UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) 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 0-24668
FFVA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
Virginia 74-2712490
- -------------------------------- ------------------------------------
(state or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
925 Main Street, Lynchburg, Virginia 24504
- ---------------------------------------- ----------
(address of principal executive offices) (Zip Code)
(804) 845-2371
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(Registrant's telephone number including area code)
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 registrant was required
to file such reports), 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 the latest practicable date.
Class $.10 par value common stock 5,110,952 shares outstanding as of
August 1, 1996
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Page 1 of 17 Pages
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
-----
<TABLE>
<CAPTION>
Part I Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements (unaudited)
<S> <C>
Consolidated Statements of Financial Condition as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the Three and Six
Month Periods ended June 30, 1996 and 1995 4
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
- ------- -----------------
Item 1 Legal Proceedings 15
Item 2 Changes 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
Signature Page 17
</TABLE>
2
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,504 $ 7,683
Investment securities, held to maturity (Estimated market of $37,067
at June 30, 1996 and $34,045 at December 31, 1995) 37,339 33,314
Investment securities, available for sale, at market 32,506 34,724
Investment securities, restricted, at cost 3,268 3,075
Mortgage-backed securities, held to maturity (Estimated market of $42,176
at June 30, 1996 and $36,471 at December 31, 1995) 42,434 35,946
Mortgage-backed securities, available for sale, at market 80,780 78,844
Loans receivable, net 303,720 291,215
Foreclosed real estate - -
Property and equipment, net 6,315 5,665
Accrued interest receivable 4,309 4,092
Deferred income taxes 552 --
Prepaid expenses and other assets 416 1,004
Goodwill 1,668 1,728
--------- ---------
Total assets $ 522,811 $ 497,290
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 386,243 $ 377,975
Advances from Federal Home Loan Bank and other borrowed funds 52,813 29,250
Advances from borrowers for taxes and insurance 1,021 1,071
Other liabilities 1,292 935
--------- ---------
Total liabilities 441,369 409,231
--------- ---------
Stockholders' equity
Preferred stock, $.10 par value, 500,000 shares authorized, none issued - -
Common stock, $.10 par value, 11,500,000 shares authorized,
5,180,952 and 2,851,832 outstanding, respectively 518 285
Additional paid-in capital 49,655 55,057
Less unearned ESOP and MSBP shares (4,065) (4,615)
Retained earnings, substantially restricted 34,840 35,824
Unrealized gain (loss) on assets available for sale, net of taxes 494 1,508
--------- ---------
Total stockholders' equity 81,442 88,059
--------- ---------
Total liabilities and stockholders' equity $ 522,811 $ 497,290
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans $ 6,674 $ 6,309 $13,282 $12,119
Mortgage-backed securities 2,158 1,759 4,256 3,061
U. S. Government obligations, agencies, and
other investments including overnight deposits 1,323 1,353 2,603 2,849
------- ------- ------- -------
Total interest income 10,155 9,421 20,141 18,029
------- ------- ------- -------
INTEREST EXPENSE
Deposits 4,534 4,164 9,173 8,030
Borrowed money 681 644 1,241 881
------- ------- ------- -------
Total interest expense 5,215 4,808 10,414 8,911
------- ------- ------- -------
Net interest income 4,940 4,613 9,727 9,118
PROVISION FOR CREDIT LOSSES - 75 60 150
------- ------- ------- -------
Net interest income after provision for credit losses 4,940 4,538 9,667 8,968
------- ------- ------- -------
NONINTEREST INCOME
Service charges and fees on loans 130 83 225 168
Net gain (loss) on sale of investments - 52 91 98
Net gain (loss) on sale of equipment - - 1 -
Other income 160 90 306 189
------- ------- ------- -------
Total noninterest income 290 225 623 455
------- ------- ------- -------
NONINTEREST EXPENSES
Compensation and other personnel costs 1,499 1,279 2,949 2,420
Office occupancy and equipment 245 218 485 440
Federal insurance of accounts 204 191 407 381
Data processing 221 181 464 365
Advertising 91 89 177 158
Net loss on foreclosed real estate 2 - 2 -
Other 369 262 716 549
------- ------- ------- -------
Total noninterest expense 2,631 2,220 5,200 4,313
------- ------- ------- -------
Income before income tax expense 2,599 2,543 5,090 5,110
Income tax expense 889 940 1,771 1,875
------- ------- ------- -------
Net Income $ 1,710 $ 1,603 $ 3,319 $ 3,235
======= ======= ======= =======
Primary earnings per share $ .32 * $ .27 $ .62 * $.54
Fully diluted earnings per share $ .32 * $ .27 $ .61 * $.54
Cash dividends paid per common share $ .10 * $.075 $.175 * $.15
</TABLE>
* Restated for two-for-one stock split paid June 5, 1996.
See Notes to Consolidated Financial Statements
4
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
unaudited
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Assets Unearned Unearned
Common Paid-In Retained Available ESOP MSBP
Six Months Ended June 30, 1995: Stock Capital Earnings For Sale, Net Shares Shares Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 315 $ 60,714 $ 33,822 $ (1,320) $ (2,672) - $ 90,859
Net Income - - 3,235 - - - 3,235
Change in unrealized gain (loss) on
assets available for sale, net - - - 1,619 - - 1,619
Repurchase of common stock (15) (2,892) (1,266) - - - (4,173)
Cash dividends paid - - (906) - - - (906)
---------------------------------------------------------------------------------
Balance at June 30, 1995 $ 300 $ 57,822 $ 34,885 $ 299 $ (2,672) - $ 90,634
================================================================================
Six months ended June 30, 1996:
Balance at December 31, 1995 $ 285 $ 55,057 $ 35,824 $ 1,508 $ (2,339) $ (2,276) $ 88,059
Net Income - - 3,319 - - - 3,319
Change in unrealized gain (loss) on
assets available for sale, net - - - (1,014) - - (1,014)
Allocation of unearned MSBP
shares - (97) - - - 550 453
Exercise of stock options - 25 - - - - 25
Two-for-one stock split 271 (271) - - - - -
Repurchase of common stock (38) (5,059) (3,374) - - - (8,471)
Cash dividends paid - - (929) - - - (929)
---------------------------------------------------------------------------------
Balance at June 30, 1996 $ 518 $ 49,655 $ 34,840 $ 494 $ (2,339) (1,726) $ 81,442
=================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
------ ------
(unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,319 $ 3,235
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for credit losses 60 150
Gain on sale of equipment (1) -
Provision for depreciation and amortization 290 197
Amortization of premium on sale of loans 12 14
Realized investment security gains (91) (98)
Loss on sale of foreclosed real estate 2 -
Increase in interest receivable (217) (343)
(Increase) decrease in other assets 588 (462)
Increase in other liabilities 345 1,890
-------- --------
Net cash provided by operating activities 4,307 4,583
-------- --------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity 4,048 4,208
Purchases of investment securities held to maturity and FHLB stock (8,266) (8,990)
Proceeds from sales of investment securities available for sale 6,661 12,143
Purchases of investment securities available for sale (4,790) (65)
Proceeds from collections on mortgage-backed securities held to maturity 3,641 2,106
Purchases of mortgage-backed securities held to maturity (10,129) (13,035)
Proceeds from sales of mortgage-backed securities available for sale 11,731 620
Purchases of mortgage-backed securities available for sale (14,833) (27,798)
Net increase in loans receivable (12,577) (19,869)
Purchases of premise and equipment (879) (177)
Purchases of foreclosed real estate (49) -
Proceeds from sales of foreclosed real estate 47 -
-------- --------
Net cash used by investing activities (25,395) (50,857)
-------- --------
</TABLE>
(continued)
6
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In Thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
------ ------
(unaudited)
FINANCING ACTIVITIES
<S> <C> <C>
Net increase in deposit accounts $ 8,268 $ 12,028
Proceeds from advances and other borrowed money 38,882 32,880
Repayments of advances and other borrowed money (15,319) (4,880)
Repurchase of common stock (8,471) (4,173)
Proceeds from the exercise of options 25 -
Allocation of MSBP Shares 453 -
Payment of cash dividend (929) (906)
-------- --------
Net cash provided by financing activities 22,909 34,949
-------- --------
Increase (decrease) in cash and cash equivalents 1,821 (11,325)
Cash and cash equivalent at beginning of period 7,683 16,387
-------- --------
Cash and cash equivalent at end of period $ 9,504 $ 5,062
======== ========
Supplemental disclosures
Gross unrealized gain (loss) on assets available for sale $ 772 $ 460
Deferred income tax (278) (161)
-------- --------
Net unrealized gain (loss) on assets available for sale $ 494 $ 299
======== ========
Cash paid for:
Interest on deposits and borrowed funds $ 10,370 $ 8,900
Income taxes $ 1,569 $ 1,618
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended June 30, 1996 and 1995
(1) Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of FFVA Financial Corporation ("the Company") and its wholly owned
subsidiary, First Federal Savings Bank of Lynchburg ("the Bank"). The Company's
business is conducted principally through the Bank. All material intercompany
balances and transactions have been eliminated in the consolidation.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-Q and do not include information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. These statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1995 of FFVA Financial Corporation. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations and other data for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ended December 31, 1996.
(3) Conversion to Stock Ownership
On October 12, 1994, the Company issued 3,151,832 (pre-split) shares of $.10 par
value common stock at $20 per share and became the Parent Company of the Bank.
Net proceeds, after deducting conversion expenses of $2.0 million, were $61.1
million and are reflected as common stock and additional paid in capital in the
accompanying consolidated statements of financial condition.
As part of the conversion to stock form, the Bank formed an Employee Stock
Ownership Plan ("ESOP") for eligible employees. The ESOP purchased 157,467
(pre-split) common shares of the company issued in the conversion, which was
funded by a loan from the Company. There are currently 233,852 shares of
unallocated stock securing the loan. The Company accounts for its ESOP in
accordance with Statement of Position 93-6. Accordingly, the shares pledged as
collateral are reported as a reduction of the stockholders' equity in the
consolidated balance sheet.
(4) Stock Split
On June 5, 1996, the Company's stock split two-for-one as the result of the
payment of a 100% stock dividend. References to the number of shares outstanding
and earnings per share for periods presented prior to the stock split have been
adjusted to reflect the effect of the stock split unless otherwise noted.
(5) Stock Repurchase and Retirement
On June 3, 1996, the Company received approval to repurchase up to 10% of the
company's outstanding shares of common stock. During the month of June 1996, the
Company repurchased 246,712 shares of common stock at an average price of $17.08
per share. In accordance with the Laws of Virginia, this stock was retired,
resulting in a reduction in the number of common shares reported as issued and
outstanding at June 30, 1996 to 5,180,952 shares. As a result of the repurchase,
common stock was reduced $25,000, additional paid-in capital was reduced $2.4
million and retained earnings were reduced $1.8 million to reflect the
elimination of the shares. For the six month period ending June 30, 1996, the
Company had repurchased and retired a total of 524,712 shares of stock.
8
<PAGE>
(6) Management and Stock Option Plans
During 1995, the Company formed a Management and Director Stock Bonus Plan
(MSBP). Under the plan, common stock is available for issuance to directors and
personnel in key positions of responsibility. A total of 49,428 (adjusted for
split) shares were distributed on April 27, 1996. As of June 30, 1996, a total
of 196,000 shares remain allocated to directors and personnel with distribution
scheduled annually until April 27, 2000. The Company currently holds 121,320
shares at an average purchase price of $14.23 for future distribution. These
undistributed shares have been accounted for as a reduction of the stockholders'
equity in the consolidated balance sheet.
The Company also implemented a stock option plan during 1995. This plan provides
for the granting to directors and personnel in key positions of responsibility
630,366 options to purchase common stock at a price of $12.50 per share (the
closing market price of the stock on the date of approval, adjusted for the
effect of the stock split). The options vest over a five year period, with the
first options having vested on April 27, 1996. There are currently 121,552
vested options outstanding.
(7) Earnings Per Share
Earnings per share of common stock for the three and six month periods ended
June 30, 1996 and 1995 has been determined by dividing the net income for the
periods by the calculated weighted average number of shares of common stock and
common stock equivalents outstanding. In accordance with Statement of Position
93-6, shares controlled by the ESOP are not considered in the weighted average
number of shares outstanding until the shares are committed for allocation to an
employee's individual account. Earnings per share amounts for prior periods have
been restated to reflect the two-for-one stock split paid June 5, 1996.
(8) Commitments and Contingencies
At June 30, 1996, the Company had outstanding commitments to originate mortgage
loans of $4.2 million. Unused consumer, equity and commercial lines of credit
available to customers were $19.2 million at June 30, 1996. The Company had
outstanding commitments to purchase $5.0 million mortgage backed securities and
a $5.3 million package of adjustable single-family mortgage loans at June 30,
1996.
The company opened its new branch office in the Amelon Shopping Center in
Amherst County in June 1996.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Changes in Financial Condition
- ------------------------------
Total assets of the Company increased by $25.5 million, or 5.13%, from $497.3
million at December 31, 1995 to $522.8 million at June 30, 1996. The increase in
total assets during the first six months of 1996 was due primarily to the
purchase of mortgage-backed securities and an increase in the balance of net
loans receivable.
Cash and cash equivalents increased by $1.8 million, or 23.38%, to $9.5 million
at June 30, 1996. Investment securities increased by $2.0 million, or 2.81%, to
$73.1 million at June 30, 1996. At June 30, 1996, $40.6 million of the Company's
investment securities (which include restricted securities totalling $3.3
million) were classified as held to maturity and $32.5 million of investment
securities were classified as available for sale. Mortgage-backed securities
increased by $8.4 million, or 7.32%, to $123.2 million at June 30, 1996. At June
30, 1996, $42.4 million of the Company's mortgage-backed securities were
classified as held to maturity, and $80.8 million of mortgage-backed securities
were classified as available for sale. During the six month period ending June
30, 1996, the bank purchased $14.8 million fixed rate mortgage-backed securities
and $10.1 million of fixed rate collateralized mortgage obligations (CMO's).
Loans receivable, net, increased by $12.5 million, or 4.29%, to $303.7 million
at June 30, 1996 compared to $291.2 million at December 31, 1995. The increase
is largely due to management's increased emphasis on expanding its consumer loan
portfolio.
Deposits increased by $8.2 million, or 2.17%, from $378.0 million at December
31, 1995 to $386.2 million at June 30, 1996.
FHLB Advances and Other Borrowed Money increased by $23.5 million, or 80.20%, to
$52.8 million at June 30, 1996, compared to $29.3 million at December 31, 1995.
During the period, the Company increased its net outstanding FHLB Advances by
$3.8 million. The company also entered into reverse repurchase agreements with a
regional bank. The balance outstanding under reverse repurchase agreements at
June 30, 1996 was $19.8 million. Funds from the additional borrowings were used
to fund the purchase of mortgage backed securities and collateralized mortgage
obligations.
Equity decreased by $6.7 million, or 7.60%, from $88.1 million at December 31,
1995 to $81.4 million at June 30, 1996. The decrease was primarily a result of
the company's decision to repurchase and retire 525,000 shares of common stock,
reducing equity by $8.5 million. This was partially offset by net income of $3.3
million during the six month period, and an increase resulting from the first
allocation of the MSBP plan shares. The market value of available for sale
securities, net of taxes decreased $1.0 million during the six month period.
Equity decreased $929,000 as the result of the Company paying a $.075 per share
dividend for the first quarter of 1996 and a $.10 per share dividend for the
second quarter of 1996.
Comparison of Results of Operation for the Three Months and Six Months ended
- --------------------------------------------------------------------------------
June 30, 1996 and 1995.
- -----------------------
Net Income
The Company reported net income of $1.7 million and $1.6 million for the three
months ended June 30, 1996 and 1995, respectively, and $3.3 million and $3.2
million for the six months ended June 30, 1996 and 1995 respectively. The
$100,000, or 6.25%, increase in net income for the three months ended June 30,
1996 compared to the three months ended June 30, 1995 was due primarily to a
$327,000 increase in net interest income, a $65,000 increase in noninterest
income and a $51,000 decrease in income tax expense. This was partially offset
by a $411,000 increase in noninterest expense.
10
<PAGE>
Net income for the six month period ended June 30, 1996 reflected an increase of
$84,000, or 2.6% over the net income reported for the same period in 1995. The
increase can be attributed to a $609,000 increase in net interest income, a
$90,000 decrease in the provision for credit losses, and a $168,000 increase in
noninterest income. This was offset by a $887,000 increase in noninterest
expense. Income tax expense decreased $104,000 due to the tax treatment of
certain employee benefit plan expenditures that were funded for the first time
during the six month period ending June 30, 1996.
Net Interest Income
Net interest income increased by $327,000, or 6.50%, in the three months ended
June 30, 1996 to $4.9 million compared to $4.6 million in the same period in
1995. Net interest income increased by $609,000 for the six month period ended
June 30, 1996 when compared to the six month period ended June 30, 1995 from
$9.1 million to $9.7 million. The Company's interest rate spread and net
interest margin were 3.28% and 3.94%, and 3.23% and 3.92%, respectively, during
the three and six month periods ended June 30, 1996. This compares to an
interest rate spread and net interest margin of 3.07% and 3.96%, and 3.17% and
4.06%, respectively, for the three and six month periods ended June 30, 1995.
Provision for Credit Losses
Based on managements' evaluation of the loan portfolio, the Company recorded a
provision for credit losses of $75,000 for the three month period ending June
30, 1995. No provision for credit loss was recorded for the three month period
ended June 30, 1996. For the six month period ended June 30, 1996, the Company
recorded a provision for credit losses of $60,000, a decrease of $90,000 from
the $150,000 recorded for the six month period ending June 30, 1995. The
allowance for credit losses at June 30, 1996 totaled $3.3 million or 1.08% of
gross loans receivable.
Noninterest Income
Noninterest income increased $65,000 for the three month period ended June 30,
1996 to $290,000 from $225,000 for the comparable period in 1995. The increase
in noninterest income was primarily attributable to an increase in service
charges and fees on loans of $47,000 and an increase of $70,000 in other income
for the three months ended June 30, 1996 over the comparable prior year period.
This was partially offset by a decrease of $52,000 in the gain on sale of
investments category. Noninterest income increased $168,000 for the six month
period ended June 30, 1996 to $623,000 from $455,000 for the comparable 1995
period. For the six month period ended June 30, 1996, the bank recorded an
increase of $57,000 in service charges and fees on loans and an increase of
$117,000 in other income over the amounts recorded for the six month periods
ended June 30, 1995.
Noninterest Expense
Noninterest expense increased $411,000, or 18.68%, for the three month period
ending June 30, 1996 compared to the three month period ended June 30, 1995 from
$2.2 million to $2.6 million. Noninterest expense increased $887,000, or 20.87%,
for the six month period ended June 30, 1996 as compared to the six month period
ended June 30, 1995 from $4.3 million to $5.2 million. The increase resulted
from an increase in compensation and other personnel costs and other expenses
during 1996. For the three month period ending June 30, 1996, compensation and
other personnel costs increased $220,000, or 17.20%, and for the six month
period ending June 30, 1996 compensation and other personnel costs increased
$529,000, or 21.86%, over the comparable prior periods. This increase can be
attributed primarily to an increase in the number of employees as a result of
the opening of two new branch offices in Keysville and Amherst. With the
addition of these branches, the company also experienced higher data processing
costs and office/occupancy expenses. Data processing costs were also increased
as a result of the installation of additional Automated Teller Machines. In
addition, other expenses increased $107,000, or 40.84% to $369,000 for the three
month period ended June 30, 1996 from $262,000 for the three month period ended
June 30, 1995. Other expenses for the six month period ended June 30, 1996
increased $167,000, or 30.42% to $716,000 from $549,000 for the period ended
June 30, 1995.
11
<PAGE>
Income Tax Expense
The company recognized income tax expense of $889,000 for the three months ended
June 30, 1996 compared to $940,000 for the comparable period in 1995. For the
six months ended June 30, 1996 and 1995, the Company recognized income tax
expense of $1.8 million and $1.9 million, respectively. Such decreases in income
tax expenses during the three and six month periods ended June 30, 1996
primarily reflect the tax treatment of certain employee benefit plan
expenditures that were funded for the first time during the six month period
ending June 30, 1996.
Liquidity and Capital Resources
- -------------------------------
The Bank's liquidity is a product of its operating, investing and financing
activities. The Bank's primary sources of funds are deposits, borrowings,
amortization, prepayments and maturities of outstanding loans and
mortgage-backed securities, maturities of investment securities and funds
provided from operations. While scheduled payments from the amortization of
loans and mortgage-backed securities and maturing investment securities are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Bank invests excess funds in overnight deposits to
fund cash requirements experienced in the normal course of business. The Bank
has been able to generate sufficient cash through its deposits as well as
borrowings (consisting primarily of advances from the FHLB of Atlanta and
reverse repurchase agreements with other banks). At June 30, 1996, the Bank had
$33.0 million of outstanding advances from the FHLB of Atlanta and $19.8 million
of reverse repurchase agreements with other banks.
Liquidity management is both a daily and long-term function of business
management. Excess cash is generally invested in overnight deposits. On a
longer-term basis, the Bank maintains a strategy of purchasing investment
securities and mortgage-backed securities. The Bank attempts to ladder the
maturities of its investment portfolio to provide an ongoing source of
liquidity. The Bank uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing savings certificates and savings withdrawals, fund
loan commitments and maintain a portfolio of mortgage-backed and investment
securities. At June 30, 1996, the total approved loan commitments outstanding
amounted to $4.2 million. At the same date, commitments under unused lines of
credit amounted to $19.2 million. The Company had also committed to purchase
$5.3 million of adjustable single-family mortgage loans. Certificates of deposit
scheduled to mature in one year or less at June 30, 1996 totaled $157.8 million.
Management believes that a significant portion of maturing deposits will remain
with the Bank. The Bank had an average liquidity ratio of 15.32% during the
quarter ended June 30, 1996, which exceeded the required minimum liquid asset
ratio of 5.0%.
The bank currently pays an insurance premium to the Federal Deposit Insurance
Corporation ("FDIC") equal to .23% of its total deposits. Effective January 1,
1996, the FDIC lowered the annual insurance premium for most members of the Bank
Insurance Fund ("BIF"), primarily commercial banks, to $2,000. This reduction in
insurance premiums for BIF members could place Savings Association Insurance
Fund ("SAIF") members, such as the Bank, at a material competitive disadvantage
to BIF members and could have a material adverse effect on the results of
operations and financial condition of the Bank in future periods. The disparity
in insurance premiums between those required for the Bank and BIF members could
allow BIF members to attract and retain deposits at a lower effective cost than
that possible for the Bank and put competitive pressure on the Bank to raise its
interest rates paid on deposits thus increasing its cost of funds and possibly
reducing net interest income. The resultant competitive disadvantage could
result in the Bank losing deposits to BIF members who have a lower cost of funds
and are therefore able to pay higher rates of interest on deposits. Although the
Bank has other sources of funds, these other sources may have higher costs than
those of deposits.
12
<PAGE>
Several alternatives to mitigate the effect of the BIF/SAIF insurance pre-
mium disparity have been proposed by the U.S. Congress, federal regulators,
industry lobbyists and the Administration. One plan that has gained support of
several sponsors would require all SAIF member institutions, including the Bank,
to pay a one time fee of up to 85 basis points on the amount of deposits held by
the member institution as of September 30, 1995 to recapitalize the SAIF. If
this proposal is enacted by Congress, the payment of approximately $2.0 million
after taxes would be immediately charged to earnings. In addition, equity would
be reduced by the same amount.
Management of the Bank is unable to predict when and if this proposal or a
similar proposal will be enacted or whether ongoing SAIF premiums will be
reduced to a level equal to that of BIF premiums.
At June 30, 1996, the Bank had regulatory capital which was well in excess of
applicable limits. At June 30, 1996, the Bank was required to maintain tangible
capital of 1.5% of adjusted total assets, core capital of 3.0% of adjusted total
assets, and risk-based capital of 8.0% of adjusted risk-weighted assets. At June
30, 1996, the Bank's tangible capital was $70.9 million, or 13.58% of adjusted
total assets, core capital was $70.9 million, or 13.58% of adjusted total assets
and risk-based capital was $74.2 million, or 26.98% of adjusted risk-weighted
assets, exceeding the requirements by $63.1 million, $55.3 million, and $52.2
million, respectively.
13
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the Savings
Bank's statements of financial condition and the statements of income for the
three and six month periods ended June 30, 1996 and 1995 and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets and liabilities, respectively, for the periods
shown. Average balances are derived from month end balances. Management does not
believe that the use of month end balances instead of average daily balances has
caused any material difference in the information presented. The average
balances of loans receivable include loans on which the Savings Bank has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yields. Market value adjustments recorded in
compliance with SFAS 115 are not considered when computing the yields and
average balances of securities.
<TABLE>
<CAPTION>
For the Three Months ended June 30, For the Six Months ended June 30,
1996 1995 1996 1995
------ ----- ------ -----
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
Assets: (Dollars in Thousands)
Interest-
earning assets:
Mortgage loans,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
net.................. $276,766 $6,109 8.83% $266,491 $5,922 8.89% $275,381 $12,210 8.87% $261,804 $11,399 8.71%
Consumer and other
loans, net........... 23,648 565 9.56 15,148 387 10.22 22,470 1,072 9.54 14,198 720 10.14
Mortgage-backed and
related
securities(1)........ 123,742 2,158 6.97 102,835 1,759 6.84 122,532 4,256 6.95 89,240 3,061 6.86
Overnight and
short term
deposits............. 2,806 51 7.27 5,390 93 6.90 3,593 110 6.12 7,120 252 7.08
Investment
securities
(1)(2)............... 73,906 1,272 6.88 75,552 1,260 6.67 71,607 2,493 6.96 77,142 2,597 6.73
-------- ----- -------- ----- -------- ------ -------- ------
Total interest-
earning assets... 500,868 10,155 8.11 465,416 9,421 8.10 495,583 20,141 8.13 449,504 18,029 8.02
------ ------ ------- -------
Noninterest-earning
assets................. 18,432 12,860 18,319 13,297
-------- -------- -------- --------
Total assets....... $519,300 $478,276 $513,902 $462,801
======== ======== ======== ========
Liabilities and
Equity Capital:
Interest-bearing
liabilities:
Deposits:
Transaction
accounts............ $ 82,379 573 2.78 $ 77,868 648 3.33 $ 81,897 1,175 2.87 $ 78,724 1,292 3.28
Savings and
certificates......... 300,344 3,961 5.28 264,096 3,516 5.33 298,797 7,998 5.35 261,276 6,738 5.16
-------- ----- ------- ----- -------- ------ -------- ------
Total deposits..... 382,723 4,534 4.74 341,964 4,164 4.87 380,694 9,173 4.82 340,000 8,030 4.72
FHLB advances and
other borrowings..... 49,116 681 5.55 40,220 644 6.40 44,786 1,241 5.54 27,804 881 6.34
------- ------ -------- ------ ------- ------ -------- ------
Total interest-
bearing
liabilities...... 431,839 5,215 4.83 382,184 4,808 5.03 425,480 10,414 4.90 367,804 8,911 4.85
----- ----- ------- ------
Other liabilities........ 3,325 3,647 3,283 3,132
-------- -------- -------- --------
Total liabilities.. 435,164 385,831 428,763 370,936
-------- -------- -------- --------
Equity capital........... 84,136 92,445 85,139 91,865
-------- -------- -------- --------
Total liabilities
and equity
capital........... $519,300 $478,276 $513,902 $462,801
======== ======== ======== ========
Net interest income/
interest rate
spread(3).............. $ 4,940 3.28% $ 4,613 3.07% $ 9,727 3.23% $ 9,118 3.17%
====== ====== ====== =======
Net earning assets/
net interest
margin(4)............. $69,029 3.94% $83,232 3.96% $70,103 3.92% $81,700 4.06%
======== ======== ======== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities........... 115.98% 121.78% 116.48% 122.21%
====== ====== ====== =======
</TABLE>
- ----------------------------------------------
(1) Includes assets available for sale.
(2) Includes FHLB-Atlanta stock.
(3) Interest-rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents the net interest income before the provision
for credit losses divided by average interest-earning assets.
14
<PAGE>
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
PART II-OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time the Savings Bank is a
party to legal proceedings in the ordinary course of business
wherein it enforces its security interest in loans.
Item 2 Changes in Securities
---------------------
Not Applicable
Item 3 Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
see separate sheet
Item 5 Other Information
-----------------
None
Item 6 Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits:
11 Statement regarding computation of per share earnings
27 Financial data schedule
(b) Reports on Form 8-K:
In a report on form 8-K dated April 25, 1996 under Item 5,
Other Events, the Company reported that its Board of
Directors had declared a two-for-one stock split to be
effected in the form of a 100% stock dividend.
In a report on form 8-K dated June 3, 1996 under Item 5,
Other Events, the Company announced that it had received
the necessary approvals to implement a 10% stock repurchase
program.Such repurchases would be made in the open market,
subject to stock availability.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of FFVA Financial Corporation was held April
25, 1996 in Lynchburg Virginia for the purpose of electing three individuals to
the Board of Directors, and approving the appointment of auditors. Proxies for
the meeting were solicited pursuant to Section 14(a) of the Securities Exchange
Act of 1934.
All of Management's nominees for directors as listed in the proxy statement were
elected with the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
voted voted not
for withheld voted Total(1)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James L. Davidson, Jr. 2,301,630 23,043 388,159 2,712,832
V. Howard Belcher 2,300,880 23,793 388,159 2,712,832
James K. Candler 2,301,480 23,193 388,159 2,712,832
</TABLE>
In addition to the directors elected above, the following directors continued in
office: Thomas O. Doyle, Edward A. Hunt, Jr., Thomas P. Whitten, John W.
Ferguson, Jr., James E. McCausland, and Charles R.W. Schoew.
The ratification of Cherry, Bekaert, and Holland as independent auditors of FFVA
Financial Corporation for the fiscal year ending December 31, 1996 was approved
by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
voted voted Shares not
for against abstained voted Total(1)
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
2,294,550 23,335 5,788 389,159 2,712,832
There were no broker non-votes for either matter.
- ---------------------
<FN>
(1) Not adjusted for the two-for-one stock split paid June 5, 1996.
</FN>
</TABLE>
16
<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.
FFVA FINANCIAL CORPORATION
Dated: August 9, 1996 /s/ James L. Davidson, Jr.
-------------- James L. Davidson, Jr.
President and Chief Executive Officer
Dated: August 9, 1996 /s/ Ronald W. Neblett,CPA
-------------- ----------------------
Ronald W. Neblett, CPA
Senior Vice-President, Treasurer, and
Chief Financial Officer
17
FFVA FINANCIAL CORPORATION AND SUBSIDIARY
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months ended June 30,
1996 1995 (1) 1996 1995 (1)
---- -------- ---- --------
Primary Earnings per Share:
- ---------------------------
Weighted average number of shares
<S> <C> <C> <C> <C>
outstanding 5,372,243 6,188,938 5,452,140 6,245,844
Average unallocated ESOP Shares (233,852) (267,156) (233,852) (267,156)
Incremental shares attributed to
outstanding options 131,544 - 116,546 -
--------- --------- --------- ---------
Weighted average number of common
stock equivalents 5,269,935 5,921,782 5,334,834 5,978,688
========= ========= ========= =========
Net Income $1,710,000 $1,603,000 $3,319,000 $3,235,000
========= ========= ========= =========
Primary earnings per common and
common equivalent share $ .32 $ .27 $ .62 $ .54
Earnings Per Share Assuming Full
- --------------------------------
Dilution:
- ---------
Weighted average number of shares
outstanding 5,372,243 6,188,938 5,452,140 6,245,844
Average unallocated ESOP shares (233,852) (267,156) (233,852) (267,156)
Incremental shares attributed to
outstanding options 194,268 - 194,452 -
--------- --------- --------- ---------
Weighted average number of common
stock equivalents 5,332,659 5,921,782 5,412,740 5,978,688
========= ========= ========= =========
Net Income $1,710,000 $1,603,000 $3,319,000 $3,235,000
========= ========= ========= =========
Fully diluted earnings per common
and common equivalent shares $ .32 $ .27 $ .61 $ .54
</TABLE>
The Company accounts for the shares acquired by the Employee Stock Ownership
Plan ("ESOP") in accordance with Statement of Position 93-6: shares controlled
by the ESOP are not considered in the weighted average shares outstanding until
the shares are committed for allocation.
(1) Adjusted to reflect the two-for-one stock split paid June 5, 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 4,814 3,270
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 4,690 4,413
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 113,286 113,568
<INVESTMENTS-CARRYING> 83,041 72,335
<INVESTMENTS-MARKET> 82,511 73,591
<LOANS> 307,044 294,432
<ALLOWANCE> 3,324 3,217
<TOTAL-ASSETS> 522,811 497,290
<DEPOSITS> 386,243 377,975
<SHORT-TERM> 48,813 23,250
<LIABILITIES-OTHER> 2,313 2,006
<LONG-TERM> 4,000 6,000
0 0
0 0
<COMMON> 518 285
<OTHER-SE> 80,924 87,774
<TOTAL-LIABILITIES-AND-EQUITY> 522,811 497,290
<INTEREST-LOAN> 13,282 25,140
<INTEREST-INVEST> 6,859 12,543
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 20,141 37,683
<INTEREST-DEPOSIT> 9,173 17,260
<INTEREST-EXPENSE> 10,414 19,212
<INTEREST-INCOME-NET> 9,727 18,471
<LOAN-LOSSES> 60 255
<SECURITIES-GAINS> 91 209
<EXPENSE-OTHER> 5,200 9,084
<INCOME-PRETAX> 5,090 10,186
<INCOME-PRE-EXTRAORDINARY> 5,090 10,186
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,319 6,474
<EPS-PRIMARY> .62 1.11<F1>
<EPS-DILUTED> .61 1.11<F1>
<YIELD-ACTUAL> 08.13 08.10
<LOANS-NON> 2,475 2,453
<LOANS-PAST> 185 145
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 3,217 3,054
<CHARGE-OFFS> 12 154
<RECOVERIES> 59 62
<ALLOWANCE-CLOSE> 3,324 3,217
<ALLOWANCE-DOMESTIC> 1,643 1,839
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,681 1,378
<FN>
<F1> Restated for two-for-one stock split paid June 5, 1996.
</FN>
</TABLE>
