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FORM 10 - QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September, 30, 1995
---------------------------
Commission File Number 0-16587
-------------------
South Branch Valley Bancorp, Inc.
(Exact name of registrant as specified in its charter)
West Virginia 55-0672148
- - - -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
310 North Main Street
Moorefield, West Virginia 26836
- - - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(304) 538-2353
- - - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required by Section 13 or
15(d) of the Exchange Act of 1934 during the past 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
---- ----
State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
378,510 common shares were outstanding as of October 31, 1995.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -----
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARY
INDEX
Page
I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets
September 30, 1995 (unaudited) and
December 31, 1994................................................3
Consolidated statements of
income for the three months and nine
months ended September 30, 1995, and
1994 (unaudited).................................................4
Consolidated statements of
cash flows for the nine months ended
September 30, 1995 and 1994 (unaudited)........................5-6
Consolidated statements of
shareholders' equity for the three
months and nine months ended September 30,
1995 and 1994 (unaudited)........................................7
Notes to consolidated financial
statements (unaudited).........................................8-9
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operations................................................10-14
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................15
Signatures......................................................16
-2-
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
(Unaudited) *
ASSETS ---------------- ------------
Cash and due from banks $2,121,023 $2,152,919
Interest bearing deposits with other banks 2,224,863 1,733,700
Federal funds sold 184,047 ---
Securities available for sale 25,918,489 23,388,488
Securities held to maturity (estimated fair
value 1995 $3,456,390; 1994 $3,414,764) 3,418,790 3,165,939
Loans, net 67,186,639 63,224,441
Bank premises and equipment, net 2,434,837 1,587,965
Accrued interest receivable 999,142 883,058
Other assets 231,098 497,810
---------------- ------------
Total Assets $104,718,928 $96,634,320
================ ============
LIABILITIES
Non-interest bearing deposits $7,659,258 $8,047,012
Interest bearing deposits 84,432,515 76,930,853
---------------- ------------
Total deposits 92,091,773 84,977,865
Short-term borrowings 1,000,000 1,700,000
Other liabilities 761,469 578,315
---------------- ------------
Total Liabilities 93,853,242 87,256,180
---------------- ------------
Commitments and contingencies (Note 4)
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, authorized
600,000 shares, issued 382,625 shares 956,562 956,562
Surplus 685,534 685,534
Net unrealized gain (loss) on securities 126,293 (547,100)
Retained earnings 9,264,267 8,450,114
Less cost of shares acquired for the
treasury 1995, 4,115; and 1994 4,115 (166,970) (166,970)
---------------- ------------
Total Shareholders' Equity 10,865,686 9,378,140
---------------- ------------
Total Liabilities and
Shareholders' Equity $104,718,928 $96,634,320
================ ============
* December 31, 1994 financial information has been extracted from audited
financial statements.
See Notes to Consolidated Financial Statements
-3-
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months ended September 30, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
---------------- ---------------- ---------------- --------------
Interest income:
Interest and fees on loans $1,688,555 $1,495,557 $4,841,827 $4,294,262
Interest on securities:
Taxable 457,647 436,115 1,316,430 1,318,850
Tax-exempt 40,948 36,566 118,539 117,247
Interest on federal funds sold 8,368 10,211 40,308 36,867
---------------- ------------ ---------------- ------------
Total interest income 2,195,518 1,978,449 6,317,104 5,767,226
---------------- ------------ ---------------- ------------
Interest expense:
Interest on deposits 1,044,353 823,114 2,910,256 2,388,980
Interest on borrowed funds 8,852 --- 37,354 588
---------------- ------------ ---------------- ------------
Total interest expense 1,053,205 823,114 2,947,610 2,389,568
---------------- ------------ ---------------- ------------
Net interest income 1,142,313 1,155,335 3,369,494 3,377,658
Provision for loan losses 5,000 30,000 55,000 120,000
---------------- ------------ ---------------- ------------
Net interest income after
provision for loan losses 1,137,313 1,125,335 3,314,494 3,257,658
---------------- ------------ ---------------- ------------
Non-interest income:
Insurance commissions 31,543 42,264 78,808 74,327
Trust department income -- -- 508 12,208
Service fee income 53,430 55,521 156,648 158,289
Securities gains (losses) (17,292) (2,362) (19,147) 2,154
Other income 11,083 4,915 34,854 27,772
---------------- ------------ ---------------- ------------
Total other income 78,764 100,338 251,671 274,750
---------------- ------------ ---------------- ------------
Non-interest expense:
Salaries and employee benefits 382,356 367,194 1,164,266 1,108,958
Net occupancy expense of premises 30,077 28,438 87,750 88,636
Equipment expense 39,359 34,728 120,681 120,267
FDIC insurance premiums (5,692) 48,069 91,269 156,572
Other expenses 211,177 224,448 654,721 665,552
---------------- ------------ ---------------- ------------
Total other expense 657,277 702,877 2,118,687 2,139,985
---------------- ------------ ---------------- ------------
Income before income tax expense 558,800 522,796 1,447,478 1,392,423
Income tax expense 186,203 191,457 508,417 457,745
---------------- ------------ ---------------- ------------
Net income $372,597 $331,339 $939,061 $934,678
================ ============ ================ ============
Earnings per common share (Note 2) $0.98 $0.87 $2.48 $2.45
================ ============ ================ ============
Dividends per common share $--- $--- $0.33 $0.30
================ ============ ================ ============
See Notes to Consolidated Financial Statements
-4-
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
Nine Months Ended
September 30, September 30,
1995 1994
---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $939,061 $934,678
Adjustments to reconcile net earnings to net
cash provided by operating activitites:
Depreciation 111,275 96,484
Provision for loan losses 55,000 120,000
Securities (gains) losses 19,147 (2,154)
(Gain) on sale of other assets -- (6,064)
Provision for deferred income tax expense(benefit) 21,648 (30,164)
(Increase) in accrued income receivable (116,084) (80,606)
Amortization of security premiums and
(accretion of discounts), net 73,115 97,327
(Increase) in other assets (89,031) (2,807)
Increase in other liabilities 104,092 59,199
-------------------------------
Net cash provided by operating activities 1,118,223 1,185,893
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 100,000 300,000
Purchases of securities held to maturity (615,567) --
Proceeds from sales of securities available for sale 2,030,688 2,010,156
Proceeds from maturities of securities available for sale 2,075,000 2,375,000
Purchases of securities available for sale (5,724,686) (5,861,242)
Principal payments received on securities held to maturity 254,883 825,066
Principal payments received on securities available for sale 99,518 97,482
(Increase) decrease in Federal funds sold, net (184,047) 525,000
Principal collected on (loans to customers), net (4,025,598) (4,188,287)
(Purchase of) proceeds from interest bearing
deposits with other banks (491,163) 575,851
Purchase of Bank premises and equipment (958,147) (310,927)
Proceeds from the sale of other assets -- 69,500
-------------------------------
Net cash provided by (used in) investing activities (7,439,119) (3,582,401)
-------------------------------
Continued
See Notes to Consolidated Financial Statements
-5-
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Nine Months Ended September 30, 1995 and 1994
Nine Months Ended
September 30, September 30,
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES --------------- ---------------
Net increase in demand deposits, NOW and savings accounts 3,123,228 4,045,029
Proceeds from sales of (payments for matured) time deposits,
net 3,990,680 (1,776,654)
Net (decrease) in short-term borrowings (700,000) --
Dividends paid (124,908) (114,788)
Purchase of treasury stock -- (166,970)
--------------- -------------
Net cash provided by (used in) financing activities 6,289,000 1,986,617
--------------- -------------
Increase (decrease) in cash and due from banks (31,896) (409,891)
Cash and due from banks:
Beginning 2,152,919 2,609,124
--------------- -------------
Ending $2,121,023 $2,199,233
=============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $2,824,075 $2,384,423
=============== =============
Income taxes $559,222 $408,411
=============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $8,400 $38,800
=============== =============
See Notes to Consolidated Financial Statements
-6-
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months and Nine Months ended September 30, 1995 and 1994
(Unaudited)
Three Months Ended
---------------- -----------------
September 30, September 30,
1995 1994
---------------- -----------------
Balance, beginning of period $10,512,831 $9,432,817
Net income 372,597 331,339
Purchase of treasury stock --- (166,970)
Change in net unrealized gain (loss)
on securities (19,742) (165,781)
----------------- -------------
Balance, September 30 $10,865,686 $9,431,405
================= =============
Nine Months Ended
---------------- ----------------
September 30, September 30,
1995 1994
---------------- ----------------
Balance, beginning of period $9,378,140 $9,079,746
Net income 939,061 934,678
Cash dividends declared (124,908) (114,788)
Net unrealized gain (loss) on
securities available for sale upon
adoption of SFAS No. 115 --- 431,220
Change in net unrealized gain (loss)
on securities 673,393 (732,481)
Purchase of treasury stock --- (166,970)
----------------- -------------
Balance, September 30 $10,865,686 $9,431,405
================= =============
See Notes to Consolidated Financial Statements
-7-
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for
the nine month period ended September 30, 1995 are not necessarily
indicative of the results to be expected for the full year.
Note 2. Earnings Per Share
Earnings per common share are computed based upon the weighted average
shares outstanding. The weighted average shares outstanding for the nine
month period ending September 30, 1995 were 378,510 and were 382,010 for
the same period of 1994. The weighted average shares outstanding for the
three month period ending September 30, 1995 were 378,510 and were 380,780
for the same period of 1994.
Note 3. Adoption of New Accounting Pronouncement
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114,"Accounting by Creditors for Impairment of a
Loan" (SFAS No. 114). Under SFAS No. 114, certain impaired loans are
required to be reported at the present value of expected future cash flows
discounted using the loan's original effective interest rate or,
alternatively, at the loan's observable market price or at the fair value
of the loan's collateral if the loan is collateral dependent. The adoption
of SFAS No. 114 did not materially impact the Company's financial condition
or results of operations.
-8-
Note 4. Acquisition of Bank Branch
On July 18, 1995, the Company preliminarily agreed to purchase certain
assets and assume certain liabilities of a branch banking facility located
in Petersburg, West Virginia presently owned by another unaffiliated bank
holding company. The acquisition of this branch is not expected to
materially impact the company's financial condition and results of its
operations. As of this writing, management expects to finalize the
transaction to purchase the Petersburg branch office on November 15, 1995.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION AND SUMMARY
The following is Management's discussion and analysis of the financial
condition and financial results of operations for South Branch Valley
Bancorp, Inc. and its wholly owned subsidiary, South Branch Valley National
Bank, as of September 30, 1995. Since the primary business activities of
South Branch Valley Bancorp, Inc. are conducted through the Bank, this
discussion focuses primarily on the financial condition and operations of
the Bank.
Net income for the third quarter of 1995 was $373,000, a 12.7%
increase from the third quarter earnings of 1994 which totaled $331,000.
This translated to $.98 earned per share during the third quarter of 1995
compared to $.87 during the third quarter of 1994.
Net income for the nine months ended September 30, 1995 totaled
$939,000, which is a $4,000 or .4% increase from the $935,000 earned in the
first nine months of 1994. Annualized return on average assets for 1995 was
1.25% as compared to 1.30% at September 30, 1994. Earnings per share
increased from $2.45 for the first nine months of 1994 to $2.48 for the
first nine months of 1995.
RESULTS OF OPERATIONS
Net Interest Income
-------------------
For purposes of this discussion, the "taxable equivalent basis"
adjustment has been included in interest income to reflect the level of
income had income on state and municipal obligations exempt from Federal
income tax been taxable, assuming a Federal tax rate of 34% in both 1995
and 1994. The amounts of tax equivalent adjustments were $28,000 in 1995
and $36,000 in 1994. For the nine months ended September 30, 1995, the
Company's net interest income, as adjusted, decreased $16,000 or .5% to
$3,397,000 as compared with $3,413,000 for the nine months ended September
30, 1994. Correspondingly, the Company's net interest yield on earning
assets decreased 28 basis points from 4.98% at September 30, 1994 to 4.70%
for the nine months ended September 30, 1995. Management feels that this
decrease is due primarily to a competitive local market for loans and
deposits which has caused a general lowering of rates on loans and increase
in rates on deposits. Pressures on the net interest yield remain a concern.
A detailed analysis of the net interest yield is shown on Table I.
-10-
South Branch Valley Bancorp, Inc. and Subsidiary
- - - -------------------------------------------------------------------------------
Table I - Average Distribution Of Assets, Liabilities And Shareholders'
Equity, Interest Earnings & Expenses, and Average Rates
September 30, 1995 September 30, 1994
------------- ----------- --------- ----------- ---------- --------
(In thousands of dollars) AVERAGE EARNINGS/ YIELD/ AVERAGE EARNINGS/ YIELD/
BALANCES EXPENSE RATE BALANCES EXPENSE RATE
------------- ----------- --------- ----------- ---------- --------
ASSETS
Interest earning assets
Loans, net of unearned
interest $64,993 $4,842 9.93% $60,189 $4,294 9.51%
Securities
Taxable 25,745 1,216 6.30% 25,657 1,220 6.34%
Tax-exempt 2,756 147 7.11% 2,378 153 8.58%
Interest bearing deposits
with other banks 1,943 100 6.86% 1,902 99 6.94%
Federal funds sold 842 40 6.33% 1,278 37 3.86%
-------- ------- ------ -------- ------- --------
Total interest earning
assets 96,279 6,345 8.79% 91,404 5,803 8.46%
Noninterest earning assets 3,928 4,251
-------- --------
Total assets $100,207 $95,655
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing
demand deposits $17,267 $465 3.59% $15,274 $319 2.78%
Regular savings 13,123 330 3.35% 13,835 322 3.10%
Time savings 50,531 2,116 5.58% 48,618 1,748 4.79%
Short-term borrowings 915 37 5.39% 8 1 4.25%
----------- ------- -------- -------- ------- -------
81,836 2,948 4.80% 77,735 2,390 4.10%
Noninterest bearing
liabilities
Demand deposits 7,649 7,939
Other liabilities 660 581
----------- --------
Total liabilities 90,145 86,255
Shareholders' equity 10,062 9,400
----------- --------
Total liabilities and
shareholders' equity $100,207 $95,655
=========== ========
NET INTEREST EARNINGS $3,397 $3,413
======== ========
NET INTEREST YIELD ON
EARNING ASSETS 4.70% 4.98%
======== ========
-11-
Provision for Loan Losses and Loan Quality
An allowance for loan losses is maintained by the Company and is
funded through the provision for loan losses as a charge to current
earnings. The allowance for loan losses is reviewed by management on a
quarterly basis to determine that it is maintained at levels considered
necessary to cover potential losses associated with the Bank's current loan
portfolio. The Company's provision for loan losses for the first nine
months of this year totaled $55,000 compared to $120,000 for the nine
months ended September 30, 1994. At September 30, 1995 the reserve for loan
losses totaled $860,000 or 1.3% of net loans compared to $1,023,000 or 1.6%
of net loans at December 31, 1994.
Net loan charge-offs for the first nine months of 1995 were $188,000
as compared to $3,000 for the first nine months of 1994. Expressed as a
percentage of average loans (net of unearned interest), net charge-offs
were .28% for the first nine months of 1995 compared to .005% for the
comparable period of 1994. Most of the increase can be attributed to two
large real estate charge-offs that totaled approximately $124,000, one
large commercial charge- off of approximately $41,000 and a decrease of
$10,000 in recoveries.
Summary of Past Due Loans and Non-Performing Assets
September 30 December 31
------------------ --------------
1995 1994 1994
Loans contractually past due
90 days or more and still
accruing interest $280 $157 $585
==== ==== ====
Non-performing assets:
Non-accruing Loans $625 $790 $675
Other Real Estate Owned 40 120 22
---- ---- ----
$665 $910 $697
==== ==== ====
The level of non-performing assets has decreased significantly during
the past year due to management's continuing efforts to improve the quality
of the Company's assets. Total loans past due 90 days or more plus
non-performing assets have decreased approximately 11.4% from the same
period last year. Loans contractually past due 90 days or more and still
accruing interest have decreased approximately 52.1% or $305,000 since
December 31, 1994.
-12-
Non-interest Income
-------------------
Total other income decreased approximately $23,000 or 8.4% during the
first nine months of 1995, as compared to the first nine months of 1994.
Insurance commissions increased approximately $5,000 or 6.8%. This
improvement in insurance commissions is the result of an incentive plan
that was initiated during the second quarter of 1994. Management believes
the Company will be able to maintain levels of insurance income similar to
this throughout the remainder of 1995.
Securities gains (losses) went from a gain of $2,000 for the first
nine months of 1994 to a loss of $19,000 for the first nine months of 1995,
which reflects management's decision to sell a low yielding bond to improve
the Company's interest margin.
Trust department income decreased by approximately $11,000 or 91.7%
from September 30, 1994 to September 30, 1995. This decline is primarily
attributable to income realized on the initial commission of new trust
deposits in 1994. Management does not expect to maintain a level of trust
department income similar to that of 1994 during the next two years.
Other income increased approximately $7,000 or 25.0% from September
30, 1994 to September 30, 1995. This increase is primarily attributable to
an increase in merchant fees on credit cards and a decrease in teller
shortages.
Non-interest Expense
--------------------
Management's plans for controlling non-interest expense have succeeded
in decreasing total other expenses $21,000 or 1.0% for the first nine
months of 1995 as compared to the first nine months of 1994. Most expenses
in this category remained stable with two exceptions:
** FDIC premiums decreased approximately 42.0% to $91,000 compared
to $157,000 at September 30, 1994. This was a result of a
reduction in assessment rate from $.23 to $.04 per $100 of
deposits. This rate reduction occurred during the second quarter
of 1995 and is not expected to increase in the foreseeable
future.
** An increase of approximately $55,000 or 5.0% in salaries and
employee benefits can be attributed to a general increase in
salaries.
-13-
Liquidity
- - - ---------
Liquidity in commercial banking can be defined as the ability to satisfy
customer loan demand and meet deposit withdrawals while maximizing net interest
income. The Company's primary sources of funds are deposits and principal and
interest payments on loans. Additional funds are provided by maturities of
securities. The Company uses ratio analysis to monitor the changes in its
sources and uses of funds so that an adequate liquidity position is maintained.
At September 30, 1995 the loan to deposit ratio was 73.0%. Cash and due from
banks totaled $2,121,000 or 2.0% of total assets. Additionally, securities and
interest bearing deposits with other banks maturing within one year approximated
$3,970,000 or 3.8% of total assets. Management believes that the liquidity of
the Company is adequate and foresees no demands or conditions that would
adversely affect it.
FINANCIAL CONDITION
The Company's total assets have increased approximately 8.4% or $8.1
million from December 31, 1994. The overall composition of the Company's assets
has not changed significantly since December of 1994.
Total deposits have increased approximately 7.1 million or 8.4% since
December 31, 1994. This increase was in interest bearing deposits. This growth
is consistent with the Company's overall business plan.
The Company's total shareholders' equity has increased approximately
$1,488,000 or 15.9% since December 31, 1994. This increase is due to internally
generated undistributed net income and to a $673,000 increase, net of applicable
income taxes, in the fair value of the Company's portfolio of securities
available for sale. The Company's equity to total assets ratio was 10.4% at
September 30, 1995 compared to 9.7% at December 31, 1994. The Company's
subsidiary bank's risk weighted capital ratio was approximately 17.2% at
September 30, 1995, and is well within Federal regulatory guidelines. The
Company is not aware of any pending Federal regulation which would have a
material negative impact on its operations at this point in time.
-14-
PART II
Item 6 - Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1995.
-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.
South Branch Valley Bancorp, Inc.
(registrant)
By: /s/ H. Charles Maddy, III
------------------------------------
H. Charles Maddy, III, President and
Chief Financial Officer
By: /s/ Russell F. Ratliff, Jr.
-------------------------------------
Russell F. Ratliff, Jr., Treasurer
Date: October 31, 1995
-16-
9 0000811808 SOUTH BRANCH VALLEY NATIONAL BANK 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 2,121,023 2,224,863 184,047 0 25,918,489 3,418,790 3,456,390 68,046,313 (859,674) 104,718,928 92,091,773 1,000,000 761,469 0 956,562 0 0 9,909,124 104,718,928 4,841,827 1,434,969 40,308 6,317,104 2,910,256 2,947,610 3,369,494 55,000 (19,147) 2,118,687 1,447,478 1,447,478 0 0 939,061 2.48 2.48 4.54 625,000 276,000 0 2,591,402 993,023 223,675 35,325 859,674 859,674 0 0