivisions $ 14,265 $ 14,765
============== ==============
Securities Available For Sale:
March 31, 1998
----------------------------------
U. S. Treasury Securities $ 13,958 $ 14,032
U. S. Government Securities 41,225 41,254
Obligations of States and Political Subdivisions 2,023 2,028
Corporate Bonds 5,011 5,017
Other Equity Securities 479 479
-------------- --------------
$ 62,696 $ 62,810
============== ==============
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 AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
(000 Omitted)
4. The Corporation's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
-------------- --------------
(unaudited)
<S> <C>
Real estate loans:
Construction $ 11,632 $ 10,878
Secured by farmland 464 611
Secured by 1-4 family residential 53,047 53,953
Other real estate loans 38,280 37,513
Loans to farmers (except secured by
real estate) 332 455
Commercial and industrial loans (except
those secured by real estate) 8,375 9,660
Loans to individuals for personal
expenditures 16,173 14,528
All other loans 3,556 3,204
-------------- --------------
131,859 130,802
Less:
Deferred loan fees (99) (89)
Allowance for loan losses (1,430) (1,361)
-------------- --------------
$ 130,330 $ 129,352
============== ==============
</TABLE>
5. Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
-------------- --------------
(Unaudited)
<S> <C>
Balance at January 1 $ 1,361 $ 1,247
Recoveries added to the allowance 3 20
Loan losses charged to the allowance (9) (31)
Provision recorded to expense 75 125
-------------- --------------
Balance at end of period $ 1,430 $ 1,361
============== ==============
</TABLE>
6. Earnings and Dividends Paid Per Share:
The weighted average number of shares outstanding for the three month periods
ended March 31 were 1,501,340 in 1998 and 1,500,529 in 1997.
<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 and cumulative period ended March
31, 1998, compared with $741 thousand or $.50 per share for the same period in
1997. Operating results for the first three months of the fiscal year where
positively impacted by strong yields on loans which increased net interest
margin, as well as higher levels of noninterest income for the first quarter.
Net income for the three month period ended March 31, 1998 represented a 1.50%
return on average assets and a 11.55% return on stockholder's equity versus
1.45% and 11.19% for 1997.
Net interest income, the Corporation's primary source of earnings, increased
$282 thousand or 12.27%, from $1.997 million in 1997 to $2.298 million for the
three months ended March 31, 1998. The net interest margin improved to 4.57% for
the three months ended March 31, 1998, compared to 4.43% for the same period in
1997.
Total assets of the Corporation at March 31, 1998, grew 2.5%, from $222 million
at December 31, 1997, to $227.7 million at March 31, 1998. Deposits increased to
$192.5 million, an increase of $7.9 million or 4.28% for the quarter.
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 $157 thousand or 47.4% from
$331 thousand in 1997 to $488 thousand for the three months ended March 31,
1998. Higher fees earned from brokerage services and mortgage banking operations
as well as growth in fiduciary income contributed to this increase.
Noninterest expenses rose by $243 thousand or 18.74% from $1.297 million in 1997
to $1.540 million for the three months ended March 31, 1998. Increases in
overall higher Corporate administrative and operating expenses associated with
the new branch in Harrisonburg, including an increase of employee salaries and
benefits of $124 thousand, contributed to the first quarter increase in
noninterest expense. However, the tax-equivalent efficiency ratio, a measure of
the Corporation's overhead as a percentage of gross revenues, increased only
1.35% to 53.11% for the first quarter of 1998, compared to a year-end 1997 ratio
of 52.80%.
Capital Adequacy
Stockholders' equity as of March 31, 1998 grew to $29.421 million, up $526
thousand or approximately 1.8% from $28.895 million at December 31, 1997. The
Corporation's Tier I risk-based capital-to-asset ratio was 19.01% at March 31,
1998, compared to 19.04% at December 31, 1997. Federal Reserve and FDIC
guidelines require 8% of total capital to risk weighted assets, and the
Corporation far exceeds this regulatory requirement.
-9-
<PAGE>
SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Asset Quality
The Corporation continued to experience high loan quality during the first
quarter of 1998, as evidenced by net charge-offs of $9 thousand for the three
month period ending March 31, 1998, compared to net charge-offs of $31 thousand
for all of 1997. The allowance for loan losses as a percentage of net loans
amounted to 1.08% at March 31, 1998 compared to 1.04% at December 31, 1997.
Nonperforming assets at March 31, 1998 amounted to $556 or .2 % of loans
receivable.
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 has continued to record additional
provision for loan loss in the first quarter of 1998 of $75 thousand to maintain
its ratio of allowances to outstanding loans receivable given the growth in the
loan portfolio.
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 10% 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.
Quantitative and Qualitative Disclosures About Market Risk
Management has determined that market risk remains substantially the same as the
amounts disclosed in the Corporation's Annual Report on Form 10-K.
-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.
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 three month period ended
March 31, 1998.
-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
May 11, 1998
/s/ Jeffrey W. Farrar
---------------------------------
Jeffrey W. Farrar, CPA
Senior Vice President - Chief Financial Officer
May 11, 1998
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 6,924
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,628
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,786
<INVESTMENTS-CARRYING> 16,091
<INVESTMENTS-MARKET> 16,565
<LOANS> 131,761
<ALLOWANCE> 1,431
<TOTAL-ASSETS> 227,716
<DEPOSITS> 192,511
<SHORT-TERM> 3,263
<LIABILITIES-OTHER> 1,279
<LONG-TERM> 0
0
0
<COMMON> 3,757
<OTHER-SE> 25,664
<TOTAL-LIABILITIES-AND-EQUITY> 227,716
<INTEREST-LOAN> 2,900
<INTEREST-INVEST> 1,193
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,093
<INTEREST-DEPOSIT> 1,738
<INTEREST-EXPENSE> 1,795
<INTEREST-INCOME-NET> 2,298
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,540
<INCOME-PRETAX> 1,171
<INCOME-PRE-EXTRAORDINARY> 1,171
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 840
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 214,364
<LOANS-NON> 556
<LOANS-PAST> 69
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,858
<ALLOWANCE-OPEN> 1,361
<CHARGE-OFFS> (9)
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,430
<ALLOWANCE-DOMESTIC> 89
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,341
</TABLE>
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