EXHIBIT 13
<PAGE>
[GRAPHIC OMITTED]
2000
ANNUAL REPORT
<PAGE>
SWVA BANCSHARES, INC.
2000 ANNUAL REPORT
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Corporate Profile and Related Information......................................1
Stock Market Information.......................................................1
Selected Financial and Other Data..............................................3
President's Message............................................................4
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................6
Report of Independent Auditors................................................13
Consolidated Financial Statements.............................................14
Notes to Consolidated Financial Statements....................................20
Office Locations..............................................................50
Directors and Executive Officers..............................................50
Other Corporate Information...................................................50
i
<PAGE>
SWVA BANCSHARES, INC.
Corporate Profile and Related Information
SWVA Bancshares, Inc. (the "Company") is the parent company for
Southwest Virginia Savings Bank, FSB ("Southwest Virginia Savings" or the
"Bank"). The Company was formed as a Virginia corporation in June 1994 at the
direction of the Bank to acquire all of the capital stock that the Bank issued
upon its conversion from the mutual to the stock form of ownership (the
"Conversion") in connection with a $5.7 million initial public offering
completed on October 7, 1994. The Company is a unitary savings and loan holding
company which, under existing laws, generally is not restricted in the types of
business activities in which it may engage provided that the Bank retains a
specified amount of its assets in housing- related investments. At the present
time, since the Company does not conduct any active business, the Company does
not intend to employ any person other than officers but utilizes the support
staff and facilities of the Bank from time to time.
Southwest Virginia Savings is a federally chartered stock Bank
headquartered in Roanoke, Virginia. The Bank was founded in 1927 as Southwest
Virginia Building and Loan Association and originally chartered by the
Commonwealth of Virginia. In 1990, a federal charter was obtained and the name
was changed to Southwest Virginia Savings Bank, FSB. Its deposits have been
federally insured since 1945. The Bank is a community oriented savings
institution offering a variety of financial services to meet the needs of the
communities that it serves. Southwest Virginia Savings conducts its business
from its main office in Roanoke, Virginia, four full service branch offices, one
of which is also located in the City of Roanoke, one in the City of Salem and
two in the County of Roanoke, and a loan production office in Roanoke County.
The Bank is primarily engaged in the business of attracting deposits
from the general public and originating loans secured by first mortgages on one-
to four-family residences as well as loans for nonresidential and multi-family
real estate purposes, construction loans, consumer loans, commercial loans and
other loans.
Stock Market Information
Since its issuance in October 1994, the Company's common stock has been
traded over-the-counter with trades reported in the National Quotation Bureau
"pink sheets" under the trading symbol of "SWVB". The following table reflects
high and low bid information as furnished by a local brokerage firm. This
information reflects inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual trades.
HIGH LOW
---- ---
July 1 - September 30, 1998 20.380 15.500
October 1 - December 31, 1998 17.250 10.000
January 1 - March 31, 1999 16.030 13.500
April 1 - June 30, 1999 15.500 13.000
July 1 - September 30, 1999 14.500 12.750
October 1 - December 31, 1999 12.750 11.250
January 1 - March 31, 2000 12.000 09.130
April 1 - June 30, 2000 10.500 09.130
1
<PAGE>
The number of shareholders of record of common stock as of August 4,
2000 was approximately 215. This does not reflect the number of persons or
entities who held stock in "street" name through various brokerage firms. At
August 4, 2000, there were 423,612 shares outstanding.
Declarations of dividends by the Board of Directors of the Company
depend upon a number of factors, including the amount of cash and liquid assets
held by the Company, investment opportunities available to the Company or the
Bank, capital requirements, regulatory limitations, the Company's and the Bank's
results of operations and financial condition, tax considerations and general
economic conditions. Certain of these restrictions are discussed in notes 12 and
14 to the consolidated financial statements.
Dividends Declared and Paid
<TABLE>
<CAPTION>
Amount Per
Date Declared Common Share Record Date Date Payable
------------- ------------ ----------- ------------
<S> <C> <C> <C>
February 1, 1995 $0.15 March 1, 1995 March 31, 1995
July 28, 1995 $0.15 August 31, 1995 September 30, 1995
February 21, 1996 $0.15 March 11, 1996 March 31, 1996
August 21, 1996 $0.15 September 9, 1996 September 30, 1996
February 19, 1997 $0.15 March 14, 1997 March 31, 1997
August 20, 1997 $0.15 September 15, 1997 September 30, 1997
September 3, 1997 $1.00 September 15, 1997 September 30, 1997
February 18, 1998 $0.15 March 20, 1998 March 31, 1998
August 19, 1998 $0.20 September 15, 1998 September 30, 1998
February 25, 1999 $0.20 March 15, 1999 March 31, 1999
August 18, 1999 $0.20 September 15, 1999 September 30, 1999
February 16, 2000 $0.20 March 15, 2000 March 31, 2000
August 16, 2000 $0.20 September 15, 2000 September 30, 2000
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
-----------------------------------------------------------------------------------------------------
Financial Condition (Dollars in Thousands)
At June 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $83,961 $81,714 $84,387 $70,753 $66,987
Loans receivable, net 53,610 45,576 48,211 50,982 46,757
Mortgage-backed & investment securities 22,356 23,817 22,886 10,074 7,939
Interest-bearing deposits 1,685 6,278 5,897 5,304 3,841
Cash and cash equivalents 2,060 2,454 3,193 1,276 5,262
Savings deposits 64,748 62,094 68,288 57,933 57,643
Borrowed funds 11,700 12,000 7,000 3,500 --
Equity capital/stockholders' equity 6,742 6,791 8,327 8,602 8,675
-----------------------------------------------------------------------------------------------------
Summary of Operations (Dollars in Thousands)
Year Ended June 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
Interest income 6,028 $ 5,791 $ 5,808 $ 5,310 $ 4,906
Interest expense 3,313 3,338 3,226 2,673 2,622
Net interest income 2,715 2,453 2,582 2,637 2,284
Provision for credit losses 13 13 33 23 --
------- ------- ------- ------- -------
Net interest income after provision for
credit losses 2,702 2,440 2,549 2,614 2,284
Noninterest income 467 575 428 398 455
------- ------- ------- ------- -------
Noninterest expense 2,586 2,493 2,198 2,392 2,242
------- ------- ------- ------- -------
Income before income taxes 583 522 779 620 497
Provision for income taxes 187 177 318 206 191
------- ------- ------- ------- -------
Net income $ 396 $ 345 $ 461 $ 414 $ 306
======= ======= ======= ======= =======
-----------------------------------------------------------------------------------------------------
Other Selected Data
Year Ended June 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
Return on average assets 0.48% 0.42% 0.59% 0.60% 0.46%
Return on average equity 5.96 4.41 5.41 4.87 3.50
Interest rate spread 3.19 2.65 3.10 3.55 3.17
Non-performing assets to total loans 0.00 0.13 0.00 0.10 0.00
Non-performing assets to total assets 0.22 0.07 0.00 0.08 0.00
Allowance for credit losses to total loans 0.39 0.45 0.43 0.43 0.40
-----------------------------------------------------------------------------------------------------
Per share data
Year Ended June 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
Basic earnings per share $ .99 $ .78 $ .97 $ .85 $ .60
Diluted earnings per share .99 .78 .95 .85 .60
Stockholders' equity 15.91 14.89 16.76 16.83 15.97
Dividends .40 .40 1.30 .30 .30
Dividend payout ratio 49% 51% 134% 35% 50%
Average equity to average assets ratio 8.03 9.43 10.98 12.26 13.08
-----------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
President's Message
Dear Shareholder:
We are pleased to provide this Annual Report for 2000. This past year was one
of change and challenges . . . continued change in our corporate culture and
challenges in the marketplace as well as ongoing challenges in providing
delivery of premier financial services to our customers.
Our change in culture is a change in how we do business. This change became more
pronounced in Year 2000. As we began to alter our role as a traditional thrift
and became more mainstream as a broad range financial services provider we were
able to attract new personal and business relationships that have been essential
in our earnings growth this year and will be the foundation of our continued
growth going forward. This past year our earnings began to reflect our efforts
in generation of new retail and commercial business and simultaneous reduction
of our traditional dependence on residential mortgage production. During fiscal
2000 our mortgage volume was lower than the previous year due to a reduced
demand in mortgage refinancing, however our retail and commercial lenders more
than offset the drop with an increase in their volume. Our earnings improved
14.8% to $396,000 which yielded an Earnings Per Share of $0.99 and a Return on
Average Equity of 5.96%. Both of these profitability measures are the highest
since conversion from mutual to stock and most important is the upward earnings
trend that has been established. Total Assets of $84 million is only a 3% growth
over last year, however our lack of asset growth has been a reflection of our
concentration on not renewing high cost certificates of deposit and thereby
improving our net interest margin. Total Loans grew $8 million to $53.6 million
- an increase of 17.6%. The bank's commercial loan department is concentrating
on the small business sector which we feel is the foundation of stable commerce
in any thriving community. The consumer emphasis has been in the home equity
arena resulting in a 44.68% increase in that segment of business.
One of our major priorities for 2000 was to continue improvement in our delivery
of financial services. This means getting the right product to the right
customer which determines the effectiveness of our being someone's bank of
choice. We introduced the STAR ACCOUNT as our new multi-tiered relationship
account, revamped our home equity line and renamed it STARLINE, and introduced
check imaging on our deposit accounts. Further, transaction volume at our new
ATMs at the Crossroads, Oak Grove and Vinton offices improved throughout the
year, and the availability of these ATMs enabled us to greatly increase our
number of debit cards.
Initiatives for the coming year include new commercial checking options, a new
senior citizens banking package to be called STARPLUS and a new ATM at our Salem
office. The new commercial checking package and the Salem ATM are underway and
we hope to have them available by mid-Fall, 2000. Also, we have joined a
consortium of 67 community banks in Virginia for purpose of entering the
insurance agency business which will allow us to offer the insurance products of
a general agency.
As we anticipate opportunities and challenges in the future, bank management and
your Board are committed to positioning Southwest Virginia Savings Bank to meet
tomorrow's needs and demands of our customers. In connection with our normal
strategic planning process we have devoted particular attention to the rapidly
changing nature of banking and the continuous increase in competition.
Recognizing the technology and human resource challenges that lie before us,
alternative strategies have been identified and evaluated. As a result of this
process, on August 8, 2000 we were pleased to announce our planned affiliation
with FNB Corporation, parent company of First National Bank headquartered in
Christiansburg, Virginia. Under the terms of the agreement, shareholders of SWVA
will receive consideration valued at $20.25 for each share of our common stock.
The agreement will be presented for stockholder approval at the 2000 Annual
Meeting of Shareholders, currently scheduled to be held in December, 2000. Both
First National Bank and Southwest Virginia Savings Bank will continue operating
under their respective
4
<PAGE>
managements with their current names as wholly-owned subsidiaries of FNB
Corporation. Each bank will be managed by its own Board of Directors and we
anticipate bank customers will see no change in day to day operations other than
our bank will be able to offer an expanded financial services menu due to the
increased technology capabilities available to us.
We believe that FNB Corporation's banking philosophy fits extremely well with
the strong community commitment that our bank has consistently maintained.
Southwest Virginia Savings Bank has been serving the Roanoke Valley since 1927
and First National Bank has been serving the New River Valley since 1905 . . . a
combined total of 168 years in extending quality banking to customers and
communities in Southwest Virginia.
After completion of the deal we will be able to offer, or provide access to,
products and services that we currently do not have available. These include
cash management, commercial leasing, discount brokerage, personal investment
services and personal and corporate trust services. This merger strengthens both
banks' operations along the I-81 corridor. The economic, political, cultural and
academia ties joining the two valleys are already strong, yet the future holds
enormous opportunities.
To our shareholders we perceive benefit from the improved liquidity of FNB
Corporation's stock and the value associated with a growing organization. Once
merged we will have combined assets of $650 million and capital of $60 million.
We are very fortunate to have a strong and committed Board of Directors and we
are fortunate to have a management team and staff that are enthusiastic, skilled
and responsive. It is their dedication and contributions that ensure the success
of our organization.
To our shareholders and customers we extend appreciation for your continued
investment and business. We look forward to continue serving each of you.
Sincerely,
/s/D. W. Shilling
---------------------------------
D. W. Shilling
President & CEO
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The business of the Bank consists of receiving monetary deposits from
the general public and reinvesting those funds typically in its primary market
area in the form of mortgage loans secured by one- to four-family residences,
nonresidential and multi-family real estate loans, construction, commercial, and
consumer loans. The Bank also purchases U.S. government and federal agency
securities, mortgage- backed and mortgage-related securities and invests in
interest-bearing deposits with other insured financial institutions.
Currently, the Bank's primary market area consists of Roanoke County,
the City of Roanoke, the City of Salem, and the County of Botetourt. The Bank
regards this area as its "basic" lending area, but loans are also made in the
adjoining counties of Bedford and Franklin.
The largest component of the Bank's net income is net interest income,
which is the difference between interest income and interest expense.
Consequently, the Bank's earnings are dependent on its net interest income,
which is determined by the difference ("interest rate spread") between rates of
interest earned on interest-earning assets and rates of interest paid on
interest-bearing liabilities, and the relative amounts of interest-earning
assets and interest-bearing liabilities. The Bank's net income is also affected
by its provision for losses on loans and investments, as well as the amount of
noninterest income and noninterest expense, such as compensation and related
expenses, federal deposit insurance premiums, data processing costs, occupancy
expenses, and income taxes. Earnings of the Bank also are affected significantly
by general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities and
demand for financing of real estate and other types of loans.
Management Strategy
The Bank's goal is to serve its local community with a
consumer-oriented philosophy dedicated to providing financial services to its
customers. The principal components of the Bank's management strategy, which are
designed to achieve its goal, are discussed below.
The Bank has been a traditional lender for one- to four-family
residential loans since its founding in 1927. This past fiscal year, the Bank
generated a total of $26.4 million in mortgage loans of which $9.9 million were
sold in the secondary market and $16.5 million were retained in the Bank's
portfolio. These types of loans make up 61.25% of the Bank's total loan
portfolio. Financing homes for its community continues to be the Bank's primary
lending function, however management has initiated new focus in commercial and
consumer loans during the past two years for purposes of expanding the Bank's
financial menu, improving loan yields, and obtaining a better balance in the
loan portfolio. The Bank's commercial loan department is concentrating on the
small business sector which is the foundation of stable commerce in any thriving
community. Excellent progress has been made in introducing the Bank to the
commercial market resulting in a growing pipeline of new business and prospects.
The consumer emphasis has been in the home equity arena resulting in an increase
of home equity lines of credit from $4.7 million at June 30, 1999 to $6.8
million at June 30, 2000, representing a 44.68% increase. Consumer loans for
other needs and purposes also increased as management and staff solicited new
business. Value-added use of media and enhanced cross-sell efforts led to
greatly improved results as total consumer and commercial loans outstanding
increased more than 67.28% over the preceding year.
6
<PAGE>
The Bank historically has maintained good asset quality. Its emphasis
on one-to-four family mortgages and its underwriting policies and practices are
intended to maintain this quality. The new emphasis on commercial and consumer
loans may add credit risk to the loan portfolio due to the risk inherent nature
of the loans. However, policies are in place and practices are being monitored
in order to minimize credit risk which includes an appropriate increase in loan
loss provision in the next fiscal year. Management feels the Bank's increased
loan loss provision and capital adequacy justify and support the additional
risk. At June 30, 2000, the Bank had $186,000 in non-performing assets. The
Bank's ratio of non-performing loans to total assets at June 30, 2000 was 0.22%.
One of the reasons the Bank converted to a stock Bank was to support
growth in deposits and lending activities, which would also leverage the Bank's
existing branch network, facilities, and personnel resources. The assets of the
Company increased $29.1 million, or 53.01%, from $54.9 million at June 30, 1994,
to $84.0 million at June 30, 2000. The increase was due primarily to an increase
in loans receivable of $13.2 million and an increase of $15.2 million in
mortgage backed and investment securities.
During fiscal year 2001, management expects to increase the portion of
originated residential mortgage loans that is to be retained in our portfolio in
order to increase earning assets with attractive yields and to enhance asset
growth. This growth will be funded by a mix of deposit growth and borrowings.
Asset and Liability Management
The Bank continues to manage interest rate risk. It has managed this
risk on the asset side of its balance sheet with adjustable-rate mortgage
("ARM") loans and government-related securities. As regards the Bank's present
and future portfolio of commercial loans, pricing will generally be of a
variable nature based on appropriate money market indexes. Commercial term loans
with longer maturities will generally reprice every 3 to 5 years. Consumer loans
generally have a maturity of 3 years or less while home equity lines of credit
are of a variable nature. On the liability side of its balance sheet, the Bank
has depended on certificates of deposit of one year or less to fund the lending
operation, however management is seeking lower cost of funding primarily through
new deposit products to attract new checking account customers. Further,
management will continue to manage interest rates paid for deposits in term of
achieving appropriate interest rate margins. Historically the Bank has relied
upon the cash flows from its deposits and mortgage repayments as its primary
source of funds although in 1997, the Bank began to use borrowings from the FHLB
to support funding needs and to help manage interest rate risk.
7
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from daily average balances.
<TABLE>
<CAPTION>
For the Year Ended June 30
------------------------------------------------------------------------
2000 1999
-------------------------------- -------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) $49,988 $4,076 8.15% $47,834 $3,856 8.06%
Investments and mortgage-backed
securities:
Held to maturity, at cost 268 21 7.84 298 23 7.84
Available for sale, FMV (2) 22,060 1,555 7.05 21,267 1,313 6.17
Other investments (3) 6,059 376 6.21 10,514 599 5.70
------- ------ ------- ------
Total interest-earning assets 78,375 6,028 7.69 79,913 5,791 7.25
------- ------ ------
Non-interest earning assets 4,358 3,050
------- -------
Total assets $82,733 $82,963
====== =======
Interest-bearing liabilities:
Interest-bearing demand accounts 5,827 87 1.49 $ 6,083 87 1.43
Regular savings & club accounts 8,568 257 3.00 7,865 235 2.99
Money market deposit accounts 2,975 75 2.52 3,130 87 2.78
Certificates of deposit 45,853 2,330 5.08 46,555 2,439 5.24
Borrowed funds 10,338 564 5.46 9,043 490 5.42
------- ------ ------- ------
Total interest-bearing liabilities 73,561 3,313 4.50 72,676 3,338 4.59
------ ------
Non-interest-bearing demand accounts 1,358 1,398
Non-interest bearing liabilities 1,172 1,064
Equity 6,642 7,825
------- -------
Total liabilities and equity $82,733 $82,963
======= =======
Net-interest income $2,715 $2,453
====== =====
Interest rate spread (4) 3.19 2.65
Net yield on interest-earning assets (5) 3.46 3.07
Ratio of average interest-earning assets to
average interest-bearing liabilities 106.55 109.96
Average equity to average total assets 8.03 9.43
</TABLE>
(1) Includes loans held for sale and non-accrual loans.
(2) Calculations based on historical cost.
(3) Includes FHLB Overnight Account.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest- bearing
liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
8
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning and interest-bearing liabilities, information
is provided on changes attributable to (i) changes in volume (changes in average
volume multiplied by old rate); (ii) changes in rate multiplied by old average
volume); (iii) and changes in rate volume (changes in rate multiplied by the
change in volume).
<TABLE>
<CAPTION>
---------------------------------------------------------------------
For the Year Ended June 30,
---------------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
-------------------------------- ---------------------------------
(In Thousands)
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net $ 174 $ 44 $ 2 $ 220 $(143) $(189) $ 6 $(326)
Mortgage backed securities
and investments:
Held to maturity, at cost (2) - - (2) (3) - - (3)
Available for sale, FMV 49 186 7 242 404 (55) (22) 327
Other investments (254) 54 (23) (223) 117 (111) (21) (15)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets (33) 284 (14) 237 375 (355) (37) (17)
----- ----- ----- ----- ----- ----- ----- -----
Interest expense:
Deposits:
Interest-bearing demand
accounts (4) 4 - - 19 (20) (4) (5)
Regular savings & club
accounts 21 1 1 23 10 3 - 13
Money market deposit
accounts (4) (8) - (12) (1) (6) - (7)
Certificates of deposit (37) (73) 1 (109) (50) (72) 1 (121)
Borrowed funds 70 3 - 73 272 (20) (20) 232
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing
liabilities 46 (73) 2 (25) 250 (115) (23) 112
----- ----- ----- ----- ----- ----- ----- -----
Change in net interest income $ (79) $ 357 $ (16) $ 262 $ 125 $(240) $ (14) $(129)
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
9
<PAGE>
Comparison of Financial Condition
and Results of Operations for
Fiscal Years Ended June 30, 2000 and June 30, 1999
Total assets at June 30, 2000 were $84.0 million as compared to $81.7
million at June 30, 1999, an increase of $2.3 million. The increase was due
primarily to additional loans added to the Bank's portfolio.
Cash and cash equivalents decreased $400,000 to $2.1 million at June
30, 2000 and interest bearing deposits and investments decreased $4.6 million to
$1.7 million at June 30, 2000, due mainly to a need for these funds to support
loan growth. Net loans receivable increased $8.0 million from $45.6 million at
June 30, 1999 to $53.6 million at June 30, 2000, due primarily to additional
mortgage loans added to the Bank's portfolio and continued growth in consumer
and commercial loans. Loans held for sale increased $381,000 at year end to
$857,000, due to increased loan demand during the final quarter of fiscal year
2000.
At June 30, 2000, three loans were added to foreclosed property due to
their delinquency status at year end. These loans are secured by single family
real estate and no loss is anticipated.
On the liability side, deposits increased $2.7 million to $64.7 million
at June 30, 2000 primarily through special certificate of deposit promotions and
the Bank's new relationship account -- The Star Account. At June 30, 2000, there
were $11.7 million in advances outstanding from the Federal Home Loan Bank of
Atlanta, a decrease of $300,000 from June 30, 1999.
Net Income. Net income for the year ended June 30, 2000 was $396,000 as
compared to $345,000 for the year ended June 30, 1999, an increase of $51,000.
The increase was mainly due to increased net interest income. Basic per share
earnings for the year ended June 30, 2000 rose to $0.99 verus $0.78 in fiscal
1999. This is the Bank's highest EPS since conversion to stock from mutual in
1994.
Interest Income. Interest income increased $237,000 for the year ended
June 30, 2000. Interest income was $6.0 million at June 30, 2000. The increase
was mainly a result in the increase in earnings on a larger loan portfolio,
particularly in consumer and commercial loans.
Interest Expense. Interest expense for the year ended June 30, 2000 was
$3.3 million. There was a decrease in interest paid on deposits offset by an
increase in the interest rate paid on borrowed funds.
10
<PAGE>
Net Interest Income. Net interest income increased $262,000. The
increase was due mainly to increased income on a larger loan portfolio.
Provision for Credit Losses. The Bank made an addition of $13,000 to
the provision for credit losses for the year ended June 30, 2000. During the
quarter ended June, 2000, a $5,000 loss on two consumer loans was charged to the
allowance for credit losses. The balance in the allowance for credit losses was
$210,000 on June 30, 1999 and $218,000 on June 30, 2000. As of June 30, 2000,
the Bank's allowance for loan losses was 0.34% of total loans.
Noninterest Income. Noninterest income decreased $108,000 from $575,000
for the year ended June 30, 1999 to $476,000 for the year ended June 30, 2000.
The decrease was mainly due to lower fee volume on sale of mortgage loans offset
by an increase in loan and other customer service fees.
Noninterest Expense. Noninterest expense increased from $2.5 million
for the year ended June 30, 1999 to $2.6 million for the year ended June 30,
2000, an increase of $93,000. This was mainly due to increased personnel
expense, data processing and advertising expenses and a reduction in premiums
for Federal deposit insurance.
Management continues their efforts to expand the Banks products and
services as well as improve its delivery system to enhance quality service. This
years focus on increasing retail loan production has resulted in doubling the
volume of home equity lines outstanding and the new Commercial Loan Department
is now generating new business and has a significant amount of commitments to
fund as well as a growing pipeline of proposals. Management will also be
focusing on non-interest income through new revenue sources such as credit
insurance, title insurance, credit cards, ATM exchange fees and improved
activity analysis on commercial deposit accounts. Management expects
non-interest expense to continue to increase as new equipment and improved data
processing are necessary in order to provide a quality level of financial
services. During the year, all expense categories will be reviewed such as our
method of check clearing. The thrust on non-interest income/expenses is to
improve the Bank's efficiency ratio and thereby increase profitability and
enhance shareholder value.
Provision for Income Taxes. The provision for income taxes for the year
ended June 30, 2000 was $187,000 as compared to $177,000 for the year ended June
30, 1999. The increase was due to increased income offset by a tax savings
associated with municipal bonds.
11
<PAGE>
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed securities.
Additional sources of liquidity are advances from the FHLB of Atlanta and other
borrowings. The Bank may utilize FHLB of Atlanta borrowing in the future during
periods when management believes that such borrowings provide a lower cost
source of funds than deposit accounts and the Bank desires liquidity in order to
help expand its lending operations. Borrowings are also used to purchase assets
to leverage capital.
The Bank's most liquid assets are cash and cash-equivalents, which
include investments in highly liquid, short-term investments, such as overnight
investments in the Federal Home Loan Bank of Atlanta. At June 30, 2000, cash and
cash equivalents totaled $2.1 million.
At June 30, 2000, the Bank had $42.1 million in certificates of
deposits due within one year and $3.4 million due in two to three years.
Management estimates that the Bank will retain the deposits or replace them with
new deposits. At June 30, 2000, the Bank had $2.0 million in outstanding loan
commitments. The Bank intends to fund these commitments with present liquidity,
proceeds from loan repayments, and loan sales in the secondary market.
Regulations require that the Bank maintain specified levels of
liquidity. The liquidity is measured as a ratio of cash and certain investments
to withdrawable savings. At June 30, 2000, the minimum level of liquidity
required by regulations was 4.00%. The Bank's liquidity ratio at June 30, 2000
was 36.58% and at June 30, 1999 was 30.11%.
The Bank is required to maintain specified amounts of capital pursuant
to the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and regulations promulgated by the OTS. The capital standards
generally require the maintenance of regulatory capital sufficient to meet a
tangible capital requirement, a core capital requirement and a risk-based
capital requirement. At June 30, 2000, the Bank's tangible and core capital
totaled $7.3 million. This amount exceeded the tangible capital requirement of
$1.3 million by $6.0 million and the core capital requirement of $2.6 million by
$4.7 million on that date. At June 30, 2000, the Bank's risk-based capital
totaled $7.5 million, which exceeded its risk-based capital requirement of $3.9
million by $3.6 million.
Impact of Inflation and Changing Prices
The financial statements and related data have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time caused by inflation.
Unlike industrial companies, nearly all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services since such
goods and services are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
12
<PAGE>
[LOGO]
--------------------
CHERRY
BEKAERT &
HOLLAND
--------------------
CERTIFIED PUBLIC
ACCOUNTANTS &
CONSULTANTS
--------------------
Report of Independent Auditors
The Board of Directors and Stockholders
SWVA Bancshares, Inc.
Roanoke, Virginia
We have audited the accompanying consolidated statements of financial condition
of SWVA Bancshares, Inc. and Subsidiaries (the "Company"), as of June 30, 2000
and 1999, and the related consolidated statements of income, comprehensive
income, changes in stockholders' equity, and cash flows for each of the years in
the three-year period ended June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SWVA Bancshares,
Inc. and Subsidiaries, as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2000 in conformity with generally accepted accounting principles.
/s/Cherry, Bekaert & Holland, L.L.P.
Lynchburg, Virginia
August 14, 2000
13
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 2000 and 1999
(In thousands)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,060 $ 2,454
Interest-bearing deposits 1,685 6,278
Investment and mortgage-backed securities
Held to maturity, at amortized cost (fair value of $254 in 2000 and $292 in 1999) 254 283
Available for sale, at fair value 21,517 22,934
Restricted at cost 585 600
Loans held for sale 857 476
Loans receivable, net 53,610 45,576
Foreclosed property 186 -
Property and equipment, net 1,681 1,688
Accrued interest receivable 607 594
Prepaid expenses and other assets 919 831
---------- ----------
Total assets $ 83,961 $ 81,714
========== ==========
Liabilities and stockholders' equity
Liabilities
Deposits $ 64,748 $ 62,094
Advances from Federal Home Loan Bank 11,700 12,000
Advances from borrowers for taxes and insurance 208 210
Other liabilities and deferred income 563 619
---------- ----------
Total liabilities 77,219 74,923
---------- ----------
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.10. Authorized 275,000 shares, none issued
Common stock, par value $.10. Authorized 2,225,000 shares, 423,612
shares outstanding for 2000 and 1999 42 42
Additional paid-in capital 2,824 2,838
Retained earnings, substantially restricted 5,152 4,908
Unrealized holding loss on securities, available for sale ( 895) ( 515)
Less unearned ESOP shares, 18,258 for 2000 and 22,823 shares for 1999 ( 182) ( 228)
Less unearned MSBP shares, 11,767 for 2000 and 14,895 shares for 1999 ( 199) ( 254)
----------- -----------
Total stockholders' equity 6,742 6,791
---------- ----------
Total liabilities and stockholders' equity $ 83,961 $ 81,714
========== ==========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 2000, 1999 and 1998
(In thousands, except shares outstanding)
<TABLE>
<CAPTION>
Unrealized
Holding
Common Stock Gain (Loss)
---------------------- Additional on Securities Unearned Unearned
Shares Paid-in Retained Available ESOP MSBP
Outstanding Amount Capital Earnings For Sale Shares Shares Total
------------- -------- ----------- --------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 510,984 $ 51 $ 4,286 $ 4,904 $ 29 $ ( 319) $ ( 349) $ 8,602
Net income - - - 461 - - - 461
Change in unrealized gain on
available for sale securities - - - - 29 - - 29
Repurchase of common stock ( 14,097) ( 1) ( 292) - - - - ( 293)
Allocated/earned ESOP shares - - 47 - - 45 - 92
Allocated/earned MSBP shares - - 9 - - - 50 59
Dividends declared and paid
($1.30 per share) - - - ( 623) - - - ( 623)
-------- ------ --------- ------- ---------- --------- --------- ---------
Balance at June 30, 1998 496,887 50 4,050 4,742 58 ( 274) ( 299) 8,327
Net income - - - 345 - - - 345
Change in unrealized gain on
available for sale securities - - - - ( 573) - - ( 573)
Repurchase of common stock ( 73,275) ( 8) ( 1,202) - - - - ( 1,210)
Allocated/earned ESOP shares - - 12 - - 46 - 58
Allocated/earned MSBP shares - - ( 22) - - - 45 23
Dividends declared and paid
($0.40 per share) - - - ( 179) - - - ( 179)
-------- ------ --------- ------- ---------- --------- --------- ---------
Balance at June 30, 1999 423,612 42 2,838 4,908 (515) ( 228) ( 254) 6,791
Net income - - - 396 - - - 396
Change in unrealized gain on
available for sale securities - - - - (380) - - (380)
Allocated/earned ESOP shares - - ( 2) - - 46 - 44
Allocated/earned MSBP shares - - ( 12) - - - 55 43
Dividends declared and paid
($0.40 per share) - - - ( 152) - - - ( 152)
-------- ------ --------- ------- ---------- --------- --------- ---------
Balance at June 30, 2000 423,612 $ 42 $ 2,824 $ 5,152 $ ( 895) $ ( 182) $ ( 199) $ 6,742
======== ====== ========= ======= ========== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 2000, 1999, and 1998
(In thousands, except per-share data)
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest income
Loans $ 4,076 $ 3,856 $ 4,182
Mortgage-backed and related securities 631 592 284
U.S. government obligations including agencies 826 675 705
Interest on municipal bonds 119 69 23
Other investments, including overnight deposits 376 599 614
---------- ---------- -----------
Total interest income 6,028 5,791 5,808
---------- ---------- -----------
Interest expense
Deposits 2,748 2,848 2,968
Borrowed funds 565 490 258
---------- ---------- -----------
Total interest expense 3,313 3,338 3,226
---------- ---------- -----------
Net interest income 2,715 2,453 2,582
Provision for credit losses 13 13 33
---------- ---------- -----------
Net interest income after provision for credit losses 2,702 2,440 2,549
---------- ---------- -----------
Noninterest income
Loan and other customer service fees 244 158 137
Gain on sale of mortgage loans 121 324 210
Gross rental income 102 102 98
Other - ( 9) ( 17)
------------ ---------- -----------
Total noninterest income 467 575 428
---------- ---------- -----------
Noninterest expense
Personnel 1,476 1,435 1,285
Office occupancy and equipment 339 335 297
Data processing 250 232 179
Federal insurance of accounts 25 40 38
Advertising 116 90 63
Other 380 361 336
---------- ---------- -----------
Total noninterest expenses 2,586 2,493 2,198
---------- ---------- -----------
Income before income tax expense 583 522 779
Provision for income taxes 187 177 318
---------- ---------- -----------
Net income $ 396 $ 345 $ 461
========== ========== ===========
Basic earnings per share $ .99 $ .78 $ .97
Diluted earnings per share $ .99 $ .78 $ .95
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended June 30, 2000, 1999, and 1998
(In thousands)
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net income $ 396 $ 345 $ 461
Other comprehensive income, net of tax
Unrealized gains (losses) on securities ( 380) ( 573) 29
---------- ---------- -----------
Comprehensive income $ 16 $ ( 228) $ 490
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000, 1999, and 1998
(In thousands)
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income $ 396 $ 345 $ 461
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
ESOP shares allocated 46 46 92
MSBP shares allocated 55 45 59
Provision for credit losses 13 13 33
Provision for depreciation and amortization 114 106 96
Provision (benefit) for deferred income tax 3 3 ( 19)
Loans originated for sale ( 10,191) ( 29,286) ( 20,467)
Proceeds from sales of loans originated for sale 9,931 30,742 19,796
Gain on sale of loans ( 121) ( 325) ( 210)
Loss on disposal of property and equipment - - 1
Net increase (decrease) in other assets 103 ( 64) ( 302)
Net increase (decrease) in other liabilities ( 74) 44 35
Net gain on sale of investments, available for sale - ( 18) ( 17)
---------- ----------- -----------
Net cash provided by (used in) operating activities 275 1,651 ( 442)
---------- ---------- -----------
Investing activities
Proceeds from sale of property and equipment 2 - -
Proceeds from sale of FHLB stock 109 411 -
Proceeds from maturity of investments and interest-bearing deposits 6,080 6,087 6,793
Proceeds from sale of investments, available for sale - 11,490 6,257
Purchase of investments and interest-bearing deposits ( 1,487) ( 6,468) ( 6,887)
Purchase of investments, available for sale - ( 17,527) ( 20,408)
Purchase of FHLB stock ( 94) ( 50) -
Purchase of property and equipment ( 108) ( 132) ( 91)
Net (increase) decrease in loans ( 6,332) 3,936 3,080
Purchase of loans ( 1,900) ( 1,313) ( 343)
Principal repayments on mortgage-backed securities 859 3,759 1,018
---------- ---------- ----------
Net cash provided by (used in) investing activities ( 2,871) 193 ( 10,581)
------------ ---------- -----------
Financing activities
Proceeds from advances 8,200 7,000 7,000
Curtailment of advances and other borrowings ( 8,500) ( 2,000) ( 3,500)
Net increase (decrease) in savings deposits 2,654 ( 6,194) 10,356
Repurchase of stock - ( 1,210) ( 293)
Dividends paid ( 152) ( 179) ( 623)
------------ ----------- -----------
Net cash provided by (used in) financing activities 2,202 ( 2,583) 12,940
---------- ----------- ----------
Increase (decrease) in cash and cash equivalents ( 394) ( 739) 1,917
Cash and cash equivalents at beginning of year 2,454 3,193 1,276
---------- ---------- ----------
Cash and cash equivalents at end of year $ 2,060 $ 2,454 $ 3,193
========== ========== ==========
</TABLE>
(continued)
18
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000, 1999, and 1998
(In thousands)
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid for
Interest on deposits and borrowed funds $ 3,343 $ 3,290 $ 3,193
========== ========== ==========
Income taxes $ 185 $ 330 $ 440
========== ========== ==========
Other non-cash activities
Gross unrealized gain (loss) on securities, available for sale $ ( 1,356) $ ( 780) $ 93
Deferred income taxes 461 265 ( 35)
---------- ---------- -----------
Net unrealized gain (loss) $ ( 895) $ ( 515) $ 58
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
SWVA Bancshares, Inc. (Parent Company), is a unitary thrift holding company
whose principal asset is its wholly-owned subsidiary, Southwest Virginia Savings
Bank, FSB (Bank). The Bank is a federally chartered stock Bank as provided by
the United States Home Owner's Loan Act. The Bank has five locations in Roanoke,
Virginia and the surrounding area. In these financial statements the
consolidated group is referred to collectively as the "Company".
The Office of Thrift Supervision (OTS) is the primary regulator for federally
chartered savings associations, as well as savings and loan holding companies.
The Federal Deposit Insurance Corporation (FDIC) is the federal deposit
insurance administrator for both banks and savings associations. The FDIC has
specified authority to prescribe and enforce such regulations and issue such
orders as it deems necessary to prevent actions or practices by savings
associations that pose a serious threat to the Savings Association Insurance
Fund (SAIF).
The accounting and reporting policies of the Company conform with generally
accepted accounting principles (GAAP). A brief description of the Company's
significant accounting policies is presented as follows.
Note 1 - Summary of significant accounting policies
Basis of consolidation
The consolidated financial statements include the accounts of SWVA Bancshares,
Inc., Southwest Virginia Savings Bank, its wholly-owned subsidiary, and
Southwest Virginia Service Corporation, the wholly-owned subsidiary of the Bank.
All material intercompany accounts and transactions have been eliminated in the
consolidation. The Company also presents herein condensed Parent Company
financial information. Prior year amounts are reclassified when necessary to
conform with current year classifications.
Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans. The
estimation process may include management obtaining independent appraisals for
significant collateral properties, but the ultimate collectibility and recovery
of carrying amounts are susceptible to changes in local real estate market and
other local economic conditions.
Management uses available information to recognize credit losses on loans and
real estate acquired in settlement of loans currently, while future additions to
the allowances may be necessary based on changes in local economic conditions.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for credit losses on loans.
Such agencies may require the Bank to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination. Because of these factors, it is possible that the allowances
for credit losses on loans could change materially.
20
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
Cash equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities, when purchased, of three
months or less to be cash equivalents. Cash and cash equivalents for the three
years presented include cash on hand and demand deposits. Certificates of
deposit with initial maturities greater than three months are shown separately
as interest-bearing deposits.
Investment securities
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115), requires certain
securities to be classified as "held to maturity", "trading" or "available for
sale", according to management's intent and ability, at the time of purchase.
Debt securities classified as "held to maturity" are carried at cost, adjusted
for amortization of premium and accretion of discount over the terms of the
securities, as long as the Company has the ability and maintains the positive
intent to hold such securities to maturity. If such securities are sold prior to
maturity, gains or losses are recognized in the year of sale by the specific
identification method.
Trading securities, if any, are carried at fair value. Realized gains and losses
on sales and unrealized changes in fair values are included in noninterest
income.
Due to the nature of, and restrictions placed upon the Company's common stock
investment in the Federal Home Loan Bank of Atlanta, these securities have been
classified as restricted equity securities and carried at cost. These restricted
securities are not subject to the investment security classifications of SFAS
115.
Marketable equity securities not classified as "trading" or "restricted" and
debt securities not classified as "trading" or "held to maturity" are carried at
fair value, if marketable, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity. Realized
gains and losses on sales are included in noninterest income and are computed
under the specific identification method.
Mortgage-backed and related securities
Mortgage-backed securities, held to maturity, represent participating interests
in pools of long-term first mortgage loans originated and serviced by the
issuers of the securities. These securities are carried at unpaid principal
balances, adjusted for unamortized premiums and discounts as the Bank has the
ability and intent to hold such securities to maturity. Premiums and discounts
are amortized using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments. If such securities are sold
prior to maturity, gains and losses are determined using the specific
identification method.
Securities classified as available for sale are carried at their current market
value. The difference between the amortized cost and current market value, net
of deferred income tax, is reflected as a component of equity capital and is
designated as unrealized holding gain/loss on securities available for sale.
21
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
Loans held for sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to
noninterest income. As of June 30, 2000 and 1999 and for each of the three years
ended June 30, 2000, 1999, and 1998, these loans were originated with firm
commitments from independent third parties to be acquired at fixed prices. As a
result, no unrealized gains or losses have been recognized.
Loans and allowances for credit losses
The Company adopted the provisions of Statements of Financial Accounting
Standards No.114, Accounting by Creditors for Impairment of a Loan (SFAS 114),
and Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures (SFAS 118), as of July 1, 1996. The adoption has had no material
effect on the financial position or operating results of the Company nor does it
have any effect on the comparability of financial statement information.
Loans receivable that management has the intent and ability to hold for the
foreseeable future, or until maturity or pay off, are carried at their face or
par values, net of unearned discounts, participation or whole-loan interests
owned by others, unearned loan fees, undisbursed loans in process, and an
allowance for credit losses.
Valuation allowances for estimated credit losses on loans are established by
charges to income when any material and estimable decline in value is deemed to
have occurred. The determination of the adequacy of the valuation allowance is
based on a detailed analysis of individual loans with known or anticipated
adverse performance characteristics, and includes consideration of historical
patterns, industry experience, current economic conditions, changes in
composition and risk characteristics of the loan portfolio, and other factors
deemed relevant to the collectibility of the loans currently outstanding. A loan
is considered impaired when, based on current information and events, it is
probable that all amounts due according to the contractual terms of the loan
agreement will not be collectible. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for credit losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Loans that are 90 days or more past due are individually reviewed for ultimate
collectibility. Interest determined to be uncollectible on loans that are
contractually past due is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan is
returned to accrual status.
Foreclosed real estate
Foreclosed real estate owned, if any, consists of property acquired by
foreclosure on delinquent loans or by deed in lieu of foreclosure. Such property
is recorded initially at the lower of cost or fair value and is subsequently
maintained at the lower of cost or fair value minus the estimated costs to sell.
22
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
Property, equipment and depreciation
The various classes of property are stated at cost and are depreciated by the
straight-line method over their estimated useful lives of 10 to 50 years for
buildings and improvements and 3 to 12 years for furniture, fixtures, and
equipment. Repairs are expensed as incurred. The cost and accumulated
depreciation of property are eliminated from the accounts upon disposal, and any
resulting gain or loss is included in the determination of net income.
Income taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect of a change in tax rates
upon deferred taxes is recognized in income in the period that includes the
enactment date.
Prior to 1996, Banks that met certain definitional tests and other conditions
prescribed by the Internal Revenue Code were allowed, within limitations, to
deduct from taxable income an allowance for bad debts based on actual loss
experience, a percentage of taxable income (8%) before such deduction, or an
amount based on a percentage of eligible loans. The cumulative bad debt reserve,
upon which no taxes have been paid, was approximately $1.6 million as of June
30, 2000.
As a result of 1996 tax legislation, the Company will compute its tax bad debt
deduction by use of the actual charge-off method, for tax years beginning with
July 1, 1996. According to the legislation, "applicable excess reserves" must be
recaptured as taxable income over five years beginning with fiscal year 1997.
Thrifts can delay those payments by two years if they meet a residential lending
requirement. The amount to be recaptured is the excess of the accumulated
reserves since 1987 over the amount allowed by use of the actual charge-off
method for those years. Since the Bank has provided deferred taxes on those bad
debt reserves accumulated since 1987, management does not believe that the
legislation will have a material effect on the Company's financial statements.
Loan origination fees, costs, discounts and premiums
Loan origination fees are accounted for in accordance with Statement of
Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases (SFAS 91). Under SFAS 91, loan origination and commitment fees and
certain direct loan origination costs are deferred. Upon the expiration of
unfunded commitments, the related fees are recognized into income as loan fees.
Loan origination fees on funded commitments and related direct costs are
amortized into income on loans as yield adjustments over the contractual life of
related loans using the level-yield method.
Discounts and premiums on loans purchased are recognized in interest income
using the level-yield method over the average life of the loan.
23
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
Sales of mortgage loans, mortgage-related securities and foreclosed real estate
Gains and losses on the sales of loans, participation interest in loans, and
foreclosed real estate are accounted for by imputing gain or loss on those sales
where a yield rate guaranteed to the buyer is more or less than the contract
interest rate being collected, in the case of loans, and where foreclosed
property is sold on financing terms more or less favorable than the prevailing
market terms for similar property. Such gains or losses are recognized in the
financial statements for the year of sale. The Bank services loans that have
been sold with servicing retained. Such loan balances are not included in the
accompanying consolidated statements of financial condition.
Advertising
The Company expenses most advertising costs as incurred. Such expenses are shown
in the consolidated statements of income. As of June 30, 2000 and 1999, the
Company's statements of financial condition for each period included $6,000 of
prepaid advertising.
Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and short-term instruments - The carrying amounts of cash and short-term
instruments approximate their fair value.
o Available-for-sale and held-to-maturity securities - Fair values for
securities, excluding restricted equity securities, are based on quoted
market prices. The carrying values of restricted equity securities
approximate fair values.
o Loans receivable - Fair values are based on carrying values for
variable-rate loans that reprice frequently and have no significant change
in credit risk. Fair values for certain mortgage loans (for example,
one-to-four family residential) and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values
for commercial real estate and commercial loans are estimated using
discounted cash flow analyses and interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Fair values
for impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
o Deposit liabilities - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money-market accounts and certificates of deposit (CDS)
approximate their fair values at the reporting date. Fair values for
fixed-rate CDS are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities on time deposits.
24
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
o Short-term borrowings - The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
maturing within 90 days approximate their fair values. Fair values of other
short-term borrowing are estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
o Long-term debt - The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
o Accrued interest - The carrying amounts of accrued interest approximate
their fair values.
o Off-balance-sheet instruments - Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
counterparties' credit standings.
Conversion to stock ownership
At a special meeting on July 20, 1994, the members of the Bank approved
management's plan to convert the Bank from a Federal Mutual to a Federal Stock
Bank. The plan called for the formation of SWVA Bancshares, Inc. which would own
the stock of the Bank upon its conversion to a stock form of ownership. The
stock of the Parent Company would then be offered through a Subscription and
Community Offering to the Bank's tax-qualified employee stock plans, eligible
account holders and others. The transaction was in the form of a pooling of
interests.
On October 7, 1994, the Parent Company issued 570,590 shares of $.10 par value
common stock at $10 per share and became the parent company of the Bank. Net
proceeds, after deducting conversion expenses and underwriters' discounts of
$469,000, were $5.2 million and are reflected as common stock and additional
paid-in capital in the accompanying consolidated statements of financial
condition. The Parent Company's Articles of Incorporation contain certain
limitations on voting rights and other "anti- takeover" provisions.
As part of the conversion to stock form, the Bank formed an Employee Stock
Ownership Plan (ESOP) for eligible employees. The ESOP purchased 45,647 common
shares of the Parent Company issued in the conversion, which purchase was funded
by a loan from the Parent Company. In accordance with generally accepted
accounting principles, the unpaid balance of the ESOP loan has been eliminated
on the Company's consolidated statements of financial condition. Stockholders'
equity has been reduced by the aggregate purchase price of the shares owned by
the ESOP net of the shares committed to be released. Contributions to the ESOP
by the Bank are made to fund the principal and interest payments on the debt of
the ESOP. As of June 30, 1999, a total of 27,389 shares had been released.
25
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 1 - Summary of significant accounting policies (continued)
In February 1998, the FASB issued Employers' Disclosures about Pensions and
Other Postretirement Benefits (SFAS 132), which revises employers' disclosures
about pension and other postretirement benefit plans. SFAS 132 does not change
the measurement or recognition of those plans, but requires additional
information on changes in benefit obligations and fair values of plan assets,
and eliminates certain disclosures previously required by SFAS Nos. 87, 88 and
106. SFAS 132 is effective for fiscal years beginning after December 15, 1997.
SFAS 132 has not had a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. The Bank expects to adopt
the new Statement effective July 1, 2000. The Statement will require the Bank to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of the
derivatives will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Bank does not enter into derivative contracts and
does anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
Reclassifications
Certain items in the 1998 and 1999 financial statements have been reclassified
to afford comparability with the 2000 financial statements.
26
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 2 - Investment securities
Investments consisting of U.S. government, mortgage-backed and other securities
at June 30 of each year were as follows in thousands:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------------------
Cost Gain Loss Fair Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Securities, held to maturity
FHLMC participation certificates $ 254 $ - $ - $ 254
----------- ------------- ----------- -----------
Securities, available for sale
Municipal bonds 2,446 - 188 2,258
U.S. Government and agency bonds 12,000 - 874 11,126
GNMA mortgage-backed securities 7,904 - 296 7,608
FNMA mortgage-backed securities 524 1 - 525
----------- ----------- ----------- -----------
22,874 1 1, 358 21,517
----------- ----------- ----------- -----------
Total securities $ 23,128 $ 1 $ 1, 358 $ 21,771
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
Gross Unrealized
Amortized --------------------------------------------
Cost Gain Loss Fair Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Securities, held to maturity
FHLMC participation certificates $ 283 $ 9 $ - $ 292
----------- ----------- ----------- -----------
Securities, available for sale
Municipal bonds 2,442 - 96 2,346
U.S. Government and agency bonds 12,000 - 524 11,476
GNMA mortgage-backed securities 8,591 - 179 8,412
FNMA mortgage-backed securities 681 19 - 700
----------- ----------- ----------- -----------
23,714 19 799 22,934
----------- ----------- ----------- -----------
Total securities $ 23,997 $ 28 $ 799 $ 23,226
=========== =========== =========== ===========
</TABLE>
27
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 2 - Investment securities (continued)
The amortized cost and estimated fair value of debt securities at June 30, 2000,
by contractual maturity, were as follows in thousands. Expected maturities of
mortgage-backed securities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
----------------------------- -----------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due after one year through five years - - - -
Due after five years through ten years - - 2,500 2,412
Due after ten years - - 11,946 10,972
Mortgage-backed and related securities 254 254 8,428 8,133
----------- ----------- ----------- -----------
$ 254 $ 254 $ 22,874 $ 21,517
============ =========== =========== ===========
</TABLE>
Proceeds from maturities of interest-bearing deposits and investments were $6.1
million in 2000, $6.1 million in 1999, and $6.8 million in 1998. Gross realized
gains and losses on redemption of investments are summarized below in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Gross realized gains $ - $ - $ -
Gross realized losses - ( 18) ( 17)
---------- ----------- -----------
Net realized gains (losses) $ - $ ( 18) $ ( 17)
========== =========== ===========
</TABLE>
Cost was determined by the specific identification method.
28
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 3 - Loans receivable
Loans receivable at June 30 of each year were as follows in thousands:
2000 1999
------------- -------------
Mortgage loans
Residential, one to four family $ 33,872 $ 32,342
Residential, multifamily 4,014 4,187
Nonresidential and land 5,459 2,071
Construction 4,781 4,024
----------- -----------
48,126 42,624
----------- -----------
Non-mortgage loans
Consumer loans
Secured personal 1,774 1,483
Unsecured personal 165 92
Auto 568 177
Home improvement 19 38
Equity line 3,262 2,316
Other 120 80
Commercial
Unsecured 202 -
Secured 1,068 105
----------- -----------
7,178 4,291
----------- -----------
Total loans 55,304 46,915
----------- -----------
Less
Deferred loan fees 27 42
Undisbursed loans in process 1,449 1,087
Allowance for credit losses 218 210
----------- -----------
1,694 1,339
----------- -----------
Loans receivable, net $ 53,610 $ 45,576
=========== ===========
Real estate loans pledged as collateral for Federal Home Loan Bank of Atlanta
advances totaled $11.7 million and $12 million as of June 30, 2000 and 1999,
respectively.
29
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 3 - Loans receivable (continued)
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of these loans
at June 30 of each year are summarized as follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation (FHLMC) $ 244 $ 292 $ 321
Virginia Housing Development Authority (VHDA) - 800 614
----------- ----------- -----------
$ 244 $ 1,092 $ 935
=========== =========== ===========
</TABLE>
Custodial escrow balances at June 30 of each year maintained in connection with
the foregoing loans serviced are summarized as follows in thousands:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
FHLMC $ 6 $ 7
VHDA - 6
----------- -----------
$ 6 $ 13
=========== ===========
</TABLE>
Activity in the allowance for credit losses for the years ended June 30, 2000,
1999, and 1998 is summarized as follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year $ 210 $ 207 $ 217
Provision charged to operations 13 13 33
Charge-offs ( 5) ( 10) ( 43)
----------- ----------- -----------
Balance at end of year $ 218 $ 210 $ 207
========== ========== ==========
</TABLE>
30
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 3 - Loans receivable (continued)
The following table sets forth the maturity of the loan portfolio at June 30,
2000 in thousands. The table does not include prepayments or scheduled principal
repayments.
<TABLE>
<CAPTION>
Residential
--------------------------
One to Four Multi- Nonresidential Consumer
Family Family and Land Construction and Other Total
------------- ----------- ----------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Amounts due
Within 3 months $ - $ - $ - $ 1,295 $ 672 $ 1,967
3 months to 1 year 4 - - 2,331 478 2,813
----------- --------- --------------- ------------ ---------- -----------
Total due within 1 year 4 - - 3,626 1,150 4,780
----------- --------- --------------- ------------ ---------- -----------
After 1 year
1 to 3 years 151 - 104 905 963 2,123
3 to 5 years 322 - 2,135 250 539 3,246
5 to 10 years 3,024 749 1,735 - 1,034 6,542
10 to 20 years 7,432 2,643 1,390 - 3,492 14,957
Over 20 years 22,939 622 95 - - 23,656
----------- --------- --------------- ------------ ---------- -----------
Total due after 1 year 33,868 4,014 5,459 1,155 6,028 50,524
----------- --------- --------------- ------------ ---------- -----------
Total due $ 33,872 $ 4,014 $ 5,459 $ 4,781 $ 7,178 55,304
=========== ========= =============== ============ ========== -----------
Less
Allowance for loan loss 218
Loans in process 1,449
Deferred loan fees 27
-----------
1,694
-----------
Loans receivable, net $ 53,610
===========
</TABLE>
The following table sets forth the dollar amount (in thousands) of all loans due
after June 30, 2001, which have predetermined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
------------- ------------- -------------
One to four family $ 8,165 $ 25,703 $ 33,868
Multifamily 3,031 983 4,014
Nonresidential and land 5,235 224 5,459
Construction 255 900 1,155
Consumer and other 2,384 3,644 6,028
----------- ----------- -----------
$ 19,070 $ 31,454 $ 50,524
=========== =========== ===========
31
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 4 - Foreclosed property
At June 30, 2000, 3 loans were classified as foreclosed property. These loans
are secured by single family real estate.
There was no foreclosed real estate acquired in settlement of loans at June 30,
1999.
The net loss on foreclosed real estate at June 30 of each year consisted of the
following in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net loss on sale of foreclosed real estate $ - $ - $ 43
=========== =========== ===========
</TABLE>
Note 5 - Property, equipment and depreciation
Property and equipment at June 30 of each year were as follows in thousands:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Land $ 573 $ 575
Office buildings and improvements 1,816 1,794
Furniture, fixtures and equipment 1,143 1,057
----------- -----------
3,532 3,426
Less accumulated depreciation 1,851 1,738
----------- -----------
Property and equipment, net $ 1,681 $ 1,688
=========== ===========
</TABLE>
Accumulated depreciation at June 30 of each year was as follows in thousands:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Office buildings and improvements $ 975 $ 937
Furniture, fixtures and equipment 876 801
----------- -----------
$ 1,851 $ 1,738
=========== ===========
</TABLE>
Depreciation expense for the years ended June 30, 2000, 1999, and 1998 was as
follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Office buildings and improvements $ 37 $ 36 $ 37
Furniture, fixtures and equipment 76 70 55
----------- ----------- -----------
$ 113 $ 106 $ 92
=========== =========== ===========
</TABLE>
32
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 6 - Accrued interest receivable
Accrued interest receivable at June 30 of each year was as follows in thousands:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Accrued interest on loans $ 311 $ 261
Accrued interest on investments 296 333
----------- -----------
$ 607 $ 594
=========== ===========
</TABLE>
Note 7 - Deposits
Savings deposits at June 30 of each year, summarized by interest rate, were as
follows in thousands:
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
Amount Percent Amount Percent
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Negotiable order of withdrawal deposits
Non-interest bearing $ 1,840 2.84% $ 1,284 2.07%
1.49% 5,265 8.13 5,434 8.75
1.98% 81 .13 - 0.00
2.47% 1,230 1.90 - 0.00
2.52% 2,668 4.12 3,233 5.21
----------- -------- ----------- --------
11,084 17.12 9,951 16.03
------------- -------- ----------- --------
Passbooks and statement deposits, 3.00% for each year 8,104 12.52 8,688 13.99
----------- -------- ----------- --------
Certificates of deposit and other term deposits
3.00% to 4.00% 80 .12 1,489 2.40
4.01% to 5.00% 8,978 13.87 23,367 37.63
5.01% to 6.00% 16,234 25.07 18,399 29.63
6.01% to 7.00% 20,268 31.30 200 .32
----------- --------- ----------- --------
Total term deposits 45,560 70.36 43,455 69.98
----------- --------- ----------- --------
Total deposits $ 64,748 100.00% $ 62,094 100.00%
=========== ========= =========== ========
</TABLE>
The aggregate amounts of certificates of deposit with a denomination of $100,000
or more were $6.9 million, $5.6 million, and $5.8 million at June 30, 2000,
1999, and 1998, respectively.
Certain deposit accounts were pledged as collateral for $194,000, $197,000, and
$207,000 of consumer loans at June 30, 2000, 1999, and 1998, respectively.
33
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 7 - Deposits (continued)
Maturities of certificates of deposit are scheduled for each fiscal year
indicated as follows in thousands:
<TABLE>
<CAPTION>
2001 2002 2003 After 2004 Total
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
3.00% to 4.00% $ 80 $ - $ - $ - $ 80
4.01% to 5.00% 7,569 1,232 151 26 8,978
5.01% to 6.00% 15,897 301 36 - 16,234
6.01% to 7.00% 18,581 1,687 - - 20,268
----------- ----------- ----------- ----------- -----------
$ 42,127 $ 3,220 $ 187 $ 26 $ 45,560
=========== =========== =========== =========== ===========
</TABLE>
Interest expense on deposits for the years ended June 30, 2000, 1999, and 1998
is summarized as follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Money market $ 75 $ 87 $ 93
Regular savings 255 234 224
Interest checking 87 87 92
Club accounts 1 1 1
Certificates of deposit 2,330 2,439 2,558
----------- ----------- -----------
$ 2,748 $ 2,848 $ 2,968
=========== =========== ===========
</TABLE>
Note 8 - Borrowed funds
The following table sets forth certain information regarding advances at the
dates or for the periods indicated in thousands:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
FHLB-Atlanta advances
<S> <C> <C>
Balance outstanding at end of year $ 11,700 $ 12,000
Average balance outstanding 10,338 9,043
Maximum amount outstanding at any month-end during the year 12,000 12,000
Weighted-average interest rate during the year 6.05% 5.42%
Weighted-average interest rate at end of year 5.46% 5.37%
</TABLE>
34
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 8 - Borrowed funds (continued)
The following table sets forth the repayment schedule at June 30, 2000, which
includes interest rates and amounts due by year, in thousands:
Year Due Interest Rate Amount
------------ ---------------- -------------
2001 7.40% $ 4,700
2008 4.69% 3,000
2008 5.51% 2,000
2009 5.47% 2,000
-------------
$ 11,700
=============
As of June 30, 2000, the line of credit approved by the Federal Home Loan Bank
was $16 million, of which $4.3 million remained unused.
Residential loans aggregating $11.7 million and $12 million were pledged as of
June 30, 2000 and 1999, respectively, as collateral for the advances from
FHLB-Atlanta under a blanket floating lien agreement.
Note 9 - SAIF premium assessment
Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (Act), the
FDIC imposed a special assessment on SAIF members to capitalize the SAIF at the
designated reserve level of 1.25% of insured deposits as of September 30, 1996.
Based on the Company's deposits as of March 31, 1995, the date for measuring the
amount of the special assessment pursuant to the Act, the Company paid a special
assessment of $355,000 on November 27, 1996 to capitalize the SAIF. The FDIC has
lowered the premium for deposit insurance to a level necessary to maintain the
SAIF at its required reserve level. The Bank's premium for deposit insurance for
2000 is currently .0003% of assessable deposits and was .0610% in 1999.
Note 10 - Income taxes
The Bank's portion of the consolidated taxable income was computed by
application of Section 593(b)(2) of the U.S. Internal Revenue Code which
provides a special deduction for bad debts. The bad debt deduction may be a "tax
preference item" to which a minimum tax may apply.
The 1996 federal tax legislation repealed the benefits of Section 593(b)(2) of
the U.S. Internal Revenue Code. For ensuing fiscal years, the Bank will compute
its tax bad debt deduction by use of the "experience method" which is based on a
moving five-year average of actual loss experience. The legislation also
provides that "applicable excess reserves" must be recaptured as taxable income
over five years beginning in fiscal 1997. The amount to be recaptured is the
excess of the accumulated reserves since 1987 over the amount allowed by use of
the experience method for those years.
35
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 10 - Income taxes (continued)
The consolidated provision for income taxes for the years ended June 30, 2000,
1999, and 1998, consisted of the following elements in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Tax paid or payable currently
Federal $ 184 $ 159 $ 304
State - 15 33
Income tax deferred, net 3 3 ( 19)
----------- ---------- -----------
Total provision for income taxes $ 187 $ 177 $ 318
=========== ========== ==========
</TABLE>
The provision for income taxes differed from that computed at the statutory
corporate rate for the years ended June 30, 2000, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
Increases in taxes resulting from
State income tax, net of federal tax benefit - 2.0 2.8
Other - (.1) 1.5
Tax exempt interest (6.9) (6.8)
Permanent non-deductible expenses 3.9 4.3 2.5
-------- -------- --------
Total provision for income taxes 31.0% 33.4% 40.8%
======== ======== ========
</TABLE>
The significant components of the net deferred tax asset (liability) at June 30
of each year were as follows in thousands:
<TABLE>
<CAPTION>
Liability Method
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Components of the deferred tax asset
Loan fees $ - $ 3
Pension expense 76 76
Stock bonus plan 27 24
Bad debts 16 13
Unrealized losses on securities, available for sale 461 265
----------- -----------
580 381
Valuation allowance - -
----------- -----------
Total deferred tax asset 580 381
----------- -----------
Components of the deferred tax liability
Loan fees 2 -
Accelerated depreciation 9 10
----------- -----------
Total deferred tax liability 11 10
----------- -----------
Net deferred tax asset $ 569 $ 371
=========== ===========
</TABLE>
36
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 10 - Income taxes (continued)
The Company's consolidated income tax returns for years not barred by the
statute of limitations are subject to review by tax authorities.
Note 11 - Comprehensive income
Effective July 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS
130). This statement requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes certain disclosure of certain
financial information that has historically not been recognized in the
calculation of net income.
The before tax and after tax amount, as well as the tax (expense) is summarized
below:
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
------------- ------------- -------------
<S> <C> <C> <C>
Year ended June 30, 2000
Unrealized gains (losses) on securities $ ( 576) $ 196 $ ( 380)
=========== ========== ===========
Year ended June 30, 1999
Unrealized gains (losses) on securities $ ( 874) $ 301 $ ( 573)
=========== ========== ===========
Year ended June 30, 1998
Unrealized gains (losses) on securities $ 44 $ ( 15) $ 29
=========== =========== ============
</TABLE>
Note 12 - Retirement plans and employee benefit programs
The Company has a multi-employer defined benefit pension plan with The Financial
Institution's Retirement Fund. Pension expense is the amount of the required
contribution, and a liability is recognized for such contributions which are
unpaid at the end of the fiscal year.
Pension expense for the three years ended June 30, 2000 was as follows in
thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Pension expense $ - $ - $ -
=========== =========== ===========
</TABLE>
The multi-employer defined benefit plan covers substantially all employees who
have reached age 21 and who have completed one year of service. The benefits are
based on length of service and high five-year average earnings. However, in no
event will the benefits be less than those vested through June 30, 1992 under a
previous plan.
37
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 12 - Retirement plans and employee benefit programs (continued)
Supplemental executive retirement plan
The Company has a deferred compensation agreement with one principal officer
which provides for retirement benefits supplementary to those of the pension
plan. As of June 30, 2000, the cumulative accrual under the contracts totaled
$110,000 and constituted general obligations of the Company. At June 30, 1999,
the deferred compensation agreement was with two principal officers and the
cumulative accrual totaled $230,000. During the year ended June 30, 2000, the
former President elected to terminate his retirement benefit.
Employee stock ownership plan
At the time of the stock conversion, the Bank established an Employee Stock
Ownership Plan covering all full-time employees over the age of 21, with at
least 1,000 hours of service within a plan year. The ESOP borrowed funds from
the Company to purchase a total of 45,647 shares of the Company's common stock,
the loan being collateralized by the common stock. Contributions by the Bank,
along with dividends received on unallocated shares, are used to repay the loan
with shares being released from the Company's lien proportional to the loan
repayments. Annually on June 30, the released shares are allocated to the
participants in the same proportion that their wages bear to the total
compensation of all of the participants. The Company has released 27,389 shares
of the common stock as of June 30, 2000. The Company recognized $8,000 as
accrued compensation costs in 2000 and 1999. The fair value of unearned ESOP
shares totaled $173,000 and $296,000 at June 30, 2000 and 1999, respectively.
There were no commitments to repurchase ESOP shares.
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
stockholders' equity in the consolidated statements of financial condition. As
shares are released from collateral, the Company reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt.
38
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 12 - Retirement plans and employee benefit programs (continued)
Recognition and retention plan
The stockholders approved the establishment of a Management Stock Bonus Plan and
Trust (MSBP) on October 25, 1995. The plan states that the Trust shall not
purchase more than 4% of the aggregate shares of common stock issued by the
Company in the mutual-to-stock conversion of the Bank (22,823 shares). During
1996, the Bank purchased 22,812 shares of the Company's common stock at an
average price of $17.02 per share to be awarded to directors, officers and
employees in accordance with the provision of the Recognition and Retention
Plan. The costs of the shares awarded under the plan are recorded as unearned
compensation, a contra equity account, and are recognized as an expense in
accordance with the vesting requirements under the plan. For the years ended
June 30, 2000 and 1999, the amounts included in compensation expense were and
$42,000, for each year. The status of the shares in this plan at June 30, 2000
is shown as follows:
Unawarded Awarded
Shares Shares
------------- -------------
Balance at June 30, 1998 4,328 13,209
Granted - -
Vested - ( 2,642)
Forfeiture - -
----------- ----------
Balance at June 30, 1999 4,328 10,567
Granted - -
Vested - ( 3,128)
Forfeiture - -
----------- -----------
Balance at June 30, 2000 4,328 7,439
=========== ===========
Stock option plans
The stockholders also approved the establishment of a stock option plan on
October 5, 1995 for directors, officers and employees. The exercise price under
both plans is $17 per share, the fair market price on the date of the grant. One
is a non-incentive stock option plan, and the other is an incentive stock option
plan. Rights to exercise options granted vest at the rate of 20% per year,
beginning on the first anniversary of the grant. On March 18, 1998, the Board of
Directors approved the establishment of a stock option plan for directors. The
exercise price is $21 per share, the fair market price on the date of grant.
Rights to exercise options are 100% vested as of June 30, 2000.
On April 21, 1999, the Board of Directors approved the establishment of a stock
option plan for the former President. The exercise price is $13 per share, the
fair market price on the date of the grant. Rights to exercise options are 100%
vested as of June 30, 2000.
39
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 12 - Retirement plans and employee benefit programs (continued)
The weighted-average option price and weighted-average remaining term of stock
options awarded and not exercised were as follows as of June 30:
2000 1999
------------- -------------
Weighted-average price $ 17.16 $ 17.16
Weighted-average term $ 7.08 $ 7.66
A summary of the stock option activity is as follows:
Available Options Vested and
for Grant Outstanding Exercisable
---------- ------------ -----------
Balance at June 30, 1998 13,132 26,365 27,684
Granted - - -
Vested - ( 8,792) 18,792
Exercised - - -
Forfeiture - - -
-------- --------- ----------
Balance at June 30, 1999 13,132 17,573 46,476
Granted - - -
Vested - ( 8,781) 8,781
Exercised - - -
Forfeiture - - -
-------- --------- ----------
Balance at June 30, 2000 13,132 8,792 55,257
======== ========= ==========
The Company applies APB Opinion 25 in accounting for employee stock option
plans. Accordingly, no compensation cost has been recognized in 2000 and 1999.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.65%; dividend yields of 3.08%; volatility factor of 11.5%;
and a weighted-average expected life of the option of 6.45 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
40
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 12 - Retirement plans and employee benefit programs (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
2000 1999 1998
----------- ----------- -----------
Pro forma net income $ 381 $ 339 $ 446
Pro forma earnings per share
Basic $ .95 $ .76 $ .93
Diluted $ .95 $ .76 $ .88
Note 13 - Financial instruments with off-balance-sheet risk
The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist primarily of commitments to extend credit. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the statements of financial position. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to be drawn
upon, the total commitment amounts generally represent future cash requirements.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral normally consists of real property.
The Company's commitments to finance real estate acquisitions and construction
were $2.0 million at June 30, 2000, $2.5 million at June 30, 1999, and $4.1
million at June 30, 1998. As of June 30, 2000, the Company had contracted to
sell $540,000 of the loans to be financed. No loss is anticipated. At June 30,
2000, outstanding letters of credit totaled $165,000, and unfunded lines of
credit totaled $4.0 million. There were no loans sold with recourse in 2000 and
1999.
41
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 14 - Restricted retained earnings
In accordance with the regulations concerning conversion from a mutual to a
stock organization, the Bank was required to establish a liquidation account
equal to its net worth as of the latest statement of financial condition
contained in the final prospectus. Such liquidation account is to be maintained
as of the eligibility record date (March 31, 1993) or supplemental eligibility
record date (June 30, 1994) for the benefit of depositors who continue to
maintain their deposits in the Bank after the conversion in the event of a
complete liquidation of the Bank. If, however, on any annual closing date (June
30) of the Bank, the amount in any deposit account is less than the amount in
such deposit account on March 30, 1993 or June 30, 1994, then the interest in
the liquidation account relating to such deposit account would be reduced by the
amount of such reduction, and such interest will cease to exist if such deposit
account is closed. The Bank may not declare or pay a cash dividend or repurchase
any of its capital stock if the effect thereof would cause the net worth of the
Bank to be reduced below either the amount required for the liquidation account
or the minimum regulatory capital requirements. At June 30, 2000, the
liquidation account, unadjusted for customer withdrawals, totaled $4.2 million,
and minimum regulatory capital was $7.3 million. See Note 17 for Bank regulatory
capital requirements.
Note 15 - Earnings per share
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
<S> <C> <C> <C>
Numerator:
(a) Net income available to shareholders $ 396 $ 345 $ 461
============= ============ =============
Denominator:
Weighted-average shares outstanding 423,612 471,766 509,008
Less: ESOP weighted-average shares ( 22,819) ( 27,385) ( 31,951)
-------------- -------------- -------------
(b) Basic EPS weighted-average shares outstanding 400,793 444,381 477,057
Effect of dilutive securities:
Incremental shares attributable to the Stock Option - - 7,500
Plan and Management Stock Bonus Plan - - 2,255
------------- ------------- -------------
(c) Diluted EPS weighted-average shares outstanding 400,793 444,381 486,812
============= ============= =============
Basic earnings per share (a/b) $ .99 $ .78 $ .97
============= ============ ============
Diluted earnings per share (a/c) $ .99 $ .78 $ .95
============= ============ ============
</TABLE>
42
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 16 - Significant group concentrations of credit risk
The Company grants residential, commercial, and consumer loans to customers
mainly in the southwest region of Virginia. The Company has a loan portfolio
consisting principally of residential mortgage loans and is not dependent upon
any particular economic sector, although the portfolio as a whole may be
affected by general economic factors of the southwest Virginia region.
At June 30, 2000, the Company had commercial bank deposits of $1.3 million in
excess of the Federal Deposit Insurance Corporation insurance limit.
Note 17 - Bank regulatory matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
The Office of Thrift Supervision's capital regulations require thrift
institutions to maintain capital at least sufficient to meet three requirements:
tangible capital, core capital, and risk-based capital. Management has
determined that the Bank's capital meets and exceeds all three capital
requirements as follows as of June 30, 2000 and 1999, in thousands. Tangible and
core capital levels are shown as a percentage of adjusted total assets.
Risk-based capital levels are shown as a percentage of risk-weighted assets:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------------------
Tangible Core Risk-based
Capital Capital Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital computed $ 7,301 8.52% $ 7,301 8.52% $ 7,518 15.53%
Minimum capital requirement 1,285 1.50 2,570 3.00 3,872 8.00
-------- -------- ---------- -------- ---------- --------
Regulatory capital excess $ 6,016 7.02% $ 4,731 5.52% $ 3,646 7.53%
========== ======== ========== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------
Tangible Core Risk-based
Capital Capital Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital computed $ 6,869 8.3% $ 6,869 8.3% $ 7,079 17.7%
Minimum capital requirement 1,238 1.5 2,476 3.0 3,205 8.0
-------- ----- --------- ----- --------- ------
Regulatory capital excess $ 5,631 6.8% $ 4,393 5.3% $ 3,874 9.7%
======== ===== ========= ===== ========= ======
</TABLE>
43
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 18 - Related-party transactions
The Company has made loans in the ordinary course of business to various
officers and directors. These loans are generally collateralized by the
individuals' personal residences or by savings accounts in the Company. The
aggregate balances of such loans which exceed $60,000 in aggregate outstanding
amount to any officer or director for the years ended June 30, 2000, 1999, and
1998 are summarized as follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Beginning balance $ 194 $ 197 $ 286
Additions - - -
Repayments ( 4) ( 3) ( 89)
---------- ----------- -----------
Ending balance $ 190 $ 194 $ 197
========== ========= =========
</TABLE>
Fees for foreclosures, titles and deeds of trust, paid to a law firm, of which a
director was a principal, aggregated $13,860 and $2,575 for the years ended June
30, 1999, and 1998, respectively. No foreclosure fees were paid to a related
party in the year ended June 30, 2000. Insurance commissions received by a
director from business with or for the Company aggregated $4,000 each year for
the years ended June 30, 2000, 1999, and 1998.
Note 19 - Commitments and contingencies
Rental expenses paid under operating leases for a loan office at June 30 of each
year was as follows in thousands:
2000 1999 1998
------------- ------------- -------------
Rental expense $ 42 $ 42 $ 25
=========== =========== ===========
The Company entered into a three-year lease agreement for office space. The
lease terminates April 30, 2001.
The current minimum annual rental commitments under the noncancelable operating
lease in effect at June 30, 2000 are as follows in thousands:
Year Ending Amount
--------------- ---------------
2001 $ 36
--------------
$ 36
===============
44
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 20 - Disclosures about fair value of financial instruments
The estimated fair values of the Company's financial instruments as of June 30
of each year are as follows in thousands:
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 2,060 $ 2,060 $ 2,454 $ 2,454
Interest-bearing deposits 1,685 1,685 6,278 6,278
Investment securities 13,638 13,638 14,105 14,115
Mortgage-backed securities 8,133 8,133 9,112 9,112
Loans receivable, net 53,610 53,739 45,576 45,729
Financial liabilities
Deposits 64,748 65,331 62,094 62,094
Advances from Federal Home Loan Bank 11,700 11,747 12,000 11,956
Unrecognized financial instruments
Commitments to purchase securities - - - -
Standby letters of credit issued 165 165 521 521
</TABLE>
Note 21 - Proposed merger
On August 8, 2000, the Bank announced a proposed merger with FNB Corporation of
Christiansburg, Virginia. Terms of the agreement require the stockholders of the
Bank to receive $20.25 in value, consisting of cash and stock in FNB
Corporation, subject to certain restrictions. This merger is contingent upon the
approval of the Bank's stockholders and state and federal regulators, as well as
the conditions under the merger agreement.
Note 22 - Other noninterest expense
Other noninterest expense for the years ended June 30, 2000, 1999, and 1998 is
shown as follows in thousands:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Other noninterest expense
Contributions $ 5 $ 5 $ 7
Dues and subscriptions 19 18 14
Insurance 29 30 31
Office supplies, telephone and postage 135 136 113
Other expenses 53 38 41
Professional fees 108 101 100
Supervisory fees and assessments 32 33 30
----------- ----------- -----------
$ 381 $ 361 $ 336
=========== =========== ===========
</TABLE>
45
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 23 - Condensed parent company information
The following shows the Parent Company's condensed financial information (in
thousands) as of and for years of operation ended June 30, 2000 and 1999:
Balance Sheets
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 83 $ 90
Investment in Bank subsidiary 6,222 6,067
Loan to Bank ESOP 183 228
Loan to Bank subsidiary 250 375
Other assets 42 47
----------- -------------
Total assets $ 6,780 $ 6,807
=========== =============
Liabilities and stockholders' equity
Liabilities $ 38 $ 16
Stockholders' equity 6,742 6,791
----------- -------------
Total liabilities and stockholders' equity $ 6,780 $ 6,807
=========== =============
</TABLE>
46
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 23 - Condensed parent company information (continued)
Statement of Operations
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Income
Interest from
Bank's ESOP loan $ 20 $ 22
Loan to Bank subsidiary 13 22
Income Tax Refunds 35 -
---------- ----------
Total Income 68 44
---------- ----------
Expense
Directors' compensation 25 26
Professional fees 63 58
Stationery and supplies 1 1
Other 20 21
---------- ----------
Total Expense 109 106
---------- ----------
Net loss before Income taxes and equity in
Undistributed net income of Bank subsidiary ( 41) ( 62)
Income tax expense (credit) ( 6) ( 21)
------------ ------------
( 35) ( 41)
Equity in undistributed net income of Bank subsidiary 431 386
---------- ----------
Net Income $ 396 $ 345
============ ===========
</TABLE>
47
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 23 - Condensed parent company information (continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activitie
Net Income $ 396 $ 345
Adjustments
Equity in undistributed net income of Bank subsidiary ( 431) ( 386)
Increase in other assets ( 12) ( 29)
Increase in other liabilities 22 1
------------ ------------
Net cash used in operating activities ( 25) ( 69)
Cash flows from investing activities
Dividends received from Bank subsidiary - 1,200
Principal repayments from Bank subsidiary 170 246
------------ ------------
Net cash provided by investing activities 170 1,446
Cash flows from financing activities
Dividends paid ( 152) ( 179)
Purchase of stock - ( 1,210)
------------ ------------
Net cash used in financing activities ( 152) ( 1,389)
------------ ------------
Decrease in cash and cash equivalents ( 7) ( 12)
Cash and cash equivalents at beginning of year $ 90 $ 102
------------ ------------
Cash and cash equivalents at end of year $ 83 $ 90
============ ============
</TABLE>
48
<PAGE>
SWVA BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
Note 24 - Selected quarterly financial data (unaudited)
Condensed consolidated financial data for the years ended June 30, 2000 and 1999
is shown as follows in thousands, except per- share data:
<TABLE>
<CAPTION>
2000
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $1,451 $1,506 $1,510 $1,561
Total interest expense 789 819 822 883
------ ------ ------ ------
Net interest income 662 687 688 678
Provision for credit losses 3 3 3 4
------ ------ ------ ------
Net interest income after provision for credit losses 659 684 685 674
Other noninterest income 131 128 92 116
Noninterest expense 608 647 671 660
------ ------ ------ ------
Income before income tax expense 182 165 106 130
Income tax expense 58 58 9 62
------ ------ ------ ------
Net income $ 124 $ 107 $ 97 $ 68
====== ====== ====== ======
Basic earnings per share $ .31 $ .26 $ .24 $ .17
Diluted earnings per share .31 .26 .24 .17
Cash dividends per share .20 - .20 -
</TABLE>
<TABLE>
<CAPTION>
1999
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $1,493 $1,477 $1,408 $1,413
Total interest expense 889 864 795 790
------ ------ ------ ------
Net interest income 604 613 613 623
Provision for credit losses 3 3 3 4
------ ------ ------ ------
Net interest income after provision for credit losses 601 610 610 619
Other noninterest income 149 193 125 108
Noninterest expense 613 622 631 627
------ ------ ------ ------
Income before income tax expense 137 181 104 100
Income tax expense 52 70 40 15
------ ------ ------ ------
Net income $ 85 $ 111 $ 64 $ 85
====== ====== ====== ======
Basic earnings per share $ .18 $ .24 $ .14 $ .21
Diluted earnings per share .18 .24 .14 .21
Cash dividends per share .20 - .20 -
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
OFFICE LOCATIONS
Corporate Office
SWVA Bancshares, Inc. and Southwest Virginia Savings Bank, FSB
302 Second Street, S.W.
Roanoke, VA 24011-1597
(540) 343-0135
Branch Offices - Southwest Virginia Savings Bank, FSB
1006 Hardy Road 1611 Hershberger Road
Vinton, VA Roanoke, VA
2133 Electric Road 40 W. Main Street
Roanoke, VA Salem, VA
Loan Production Office
Building D, Suite 101
2847 Penn Forest Blvd.
Roanoke, VA
------------------------------------------
Board of Directors of SWVA Bancshares, Inc.
B. L. Rakes
Chairman of the Board
F. Courtney Hoge James H. Brock Michael M. Kessler
Vice Chairman of the Board President, Rusco Window Co. President, Kessler Associates, LTD,
Insurance Sales Representative a photo processor
New York Life Insurance Co.
D. W. Shilling Barbara C. Weddle Glen C. Combs
Executive Officer Executive Officer Vice President, Acosta Sales,
a food brokerage company
Executive Officers of SWVA Bancshares, Inc.
D. W. Shilling Barbara C. Weddle Mary G. Staples
President and Chief Senior Vice President Controller and Treasurer
Executive Officer and Secretary
------------------------------------------
Special Counsel: Independent Auditors:
Malizia Spidi & Fisch, PC Cherry Bekaert & Holland LLP
One Franklin Square 828 Main Street, 17th Floor
1301 K Street, NW, Suite 700 East Lynchburg, VA 24505
Washington, D.C. 20005
Special Counsel for Transfer Agent and Registrar:
Southwest Virginia Savings Bank, FSB: Registrar & Transfer Company
Carter Brown & Osborne, P.C. 10 Commerce Drive
1401 Franklin Road SW Cranford, NJ 07106
Roanoke, VA 24016 (908) 272-8511
------------------------------------------
</TABLE>
SWVA Bancshares, Inc.'s Annual Report for the year ended June 30, 2000 filed
with the Securities and Exchange Commission on Form 10-KSB is available without
charge upon written request. For a copy of the Form 10-KSB or any other investor
information, please write or call Barbara C. Weddle, Senior Vice President and
Secretary at the Company's Corporate Office in Roanoke, Virginia.
50
