10-Q 1 d10q.txt FORM 10-Q DATED 9/30/2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-22283 VIRGINIA FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-1829288 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 24 South Augusta Street, Staunton, Virginia 24401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (540) 885-1232 NONE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class: Common Stock, $5.00 par value Outstanding as of November 9, 2001: 3,979,483 ================================================================================ VIRGINIA FINANCIAL CORPORATION INDEX
Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets 5 Consolidated Statements of Cash Flows 6 Consolidated Statements of Changes in Stockholders' Equity 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 12 Item 3. Quantitative and Qualitative Disclosure about Market Risk 13 Item 4. Virginia Financial Corporation and Subsidiaries Average Balances, 14 Income and Expense, Yields and Rates Part II. Other Information Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 Exhibit 11. 17
Part 1 Item 1. VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS) (Unaudited)
Three Months Ended SEPT 30 SEPT 30 2001 2000 ----------- ---------- Interest Income: Interest and Fee Income on Loans: Secured by Real Estate $ 5,309 $ 5,252 To Finance Agriculture & Farmers 40 60 Commercial & Industrial 867 957 Individuals for Household & Personal 641 771 Obligations of State & Political Tax-Exempt 59 60 Interest and Dividend Income on Securities: U.S. Treas & U.S. Gov't Agencies 420 1,329 Collateralized Mortgage Obligations 361 - Mortgage Backed Securities 159 - State & Political-Taxable 129 100 State & Political-Tax Exempt 473 425 Other Domestic Debt Securities 7 11 Equity Securities 56 32 Interest on Earning Deposits Due From Banks 1 3 Interest on Federal Funds Sold 133 35 Other Interest Income 24 25 ----------- ---------- Total Interest Income 8,679 9,060 ----------- ---------- Interest Expense: Interest on Deposits: NOW Accounts 240 310 Money Market Accounts 527 572 Other Savings Deposits 329 311 CD's of 100M or More 456 457 All Other Time Deposits 2,356 2,356 Interest on Fed Funds Purch'd & Repurchase Agreements 136 228 Interest on Other Borrowed Money - 174 ----------- ---------- Total Interest Expense 4,044 4,408 ----------- ---------- Net Interest Income 4,635 4,652 Provision for Loan Losses 118 155 ----------- ---------- Net Interest Income after Provision for Loan Losses 4,517 4,497 ----------- ---------- Noninterest Income: Trust Department Income 480 324 Service Charges on Deposit Accts. 398 382 Other Fee Income 594 383 All Other Non-Interest Income 68 41 ----------- ---------- Total Noninterest Income 1,540 1,130 ----------- ---------- Gains on securities 46 3 ----------- ---------- Noninterest Expense: Salaries & Employee Benefits 2,135 1,828 Expense of Premises & Fixed Assets 515 469 Computer Services 261 273 Other Non-Interest Expense 1,180 864 ----------- ---------- Total Non-Interest Expense 4,091 3,434 ----------- ---------- Income Before Income Taxes 2,012 2,196 Provision for Income Taxes 678 604 ----------- ---------- Net Income $ 1,334 $ 1,592 =========== ========== Per Share Data, Net Income, basic and diluted $ 0.34 $ 0.40 Cash Dividends $ 0.17 $ 0.17
The accompanying notes are an integral part of these statements 3 Part 1 Item 1. VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS) (Unaudited)
Nine Months Ended SEPT 30 SEPT 30 2001 2000 ----------- ---------- Interest Income: Interest and Fee Income on Loans: Secured by Real Estate $ 16,090 $ 14,794 To Finance Agriculture & Farmers 144 181 Commercial & Industrial 2,846 2,852 Individuals for Household & Personal 1,999 2,312 Obligations of State & Political Tax-Exempt 177 69 Interest and Dividend Income on Securities: U.S. Treas & U.S. Gov't Agencies 2,223 4,022 Collateralized Mortgage Obligations 508 - Mortgage Backed Securities 225 - State & Political-Taxable 365 288 State & Political-Tax Exempt 1,296 1,311 Other Domestic Debt Securities 27 32 Equity Securities 200 82 Interest on Earning Deposits Due From Banks 3 34 Interest on Federal Funds Sold 373 69 Other Interest Income 70 75 ----------- ---------- Total Interest Income 26,546 26,121 ----------- ---------- Interest Expense: Interest on Deposits: NOW Accounts 771 919 Money Market Accounts 1,451 1,576 Other Savings Deposits 942 927 CD's of 100M or More 1,505 1,135 All Other Time Deposits 7,393 6,557 Interest on Fed Funds Purch'd & Repurchase Agreements 503 619 Interest on Other Borrowed Money 32 539 ----------- ---------- Total Interest Expense 12,597 12,272 ----------- ---------- Net Interest Income 13,949 13,849 Provision for Loan Losses 526 561 ----------- ---------- Net Interest Income after Provision for Loan Losses 13,423 13,288 ----------- ---------- Noninterest Income: Trust Department Income 1,143 1,177 Service Charges on Deposit Accts. 1,212 1,117 Other Fee Income 1,617 1,084 All Other Non-Interest Income 133 115 ----------- ---------- Total Noninterest Income 4,105 3,493 ----------- ---------- Gains on securities 148 19 ----------- ---------- Noninterest Expense: Salaries & Employee Benefits 6,561 5,702 Expense of Premises & Fixed Assets 1,511 1,416 Computer Services 829 832 Other Non-Interest Expense 2,820 2,430 ----------- ---------- Total Non-Interest Expense 11,721 10,380 ----------- ---------- Income Before Income Taxes 5,955 6,420 Provision for Income Taxes 1,746 1,776 ----------- ---------- Net Income $ 4,209 $ 4,644 =========== ========== Per Share Data Net Income, basic and diluted $ 1.06 $ 1.17 Cash Dividends $ 0.51 $ 0.51
The accompanying notes are an integral part of these statements 4 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
SEPT 30 DECEMBER 31 2001 (Unaudited) 2000 ----------- ----------- Assets Cash & Due from Banks $ 21,444 $ 18,146 Interest Earning Deposits Due From Banks 95 53 Federal Funds Sold 6,250 - Securities (fair value: 2001, $125,127; 2000, $132,107) 124,691 132,345 Loans held for resale 7,566 2,383 Loans, net of allowance for loan losses, 2001, $4,019; 2000, $3,894 341,410 329,625 Bank Premises and Equipment, net 8,862 7,739 Deposit Intangibles 1,905 2,023 Other Assets 6,587 7,488 ----------- ----------- Total Assets $ 518,810 $ 499,802 =========== =========== Liabilities and Stockholders' Equity Liabilities Deposits Demand $ 77,112 $ 71,114 NOW Accounts 55,259 53,900 Money Market Checking 62,861 55,043 Savings 44,926 40,416 Time Deposits 207,739 204,768 ----------- ----------- Total Deposits 447,897 425,241 Securities Sold Under Agmt. to Repurchase 14,380 12,495 Other Borrowed Money - 3,000 Federal Funds Purchased - 6,000 Other Liabilities 2,168 2,140 ----------- ----------- Total Liabilities $ 464,445 $ 448,876 ----------- ----------- Stockholders' Equity Common Stock $ 19,897 $ 19,905 Surplus 12,994 13,027 Undivided Profits 20,061 17,882 Accumulated Other Comprehensive Income 1,413 112 ----------- ----------- Total Stockholders' Equity $ 54,365 $ 50,926 ----------- ----------- Total Liabilities and Stockholders' Equity $ 518,810 $ 499,802 =========== ===========
The accompanying notes are an integral part of these statements 5 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (Unaudited)
Nine Months Ended SEPT 30 SEPT 30 2001 2000 ----------- ---------- Cash Flows from Operating Activities Interest received $ 27,241 $ 25,568 Fees and other non-interest income 4,031 3,494 Interest paid (12,727) (12,078) Origination of loans available for sale (57,096) (21,607) Proceeds from sale of loans availabe for sale 51,329 21,359 Cash paid to suppliers and employees (10,674) (8,878) Income taxes paid (1,665) (1,622) ----------- ---------- Net cash provided by operating activities $ 439 $ 6,236 ----------- ---------- Cash Flows from Investing Activities Proceeds from maturities and calls of securities $ 15,655 $ 6,914 Proceeds from sales of securities 56,215 2,639 Purchases of securities (62,205) (3,582) Net increase in loans (11,828) (35,863) Capital expenditures (1,870) (572) Net increase in other assets (404) (233) Proceeds from sale of other real estate 118 152 ----------- ---------- Net cash used in investing activities $ (4,319) $ (30,545) ----------- ---------- Cash Flows from Financing Activities Net increase in certificates of deposit $ 2,971 $ 12,561 Net increase in demand & savings deposits 19,685 9,136 Net decrease in federal funds purchased (6,000) (2,400) Net decrease in Federal Home Loan Bank advances (3,000) (10,000) Net increase in securities sold under repurchase agreements 1,885 4,435 Payment to repurchase common stock (41) (532) Dividends paid (2,030) (2,033) ----------- ---------- Net cash provided by financing activities $ 13,470 $ 11,167 ----------- ---------- Net increase (decrease) in cash and cash equivalents $ 9,590 $ (13,142) Cash and cash equivalents at beginning of year 18,199 28,158 ----------- ---------- Cash and cash equivalents at end of year $ 27,789 $ 15,016 =========== ==========
6 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (IN THOUSANDS OF DOLLARS) (Unaudited)
Nine Months Ended SEPT 30 SEPT 30 2001 2000 ----------- ---------- Reconciliation of net income to net cash provided by operating activities Net income $ 4,209 $ 4,644 Adjustments to reconcile net income to net cash provided by operating activities Depreciation $ 703 $ 691 Provision for loan losses 526 561 Loss on sale of assets 27 176 Origination of loans available for sale (57,096) (21,607) Proceeds from sale of loans availabe for sale 51,329 21,359 Gain on sale of securities (148) (19) Decrease in taxes payable (8) - Decrease (increase) in interest receivable 571 (377) Increase (decrease) in interest payable (130) 194 Decrease (increase) in prepaid expenses (1) 128 Increase in accrued expenses 150 433 Premium amortization 365 62 Increase (decrease) in deferred income 16 (11) Decrease (increase) in fees receivable (74) 2 ----------- ---------- Total Adjustments $ (3,770) $ 1,592 ----------- ---------- Net cash provided by operating activities $ 439 $ 6,236 =========== ========== Supplemental schedule of non-cash investing activities: Other real estate acquired in settlement of loans 101 363 =========== ========== Unrealized gain on securities available for sale 1,970 1,207 =========== ==========
The accompanying notes are an integral part of these statements 7 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001 (IN THOUSANDS OF DOLLARS) (Unaudited)
Accumulated Other Common Capital Retained Comprehensive Comprehensive Stock Surplus Earnings Income (Loss) Income Total ------ ------- -------- ------------- ------------- ------ Balance, December 31, 1999 19,986 13,478 14,389 (1,733) 46,120 Comprehensive income: Net income 4,644 4,644 4,644 Other comprehensive income net of tax, Unrealized holding gains arising during the period (net of tax, $417) 809 Reclassification adjustment (net of tax, $7) (13) -------- Other comprehensive income (net of tax, $410) 796 796 796 -------- Total comprehensive income 5,440 ======== Cash dividends ($0.51 per share) (2,033) (2,033) Stock repurchase of 16,190 shares (81) (451) (532) -------- -------- -------- -------- -------- Balance, September 30, 2000 $ 19,905 $ 13,027 $ 17,000 $ (937) $ 48,995 ======== ======== ======== ======== ========
Accumulated Other Common Capital Retained Comprehensive Comprehensive Stock Surplus Earnings Income Income Total ------ ------- -------- ------------- ------------- ------ Balance, December 31, 2000 19,905 13,027 17,882 112 50,926 Comprehensive income: Net income 4,209 4,209 4,209 Other comprehensive income net of tax: Unrealized holding gains arising during the period (net of tax, $721) 1,399 Reclassification adjustment (net of tax, $51) (98) -------- Other comprehensive income (net of tax, $670) 1,301 1,301 1,301 -------- Total comprehensive income 5,510 ======== Cash dividends ($0.51 per share) (2,030) (2,030) Stock repurchase of 1,525 shares (8) (33) (41) -------- -------- -------- -------- -------- Balance, September 30, 2001 $ 19,897 $ 12,994 $ 20,061 $ 1,413 $ 54,365 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements 8 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Interim Financial Statements The accompanying financial statements of Virginia Financial Corporation and its Subsidiary have not been audited by independent accountants except for the balance sheet at December 31, 2000. In the opinion of the company's management, the financial statements reflect all adjustments necessary to present fairly the results of operations for the three and nine month periods ended September 30, 2001 and 2000, the company's financial position at September 30, 2001 and December 31, 2000, and cash flows for the nine month periods ended September 30, 2001 and 2000. These adjustments are of a normal recurring nature. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001, or any other period. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2000. Note 2. Securities as of September 30, 2001 and December 31, 2000 are summarized below.
(IN THOUSANDS OF DOLLARS) September 30, 2001 December 31, 2000 Unrealized Unrealized Book Market Gain (Loss) Book Market Gain (Loss) ---- ------ ----------- ---- ------ ----------- Securities Available for Sale U.S. Treasury Securities $ 5,954 $ 6,434 $ 480 $ 5,947 $ 6,159 $ 212 U.S. Agency Securities 11,504 11,851 347 34,069 34,059 (10) Collateralized Mort. Oblig 35,233 35,584 351 -- -- -- Mortgage Backed 10,951 11,000 49 -- -- -- Obligations of State and Political Subdivisions 42,272 43,535 1,263 30,520 30,730 210 Other Securities 6,193 5,844 (349) 5,826 5,585 (241) -------- -------- -------- -------- -------- -------- Total Securities Available for Sale $112,107 $114,248 $ 2,141 $ 76,362 $ 76,533 $ 171 ======== ======== ======== ======== ======== ======== Securities Held to Maturity U.S. Treasury Securities $ 2,496 $ 2,597 $ 101 $ 4,493 $ 4,515 $ 22 U.S. Agency Securities -- -- -- 39,791 39,503 (288) Obligations of State and Political Subdivisions 7,947 8,282 335 11,528 11,556 28 Other Securities -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Total Securities Held to Maturity $ 10,443 $ 10,879 $ 436 $ 55,812 $ 55,574 $ (238) ======== ======== ======== ======== ======== ========
9 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) Note 3. The consolidated loan portfolio, stated at face amount, is composed of the following:
September 30, 2001 December 31, 2000 ------------------ ----------------- Real Estate Loans: Construction and Land Development $ 34,079 $ 22,633 Secured by Farmland 2,259 3,738 Secured by 1-4 Family residential 151,258 129,510 Other Real Estate Loans 78,802 94,893 Loans to Farmers (Except Those Secured by Real Estate) 1,872 2,534 Commercial and Industrial Loans (Except Those Secured by Real Estate) 45,686 45,836 Loans to Individuals for Personal Expenditures 25,530 29,916 All Other Loans 6,296 4,783 -------- -------- Total Loans 345,782 333,843 Less, Unearned Income Reflected in Loans 353 324 -------- -------- Loans, Net of Unearned Income $345,429 $333,519 ======== ========
The Bank had loans in a Nonaccrual category of $965 on December 31, 2000 and $1,192 on September 30, 2001. Note 4. Allowance for Loan Losses Analysis of the Allowance for Loan Losses For the Nine Months Ended September 30, 2001 September 30, 2000 ------------------ ------------------ Balance at Beginning of Period 3,894 3,470 Charge-Offs (556) (264) Recoveries 155 74 ------- ------- Net Charge-Offs (401) (190) Provision for Loan Losses 526 561 ------- ------- Balance at End of Period $ 4,019 $ 3,841 ======= ======= Note 5. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued two statements - Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets,which will potentially impact the accounting for goodwill and other intangible assets. Statement 141 eliminates the pooling method of accounting for business combinations and requires that intangible assets that meet certain criteria be reported separately from goodwill. The Statement also requires negative goodwill arising from a business combination to be recorded as an extraordinary gain. Statement 142 eliminates the amortization of goodwill and other intangible assets that are determined to have an indefinite life. The Statement requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life. 10 Upon adoption of these Statements, an organization is required to re-evaluate goodwill and other intangible assets that arose from business combinations entered into before July 1, 2001. If the recorded other intangible assets do not meet the criteria for recognition, they should be classified as goodwill. Similarly, if there are other intangible assets that meet the criteria for recognition but were not separately recorded from goodwill, they should be reclassified from goodwill. An organization also must reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. Any negative goodwill must be written-off. The standards generally are required to be implemented by the Bank in its 2002 financial statements. The adoption of these standards will not have a material impact on the financial statements. 11 Part 1 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations --------------------- Net income for the third quarter of 2001 was $1,334,000 compared to $1,592,000 for the third quarter of 2000. This represents a decrease of $258,000 or 16.2%. Net income for the first nine months of 2001 amounted to $4,209,000, a decrease of $435,000 or 9.4% under the $4,644,000 for the comparable period in 2000. The decline in net income was a result of merger expenses of $418,000 in the third quarter and $442,000 through the first nine months of 2001. Interest income increased $425,000 or 1.6% and total average earning assets increased $20,206,000 or 4.5% comparing the nine months ended September 30, 2001 and 2000. The yield on average earning assets was 7.8% and 8.0% for the nine-month periods ending September 30, 2001 and 2000 respectively. Interest expense increased $325,000 or 2.6% and total average interest bearing liabilities increased $12,498,000 or 3.4%. The cost of funds was 4.4% and 4.5% for the first nine months ended of 2001 and 2000. The net interest spread was 3.3% and 3.5% for the same nine months ended of 2001 and 2000. Non-interest income increased $410,000 or 36.3% the third quarter of 2001 compared to 2000. In comparing the nine-month period ending September 30 for 2001 and 2000, non-interest income went from $3,493,000 in 2000 to $4,105,000 in 2001 for an increase of $612,000 or 17.5%. These increases were due to a decreasing interest rate environment that in turn generated an increase in business volume by the secondary mortgage department. Non-interest expenses increased $657,000 or 19.1% the third quarter of 2001 compared to 2000. Non- interest expenses increased $1,341,000 or 12.9% comparing the nine-month periods ending September 30, 2001 and 2000. Increases in salaries and employee benefits coupled with a significant amount of merger-related expenses as mentioned above led to the overall increases in non-interest expenses. Financial Condition ------------------- Total assets increased $11,505,000 the third quarter of 2001 compared to an increase of $198,000 the third quarter of 2000. Total assets have increased $19,008,000 the first nine months of 2001 compared to and increase of $17,223,000 in 2000. During the third quarter of 2001, federal funds sold decreased $4,550,000 and deposits increased $12,985,000. Those funds contributed to an overall increase in the investment portfolio of $11,548,000 and loan growth of $8,081,000. A decrease of the investment portfolio of $7,654,000 and an increase in deposits of $22,656,000 over the first nine months of 2001 allowed for an increase in loans of $16,968,000 and federal funds sold of $6,250,000 in that time period. It also allowed for the pay-down of $6,000,000 and $3,000,000 in federal funds purchased and other borrowed money. During the third quarter of 2000, deposits increased $8,735,000; Cash & Due From Banks decreased $5,976,000; and securities sold under agreement to repurchase increased $1,000,000. Those sources of funds were used to fund loan growth of $7,255,000 and pay-down federal funds purchased and other borrowed money by $1,225,000 and $10,000,0000 respectively. The nine-month period ending September 30, 2000 consisted of deposit growth of $21,697,000; growth in securities sold under agreement to repurchase of $4,435,000; a reduction of the investment portfolio of $4,579,000; and a reduction in cash & due from banks of $9,996,000. Those sources of funds were used to fund loan growth of $35,188,000. Over the first nine months of 2001, the Bank's loan portfolio increased $11,910,000. During that same time period net charge-offs of $401,000 were incurred. The Bank considers both the composition of its portfolio's growth, as well as, net charge-offs in determining the necessary adjustments to be made to the allowance for loan losses. In factoring in both of these considerations, the Bank made provisions for loan losses of $526,000 over the nine months ending September 30, 2001. Capital and Liquidity --------------------- Total Capital for the company went from $50,926,000 to $54,365,000 for an increase of $3,439,000 or 6.8% during the first nine months of 2001. This increase was due to an increase in the company's retained earnings and the overall market value of the investment portfolio that is classified available for sale. Due to regulatory guidelines, the company applies different risk factors to all of its assets and certain off balance sheet items in determining a total risk-based capital ratio. This ratio is the quantitative measure used by certain regulatory agencies as a guide to ensure that a company is meeting their 12 necessary capital requirements. The company's ratio for the nine-month period ending September 30, 2001 of 14.87% was well over the regulators acceptable guidelines for capital position. Liquidity refers to the Company's ability to meet demands on cash. Such demands can arise from several areas such as withdrawals on deposits, payments of borrowings or loan growth. Management is constantly assessing the company's ability to withstand such demands on cash through such methods as interest rate risk analysis, industry comparisons, and maturity and repricing analysis of all assets and liabilities. The Company's primary sources of liquidity come from cash & due from banks, federal funds sold, and securities with the available for sale classification. The Company also has the ability to borrow funds from its correspondent banks and the Federal Home Loan Bank of Atlanta on a day-by-day basis. Overall, management feels the Company is well stabilized in order to handle not only the normal demands of cash, but also those that may arise above the normal demands. Future Operations ----------------- On June 12, 2001 Virginia Financial Corporation signed with Virginia Commonwealth Financial Corporation a definitive agreement to join the two companies in a merger-of-equals transaction. Upon the approval of the shareholders of each separate company, a new company, known as Virginia Financial Group, Inc., will be the holding company for: Planters Bank & Trust Company of Virginia - in Staunton, Virginia, Second Bank & Trust - in Culpeper, Virginia, Caroline Savings Bank - in Bowling Green, Virginia, Virginia Heartland Bank - in Fredericksburg, Virginia, and Virginia Commonwealth Trust Company - in Culpeper, Virginia. The merger is anticipated to be completed sometime during the fourth quarter of 2001 pending the approval of the each company's shareholders. Part 1 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in information reported as of December 31, 2000, in Form 10-K. 13 VIRGINIA FINANCIAL CORPORATION AND SUBSIDIARIES AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
(000 Omitted) Nine Months Ended September 30 2001 2000 Average Income/ Yield/ Average Income/ Yield/ ASSETS Balance Expense Rate Balance Expense Rate --------- --------- ------- --------- --------- ------- Securities: Taxable $ 80,627 $ 3,566 5.90% $ 95,850 $ 4,443 6.18% Tax-exempt (1) 37,428 1,964 7.00% 37,140 1,987 7.13% --------- --------- ------- --------- --------- ------- Total Securities $ 118,055 $ 5,530 6.25% $ 132,990 $ 6,430 9.67% Loans (net of earned income): Taxable 333,296 21,079 8.43% 310,975 20,138 8.63% Tax-Exempt (1) 4,339 268 8.24% 1,697 104 8.17% --------- --------- ------- --------- --------- ------- Total Loans 337,635 21,347 8.43% 312,672 20,242 8.63% Federal Home Loan Bank Stock 1,361 70 6.86% 1,286 75 7.78% Interest Earning Deposits Due From Banks 73 3 4.93% 762 34 5.95% Fed Funds Sold and Repurchase Agreements 12,254 373 4.06% 1,462 69 6.29% --------- --------- ------- --------- --------- ------- Total Earning Assets 469,378 27,323 7.76% 449,172 26,850 7.97% --------- --------- Less Allowance for Loan Losses (3,914) (3,681) Total Nonearning Assets 39,630 34,708 --------- --------- Total Assets $ 505,094 $ 480,199 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing deposits: NOW Accounts $ 53,301 $ 771 1.93% $ 50,138 $ 919 2.44% Money Market Savings 57,040 1,451 3.39% 56,567 1,576 3.71% Regular Savings 42,195 942 2.98% 41,564 927 2.97% Certificates of Deposit: Less than $100,000 173,999 7,393 5.67% 164,119 6,557 5.33% $100,000 and More 34,453 1,505 5.82% 28,429 1,135 5.32% --------- --------- ------- --------- --------- ------- Total Interest Bearing Deposits 360,988 12,062 4.46% 340,817 11,114 4.35% Fed Funds Purchased & Repurchase Agreements 16,972 503 3.95% 14,403 619 5.73% Other Borrowed Money 731 32 5.84% 10,973 539 6.55% --------- --------- ------- --------- --------- ------- Total Interest Bearing Liabilities 378,691 12,597 4.44% 366,193 12,272 4.47% --------- --------- Noninterest Bearing Liabilities Demand Deposits 72,623 64,767 Other Liabilities 1,971 2,157 --------- --------- Total Liabilities 453,285 433,117 Stockholders' Equity 51,809 47,082 --------- --------- Total Liabilities and Stockholders' Equity $ 505,094 $ 480,199 ========= ========= Net Interest Income $ 14,726 $ 14,578 ========= ========= Interest Rate Spread 3.33% 3.50% Interest Expense as a Percent of Average Earning Assets 3.58% 3.64% Net Interest Margin 4.18% 4.33%
(1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 34% in 2000 and 2001 14 VIRGINIA FINANCIAL CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings As of September 30, 2001 neither the corporation nor the bank was a party to any legal proceedings. Item 2. Not Applicable Item 3. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the Quarter ended September 30, 2001. Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) No reports on Form 8-K were filed during the Quarter ended September 30, 2001. (b) Exhibits The following exhibits are filed with this Form 10-Q or incorporated by reference to previous filings. Number Description ------ ----------- Exhibit 3. (i) Articles of Incorporation incorporated by reference to Exhibit 3.1 of the Company's Form 8-B successor registration statement filed March 24, 1997. (ii) Bylaws incorporated by reference to Exhibit 3.2 of the Company's Form 8-B successor registration statement filed March 24, 1997. Exhibit 11. EPS Computation attached. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Virginia Financial Corporation (Registrant) Date November 14, 2001 /s/ Fred D. Bowers ------------------------- --------------------------- Fred D. Bowers, Secretary/Treasurer (Principal Accounting Officer and Duly Authorized Officer) 16